Investment diary of a newbie

InMyDreams

Right. Here goes. Summer's over and back to a bit of normality. Time to look again at the finances.

There always seem to be a lot of questions from people wanting to start from scratch with a S&S ISA (from myself included) and I've read and re-read THE thread so many times. I thought I'd start my own diary.

My starting point: I have just (last week) cashed in our endowment for £6184.06 (of course almost at the bottom of the trough) with the intention of investing the money into a S&S ISA instead (hopefully while they’re also still better priced than a few weeks ago). We were paying £15/month into the endowment. I plan to up this to £50/month into the ISA once I’m set up.

We are both mid-thirties with three children. I am not a tax-payer (just… this may change this year). The money is earmarked for either paying off our mortgage early (so in effect it’s instead of overpayments) which still has nearly 20 years to run, or more probably (hopefully) will mostly go towards our children’s future education/weddings/houses... As our eldest is seven, we’re talking 10 years plus away. (Crumbs, when put like that it doesn’t sound very long at all :eek:)

The mortgage is currently part repayment/part interest only with the difference (£250/month) being saved in cash, so the mortgage is on track even if we loose all this money. (Although the cash element also doubles as our ‘rainy-day’ emergency fund.) Maybe at some point in the future, when/if the investment is bigger compared to the amount we owe on the mortgage and I feel a bit more experienced with the investing I’d consider putting some of those payments towards it too but at the moment, I wouldn’t be happy with taking any risks with that money. As long as I know the mortgage will be paid off I’m happy to dabble with the rest and hopefully end up quids in.

So, this morning I opened a HL Vantage ISA and put in £3000 to start with. £1500 will buy into Invesco Perpetual High Income Accumulation Units and £1500 into Neptune Global Equity Fund A Accumulation. I have to wait until tomorrow at noon to see how many units in each my money will buy.

I know I’m supposed to be picking 6 or 7 funds to start with, but while I’d dithering around trying to pick them, my money is sitting in my current account doing nothing.

By the end of this week, I aim to have picked another 2 or 3 funds in which to invest the rest, and failing that will top up the two I have instead.

jamesd

You were right to get started instead of waiting. It's very easy to do nothing forever.

nrsql

>> my money is sitting in my current account doing nothing.

You don't have an internet account savings account with the same institution which you can transfer to and from on the same day?

If I was starting out I would drip feed into the funds - especially with the current market conditions.

InMyDreams

Thank you jamesd and nrsql. It is indeed easy to keep putting it off. To nrsql, I do have an internet savings account I could use, and did consider this, but haven't so far precisely because if I remove some of the urgency, it'll be even easier to put off!

But the whole drip feeding thing. I have to think about this. Initially I discounted that because if the money was all 'in there' I wouldn't be taking any out now to drip feed back in. Or maybe I would? This is all money that essentially I've just moved from being tied up in an endowment, so already susceptible to market conditions.

Anyway, head hurting from looking again this evening at all my options. Have extended my self imposed deadline to tomorrow night. ;-)

InMyDreams

Right, have given up on the whole diversifying idea. I think what I have is diversified enough for now. Between the two funds, they are holding 151 separate holdings, spread over loads of different sectors (as far as I can tell). Just can't see me being able to better that, and I can't 'invest' any more time into this right now.

I've put another £1000 in each via the website, although now the message I got was "After your order has been processed, your instruction will remain in your Pending Orders until confirmation of your trade has been received from the Fund Manager. This can take up to 5 working days." Would be nice to get them at today's prices (over 1% better than I paid last week) but I doubt that will happen given the way the markets all moved today. Still, nice to be in the position that I'd be happy if the price went down (cheaper units for me buying) and happy if they went up (good for what I've already bought).

That leaves me with £1000 left which I've transferred to our cash 'mortgage pot' for now.

And now I guess I put this thread to sleep and wait to see what happens.

Oh, PS, for other newbies; I know Incademy has already been mentioned as a good place to start learning about investments, but just to add, it has a fabulous glossary section which I've found really useful over the last few days (although I still can't get my head around the point of gilts and bonds compared to normal cash fixed term savings accounts).

cheerfulcat

InMyDreams wrote: »

(although I still can't get my head around the point of gilts and bonds compared to normal cash fixed term savings accounts).

Gilts are completely risk-free ( historically, the British government has paid back its borrowings ), and they return a known, guaranteed amount of interest and capital. Handy for nervous investors, or people who absolutely cannot afford risk of any sort, or those who require a set amount of money at a certain date - people saving for school fees, for example, or big pension funds with known liabilities. Corporate bonds are far from risk-free but again the return is calculable if not guaranteed.

In normal circumstances, corporate bonds give a little extra over gilts/cash in the bank ( the " risk premium " ). This premium has largely disappeared over the last 5 -7 years, making corporate bonds IMO riskier and a whole lot less desirable than they once were.

InMyDreams

This I think I understood already, but isn't this what a fixed interest, fixed term account with a bank is like? They call them bonds too, don't they? If it's all fixed then why would you want to trade them on the stock exchange and why would the value change if you know exactly what you're getting?

cheerfulcat

This I think I understood already, but isn't this what a fixed interest, fixed term account with a bank is like?

No - one crucial difference is the safety factor. Another is liquidity - you can't usually get money out of a fixed term savings account, at least, not without paying fairly hefty penalties.

They call them bonds too, don't they?

The banks do, yes, but they aren't bonds, they're savings accounts.

If it's all fixed then why would you want to trade them on the stock exchange

It's only fixed with reference to the original price. A £100 gilt with a coupon of 5% will pay £5 interest in a year. If interest rates in general go up, the yield on the gilt is pushed up as well; that is, the price goes down ( since the interest is a fixed £5 ). Say the price goes to £98. The buyer of the gilt at issue gets the £5/year and £100 back when the gilt is redeemed; the buyer of the same gilt in the market at £98 also gets £5/year and £100, but has had a) a marginally better rate of interest and b) a ( tax-free! ) capital gain of £2.

and why would the value change if you know exactly what you're getting?

As above - because of changes in central bank rates. General market sentiment comes into it as well.

jamesd

cheerfulcat, might be useful to explain about stripping and zeros.

InMyDreams

cheerfulcat wrote: »

No - one crucial difference is the safety factor. Another is liquidity - you can't usually get money out of a fixed term savings account, at least, not without paying fairly hefty penalties.

Oh, OK, that makes sense. I had assumed you wouldn't want to get out of bonds either and that there would be penalties, but I guess the only 'penalty' would be selling it for less than you bought it which is likely to be less of a 'penalty' than what a bank might impose.

cheerfulcat wrote: »

The banks do, yes, but they aren't bonds, they're savings accounts.

Phew, that's a relief. After posting I had a horrible thought I was being really dense and that they were in fact one and the same thing. What with having the same name and all. :rolleyes:

cheerfulcat wrote: »

It's only fixed with reference to the original price. A £100 gilt with a coupon of 5% will pay £5 interest in a year. If interest rates in general go up, the yield on the gilt is pushed up as well; that is, the price goes down ( since the interest is a fixed £5 ). Say the price goes to £98. The buyer of the gilt at issue gets the £5/year and £100 back when the gilt is redeemed; the buyer of the same gilt in the market at £98 also gets £5/year and £100, but has had a) a marginally better rate of interest and b) a ( tax-free! ) capital gain of £2.

OK, so in other words if interest rates go up it won't make a jot of difference to the original purchaser if he holds on to the gilt/bond, but if he tries to sell it, he won't get his full £100 back. But then if interest rates go up, his now reduced £98 if he does sell up would potentially get better returns.

If interest rates go down, his bond now becomes more valuable (as it still has the guaranteed return which is higher than other interest rates now) which in turn has the effect of reducing the overall yield.

Am I close?

PS, to jamesd. Have found zeros on the glossary (I think) but struggling with stripping.

PPS, looks like my £2000 went through at today's prices (so no 5 day wait - watch them plummet now). As expected higher than yesterday, but still better than the ones I bought last week, so I'm reasonably happy for now.

InMyDreams

OK, so two months in.

I'm very glad I made the switch! The endowment I cashed in is up 3.64% in those two months, which considering the recent volatility of the markets in the last two months, I would have been quite pleased with. I was tempted to leave messing about with anything until the markets had calmed down a bit, and a 3.64% would have been fine.

But the two funds I chose, despite being well down on Friday, are overall up 4.27% and a whopping 13.1%. Wow! I'm bowled over by the 13.1% but the huge gains do make me nervous. Does this mean that the Neptune fund is far riskier than I thought? According to Trustnet, the Invesco has a risk grade of 71.64 and the Neptune one 81.11, but in THE thread (post 77), Dunstonh suggests that the Invesco is only medium. Argh! This risk this is so subjective, isn't it? It's one thing to say 'how would you feel if you lost 50% in a week?' but surely that depends on what you think the likely time-scale and probability of you making that back over the next few years might be (and what the chances are of you losing another 50% the next week).