Buying shares (complete newbie)

bowlhead99

If you are buying a UK-based investment trust you can't avoid the 0.5% stamp duty, which yes is a one-off fee on every share of the trust that you buy. And you can't avoid the small dealing 'spread' by which the price you have to pay someone to sell you a share exceeds the amount that someone would pay you to buy the share off you, although you almost certainly won't notice it in the context of buying and holding for many years.

However, you can avoid the 0.25% platform fee by using a platform that doesn't charge a fee for holding shares or ITs (or caps the charge or waives the charge).

If you are buying something listed on a stock exchange and priced in real time, and you are doing that monthly, you would expect transaction fees for each of those buys. So you would tend to prefer a platform that has some sort of a 'regular investment' scheme with discounted fees for buying a fixed amount once a month (maybe £1.50 instead of £10 for auto-buying instead of buying at a specific time and date of your choosing). If you wanted 5 different trusts and you wanted to contribute to each of them every single month rather than rotating which trust you put the new money into, that could get costly even if you are getting 'discounted' fees. At only £300 pm and not much invested you do not need five trusts.

Sometimes the investment trust manager has their own one-off or regular investing programme so you don't need a platform or broker at all. The one I linked for Scottish Mortgage was their manager, Baillie Gifford's plan.

If you don't want an ISA version because you are only doing £300pm starting from £0 and don't have much tax to worry about and don't mind the recordkeeping, the BG plan is free - no annual admin fee, no 'per purchase' fee, just the unavoidable stamp duty and spread. If you want their ISA version it's £39 a year flat admin fee, again with no 'per purchase' fee. So with £10k invested, the annual ISA admin fee which isn't linked to the size of your pot would be about 0.39%, while with £20k more like 0.2%.

If you look at the flat admin fee as saving a percentage admin charge from a broker and twelve transaction fees for investment purchases from a broker, it is not a huge amount of money... although if you are starting out at £0 you might do better with a regular investment plan at somewhere like TD Direct or Youinvest, which give you quite low transaction fees and the flexibility to hold any shares or ITs you fancy.

If you are going to use somewhere like Cavendish which charges fees per purchase as well as an annual admin fee, you would be better to do as you suggest and invest in larger lumps so that you end up with fewer of those 'fees per purchase'.

jrb4434

I found the above interesting, how would an ISA with Scottish rate against the Vanguard LS 80 if opened with the max allowance?

jimjames

jrb4434 wrote: »

I found the above interesting, how would an ISA with Scottish rate against the Vanguard LS 80 if opened with the max allowance?

An ISA is just a wrapper so it wouldn't rate in itself. If you are comparing investments then you can look on various sites to compare performance such as Trustnet, HL etc. Performance is unrelated to the amount you put in but you need to be aware of the impact of platform charges.

bowlhead99

jrb4434 wrote: »

I found the above interesting, how would an ISA with Scottish rate against the Vanguard LS 80 if opened with the max allowance?

They are not really comparable products to rate one against the other.

VLS80 is a fund which invests in index funds selected by the manager to invest very broadly across bond markets and global equity markets, giving exposure to a variety of corporate and government bonds and to the equities of large and medium capitalisation companies across all major geographies and industry sectors, with a slight bias to the UK in terms of the amount invested in the UK market compared to the size of the UK market (a quarter of the underlying equities by value are UK listed). The individual companies within a region will be selected based on their size in the relevant index.

Scottish Mortgage is a conviction-driven and relatively concentrated portfolio (55% by value in the top ten holdings) of equity investments, with a strategy that allows for investing up to a quarter of the portfolio in companies which are not publicly listed and the use of borrowing to support investments. It has under 5% in the UK at the moment. That is somewhat different from a VLS fund that doesn't borrow, doesn't invest in unlisted companies, doesn't base individual holdings on conviction of the management, diversifies massively, holds bonds as well as equities, and has 25% of its equities in the UK.

The cost to buy in or the proceeds for selling out of Scottish Mortgage at a point in time is driven by market's perception of the prospects for Scottish Mortgage Trust's structure and portfolio and management "as an entity in itself" and not simply by the underlying valuation of the companies that it holds that day. Whereas the cost of buying or selling VLS80 is based entirely on the underlying asset values and the cost of accommodating new or departing investors.

Due to the free reign given to the managers of Scottish Mortgage, the individual holdings do not receive an allocation that reflects their relative size in any one index. For example, Inditex in Spain represents around 0.10% of MSCI's all companies world index (an index weighted by market value of the company). Tesla on the Nasdaq is 0.06% and Illumina is even smaller at 0.05% of the world index. But all of these feature in SMT's top ten, being 5.9, 5.0 and 5.9% respectively.

The concentrated exposure to specific companies and industries can produce volatile results. For example over the three years to March 2003, SMT holders would have experienced a 55% drop from their peak value. In the less-than-a-year to March 2009, they would have felt a 65% drop. In other periods the performance has been excellent. But if you lose two thirds of your value you then need a 200% gain just to get back where you started.

VLS80 did not exist back in 2003 or 2009 but you can see from the indices of which it's composed, that its blend of global largecap equities and global bonds did not produce anything like as much as a 65% loss.

So, if the question is truly "how would an ISA with Scottish rate against the Vanguard LS 80", the answer is that the returns over the next five to ten years are unknowable but they would certainly be different. So it depends on what you are 'rating' them on. Capital preservation, volatility, risk, currency exposure, greatest potential gain?

If giving them both 20 years my money would be on Scottish for overall performance but it is not a low risk choice. It is much closer to the OP's idea of investing in individual stocks driven by research and conviction rather than investing in everything driven by a broad multi-asset allocation policy. FWIW I would think Scottish would resoundingly beat OP because they still have way better diversification than him, greater experience and resources and much higher quality research on what to buy and why and when.

As a side note, you mention an ISA in either of them:

"...if opened with the max allowance?"

While the amount you are investing or the frequency of top-ups might determine the annual platform fees and admin costs as a proportion of your total value invested, the performance of the two funds will be very very different, by more than the amount of the fees concerned.