ISA investment advice

spaceace_2

Hi there,

I am hoping I can get some advice from you knowledgeable people in regards to changing from a cash isa to investment isa.

I have a cash isa currently with Sainsbury's which has a total value of around £73k. I was aware that this was nearing the limit of £75k of the FSCS compensation scheme and so was looking at transfering some money elsewhere within an isa. After witnessing how low the interest rates are currently, I have been looking into investment isa's and decided to dip my toe in.

I opened an account with Charles Stanley Direct and sent over £2k via debit card which was what was left of my current years isa allowance. I have also forwarded a form to CSD stating my intention to transfer another £15k from my Sainsbury's isa and a direct debit of £200 per month ongoing that I wish to invest in the Vanguard Life strategy 60. After reading these forums, this investment plan seems to represent a good option for an investment beginner and give a relatively decent return year on year, albeit with the normal risks associated of course.

This morning I have received notice from Sainsbury's that they are cutting their cash isa rate from 1.45 to 0.85% which to be honest I hardly think is worth it. I have decided that it may be a good idea to transfer my whole cash isa to CSD and take my chances with investments such as the VLS.

Firstly, I'd like to ask whether my money will be safe all in one place at levels equal and above £75k? From doing some reading it appears that these platforms hold your investments separately to their own business and therefore if they did go insolvent, your investments are returned?

Secondly, if I do transfer all my isa to CSD, would it be sensible to invest it all in the Vanguard lifestrategy 60 fund? From what I can gather, this is a diverse investment fund and therefore it makes sense to only have this one investment, or should I put some money elsewhere?

Thirdly, I have read that it is better to drip feed money into investments to balance out the volatility, would this still be sensible with this particular investment, or should I go all in?

Thank you in advance for your help

veryintrigued

The 75k increases to 85k at the end of the month if this influences anything.

spaceace_2

Thank you, I didn't realise this, although this means it is not so urgent for me to move some money, I will still move it just for the sake of the poor interest rates.

eskbanker

Worth noting that the FSCS limit for investments is £50K rather than the £75K for cash-based savings, see https://www.fscs.org.uk/what-we-cover/compensation-limits/

On the drip-feeding question, it's generally said on here that it's better not to drip-feed if you're starting with a lump sum, on the basis that 'time in the market' is better than 'timing the market', i.e. on the assumption that investments will grow over the long term, the sooner you're in the better.

Finally, low interest rates on cash deposits aren't in themselves a particularly good reason to consider investing! You should invest for the long term and ensure that you have access to readily-available cash if needed in the shorter term....

bowlhead99

spaceace wrote: »

After witnessing how low the interest rates are currently, I have been looking into investment isa's and decided to dip my toe in.

I opened an account with Charles Stanley Direct and sent over £2k via debit card which was what was left of my current years isa allowance. I have also forwarded a form to CSD stating my intention to transfer another £15k from my Sainsbury's isa and a direct debit of £200 per month ongoing that I wish to invest in the Vanguard Life strategy 60. After reading these forums, this investment plan seems to represent a good option for an investment beginner and give a relatively decent return year on year, albeit with the normal risks associated of course.

makes sense so far, yes. The "normal risks associated" is the key bit to understand, because the relatively decent return year on year which you're looking at happened over a five year periods when shares and bonds were all going up - rather than one going up and one going down, both going down.

And the large proportion of the investment which is in foreign markets got a very nice boost when the pound became worth a lot less dollars last year and so those dollars and other currency incomes and assets overseas became worth a lot more pounds.

This morning I have received notice from Sainsbury's that they are cutting their cash isa rate from 1.45 to 0.85% which to be honest I hardly think is worth it. I have decided that it may be a good idea to transfer my whole cash isa to CSD and take my chances with investments such as the VLS.

That's quite a big jump from "dipping your toe in". Before you do a running bomb into the swimming pool, make sure you're willing to get wet.

0.85% may well be less than inflation. So over five years maybe your £73k would be worth £76k but only £69k in real terms after a couple of a percent inflation compounded. If you are trying to build a pot to live out your retirement, a massive cash rainy day fund is not a great way to do it.

However if you stick the £73k all somewhere with investment risk, and lose 25% in real terms over the five years, that's £55k. So, £14k lost. Everyone says they don't mind a bit of risk until their portfolio loses money. Then they decide they do mind it, sell it all to go back into cash to avoid further losses, and are stuck with the loss (even though it would have recovered, given long enough).

Firstly, I'd like to ask whether my money will be safe all in one place at levels equal and above £75k? From doing some reading it appears that these platforms hold your investments separately to their own business and therefore if they did go insolvent, your investments are returned?

Basically yes, you're covered for £50k per manager for things like fraud. So you could use two managers if you were really worried.

Of course, having your investments "returned" doesn't mean they are worth what they were worth in the good times; the FSCS does not care if you lost 25% (or 50% on something riskier than VLS60) due to market risk and underlying investment performance.

Secondly, if I do transfer all my isa to CSD, would it be sensible to invest it all in the Vanguard lifestrategy 60 fund? From what I can gather, this is a diverse investment fund and therefore it makes sense to only have this one investment, or should I put some money elsewhere?

It is designed to cover a diverse set of asset classes (shares, company bonds, government bonds etc) worldwide. It could be a whole portfolio or the core of a portfolio that held other stuff. Assuming you don't know what other stuff you would want to buy anyway as you think the allocations are ok - and don't want to spend money on investment advice from an IFA - you could just leave it.

But if you are going to just buy only one fund it makes it very important to make sure that fund is suitable for what you want, just like you would have to do if you were building some bespoke allocation.

Thirdly, I have read that it is better to drip feed money into investments to balance out the volatility, would this still be sensible with this particular investment, or should I go all in?

A common reason to drip feed is to change your performance so that instead of getting the risk and returns of the investment product straight away, you get a blended average of the risk and returns of the investment and the risk and return of cash, for a while, as your cash is slowly slowly moved over.

There could still be a crash at the culmination of that process and meanwhile you would have missed out on the higher investment returns along the way. The reason you are buying the investment product in the first place is that it gives likely better returns than cash using a risk you are ok with. So statistically, as markets go up over the long term, being fully invested earlier is better, assuming you have the cash available to do it.

But knowing that statistically you were correct to pile in, is small comfort if you pile in tomorrow for £73k and markets drop like a stone next week. So you probably have to consider the psychological aspects (As well as making sure the fund has the potential performance that you can handle for better or worse)

spaceace_2

Thanks you very much eskbanker and bowlhead99 for the advice and perspective, much food for thought there.

I am looking at a long term investment, as I cannot see in the near future any reason for me to need a lump sum of money. Perhaps, I had not considered with adequate heed the consequences of a potential 25% drop in a funds value and the psychological consequences of that.
For this reason, I think I will continue with what I have instructed for the time being, investing £17k up front and putting in £200 per month, this way I can gain a better understanding of the markets whilst limiting my potential losses to levels that I could get to grips with if need be.

I will attempt to transfer the rest of my Sainsbury's cash isa to a higher interest paying one, although at the moment the highest available appears to be around 1%

Thanks again