New to investing, advice on diversifying

Lungboy

I'm starting to look into an investment portfolio to compliment my pension. I'm 37 so have between 18 and 30 years to invest. I already have a savings pot for a rainy day that I'm not investing.

To begin with I'm looking to invest £100 a month, half into a Prudential Avc at work, and half into s&s isa. As a complete beginner I'd like to take the passive route at first. I'm reading up on diversifying the portfolio to reduce risk. Would my initial split into the isa and avc be OK to start with, or should I split the isa across 2 or more funds, and the same with the avc? I was thinking vls60 for the isa and Prudential dynamic growth iv for the avc but I've probably overlooked something and am making silly mistakes already, so all advice is very gratefully received.

Eco_Miser

Lungboy wrote: »

I'm starting to look into an investment portfolio to compliment my pension. I'm 37 so have between 18 and 30 years to invest.

Hopefully, a lot longer than that - you're not going to take it all out the day you retire. I'm 67 already and still adding to my S&S ISA.

On your other point, a single well-diversified multi-asset fund is fine to start with. When you've get several tens of thousands of pounds invested (which at £1200 a year is going to take several decades) you can look at further diversifying.

dunstonh

To begin with I'm looking to invest £100 a month, half into a Prudential Avc at work, and half into s&s isa.

in which case, forget about diversifying. Just go with a multi-asset fund instead.

Think about it for a moment, a sector allocated portfolio of single sector funds would have around 10 funds. If you Japan allocation was 3% then 3% of £50 is just £1.50. Not worth the effort.

I was thinking vls60 for the isa and Prudential dynamic growth iv

It doesnt really matter what you go for until you have around £10,000. The differences are going to be minimal.

Lungboy

Thank you both. The £100 a month is only short term, I have a share save scheme ending in 18 months, from which I'll have a small lump sum of ~£5K to invest, plus I could up my monthly deposit to £300 a month.

The bit I'm most unsure of is which wrapper to use, the avc vs S&s isa vs s&s Lisa. With a small monthly amount should I stick to one product? I like the tax benefit of the avc and the bonus in the Lisa, do those make the s&s isa uncompetitive?

Anonymous101

The 3 wrappers you mentioned all have pro's and con's.

S&S Isa's have the advantage over the other two that they're more flexible in terms of access to your funds. If you're saving for say a 10 year horizon they could be a better choice.

If you're a high rate tax payer then pensions are certainly the most effective way to save for retirement. I don't see the LISA as being good value for a high rate tax payer.

bowlhead99

Lungboy wrote: »

TI like the tax benefit of the avc and the bonus in the Lisa, do those make the s&s isa uncompetitive?

The pension will beat the S&S LISA bonus if you are a high rate taxpayer and may equal it if you are a basic rate taxpayer albeit with less flexibility on timing of withdrawal (to avoid losing some of it to income tax on the way out).

However the pension is a complete loss of access until your late 50s while the S&S LISA could be accessed (with loss of bonus and a penalty on top) if you had completely screwed up your planning and needed the money back.

Both of those products would beat the 'normal' S&S ISA which offers tax-free growth but doesn't have any kind of bonus or up-front tax relief. However, the price you pay for both is a loss of flexibility, because with a normal S&S ISA you can take any amount of the proceeds out at some point in the next 18 years and spend it on some intermediate, pre-retirement life goal or opportunity, and the others you can't.

For example if you are going to be a higher rate taxpayer in ten years time you can use an S&S ISA now, and then in ten years time take some of the money out penalty-free and contribute it to a pension taking higher rate tax relief at that point - which you might have missed if you didn't have enough cashflow to give up your salary in that year into a pension because of other things that were going on in your life. The 'bonus' from doing that is potentially higher than taking a LISA bonus or basic rate tax relief now.

If in doubt, and you have £300 a month, you could split it three ways between the three products. There is no wrong answer because they all have pros and cons.

Although as mentioned if you are a high rate taxpayer the pension contribution would be the best option and if you are a low rate taxpayer without any prospect of being a high rate taxpayer in future and definitely won't be needing access in the next couple of decades, the normal S&S ISA would seem the worst because you would be giving up bonuses or tax relief to buy flexibility that you don't want or need.

Lungboy

bowlhead99 wrote: »

If you are a low rate taxpayer without any prospect of being a high rate taxpayer in future and definitely won't be needing access in the next couple of decades, the normal S&S ISA would seem the worst because you would be giving up bonuses or tax relief to buy flexibility that you don't want or need.

This is my situation, basic tax payer and likely to always be the same.

Anonymous101

Lungboy wrote: »

This is my situation, basic tax payer and likely to always be the same.

Pension or LISA then once you have a safety net of savings in cash.

It's also worth noting how you pay into a pension... for example if you contribute via salary sacrifice you still benefit from additional N.I. savings on top of the tax relief.

lpgm

Lungboy wrote: »

As a complete beginner I'd like to take the passive route at first.

A small point, but an important one, and bear it in mind for the future: whether to buy a passive fund or an active fund has nothing to do with how long you've been investing for.

Lungboy

lpgm wrote: »

A small point, but an important one, and bear it in mind for the future: whether to buy a passive fund or an active fund has nothing to do with how long you've been investing for.

Thanks for the tip. This is all completely new to me, so from reading various things like Monevator etc the passive route seemed the best way to go for a total novice. Actively buying and selling for myself might come in time but not for now, plus I have 2 small kids and barely have time to eat let alone actively investing.

Anonymous101 wrote: »

Pension or LISA then once you have a safety net of savings in cash.

It's also worth noting how you pay into a pension... for example if you contribute via salary sacrifice you still benefit from additional N.I. savings on top of the tax relief.

I'll look into it, but I'm fairly sure the AVC isn't salary sacrifice.

Anonymous101

Lungboy wrote: »

Thanks for the tip. This is all completely new to me, so from reading various things like Monevator etc the passive route seemed the best way to go for a total novice. Actively buying and selling for myself might come in time but not for now, plus I have 2 small kids and barely have time to eat let alone actively investing.

I think Ipgm was referring to the fund being actively managed or passive. Funds have various levels of management within them. Some just track the markets (passive) others a fund manager trades equities in an attempt to gain better returns (active). These have different fee's associated with them but in either instance the amount of your time required could be similar.