S&S ISA, Funds and Providers

AimHigh

Hi all,

I'm a complete and utter novice when it comes to investing. I've been doing all sorts of research lately but just thought it would be worth getting my logic checked by the knowledgable folk here!

The bottom line is this - I am looking to start investing in a S&S ISA through an initial sum of around £5000 and the likelihood of around £500 per month. I do not want to invest more than this initially as I will need to access cash for various other ventures over the next few years.

I currently own a few shares which I purchased via an HL Funds & Shares account and plan to sell shortly. My plan is to open a Stocks & Shares ISA and invest in funds. I was thinking about splitting the initial 5k between a Vanguard LifeStrategy fund and an L&G Multi index fund and then split the £500 monthly investments between the two. My main worry is the fees associated with HL but when I look at the funds, they claim that the funds are free to trade (as expected) and that the net ongoing charge is 0.22% and 0.31% for the VG and L&G funds respectively. I know that HL also say they charge 0.45% which is where most people have an issue with them. Am I completely misinterpreting the 'net ongoing charges'? Or is this 0.45% actually 0.22% and 0.31% for those two funds? I have really enjoyed my experience with HL so far so would preferably take this strategy with them. However, if I'm misunderstanding those numbers then I don't have a problem swapping to another provider i.e., Charles Stanley Direct.

Finally, the idea here is that I want to be able to create multiple streams of income. I'm well aware that the amounts I am investing means that dividends would be minute so my logic is that I will use acc accounts for around 10 years and then perhaps swap out to an income acc when both the (hopeful) growth and my active income will allow me to invest more and receive more substantial dividends.

Can someone please sanity check my logic please? Is this approach stupid? Is there no point in splitting my funds between two multi-asset funds? Should I throw it all into one? And have I got the wrong end of the stick with the fees? Am I right in going with the acc funds?

Many thanks in advance for taking the time to read. My tired brain is currently fuzzy so please don't hesitate to ask for clarification on any of the above.

All the best,
AH

ColdIron

AimHigh wrote: »

Can someone please sanity check my logic please? Is this approach stupid? Is there no point in splitting my funds between two multi-asset funds? Should I throw it all into one? And have I got the wrong end of the stick with the fees? Am I right in going with the acc funds?

HL charge a 0.45% platform fee for all funds, other platforms will have different charges or charge structures. The ongoing charge is levied by the fund manager, and for those funds will be the same regardless of the platform you choose. They are 2 separate charges. So £5,000 for VLS at HL would be £11 taken from the fund by Vanguard and £22.50 from your capital account by HL. Using CSD would save you a tenner a year

I wouldn't bother with combining multi asset funds, it won't achieve much if anything, choose 1 or the other

If you're not going to draw income then the Acc fund is the one to go with

JohnRo

Not sure if this is useful but as mentioned above, consider the costs for something that's straightforward. HL are a good platform but I'm not sure you'd get anything there you cant elsewhere for less that would justify the extra HL cost in this case.

Starting with £5K in month one and then adding £500 monthly thereafter.



Assumes zero investment growth. There are no charges for cash held on account only for investments held.

Monthly charges in arrears are annual divided by twelve rather than number of days pro rata (not entirely sure how exactly the platforms calculate the monthly fee)

AimHigh

ColdIron wrote: »

HL charge a 0.45% platform fee for all funds, other platforms will have different charges or charge structures. The ongoing charge is levied by the fund manager, and for those funds will be the same regardless of the platform you choose. They are 2 separate charges. So £5,000 for VLS at HL would be £11 taken from the fund by Vanguard and £22.50 from your capital account by HL. Using CSD would save you a tenner a year

I wouldn't bother with combining multi asset funds, it won't achieve much if anything, choose 1 or the other

If you're not going to draw income then the Acc fund is the one to go with

Thanks ColdIron, I understand the fees now. As for the combining of funds, would it make more sense to split it between say a VLS 60 and a VLS 80 for the sake of reducing the risk slightly? Or at this level of investment is that also pointless?

JohnRo wrote: »

Not sure if this is useful but as mentioned above, consider the costs for something that's straightforward. HL are a good platform but I'm not sure you'd get anything there you cant elsewhere for less that would justify the extra HL cost in this case.

Starting with £5K in month one and then adding £500 monthly thereafter.



Assumes zero investment growth. There are no charges for cash held on account only for investments held.

Monthly charges in arrears are annual divided by twelve rather than number of days pro rata (not entirely sure how exactly the platforms calculate the monthly fee)

Thanks JohnRo, I guess the % sounds small but it really adds up over time. My only reservation with swapping out to someone like CSD is aesthetics in that HL looks far more professional/I've enjoyed the GUI and that my experience with them so far has felt like they are a good platform. Realise the aesthetics is a weak argument but usability is always important.

AH

JohnRo

I have accounts with CSD, HL, iWeb and TDDI. They all have their relative strengths and weaknesses but of the four, purely for account admin, I much prefer CSD for their account information and data retrieval options, second to none and streets ahead of most.

It depends what you want from the platform I suppose, one gripe I do have with CSD is that the website seems very slow and unresponsive most of the time, I don't know whether others experience that, but the benefits still far outweigh that minor irritation.

An extra tenner or so a year at HL isn't going to be a deal breaker either way so if you like HL and you're familiar with it then there seems little reason to change, if it ain't broke..

AlanP_2

I see no valid reason for not splitting across the two you are considering if the combination provides what you want as an overall Asset Allocation.

L&G is more "active" than VLS as the managers do tweak their allocations based on their views of where markets and sectors are going. I don't mean they are actively changing their approach on a daily basis or anything like that but if you look at older factsheets you can see where allocations have been modified and every so often they publish a bit of commentary on their thinking behind the changes.

VLS is more rigid and sticks to its defined allocations, I think there has been 1 slight change in emphasis over the last 18 months to two years but i could be wrong.

L&G covers Commercial Property which VLS does not.

ColdIron

AimHigh wrote: »

As for the combining of funds, would it make more sense to split it between say a VLS 60 and a VLS 80 for the sake of reducing the risk slightly? Or at this level of investment is that also pointless?

Have you determined that a 30% bond split would be better for you or are you, in the nicest possible way, just dithering Would an extra £500 of bonds over the VLS80 or £500 less than the VLS60 make a material difference?

If Vanguard offered a VLS 90/70/50 etc would you still be looking to combine two of them to adjust the risk slightly? Splitting them will require you to rebalance between the two

My view is that it's pointless, certainly until you are into the tens of thousands of pounds. If you want to target risk then maybe the L&G funds are worth more investigation

AimHigh

My apologies for the late response but thank you all for the help/advice so far!

I guess to give some more context to this thread, I should state that I am in my mid 20's with a view to buying a house in around 2-3 years time. Ultimately I am chasing financial independence (aren't we all??) but not just by the time I retire. I want to be able to benefit from this in my 'younger years' if possible. I have plans to build up my passive income but hoped this could help fund some of it.

I appreciate that I will have to sacrifice some growth for the sake of income or vice versa (talking funds not shares). I am also saving for the house deposit separately to the money being invested so I'm not just gambling away the chances of getting a house should the market drop over the next few years. My current plan is throw it all into the VLS80 (inc) and then reinvest for the time-being. I'm only starting with around £10k for the first year so any dividend income would be negligible but with more research/experience I will branch out as the pot grows.

Is it really ridiculous of me to hope that by my 30s I could benefit from both passive income (cash) AND some growth? I am more than likely to reinvest income along the way but the option to use it for other means would be great.

I realise I am incredibly naive and inexperienced but just to be clear I'm not expecting to suddenly be a millionaire by 30 through just throwing spare income at funds etc. I also know there is no magic formula for this - I'm here to learn from your experience so I would really appreciate any advice on good investment strategy to achieve this type of goal please.

AH

Eco_Miser

AimHigh wrote: »

My current plan is throw it all into the VLS80 (inc) and then reinvest for the time-being.

Why not use acc units until such time as you want to do something else with the income?

AimHigh

Eco_Miser wrote: »

Why not use acc units until such time as you want to do something else with the income?

I can't quite find the thread now but following some research, a MSE forum user called 'bowlhead99' gave a really comprehensive explanation as to the differences between inc/acc funds. It convinced me that using the inc fund made more sense given the fact you would not lose overall value if it was re-invested but you had the opportunity to take the money if it was required. Believe he/she also said it made it easier to monitor dividends from a tax perspective although this is a lesser worry given the ISA wrapper?

AH

AimHigh

Found it: https://forums.moneysavingexpert.com/discussion/5026259