index tracking fund wrapped in ISA

Rossy72

Hi There, If anyone could possibly shed light on how Index Tracking Funds works possibly wrapped in an ISA in simple terms possibly? We have just Inherited approx £75,000 I heard a piece on morning news recently, this is good pension option for the future, is it good way to invest and what are the pros and cons if anyone has had experience? We would be grateful of any feedback. I have had a look on line all a bit baffling to me. Thank you.

AnotherJoe

People would need to understand far more about your financial circumstances and goals *, plus ages, salaries, current income and pension contributions and so forth.

You invest according to that and not the sum of money you have.

To directly answer your question, you need to understand the basics and it's not clear you do. Is your question, for example, what are index tracking funds ? Or do you know what they are and don't understand an ISA. Or both?
See if this makes sense http://monevator.com/the-10-eternally-true-steps-to-financial-freedom/ for general financial advice and this http://monevator.com/category/investing/passive-investing-investing/ about index investing

Make sure you understand about markets going up and down before you just lump your money into anything, including an index fund or funds. Investing is long term. If this money or part if it is needed within the next five years ata minimum, you should be saving it not investing it. Saving it means places where its cash and the cash doesn't go down (it doesn't go up much either)

"Inside an ISA" simply means that the money doesn't need declaring to the tax man when it come so to profits and income. But you can oniy out £20k inside an ISA every tax year, per person.

* for example are you saving for a house / retirement / in 5 years / 25 years

Rossy72

Ok thank you ever so much for the advice, I will take a look at the link, I'm disabled so not working and my husband earns 27,000 per year we rent no mortgages and we don't have any debt. I'm 45 and my husband is near on 60 years old. My husband has some pensions around £50k, life Insurance also for around 50k The plan was for him to carrying on working for him after 66, although if he is ok in health would be Lovley for him to retire on time. As we have the inherentece I'm thinking of the options.

dunstonh

heard a piece on morning news recently, this is good pension option for the future,

ISAs are not a pension. Do you mean they are a potential retirement planning option? That may be the case but they are certainly not a pension option.

what are the pros and cons if anyone has had experience?

Pros and cons of trackers or pros and cons of the ISA wrapper versus other wrappers?

It is probably better not to look at solutions until you know what objectives you have. i.e. look at needs/shortfalls etc and the use the most appropriate options to fill those. Rather than look at lots of different solutions without knowing the needs/shortfalls.

bostonerimus

An index tracker seeks to replicate the returns of a particular index......eg the UK stock market, the US market or the global stock market. They dumbly follow those markets and are not actively managed in an effort to beat those markets. Their fees should be a fraction of an actively managed fund. Many people believe that index tracking funds are the best funds to use for long term investments inside both pension and ISA wrappers. Here is a podcast (it's american, but explains indexing well) that you might find informative.

http://freakonomics.com/podcast/stupidest-money/

dunstonh

But dont forget that most tracker research is from the US where trackers make perfect sense given US taxation. Yet in the UK, the situation is different as we have different taxation and many more managed funds outperform trackers.

bostonerimus

dunstonh wrote: »

But dont forget that most tracker research is from the US where trackers make perfect sense given US taxation. Yet in the UK, the situation is different as we have different taxation and many more managed funds outperform trackers.

For ISAs/ROTHs and SIPPS/401k, 403b etc the taxation is similar in the UK and the US and if we are talking about a diversified global portfolio then US research is very applicable and of course the usual argument about consistently picking a winner is always valid.

dunstonh

bostonerimus wrote: »

For ISAs/ROTHs and SIPPS/401k, 403b etc the taxation is similar in the UK and the US and if we are talking about a diversified global portfolio then US research is very applicable and of course the usual argument about consistently picking a winner is always valid.

How about the UK centric research that shows the UK is different to other countries?

bostonerimus

dunstonh wrote: »

How about the UK centric research that shows the UK is different to other countries?

If you are globally invested any UK factors, good or bad, should be small........and I'm generally dubious of exceptionalism.

TheTracker

dunstonh wrote: »

How about the UK centric research that shows the UK is different to other countries?

There is no peer-reviewed research that shows that Active Management beats Passive Management in any major asset class where there are available trackers.

The (I)FA mantra of it just being about picking the right active funds, is an old wives tale with no scientific literature to back to it up. Worse, it IS true that its about picking the right active funds, its just that me, you, or rossy72 have no long term expectation to do so. The US tax thing is regularly trawled out by you and your ilk, but with never any evidence that you can beat indexes.

dunstonh

Some people's bias won't let them see any value in alternative options.