Minimum amount saved to consider investing in single shares

Fatbritabroad

Hi

I have a company pension which is in a tracker fund with around 120k in, paying 12% of my salary in with a 4% employer contribution and a stocks and shares isa with vanguard in their 100% lifestrategy fund with around 22k in it. I have around 8 months living expenses in cash (about 18k) plus a few save as you earn bits at a few thousand.

Most of my monthly saving are taken up with what above as I save 400 I to the Saye and 200 into the ISA as I'm trying to get my cash up a bit more

I'm due a 20k bonus in Jan that I could put in pension to minimise the tax but I'm considering increasing my ISA amounts and wondered about buying some individual blue chips with decent yields. Something like shell or one of the others.

I have another bonus twice the above due in 2020 and the Saye matures 2022

Appreciate theres no right or wrong answer with this as it depends on attitude to risk but whats the minimum with stamp duty etc that makes it worthwhile to buy as a lump sum considering buying individual shares and would most people suggest getting up above the 50k or even 100k mark before even considering individual shares even with the 'safe' blue chips

I have no immediate need for the money and plan is to use the ISA either as early retirement or to pay a big chunk off the mortgage when it comes up in ten years time

My head says stick at least half if not all straight in the pension but my heart says take a bit more risk.... Thoughts welcome

steampowered

You should not think of ISA vs pension in terms of "risk". The risk is the same. Both are an investment into shares.

The decision is merely what wrapper you use for your investment. Are you prepared to lose the flexibility of an ISA to get the tax relief of a pension?

If you do decide to use an ISA, happy days. There are plenty of funds to invest in.

If you prefer to buy individual shares, I think this is fine so long as you are investing at least £2,000 in each share. At a reasonable dealing cost of say £10 that would mean you are paying 0.5% on entry and another 0.5% on exit.

It is also important to make sure that you are using a broker with reasonable trading charges and platform fees.

dividendhero

from what I can see you've more than enough already invested to risk single share investment, around 5 grand might be a worthwhile amount. As for the actual company, that's another point - but Diageo ticks many boxes in my book.

As an aside, keep an eye on your pension contributions - you could end up breaching annual limits..

bostonerimus

There's no amount of money that would get me to buy individual company shares.....

eskbanker

Fatbritabroad wrote: »

wondered about buying some individual blue chips with decent yields. Something like shell or one of the others.

You make it sound like you feel that buying individual shares is a natural progression from investing in funds but don't really seem to have a particularly clear idea of why you'd do this or a defined strategy of what you'd be trying to achieve, other than a perception that more risk must mean more reward.

Have you considered income-oriented funds if you're after income?

Fatbritabroad

dividendhero wrote: »

from what I can see you've more than enough already invested to risk single share investment, around 5 grand might be a worthwhile amount. As for the actual company, that's another point - but Diageo ticks many boxes in my book.

As an aside, keep an eye on your pension contributions - you could end up breaching annual limits..

Thanks dividend hero I'm putting in about 13k including employers and charge rebates so fine to put the lot in plus I haven't used previous years so that can be carried forward can't it?

Im. All about minimising tax normally hence why I put a reasonable amount away in pension (I'm 36). Earnings are about 82k before tax and before those bonuses.

I'm. Aware the ISA and pension are the same thing different wrappers etc and that's exactly how I'm viewing the ISA. I can't buy shares in. My company is a or I'd probably do that and don't want the hassle of transferring some to a sipp as I'm viewing this as my 'cautious' retirement pot. I'd normally be a bit more cautious and hold more cash but rates are so crap atm. I recognise the danger of viewing a blue chip as the equivalent of a high interest savings account as anyone can go bust or massive share price drop but there's 3 or 4 I've had my eye on (big yellow diageo shell to name 3) and the sum relative to my fund holding would be small 5k to 10k. I wouldn't be planning on selling anytime soon

I've dipped my toe in peer to peerto get the rate setter bonus so may go that route as it's a halfway house between individual shares and tracker funds (at least in my unlearned opinion)

Fatbritabroad

eskbanker wrote: »

You make it sound like you feel that buying individual shares is a natural progression from investing in funds but don't really seem to have a particularly clear idea of why you'd do this or a defined strategy of what you'd be trying to achieve, other than a perception that more risk must mean more reward.

Have you considered income-oriented funds if you're after income?

Thanks eskbanker and fair comment.

Not a natural progression as such Im just considering the option I realise many people never buy individual shares but I know a few Ifas at work that do and they are very much In the income investor camp so tend to buy banks insurers etc . I guess my thought process is with cash being so crap to look at a small amount in some safe' blue chips (only using non emergency money of course) but as I say I recognise it's dangerous thinking it's the same as a savings account and I realise it's not but thought it may be worth the risk.

The income funds are an option are there ones you'd recommend I consider? I'm a passive convert with the vanguard tracker funds. I kind of felt buying another fund when you're invested globally wasn't worth it

Before I started learning about this stuff when I set my first s and s isa up I used to put 50 a month in an invesco perpetual income fund and I know it's still a good fund. This is an area that I'd consider paying for active management but are there tracker income funds?

bowlhead99

Fatbritabroad wrote: »

Before I started learning about this stuff when I set my first s and s isa up I used to put 50 a month in an invesco perpetual income fund and I know it's still a good fund. This is an area that I'd consider paying for active management but are there tracker income funds?

With the popular "traditional" index funds the portfolio of companies making up the index are selected based on their market capitalisation in free float on the market. That's something that's transparent and visible and easy to check and track.

However, if you try to create an income index you are basically saying I want to weight my money towards the bigger income payers - yet you don't know who is going to pay the most income next year. Some companies will have huge ratios of "last year's income to current share price" because the share price has tanked and they are going bust. Others might have more moderate level of dividends that have been sustained for years but the company is unlikely to be able to maintain it because their profits have been declining compared to what they pay out. And others might be great dividend payers easily covered by profits but have a share price that has significantly advanced so the ratio of last year dividends to current share price does not appear to make them a stand out option, even though the dividends in absolute pounds might similarly surge when next announced.

So in order for the "income index" to be constructed, someone has to put together a bunch of somewhat arbitrary rules (ie more arbitrary than simply allocating money to all companies with market value weighting) to decide how to filter in or out the companies that warrant inclusion.

So, high income indexes or dividend indexes do exist (because someone with deep pockets will pay the likes of FTSE to create them) but I'm not really a fan of the concept of having "the most suitable stocks for your needs" being selected completely mechanically.

At the end of the day, there are a lot of companies listed in the UK or the wider world, so active fund managers will of course use similar techniques to filter and screen companies to get a shortlist of what things might be worth buying. But they have in depth research to allow them to make value judgements on pricing and dividend sustainability and future potential etc, and you might believe the "human touch" is useful here and worth paying for. Certainly the likes of Inv Perp have done well over the years, with a portfolio going into the credit crunch or dot-com bubble bursting which did not contain the same sector bias that a pure mechanistic index might have done.

Thrugelmir

Fatbritabroad wrote: »

I guess my thought process is with cash being so crap to look at a small amount in some safe' blue chips

What's safe about Blue Chips? Think of the banks in the GFC, Tesco, BP and more recently Standard Chartered. Yield is the reflection of the risk premium for owning the stock.

Fatbritabroad

Thrugelmir wrote: »

What's safe about Blue Chips? Think of the banks in the GFC, Tesco, BP and more recently Standard Chartered. Yield is the reflection of the risk premium for owning the stock.

I missed the crucial second quotation mark around 'safe' :rotfl: