S&S ISA Fund Strategy

rathernot

I'm fortunate enough to have zero debt and enough savings to want to put the maximum each year into a S&S ISA for several years.

Where I'm struggling a little is with how to choose between:

• A simple global tracker which seems widely recommended
• Something such as Nutmeg which seems widely recommended
• Something like Vanguard Lifestrategy which seems widely recommended
• Something like 50% Vanguard Lifestrategy & 50% split across several riskier but highly rated active funds which seems widely recommended

Everything seems widely recommended...

This should be long term so not looking to make a fast buck but ability to take it out should things skyrocket would be great.

Easy said if there is a correction and you're suddenly looking at a big nose dive though I fully appreciate that you don't lose (or make) a penny until you sell.

I'm reading stuff, I'm watching videos, there's nothing that makes me believe I'd benefit massively from an IFA but any thoughts on the above would be brilliant

BLB53

I guess to some extent it will depend on how much time you want to devote to the process.

For those who have little time or inclination then an IFA (if affordable) or robo-advisor may be the solution.

Those with a little more time to read up and who want to go DIY can learn a lot from the free sites such as Monevator
http://monevator.com/category/investing/passive-investing-investing/

and DIY Investor
http://diyinvestoruk.blogspot.co.uk/p/basics.html

Some people want to attempt to generate a better return than the market and will select funds or ITs or ETFs which they believe will add value.

Others may be happy to focus on keeping costs to a minimum and select the low cost index funds.

The other aspect is matching the exposure to equities with your tolerance to loss/risk as the markets can be volatile...which is where a simple all-in-one fund such as Lifestrategy is popular.

Because we all have different personalities, appetite for risk as well as possibly widely different timeframes and objectives, there is no single best solution so choose what you think will be the better option and make adjustments as you gain experience.

Alexland

If you are putting £20k per year away you might as well forget Nutmeg as the total fees will be way too high and frankly with their company financial position I wouldn't want too much exposure.

I am not clear on your risk tolerance - would you be OK if your valuation might drop 50% before recovering slowly over many years?

Also it's not clear if you intend to make lump sum £20k investments or regular monthly contributions as this will affect your platform strategy.

The VLS fund series is likely to be of interest to you. Try the Vanguard asset mixer to understand your volatility tollerence but remember these are annual returns (or losses) and the value is likely to drop even lower during the year.

https://www.vanguardinvestor.co.uk/investing-explained/tools/asset-mixer

If you want to make regular contributions in early years consider Vanguard Investor but for annual lump sum contributions consider iWeb (owned by Halifax) as on a single mixed asset fund the iWeb trade costs will be lower than the Vanguard percentage platform fee.

Alex.

rathernot

Thank you both

I could make a lump sum deposit and possibly would this year just because of the tax year deadline for what can go into an ISA before the new tax year.

The next year(s) I'm open to opinions on dumping a lump sum on April 1st or drip feeding whilst keeping the lump safe (as can be) in the bank where it is now.

Tolerance is an interesting one as every survey/questionnaire has me down as calm/tolerant but who knows how they'll really react if they wake up one day and see a massive drop in their investment pot? But I wouldn't be thinking of investing it if I planned on needing it any time during the next 10+ years.

Could you clarify the fees comment as Vanguard are cheap but with their management fee it's 0.4% including a LS fund whilst Nutmeg (they were just an example by the way) are 0.75% so unless I've misunderstood there is "only" 0.3% difference and yes that adds up but I assume that's where you hope for a greater return to offset?

ValiantSon

rathernot wrote: »

Could you clarify the fees comment as Vanguard are cheap but with their management fee it's 0.4% including a LS fund whilst Nutmeg (they were just an example by the way) are 0.75% so unless I've misunderstood there is "only" 0.3% difference and yes that adds up but I assume that's where you hope for a greater return to offset?

Vanguard Investor cost for a LifeStrategy fund would be 0.37% not 0.4%. If Nutmeg is 0.75% then that is actually more than double the price. For a £20,000 investment, Vanguard would cost £74, while Nutmeg would cost £150. That's quite a substantial difference, especially as those extra fees are sums of money that aren't remaining invested and continuing to benefit from compounding.

I haven't seen anything to persuade me that Nutmeg will likely deliver a return that justifies the premium cost.

I've just double-checked Nutmeg's site and the cost isn't 0.75%. I had a suspicion that it wasn't. The fee is 0.75% plus 0.19% fund fees, plus 0.1% cost of market spread. So the actual cost is 1.04%. Therefore the figures for £20,000 remain the same with Vanguard at £74, but with Nutmeg they now work out at £208! There is clearly a huge difference in cost. https://www.nutmeg.com/costs-and-charges

Alexland

ValiantSon wrote: »

I haven't seen anything to persuade me that Nutmeg will likely deliver a return that justifies the premium cost.

Me neither. I also haven't seen anything to suggest Nutmeg fully managed allocation is any better than their cheaper fixed allocation. However I was looking at their fixed allocation portfolios (which decrease UK exposure as you increase risk) and what surprised me was that risk level 5 has less EM and more Europe exposure than risk level 4.

If the OP can do £20k lump sums and wants VLS (they mention it twice in their list of 4 options) then iWeb makes a lot of sense. £25 setup, £5 per trade then 0.22% for the fund. So for £35 they could have £40k invested in the next 3 months with 0.22% charges ongoing.

http://www.iweb-sharedealing.co.uk/products/self-select-stocks-and-shares-isa.asp

Alex.

ValiantSon

Alexland wrote: »

Me neither. I also haven't seen anything to suggest Nutmeg fully managed allocation is any better than their cheaper fixed allocation. However I was looking at their fixed allocation portfolios (which decrease UK exposure as you increase risk) and what surprised me was that risk level 5 has less EM and more Europe exposure than risk level 4.

That is surprising!

No, I couldn't work out what benefit could really be derived from the fully managed application compared to the fixed allocation either.

Alexland wrote: »

If the OP can do £20k lump sums and wants VLS (they mention it twice in their list of 4 options) then iWeb makes a lot of sense. £25 setup, £5 per trade then 0.22% for the fund. So for £35 they could have £40k invested in the next 3 months with 0.22% charges ongoing.

Absolutely. In that situation - making two £20,000 lump sum deposits - iWeb does make more sense than Vanguard Investor.

The OP asked if lump sums or drip-feeding each month were better. For my two-penn'orth, I'd say that the lump sum option is the best as it both reduces costs and increases the time the money is invested (most likely improving returns).

Alexland

ValiantSon wrote: »

No, I couldn't work out what benefit could really be derived from the fully managed application compared to the fixed allocation either.

Nutmeg don't provide data sheets to enable comparison. I asked and they told me that because each customer has a unique ETF mix depending on their deposit history then they cannot be compared. Which is fair enough. However I took screenshots of their example portfolio performance on the website and zoomed in to count the pixels and concluded it made no discernable difference.

So maybe the managed portfolio is only outperforming enough to cover the fee difference.