Investment advice please.

TUVOK

I wish to invest in a Vanguard fund for my 45 year old son, the investment will be Isa wrapped in order for him to be free of any income tax.
Hopefully, as this investment will be funded by myself, it will be run for a few years, I am 72 years old and in good health, but at my age you never know!
Suggestions as to what VANGUARD fund to invest in would be most appreciated.

dunstonh

Suggestions as to what VANGUARD fund to invest in would be most appreciated.

The one that is most appropriate to your level of understanding, behaviour and risk profile.

Any reason you are using ISA and not pension for him?

bowlhead99

TUVOK wrote: »

I wish to invest in a Vanguard fund for my 45 year old son, the investment will be Isa wrapped in order for him to be free of any income tax.
Hopefully, as this investment will be funded by myself, it will be run for a few years, I am 72 years old and in good health, but at my age you never know!
Suggestions as to what fund to invest in would be most appreciated.

Dunstonh's comments make sense. I will add more detail.


You recently had a thread on the same topic. It is difficult to know what to suggest as we don't know what are the specific objectives for the son and what are his personal circumstances.

For example, is it so he can stop work in ten years time when the stress of the job becomes too much for him or his career is lost to robots and computers, and he will use up the money between 2028 and 2040 to bridge the gap before his state pension kicks in at age 67?

Or is it going to be invested untouched until 2040 when he will retire, and subsequently use it to supplement his state pension income from then until 2078 when he dies age 105.

Or is his home on an interest-only mortgage maturing in 2028 and you want to build up a fund to pay it off so that he can spend all his own earnings on stuffing his pension.

There are all kinds of objectives which might require the money over different timescales. Needing to spend it all in one go in ten years from now, or drawing it down over a ten to fifteen year period starting in ten years from now, or drawing it down in a forty year period starting in twenty years from now, would be quite different objectives.

In the latter, your son could take a lot of 'investment risk' using more adventurous funds because you have decades and decades before most of the money needs to be consumed and there is plenty of time for markets to recover from slumps and crashes. The longer the money is invested, the more likely it is that your son will achieve the 'long term potential' of investing in equities with a positive inflation-beating result, rather than having some flattish years and some negative years and a big crash and no time to recover.

In your thread earlier this month, you said:

TUVOK wrote: »

my youngest son who is 45, he is self employed and has no private pension arrangements. So he will have to work for as long as he able and will only have his state pension to exist after he cannot work anymore.

As you mention he has nothing for retirement and only state pension to exist on (which is not a comfortable lifestyle for most), the implication is that the money will be used to fund his retirement? Rather than some other shorter-term objective like buying a property, or covering his self-employed business risks, or bridging a gap between early retirement and state pension.

So you are intending for the money to be invested for at least twenty years and up to sixty years from now if he has a long and full life (my granny is over 100 but wouldn't be nearly so comfortable if she was solely reliant on state pension).

With a 20-60 year investment timeframe, one would probably look to be quite heavily invested in equities with some bonds, real estate, infrastructure etc for diversification. The fact that a fund heavy in equities could drop by 30-50% over the course of a year or two should not be an issue, if he doesn't need to use any of the money at all until his mid sixties (two decades from now), as there will be a number of crashes in that time and plenty of recoveries and growth too. The majority of the money might perhaps be spent between perhaps age 65-85 before his needs get simpler as he ages, so we are talking about two to four decades of investing from now, at least.

You did also mention 'he will have to work as long as he is able' which might mean he hopes to work into his seventies and prolong the time at which he needs to access the funds - definitely a case for using more 'risky' equities rather than low volatility investments like bonds. However, perhaps you meant that the type of job is one where he may not be able to keep it up due to it requiring physical exertion or high stress levels, so he needs the money earlier. So those sort of things are considerations when working out whether you would prefer a riskier fund or a less volatile fund with lower performance.

Although you are talking about making the investment for your son in his ISA wrapper, rather than your son coming on here and asking for advice himself on what to do with the money you are giving him, you do need to consider the psychology of investing from his perspective rather than just your own levels of knowledge and understanding. Investing for other people is not just about their objective but what their behaviour might be. For example:

If you put £20k in a 'retirement fund' within an instant-access S&S ISA with Vanguard (or with anyone else) and it is a higher risk fund invested 100% in equities, because that makes sense to you for the two to four decades it's going to be invested... but then there is an extreme market crash in a couple of years time and suddenly the £20k is only worth £10-12k, temporarily... how would your son react? Some people would think, "hmm Dad really made a bad choice here, I had better withdraw the money or switch it to a cash ISA before I lose the lot". And miss out on the market recovery, basically causing themselve to lose money which a more experienced investor would not have done - because the more experienced investor would know to hold on for the inevitable recovery.


There are a couple more things to reiterate from your previous thread which other people raised before. You say he does not have any private pension arrangement. The obvious thing to do is to invest in a pension. This gets tax relief so that if you put £20k in, it is immediately grossed up to £25k for basic rate tax (assuming he is earning at least £25k of salary or self-employed business profits). If he is a higher rate taxpayer it will get grossed up even more.

When he eventually draws the money out as pension income, most of it will technically be taxable - but a quarter of it can be taken as a tax-free lump sum; and the rest of it is just taxed at his marginal rate, which will be 0% on at least some of it, because he will likely have spare personal allowance, as state pension income won't use up all his annual personal allownce

So, with an investment timescale which will last well beyond his late 50s (the age you can start to draw on a personal pension, if you want), it is pretty much a no-brainer to put at least some of the money you are gifting him into a pension instead of an ISA. With the pension route, the benefit of free government money grossing up the investment as tax relief should well exceed the cost of tax he pays later when accessing the funds. As pensions can hold the same investment funds as you can put in ISAs, the gross returns would be the same percentages but the tax effect makes pension a clear winner.

The only disadvantage is that he can't access personal pension money until his late fifties, while if it was in an ISA he could access it tomorrow if he suffered some personal or business catastrophe. But your intention is for him to be provided for in retirement, not access your funds tomorrow, so it is perhaps a moot point.

A further positive reason to use a pension is that when it is in a pension, the money is not considered when assessing means tested benefits if he were unemployed or on low income from his business, nor is it available to his creditors in bankruptcy or when getting sued. So if he has an issue in his self employed business causing people to try to go after his personal assets, a pension in his name will protect those assets while an ISA in his name is an instant access account which is fair game.


Summary:

So at the moment if trying to make suggestions I would be looking at investing the money you are giving him in a pension not an ISA, and I would be looking to invest the money in a multi-asset fund which was adventurous in its outlook (high in equities) although would have to consider dialing down the equities in favour of more conservative investments if your son as an inexperienced investor would be likely to panic if he saw a 40% paper loss. Ultimately the more equities you have the better returns you should see over the longer term, but 100% equities is too extreme for most and it makes sense to diversify over asset classes (eg bonds, real estate etc).


With that said, my final point is about your question "I wish to invest in a Vanguard fund" - but you don't know which one. That does not make a lot of sense.

Vanguard are one brand of fund manager among many. If you identify that one of their funds is suitable for your needs, then ok, buy it. But if I am understanding the question, you are asking for "suggestions as to what fund to invest in", implying you haven't identified a fund suitable for your needs. So how have you decided that Vanguard is the fund manager who will offer the best funds for your needs? Are you just thinking that you had better buy a Vanguard fund for your son's new ISA because you are using the cheap Vanguardinvestor platform for some of your own investing, and that's all they sell?

Any guidance on this forum will be better quality if it is not biased or prejudiced towards one brand or another. If you don't know what investment you want, you can't know what fund manager will be best to run it. There are all sorts of suitable multi-asset funds that people could suggest, but only a small proportion are run by Vanguard.

This investment will not be for you, it is for your son. After he makes the investment into his ISA, he will have a logon/password with the online investment platform used. There is no great advantage to using the same platform as you are using, becaue this will be an investment in his own name and login credentials and they don't give you a fee break if other family members use the same platform. The fund will not need monitoring from day to day by you, or even ongoing monthly or quarterly reviews, as he is just going to buy it an hold it until he retires and wants to spend it. He would perhaps log in once a year to add new gifted money from you. So, going with Vanguard gets you quite limited efficiency on admin. Selecting them when you don't know what you even want to buy, is jumping the gun.

TUVOK

Dunstonh
I was thinking of an Isa as I am not entirely sure that I could fund a regular set pension payment.
With an Isa, I can fund it as and what I can afford, and as it is tax free does not add to his tax burden.
That is my thoughts, but obviously if you can point to any advantages with regard to a self funded pension I would be grateful.
Thank you for your help.

TUVOK

Bowlhead 99
Thank you for your detailed and full reply to my query.
I will try to answer as many of your points as I can.
Firstly, his self employed job is very physical, he is now 45 years old , hopefully his health and strength will carry him working for a number of years, but his working time span is in the lap of the gods.
As regards finance, I am afraid my son is not good at all , like many, many others of his generation, thus I also have to make things as simple as possible with clear instructions as to what to do upon my demise.
As such if ill health rears its head for him, state benefits will be all he will have to survive on, so I was thinking that at least with what ever investments I can make into a Isa would help in his non working life.
I think a lump sum pension amount from myself is not feasible, I can however fund to variable amounts each year an Isa. I've paid his mortgage off and hopefully I can survive the 7 year time span re IHT.
I have been myself investing for about 30 years, successfully weathered the 2 big market melt downs, I am not trained in any way but have obtained a fair percentage return on my very varied investments.
I was thinking of Vanguard as I am invested in some of their funds. Over the years although successful in various active managed funds, I have invested more and more into passive investments and for a very long time into accumulation of my dividends.
I have invested in L&G and iShare funds as well, but Vanguard with their very low charges and wide variation of funds attracts me.
My thanks again for your time and detailed comments.
I hope that I have provided answers to your queries.
I will investigate a pension for him before deciding which way to try to help his future life.

dunstonh

I was thinking of an Isa as I am not entirely sure that I could fund a regular set pension payment.

Pension third party payments are allowed.

With an Isa, I can fund it as and what I can afford, and as it is tax free does not add to his tax burden.

Ironically, the rules on third party payments on ISAs are stronger than the pension.

That is my thoughts, but obviously if you can point to any advantages with regard to a self funded pension I would be grateful.

Pension beats ISA in tax efficiency as long as you are an equal or lower rate taxpayer than what you are during your working life and you intend the money to be drawn after age 58.

Keep_pedalling

If he is not good with money then putting it into a pentions has the advantage that he can’t touch it for the next 10 years, but an ISA he could just blow it anytime he wants. If he is not contributing to a pension himself you really need to encourage him to do so.

kidmugsy

Pension best: we use Hargreaves Lansdown who offer an excellent service and who are reasonable value for our small SIPPs (self-invested personal pensions). Other people here like AJ Bell, Cavendish Online, and others. You can compare costs here:
http://monevator.com/compare-uk-cheapest-online-brokers/

Vanguard intend to offer a SIPP before the end of the current 18/19 tax year. That might perhaps prove to be a convenient and cheap route to investing in their products.