Pound cost averaging investments

seanfred

Please advise, I have invested for some years in index tracker funds and would now like to diversify to take account of the FSCS limit on stocks and shares isa. Question, if I sell some of the investment to open another index tracker fund do I lose the advantage of the units I’ve bought when the value dropped and how does this balance against the ones bought when the value rose. Obviously I would be selling the old fund then buying into a new fund at whatever the current value was and would incur some additional costs. All thoughts welcome!

Mr.Saver

Are you talking about the capital gain tax? Or your own pound cost averaging?

For the former, you should ask it in Cutting Tax

For your own pound cost averaging, providing that the new fund is at the same risk level as the old fund, it doesn't change your position.

But if you are selling a riskier fund and buy a less riskier one, or the other way around, it would then depend on the market timing. You could try to switch them gradually over time, but this may incur extra treading costs.

JohnRo

It's not clear what exactly you're asking, if you want to replace the existing or hold a new tracker alongside. I personally wouldn't be too concerned about the FSCS limit on stocks and shares ISA accounts held with a large respected broker.

As for pound cost averaging, the only thing that matters is how many units you are holding now and what they're worth, the history of how they got there is interesting to you but immaterial when deciding what comes next.

An in specie transfer to another provider will preserve your 'pound cost averaging' gains.

I'm not aware of any brokers that allow partial transfers but that's one option if you can find a broker that does, rather than selling and rebuying elsewhere.

Otherwise transfer the lot inspecie to another broker, leaving it there sat idle to do its thing.

Then start again with a new and presumably different index tracker in the old account or with yet another broker in April (assuming you've already contributed to this years ISA)

In all of this you'll need to look at the brokers fees and custody costs involved, iWeb are currently the only broker I know of that doesn't charge any ongoing custody fee for investments held but there is a one off account opening fee.

It's easier to discuss costs and benefits if you can talk about the numbers involved.

bostonerimus

If your tracker funds are in a regular taxable account then when you sell the capital gain will be calculated as the difference between the cost to buy the funds and the proceeds from your sale. Given the UKs generous capital gains tax allowances you will probably not have to pay any tax. If the funds are in an ISA then all gains are tax free.

seanfred

Thanks for advice much appreciated. Have been drip feeding my isa allowance on a monthly basis split equally into a ftse 100 and a Dow jones index tracker. They have now exceeded the fscs limit and so I have been pondering the wisdom of moving the excess into another provider. Accept the chances of a large company foundering is small, but not impossible. There is a sell and buy cost inevitably but not sure about effect of crystallisation of a number of units bought at differing prices converting into a new fund purchasing those units at today’s rates via a new provider. CGT not an issue.

AnotherJoe

FTSE100 tracker - bad idea. Very concentrated in a handful of industry sectors leaving you with a very unbalanced portfolio. MUCH better options out there.
The DJ is even worse.

JohnRo

There are currently no HMRC tax issues to worry about when investments are wrapped within an ISA.

All that matters is how many units you are currently holding and what they are worth, it doesn't matter one jot when they were obtained or how much they cost when purchased.

The only reason to be keeping track of or worrying about past costs is if you're monitoring performance, that requires a record of transaction dates, quantities and costs to be kept. Any subsequent purchases and sales simply get added to that ongoing record.

In much the same way it doesn't matter how the value of the index units you want to buy got there, all that matters is how many you want and what that will cost you on the day you buy them.

fwiw consider looking at something like VWRL.

EdGasketTheSecond

The FSCS limit is irrelevent if you are invested; it only applies to univested cash. Once you are invested your 'nominee' holding is supposedly ring-fenced by the nominee company; not your broker and is not FSCS protected anyway.

masonic

EdGasketTheSecond wrote: »

The FSCS limit is irrelevent if you are invested; it only applies to univested cash. Once you are invested your 'nominee' holding is supposedly ring-fenced by the nominee company; not your broker.

But what happens if it isn't...

EdGasketTheSecond

masonic wrote: »

But what happens if it isn't...

I dunno; I'm just saying the FSCS limit is irrelevent if the OP is invested and not holding cash in the platform. The OP's reason for doing something else was that they had reached the FSCS limit; false logic.

masonic

EdGasketTheSecond wrote: »

I dunno; I'm just saying the FSCS limit is irrelevent if the OP is invested and not holding cash in the platform. The OP's reason for doing something else was that they had reached the FSCS limit; false logic.

The answer to the question is that FSCS cover applies if there is a failure in ring-fencing and the investments you were told you had were not there.