Passive Investing ie Trackers

bowlhead99

bungleberg wrote: »

Thank you all for your comments and advice, which I am still trying to digest.
I am definitely going to open a vanguard ISA this weekend, I intend to start by using up this years ISA allowance

Remember, you have already put £2k into an L&G S&S ISA this tax year, which you said you did a month ago. And you can't contribute to two separate S&S ISAs in the same tax year - all your S&S ISA money must sit with the same provider.

So you can't just open up a Vanguard ISA and stick (e.g.)£18k into it to 'use up' the rest of the annual ISA allowance. You can tell Vanguard that you want to open an ISA account with them by transferring your existing balance from L&G. They would communicate this to L&G, who would need to sell your existing index fund there to get cash, then when the cash arrives in the L&G ISA account they will transfer it to Vanguard and close your account, and your new Vanguard account will have ~£2k in it (or whatever the fund was worth), in cash ready to be invested.

Only then (which may be a couple of weeks from now, or a bit more) can you add the extra money to top up to a total of £20k ISA contributions for this tax year. You could spend that waiting time thinking about what it was you want to buy on the Vanguard platform.

In your position if I was comfortable with L&G for my ISA (whose platform is not the cheapest, but not the most expensive either) I would not necessarily move to Vanguard, especially if I didn't yet have a plan of what it was I should buy on Vanguard anyway. A general rule would be to first determine what it is that you'd like to buy, and then decide where is best to buy it. MK62 is right that other providers may be cheaper places to buy (because for example £200k with Vanguard at 0.15% is £300 a year, while IWeb will be a lot less than that and offers products from Vanguard and other providers' products too).

Looking just at the ISA for now - at L&G you could get rid of the UK index fund and put the money from that plus the rest of your 2019/20 allowance into something like their Multi-Index 6 fund. This is a mixed asset fund built mostly on indexes for a risk profile of 6 out of 10, which on the September factsheet showed 67% global equity (with between a fifth and a quarter of that in UK listed equities), 23% in a variety of global bonds, and 10% spread across property, infrastructure, commodities and cash. It would probably be fine for your ISA.

When you get to next tax year (which is less than 6 months away) and you are adding another £20k, you could decide whether to keep it there, or buy the same fund elsewhere on a cheaper platform (as percentage-based fee structures are more expensive the more money you have invested), or buy something different entirely.

For the money that doesn't fit into an ISA right now - you should be considering a mixture of both private pension (for tax relief, if you have any allowance left after the effect of your DB pension growth) and unwrapped (not pension, not ISA) investing. Vanguard don't offer pensions but could be an option for the unwrapped general investment account, given you are a fan of indexes.

I think it best to split it over five funds. The FTSE World Index is a contender, any opinions on what five you would split 20k across.

I would struggle to do it for five. They don't offer the 'FTSE World' index anyway, but they do do the 'FTSE All-World' and 'FTSE Global All-Cap' which are more comprehensive and include emerging markets. So one of those would be OK (with the global all-cap preferred).

But those funds are 95% invested outside the UK, so I would want to add their UK All-Share fund to tilt the portfolio back to the country in which I live, though a very large proportion of the UK All-Share comes from the largest companies at the top of the FTSE100 which are multinational (doing relatively little business in the UK) and skewed to particular industries (e.g. oil, banking, big pharma) so I would also add their FTSE 250 fund which has smaller, more UK-focused companies.

Then there are only 2 slots left out of the original five, which will need to cover UK corporate bonds, UK government bonds and index linked bonds, international government and corporate bonds.

And to be frank, I would prefer not to use the All-World or Global All-Cap for my general global equity, as they do have high weightings to the USA and the only way to reduce that while still using indexes is to have separate funds for North America, Europe, Japan, Asia Ex-Japan, and Emerging Markets. So if you asked me to use exactly five Vanguard indexes to build a portfolio that I liked, I would struggle to do it. And even if I did, the ratios would definitely not be 20% in each.

There is no authoritative advice that says that 'it is best to split it over five funds'. Traditionally, people would use one or two mixed asset funds, or they would use 8-15 specialist funds to build their own mix; five is a strange compromise. Starting from a position of low knowledge (no disrespect intended) there is a long way to go to figure out your desired ratios for 8-15 specialist funds, and even once done, it would be a pain to review the market conditions and do an annual 'rebalancing' process. Especially if this is just a £20k ISA, not even 10% of your overall wealth.

So I would forget the idea of doing 5+ funds and just buy one of their multi-asset solutions. If Vanguard platform, you could do Vanguard LifeStrategy 60 which is cheap and simple.

Alternatively thinking back to the fact that this ISA would be only 10% of your overall investments , you don't even need to 'balance' this component anyway - it could be 100% equity, from the All-World or Global All-Cap fund, but when you come to allocate the other £180k of investments you would use a mix of holdings taking into account the fact that you already had £20k in international equities. But I prefer to have a balance within each product type (ISA, pension, unwrapped) rather than having all my international equities in one and domestic equities in another and all my bonds in another etc etc.

bungleberg

Thank you your replies, so maybe just 2 or 3 funds from L&G this tax year.

20k in an ISA

Which funds and what proportions would you suggest?

Im absolutely bamboozled with all of this to be honest!
I didn’t realise that actually having a few bob could present so many conundrums!

bungleberg

If a fund says historic yield 2.9% does that mean growth in unit price or yield from dividends?

bungleberg

I think for this tax year I’m going to invest in the L&G Multi Index 6 acc
Would it be better to invest in one lump or split my remaining allowance over the remaining months in this tax year. ie pound cost averaging

Next Tax year I will re-evaluate and maybe switch to iWeb or just open another ISA there with a new fund and keep L&G ticking away.

bowlhead99

bungleberg wrote: »

Thank you your replies, so maybe just 2 or 3 funds from L&G this tax year.

20k in an ISA

Which funds and what proportions would you suggest?

Like I said, people would generally use just one or two mixed asset funds or a whole load of specialist funds. It would be silly to go the 'whole load of specialist funds' route when you don't know what you are doing. So you will be on the ONE or two mixed asset funds method ; with only £20k, there is absolutely no point having more than one.

In your shoes, with a self-diagnosed '6-7 out of 10' risk preference I would just get the Multi Index 6 which is a mixed asset solution using trackers.

Under their multi asset section on the L&G funds site they do have other versions of these Multi Index fund range:

- there is a 'future world' version which focuses on environmental / social / governance criteria, but that restricts your likely performance as it cuts out various company types, and they only offer it for the lower-risk ranges which are lighter on equities anyway (4 or 5)

- there is a higher income version (Multi Index Income 6 instead of Multi Index 6), which skews the investments to ones which produce more income instead of growth. But you are not planning on withdrawing income from your ISA because you have a limited annual allowance for stuffing all your money into ISAs and the last thing you would want to do is be taking out income from the ISA to spend when you already have £180k of non-ISA money. So, no point using that one.

In your shoes I would just stay with the 'normal' Multi Index 6 product.

There is a more volatile Multi Index 7 version which has more equities but frankly if you are already thinking you should slowly drip-feed to avoid being heavily invested and reduce risk of declines in the value of your money, it doesn't seem like you should be in the highest risk funds that they offer in the range.

There is also a less volatile Multi Index 5 version which will be lower risk and lower return over the long term, but as you already have a huge pile of cash and lots of investments still to make outside your ISA, and have said you are a 6-7 person rather than a 4-5 out of 10 for risk, I don't think you need to be so cautious with this £20k. Thus my suggestion.

bungleberg wrote: »

If a fund says historic yield 2.9% does that mean growth in unit price or yield from dividends?

The yield is the income produced by the investment (which if it is a mixed asset fund will be a mixture of dividends from companies, interest from bonds, and rental profits from commercial property), paid to you as a dividend.

If you buy the 'accumulation' share class of the fund rather than the 'distribution' or 'income' share class of the fund, this yield earned from the underlying investments will not be paid to you in cash, but instead kept inside the fund and reinvested in the shares and bonds of the underlying companies, so the fund's share price goes up faster. So you would be right to go for the ACC version when using an ISA.

bungleberg wrote: »

I think for this tax year I’m going to invest in the L&G Multi Index 6 acc
Would it be better to invest in one lump or split my remaining allowance over the remaining months in this tax year. ie pound cost averaging

Next Tax year I will re-evaluate and maybe switch to iWeb or just open another ISA there with a new fund and keep L&G ticking away.

If you think about 'the big picture', you are putting money into the ISA now and again in another 5 months (next tax year) so the price at which you buy the investments will already be at some sort of average of the price today and the price in April.

There doesn't seem to be any point in keeping the money in your bank account for even longer (being less 'invested') over the coming months by gradually dripping the £18k slowly each month. You have already decided you want the money to be invested rather than sitting idle in a cash account. So what you would achieve by drip feeding and holding most of the money back in cash for now... is simply delaying the time it takes you to get invested and have your funds growing.

Linton

bungleberg wrote: »

I think for this tax year I’m going to invest in the L&G Multi Index 6 acc
Would it be better to invest in one lump or split my remaining allowance over the remaining months in this tax year. ie pound cost averaging
.........

If you invest as a lump sum there is a danger that you will lose more if there is a crash in the short term than if you had spread the investment over a period of time. However if you take the other option, since investments generally rise over time it is more likely that you will lose by being partially out of the market.


So mathematically an early lump sum investment is best but you may prefer to forego the advantage for greater peace of mind.

bungleberg

Thanks for the advice, I think I’ll whack it all in. As you say it’s only a small proportion of the Pot after all.