ISA advice for new investor

Annie1612

Hello again

I posted a little while ago about wanting to invest some of my savings for future income, particularly since my pension provision is not wonderful.

Some helpful people replied to my previous threads and gave me some ideas to think about. I have since sent off for and received my state pension forecast statement. This actually shows I will receive a reasonable amount of state pension where I thought I had probably not paid in enough to qualify. I’m not celebrating yet though because they have my date of birth wrong on my record so I daren’t rely on anything else being correct at the moment!

I am also in the process of applying for a stakeholder pension and felt this would be a good option for me to save into monthly. I was told I could transfer to a SIPP at a future date if I become a little more confident about diy investing.

Now I would like to sort out a stocks and shares ISA I was thinking of investing in Vanguard LIfestrategy but I have a few questions.

1. I would say that my attitude to risk is fairly cautious but I am not sure if LS 40 or LS 60 (accumulation) is more suitable and Vanguard rates these both the same in terms of risk. Am looking to invest for at least 5 years. Any advice?

2. Is it unwise to invest in just this one fund? What would be the maximum that should be invested in a fund like this?

3. Is it better to to invest smaller amounts monthly or in a lump sum (20k)?

4. I think I will use Vanguard’s own platform. If I want to invest in another fund in future, is it straightforward to transfer to another platform?

Sorry if these seem like stupid questions and thank you in advance for any responses.

xylophone

https://monevator.com/using-vanguard-lifestrategy-funds-life/

might help.

With regard to the incorrect details on your forecast, have you contacted the Future Pensions Centre to discuss?

https://www.gov.uk/future-pension-centre

Annie1612

Thank you, yes I have contacted them and hopefully it will be sorted soon.

Alexland

Annie1612 wrote: »

1. I would say that my attitude to risk is fairly cautious but I am not sure if LS 40 or LS 60 (accumulation) is more suitable and Vanguard rates these both the same in terms of risk. Am looking to invest for at least 5 years. Any advice?

I would consider the volatility profile of VLS20 or 40 as cautious and VLS60 as balanced medium risk with around 25% drop potential during a crash. At current prices with Vanguard forecasting an average 1% pa return on bonds over the next 10 years then you might be better holding more in cash than going too heavy on bonds via a S&S ISA. S&S bonds carry risk of reducing valuations in situations such as rising interest rates.

Annie1612 wrote: »

Is it unwise to invest in just this one fund? What would be the maximum that should be invested in a fund like this?

I'd be happy holding up to around £100k in a multi asset fund (although FSCS protection is capped at £85k) but after that there is a material fee reduction from splitting into a 2 fund portfolio of separate equities and bonds funds. Still multi-asset is very convenient with automatic rebalancing so you might be happy to keep paying more.

For a large enough S&S ISA there may be fee advantages to moving to a fixed price platform e.g. iWeb where £25 setup and £5 per trade or Halifax Share Dealing at £12.50 pa and £2 per regular purchase trade may be cheaper than paying Vanguard 0.15% ongoing. The break even point depends on your trade pattern but is usually around £25k so do the maths.

Annie1612 wrote: »

3. Is it better to to invest smaller amounts monthly or in a lump sum (20k)?

The best historical average result is to do a lump sum however markets are not cheap at the moment (not to say they will get any cheaper anytime soon....) so you may wish to drip feed. Still it might drop as soon as you finish drip feeding!

Annie1612 wrote: »

4. I think I will use Vanguard’s own platform. If I want to invest in another fund in future, is it straightforward to transfer to another platform?

Sure it is slick and modern but for a large account there are cheaper options (as mentioned above) which are just as easy to use. Vanguard have no exit fees but ISA transferring investments and any residual cash balance across can take a few months as the process is very slow.

Alex

Annie1612

Thank you - all the above is very helpful!

”At current prices with Vanguard forecasting an average 1% pa return on bonds over the next 10 years then you might be better holding more in cash than going too heavy on bonds via a S&S ISA. S&S bonds carry risk of reducing valuations in situations such as rising interest rates.

Could I just clarify - do you mean that VLS 40 is too heavy on bonds?

Alexland

Annie1612 wrote: »

do you mean that VLS 40 is too heavy on bonds?

Well it's 60% investment bonds which carry their own risks. Normally pretty dull they have done well in recent years as they exchange hands for higher valuations for their underlying income stream. Personally, if playing it safe, I would prefer a bit more diversification on my non-equity holdings such as holding some cash, gold, etc.

Albermarle

Could I just clarify - do you mean that VLS 40 is too heavy on bonds?

In very simple terms historically/traditionally -equities means growth with risk/volatility and bonds mean stability .
So the higher the % equity the more volatility but the more growth in the long run.
So in that case VLS 60 is more volatile than VLS 40 but should grow more in the long run.
That is the theory but there is no absolute guarantee what will happen in future .
The worry is that bonds are overpriced ( according to some people but not all) and could follow equities down in a crash . In which case it might not matter if you were in VLS40 or 60 .
If you believe in this scenario , then it would be better to have less bonds and maybe keep a bit more cash instead.

Annie1612

Thank you. Still unsure what to do for the best so perhaps I will have a little think and maybe consider some fixed term savings accounts.

Alexland

Annie1612 wrote: »

Thank you. Still unsure what to do for the best so perhaps I will have a little think and maybe consider some fixed term savings accounts.

I find it helps to think about your overall percentage asset allocation across multiple accounts which are suited to different purposes. This might mean I hold more equities and accept higher volatility in a S&S ISA account but zero volatility in a safe Cash account such that overall across both accounts I am at my target allocation and volatility profile. Obviously it's not as easy to rebalance if your money is spread across multiple accounts.

Albermarle

Thank you. Still unsure what to do for the best so perhaps I will have a little think and maybe consider some fixed term savings accounts.

Why not invest some and save some ?
If you go down this route you can be more adventurous in your choice of investment - as you have the stability of cash savings to balance out any volatility in the investments .
If you have many years before you need the money , then keeping it all in savings is not a great idea. It's even against government advice when it comes to pensions, as they are worried that over cautious people are keep too much in cash and negatively affecting what they will receive in retirement.