Could I get some advice on buying US stocks through iWeb?

joshyboy

I have £5,500 in my premium bonds that is money I don't need. I've got a plan in place already for the next tax year too. Now that premium bonds are even worse than before, I'd like to cash them all in and start dipping into the world of trading. I only want to do it with money I can afford to lose, hence these premium bonds. I also won't be messing with options or anything like that, I just want to buy and hold companies that I know. I've created an account on iWeb and submitted my W-8BEN tax form because I'm a UK citizen trading US companies. 

I don't have a specific question, but I'd love to hear what advice anyone may have for me with regards to using the site and/or things to watch out for. For example, how does this affect my tax situation here in the UK, what do I need to tell HMRC about/when do I need to start telling them things?

bowlhead99

 joshyboy said:

I've created an account on iWeb and submitted my W-8BEN tax form because I'm a UK citizen trading US companies. 

I don't have a specific question, but I'd love to hear what advice anyone may have for me with regards to using the site and/or things to watch out for. For example, how does this affect my tax situation here in the UK, what do I need to tell HMRC about/when do I need to start telling them things?

From the shares you may make income (dividend distributions received into your IWeb account) and you may make capital gains (selling shares for more than you paid for them). 

The income is taxable by HMRC at special dividend tax rates (0% for the first £2k a year, then a different rate depending on your tax bracket). You can deduct the US tax that's already been withheld (up to 15% of the value of the dividend) from what you owe HMRC on the same dividends. If you have any tax to pay you have to tell HMRC. If you don't have any tax to pay to HMRC but only because of the tax you've already paid to the US, you still have to tell HMRC to claim that relief. If you don't have any tax to pay our any reliefs to claim but you are doing a self assessment tax return for some other reason, you still have to include the dividend income on it.

The capital gains net of taxable losses are taxable by HMRC at 10% or 20% depending if you are a basic or higher rate taxpayer. The first £12k of gains made in a tax year is exempt. If you have any tax to pay you have to tell HMRC. If your share sales proceeds in any one tax year exceeds 4x the annual exemption, (even if you didn't actually make enough gain to pay tax) you have to tell HMRC on your self assessment tax return (if you're required to do a self assessment tax return).

All the HMRC tax stuff is irrelevant if the type of account you are using at IWeb is an ISA, because income and gains in an ISA is not subject to UK tax and can be ignored in any UK tax return. 

So if you're not already using your 2019/20 S&S ISA allowance elsewhere it would make sense to use an ISA account rather than general investment trading account, to save tax paperwork (including saving doing the calculations to prove you don't need to do any tax paperwork)

You mention that you'll be buying and holding companies that you 'know'. I'm going to guess you haven't worked at senior level within their finance department to know them better than the professional investors who spend huge amounts of money and effort researching them to try to figure out what might happen to their share price next. What you maybe mean is that you have heard of the brand names and like their products. Which is usually quite inadequate to assess whether their shares represent a good buying opportunity or not. Still, good luck

Thrugelmir

Is £5.5k enough to give you a diversified portfolio of individual US shares? 

Username999

"diversification is protection against ignorance." - Warren Buffet.

EdSwippet

Username999 said:

"diversification is protection against ignorance." - Warren Buffet.

joshyboy is probably not Warren Buffet, nor does he have access to Warren Buffet's resources and vast team of researchers.

oi_oi_oi

EdSwippet said:

Username999 said:

"diversification is protection against ignorance." - Warren Buffet.

joshyboy is probably not Warren Buffet.

And Warren Buffet holds more than 15 individual US shares — the latest Berkshire Hathaway Annual Report only lists the 15 largest holdings — so he must be pretty ignorant, too!

The OP is surely more ignorant than WB (this is in no way an insult), so should sensibly hold even more US shares than WB does.

Is £5.5k enough to build a portfolio of more than 15 US shares? No.

Ciprico

... to simplify things you could invest in something like "Scottish Mortgage Investment Trust", this is a UK company, so no extra tax implications or extra costs as opposed to buying shares in any other British company. (So you can buy in an ISA and have no tax issues)
All they do is buy shares in the more interesting US (not exclusively) companies, ie Tesla, Amazon, Netflix...
They have been around for 100 years, though most the companies they invest in now are less than 10 years old !
If you like the sound of a high risk, high return you could probably do a lot worse, and certainly spend a lot more time/money doing admin....
It is high risk but their research team are probably in a better position than most individuals to pick the winners....

Alz1986

Avoid Scottish Mortgage, especially if you are a newbie. It is volatile and not suitable for those who have not experienced good times in the stock markets. An alternative I would suggest is Manchester & London which pays a decent dividend.

oi_oi_oi said:

Is £5.5k enough to build a portfolio of more than 15 US shares? No.

I think it is. There is no "minimum" amount, all things considered.

EdSwippet said:

Username999 said:

"diversification is protection against ignorance." - Warren Buffet.

joshyboy is probably not Warren Buffet, nor does he have access to Warren Buffet's resources and vast team of researchers.

It is true Warren Buffet was wealthy well before his stock market success, so he had more disposable cash to burn through to make his billions. But this doesnt mean you can't apply his philosophies and enjoy some success. The general consensus on this forum is to diversify and be conservative.

I would say depending on how much time you have in your monthly schedule, buying individual shares will out-do the funds. With your £5.5k maybe consider using bulk of it 55-65% for funds, and the remainder to buy up shares which have consistancy. This way you'll be protected if any share price takes a tumble. I've found this sustainable and profitable. Personally, I would avoid US shares, there are plenty of British FTSE 250 and AIM stocks which are generating great returns.

Thrugelmir

Alz1986 said:

Avoid Scottish Mortgage, especially if you are a newbie. It is volatile and not suitable for those who have not experienced good times in the stock markets. An alternative I would suggest is Manchester & London which pays a decent dividend.

oi_oi_oi said:

Is £5.5k enough to build a portfolio of more than 15 US shares? No.

I think it is. There is no "minimum" amount, all things considered.

EdSwippet said:

Username999 said:

"diversification is protection against ignorance." - Warren Buffet.

joshyboy is probably not Warren Buffet, nor does he have access to Warren Buffet's resources and vast team of researchers.

It is true Warren Buffet was wealthy well before his stock market success, so he had more disposable cash to burn through to make his billions. But this doesnt mean you can't apply his philosophies and enjoy some success. The general consensus on this forum is to diversify and be conservative.

Warren Buffet was a talented individual in the Sugar/Branson entreprenuerial mold. Just happened to have a stockbroker as a father and later went onto to work under Benjamin Graham (value investing). Combination of factors that opened doors that few can ever dream of achieving. 

Alz1986

Being born into a wealthy family who opened doors is not an achievement. He was born into it.
Finding good businesses is not so difficult, its being diciplined that is difficult.

oi_oi_oi

Alz1986 said:

oi_oi_oi said:

Is £5.5k enough to build a portfolio of more than 15 US shares? No.

I think it is. There is no "minimum" amount, all things considered.

Are you kidding? Because you should be.

Let's suppose 20 shares is enough (which may be wrong, anyway). That's £275 to invest in each different share. IWeb will charge £5 dealing commission + 1.5% FX charges to buy, and the same to sell. That means you need a rise in the share price of 6.8% just to get your money back. Which is roughly the average return the shares might give over 1 year (noting that an individual share will display huge variance around the average — e.g. at one extreme, it could become worthless; at the other, it could double or more). On average, your costs are eating all the return from the first year you hold a share.

At the current exchange rate (about $1.30 to £1), you'd be investing about $346 after charges in each share, and needing it to rise above $369 before you make a profit (ignoring fluctuations in exchange rates — which it's reasonable to do, because they could go either way, helping or hindering your making a profit — unlike charges, which are always against you). But many US shares have prices way above $346. So it's not even possible to split this money evenly across your choice of 20 US shares. This is getting ridiculous!

I would say depending on how much time you have in your monthly schedule, buying individual shares will out-do the funds.

!!!!!!? Spending a few hours on investing, part-time, with no professional training or support, won't see you outperform professional managers who do have the training and support, nor a very cheap tracker fund (such as, for the USA—though it would be unwise to limit one's investments to the USA—, Vanguard US Equity Index, which can be bought and sold on IWeb for one £5 dealing commission, instead of 20, and no FX charge; the fund itself charges 0.1% per year, which comes to £5.50 a year on a £5,500 investment), unless you are either lucky or have a lot more aptitude for this than the average person. So it's not good advice to encourage random people on the internet to do this.
Whether you yourself are lucky or good at picking shares or haven't measured your returns accurately (the latter is very common), I don't know.