Investing for beginners - Stocks and Shares Isa

EmmaG04

Which stocks and shares isa would you recommend for people new to investing with small amounts to invest? My initial payment would be around £400-500 pounds then followed by a maximum monthly payment of £100. 
I'm 26, 2 years ago I bought and renovated a flat, and since then I've built up an emergency fund and I overpay on my mortgage monthly. I'd like to start to putting some money into a Stocks and Shares Isa to save for the long term, but I'm unsure of what provider to use. Any advice would be gratefully received.

Alexland

Vanguard Investor into a LifeStrategy fund is our usual default suggestion for a small S&S ISA however a S&S Lifetime ISA or additional pension contributions may be more beneficial depending on your circumstances and objectives.

Alternatively Legal & General are currently offering £100 via Topcashback or Quidco if you invest that profile into their S&S ISA. Their mixed asset funds are a bit more expensive than Vanguard but the cashback more than covers all their fees for that profile during the first few years. You could transfer it to Vanguard after 2 years although it would be out the market in cash during the transfer.

Remember only invest if you don't need the money for 5+ years preferably longer to reduce the chance you withdraw less than you contributed or could have earned in cash savings.

EmmaG04

Alexland said:

Vanguard Investor into a LifeStrategy fund is our usual default suggestion for a small S&S ISA however a S&S Lifetime ISA or additional pension contributions may be more beneficial depending on your circumstances and objectives.

Alternatively Legal & General are currently offering £100 via Topcashback or Quidco if you invest that profile into their S&S ISA. Their mixed asset funds are a bit more expensive than Vanguard but the cashback more than covers all their fees for that profile during the first few years. You could transfer it to Vanguard after 2 years although it would be out the market in cash during the transfer.

Remember only invest if you don't need the money for 5+ years preferably longer to reduce the chance you withdraw less than you contributed or could have earned in cash savings.

Thank you I'll have a look more into the Legal & General ISA. I do pay into a pension and I'd prefer a Stocks and Shares ISA in case my circumstances change and I need to access the money in 5, 10 years time. 
Do you know if having dividends reinvested counts towards your yearly ISA allowance?

eskbanker

EmmaG04 said:
Do you know if having dividends reinvested counts towards your yearly ISA allowance?

No, it doesn't, the annual allowance relates to the amount of money you pay in, not the dividends (or capital growth) once within the ISA umbrella, whether or not these are reinvested.

Albermarle

One point to look out for is that many funds are offered as ACC or INC . The former means accumulation , and what happens is that dividends are automatically used to buy more units . The latter means Income and in this case dividends are paid out of the fund and you have to decide what to do with them . Normally for people trying to build up a fund ACC is better.
Second point is that you need to have a think about your 'risk tolerance' .Higher risk funds historically give better long term returns because they hold a higher % of equities ( shares) in the fund . However they can also dip quite sharply as we have seen in recent weeks . If you are young with a long time frame it is usually recommended to invest at the higher risk end but not everyone can stomach the roller coaster ride . As you are looking at possibly using the money in less than 10 years time then maybe something more medium risk would be more suitable. 
Finally have checked what your pension is invested in ? As this is naturally very long term, then some higher  level of risk could be appropriate.

EmmaG04

Albermarle said:

One point to look out for is that many funds are offered as ACC or INC . The former means accumulation , and what happens is that dividends are automatically used to buy more units . The latter means Income and in this case dividends are paid out of the fund and you have to decide what to do with them . Normally for people trying to build up a fund ACC is better.
Second point is that you need to have a think about your 'risk tolerance' .Higher risk funds historically give better long term returns because they hold a higher % of equities ( shares) in the fund . However they can also dip quite sharply as we have seen in recent weeks . If you are young with a long time frame it is usually recommended to invest at the higher risk end but not everyone can stomach the roller coaster ride . As you are looking at possibly using the money in less than 10 years time then maybe something more medium risk would be more suitable. 
Finally have checked what your pension is invested in ? As this is naturally very long term, then some higher  level of risk could be appropriate.

Thank you for your advice. I think in terms of risk I will probably go with medium risk in case I need to access the money. I've been looking at some multi index funds, and with the current situation would it better to invest in one with a higher percentage of equities than bonds?
In terms of my pension I'm not sure what it's invested in, I will have a look.

Alexland

The L&G multi index funds have some active management to try and maintain a constant risk exposure compared to the Vanguard LifeStrategy funds which have a fixed asset allocation so the risk varies slightly across the economic cycle.

Even with a medium risk profile there might be times when the fund drops by around 25% and takes years to recover. If you can cope with bigger drops and longer recoveries for the possibility of higher returns you could go higher risk.

carpy

i too am going to take my first plunge into an s&s isa in a few days time...
my thinking is it's a good time to invest with the markets dropping so low recently. although some turbulent times are ahead in the short term, i'm sure if invested for 10+ yrs the returns will be good..
i'm looking at a high risk strategy for up to 12+yrs at which point i'll hopefully be able to draw down from my pension

Albermarle

with the current situation would it better to invest in one with a higher percentage of equities than bonds?

As Alexland said some of these funds do not stick to a rigid % equities and operate within a range, whislt others do stick to a fixed % equity allocation. Typically a medium risk fund will have a % around 50 to 60%

EmmaG04

carpy said:

i too am going to take my first plunge into an s&s isa in a few days time...
my thinking is it's a good time to invest with the markets dropping so low recently. although some turbulent times are ahead in the short term, i'm sure if invested for 10+ yrs the returns will be good..
i'm looking at a high risk strategy for up to 12+yrs at which point i'll hopefully be able to draw down from my pension

Yes that's my thinking too. My plan is to drip feed some money into a few different funds over the next few months whilst the markets have dropped and hopefully see some returns in a few years.

dunstonh

and with the current situation would it better to invest in one with a higher percentage of equities than bonds?

The current situation doesn't change you should invest because another loss period will be along before you know it.  And if you are above your risk profile, you will suffer greater losses than you can tolerate. 

There have been three major periods in the last 20 years.   Two of them bigger than the current.    This is not an unusual event in terms of markets.  The cause/reasons for large drops are always different but they are always coming.   So, you should position yourself at a level no higher than you can tolerate losses for.

i'm sure if invested for 10+ yrs the returns will be good..
i'm looking at a high risk strategy for up to 12+yrs at which point i'll hopefully be able to draw down from my pension

Well, if you are doing regular premiums then anything less than 15 years is higher risk as the bulk of your money would have been invested for much less than an economic cycle.    So, remember to factor timescale into the risk measure.  Maybe start higher risk but reduce as time goes on (which everyone should do anyway where an exit point for the funds is set).