Regular investing ETF with s&s ISA W

bargainhunter888

Hi, I’ve set up an isa through Hargreaves and Landsdown and looking into investing into ETF, a lot of people suggest going for acc to build up funds, but for example if I chose and income and the dividends paid out do not cover the cost of buying a share, what are the options? Also given the fact HL charge 11.95 per trade, is it pointless to select income related etf? When most people drip feed into an ISA is it that they buy Into other funds which are not traded on exchange and valuated daily as such there is no dealing charge but there is a management fee?

bowlhead99

bargainhunter888 said:

looking into investing into ETF, a lot of people suggest going for acc to build up funds, but for example if I chose and income and the dividends paid out do not cover the cost of buying a share, what are the options? 

The options would include leaving the money in the account uninvested until you do have enough money to cover the cost of buying a share (either by receiving more dividends in future, or when you next put new money in).

Alternatively you could invest the money in an open-ended fund where you could afford the minimum and there isn't a transaction fee. HL have thousands of these.

Or you could buy a different share that you could afford, but that is likely to be expensive because you would not get the special 'automatic reinvestment of dividends for a 1% charge (£1 minimum)' and you would instead be paying £11.95 to buy a share or ETF that trades on the stock exchange.

Also given the fact HL charge 11.95 per trade, is it pointless to select income related etf? When most people drip feed into an ISA is it that they buy Into other funds which are not traded on exchange and valuated daily as such there is no dealing charge but there is a management fee?

Drip feeding small amounts into ETFs can be expensive if you are using a platform that charges high transaction fees to buy things on a stock exchange, because the transaction fee will be a large proportion of each purchase. HL do have a 'regular investing' program where you contribute your money by direct debit and they only charge you £1.50 per transaction as they buy in bulk with other investors on a fixed day each month which gets you a lower cost, but it only covers about 80 popular ETFs.

The short answer is that yes it will be inefficient to select an ETF that pays income which you then want to reinvest and don't have enough money to buy a single share, or need to pay fees to execute the transaction to buy a new share on the stock exchange.

You are right that people starting off with small amounts of reinvestments or just small monthly dripfeeds of <£1k a time, will probably not use something that needs to be traded on a stock exchange ; they would instead use an open-ended fund on a fund platform that doesn't have a dealing fee to buy such funds (and allows you to buy fractional units so that you don't have to buy 'a whole 1 share').

cloud_dog

bargainhunter888 said:

Hi, I’ve set up an isa through Hargreaves and Landsdown and looking into investing into ETF, a lot of people suggest going for acc to build up funds, but for example if I chose and income and the dividends paid out do not cover the cost of buying a share, what are the options? Also given the fact HL charge 11.95 per trade, is it pointless to select income related etf? When most people drip feed into an ISA is it that they buy Into other funds which are not traded on exchange and valuated daily as such there is no dealing charge but there is a management fee?

What you should have done is....

1. Open a general investment account with Vanguard, as buying ETFs via their regular investment option incur's no additional transaction charges (unsure how income/dividends operate in this situation but I'm sure you could ring and clarify).
2. Periodically, sell the Vanguard GIA ETF and transfer the money in to your iWeb ISA (or another equally cheap ISA provider), and re-buy the same or a preferred investment ETF (incurs a transaction charge with iWeb).  
3. Rinse and repeat.

Dividend investing in iWeb (for example) will incur a transaction charge so you may want to wait to process those.  Personally I wouldn't buy an ETF that produces external income (divis).

bargainhunter888

I guess to the point about divis it will be the same if I was buying individual stocks? If I’m not a heavy investor then the dividends will be very small and I wouldn’t be able to buy whole shares with it? For something that is 5% yield id need minimum 20 shares to get enough dividends to buy 1 and be stung with a trading fee!