Hands-off Stocks and shares JISA?

reg091

I have about £14K in a cash JISA for my son (currently six years old). I have always been tempted by changing to a stocks and shares JISA as the returns over such a long-term are likely to be higher (yes, I know that is a crystal ball view).
With interest rates now plummeting I am again tempted to switch to Stocks and Shares. The thing is, every one I look at it suggests that I have to make decisions regularly about buying and selling shares and I know nothing about the stock market. I assumed that the reason I would have to pay fees for a S&S JISA is that they "do all that for you" but it doesn't seem to be the case.
Is there such a thing: a S&S JISA where you can open it, invest and then sit back trusting them to make the trades in your best interest over the years (and charge fees for doing so of course)?

Zorillo

Yes there are lots. My twins JISAs are with Vanguard and invested in Vanguard Life Strategy 100, which is a fund that invests in the global economy and takes day to day decision  making away from me, in return for a small fee.

Other similar funds are available but I found Vanguard (fund) via Vanguard (platform) to be cheapest and most convenient for what I wanted 2 years ago.

The 100 represents the level of equity investment,  e.g 100% is invested in stocks and shares and therefore it goes up and down like a yoyo. Less volatile versions exist (20, 40, 60, 80). 

For a six year old I personally would stick with 100 and review in 5 years time with a view to what the money was intended for at 18, and dial back the equity exposure if I thought the money would be taken out at 18. 

Other people might think 100% is too spicy for a six year old. Or a one year old. Or anyone.

Alexland

The problem is that it's still possible to get circa 3% cash interest rates on JISAs and to stand a good chance of doing better on S&S at current valuations is difficult and you would need to accept high volatility (eg 50% loss at times) and keep your fees ultra low.

Zorillo

I regret not using the twins to settle the debate, Alex. One in cash, one in equities....

Alexland

Zorillo said:

I regret not using the twins to settle the debate, Alex. One in cash, one in equities....

I have been switching mine between cash and equities depending on the market opportunity. Looking across all 12 of our investment accounts the children's JISAs have done best recently. It's funny how knowing that you can get a safe 3% rate somewhere stops you taking market risk when there is limited return potential.

port_of_spain

Zorillo said:

I regret not using the twins to settle the debate, Alex. One in cash, one in equities....

Ideally, you could have also named them Cash and Equities

reg091

Thanks all for your input. Maybe my expectation that S&S investment over 12 years is "likely" to yield more than 3% is unrealistic.
I agree it is comforting to have a cash JISA steadily earning some % with zero fees to pay. Currently with Coventry at 3.6% but they are dropping that to 2.95. NS&I still currently 3.25 so I may transfer there, but sods law they will cut their rate just as I have done it (surprised they haven't cut it yet)!

Alexland

The problem is that low interest rates have driven asset prices higher so for investors buying into S&S now the opportunity is less attractive.

For example Vanguard one of the world's biggest asset managers published a 10 year outlook in Nov-19 which estimated that global equites will return around 4.5% pa and global bonds will return around 1% pa. Most portfolios would be a mixture of both with a reducing equity proportion as withdrawal approaches to reduce the impact of withdrawing during a stock market crash.

https://www.vanguard.co.uk/adviser/adv/articles/research-commentary/markets-economy/global-outlook-summary-2020

So on a 12 year outlook your adventurous portfolio might start 80% equities and 20% bonds which would give an expected return in the early years of (4.5% x 80%) + (1% * 20%)= 3.8% before fees. So if you went low cost and paid around 0.4% fees that would return slightly higher than the circa 3% as you could get in a Cash JISA account. Some S&S JISA fees are as high as 1.5% pa and have very tame asset allocations so they seem almost certain to underperform attractive cash rates.

Now global equities are currently around 10% cheaper than in Nov-19 which will help their return however bonds are more expensive which will damage their future return. So maybe in the next 5-7 years you could hold a high 80% or 100% equities allocation and hope to slightly out perform a Cash JISA account however you are taking a lot of volatility risk (eg drops of 35% or 50% respectively) for what might be a small percentage gain. Still even small percentage gains compound up over the years so you might decide it's worth going for.

reg091

@Alexland Thank you so much for taking the time to write such a detailed and helpful post, it has really helped to inform my decision to stay with a cash JISA. After all, interests rates can only go up from here!

Alexland

reg091 said:

After all, interests rates can only go up from here!

Hmm maybe...