First time investment plans

rundmc-k

I am hoping to start investing in stocks and shares for the first time, and would love a bit of constructive feedback from the more experienced folk here.
I am aware I am very much at the start of a learning process, and that I am going to continue to educate myself after this post. I'm not going to jump into anything and I apologise if I use terminology incorrectly or make misinterpretations in the following:

I have decided the best option for me is to invest primarily into a SIPP, followed by a LISA, and then an ISA, all via S+S. I have an initial pot of around 20k to divide amongst these.
SIPP/LISA will be 20+ year investments, the ISA will hopefully be longterm too. If all goes well (massive 'if' obviously), I may not need to utilise it until 15+ years.

From reading a lot in this forum, and elsewhere over the last couple of weeks, my thoughts are that for my long-term investments, if I am fairly risk tolerant, that something like a FTSE All World Index tracker may be appropriate. It may be at risk of large sudden drops, and past performance no indication etc, but if that can be accepted, as a passive fund it would be reasonable to see it as a viable long-term option for decent growth, would that be fair to say?

So I am considering FTSE AWI tracker for LISA
50% same + 50% VLS80 for SIPP to slightly decrease equities investment & potentially reduce volatility
50% same + 50% VLS60 for ISA for same reasons as above

You may ask how I decided on those percentages. Well, to be honest, newbie guess work about risk acceptance for the various accounts.
As far as a FTSE All World Index tracker, I've read HSBC being mentioned on here?
As far as a platform, might iWeb be best for a simplish portfolio and no plans for a lot of tinkering?

Suggestions, recommendations, corrections would very much be welcomed, all part of the learning process.

bowlhead99

You may ask how I decided on those percentages. Well, to be honest, newbie guess work about risk acceptance for the various accounts.

The LISA and SIPP have a 20+ year timescale but if your planning has gone askew and you have an emergency situation to deal with, LISA is accessible (albeit with penalty) while SIPP is not. I don't know why that would lead you to invest in a more volatile investment for the LISA than for the SIPP. Surely the other way round is more rational.

The volatility reduction from going All-world tracker to going 'half all-world tracker and half VLS80' is not massive, as it's still 90% equities overall, and 85% of the equities are still on foreign stockmarkets (some reduction from 95% in an all-world fund).

As far as a platform, might iWeb be best for a simplish portfolio and no plans for a lot of tinkering?

IWeb don't offer LISAs, and their SIPP costs £90/yr while you have a small portfolio and £180 a year once it is worth £50k+.  AJ Bell Youinvest are 0.25% (i.e. only £25 a year on a £10k pension) and Vanguard even cheaper at 0.15%, though you might decide you don't mind paying the extra tenner per £10k at Youinvest because they offer a LISA which Vanguard don't, while also offering non-Vanguard products.

So Youinvest could be a decent option allowing you to keep everything in one place (unlike Vanguard or IWeb who don't offer LISAs) and would have the flexibility of non-Vanguard products without the high fixed cost of the IWeb SIPP. I use them myself (though not for a LISA as am too old); they're fine.Other people have a whole mix of providers to get the absolute lowest cost for each product, but I can't be bothered with that. When you only have £20k to invest and are looking for a simple 20 year solution, using multiple providers is a faff, though I suppose this is supposed to be a moneysaving site so you can't be surprised that people do it.

Albermarle

Just to take one step back first . Are you not already contributing to a pension via your employment ? Or are you maybe self employed without a pension so far ?
Do you have a suitable emergency cash reserve/savings ?
How old are you ?

rundmc-k

@bowlhead99 Thankyou for your response, that's very informative.
I guess my logic re the weightings (flawed as it may be) was that I would likely be paying more into my SIPP than LISA each year, and that my SIPP pot after 20 odd years could be significantly bigger, and therefore I should may be more reluctant in being 100% equities there. As you say though, the difference between 100% equitites and 90% equities is not vast and perhaps I was just paying lip service to risk reduction. Happy for my logic to be challenged on that, and I understand what you're saying re LISAs being accessible with a penalty.

Thanks for your recommendation, AJ Bell Youinvest certainly seems the right option for paying in an annual LISA lump sum. I'm not a big fan of faff myself, so would certainly consider them for SIPP/ISA too, although I guess I should consider if there are other cheaper providers for those products too and decide upon my faff tolerance. If you're suggesting Vanguard may be cheaper for both of those I'll have a look. Are iWeb good value for S+S ISAs then or have I misinterpreted their costs?

So with AJ Bell, would the likes of the HSBC FTSE AWI tracker be a reasonable product if I decided to go 100% equities for SIPP or LISA or both?
Thanks for your feedback

rundmc-k

@Albermarle Very reasonable questions to ask, thanks. I am 36 (in 3 days) and paying into an NHS pension, which I will be able to draw at 68 (Or 70 or 75 or later  ) 
I don't like the idea of staying in my line of work for the next 32-40 years, so am looking at the SIPP/LISA/ISA combo to hopefully allow me to retire in 20-25 years if somehow I'm still healthy and alive at that stage.
I do have an emergency cash fund if required, but should I maybe consider making my ISA investments <80% equities to encourage stability in case I need them (esp if SIPP/LISA are 90/100%) ?

MaxiRobriguez

You'll probably find it easier to continue investing to plan with fewer funds. For the sake of bringing VLS80 into the mix to water down a 100% equity fund, you're not really getting any diversification benefit. It's still really heavy on equities, so you'll suffer from downturns in any volatility scenario, but you're introducing a fund which overweights UK and will include bonds which may suffer from very poor performance over the next few years.

If it were me in your shoes I'd just stick to the 100% equity and regularly invest. I'd also see if it was more applicable to do it through an employer pension which may be a cheaper route in, and give additional tax benefits if you can avoid NI as well. 

Albermarle

rundmc-k said:

@Albermarle Very reasonable questions to ask, thanks. I am 36 (in 3 days) and paying into an NHS pension, which I will be able to draw at 68 (Or 70 or 75 or later  ) 
I don't like the idea of staying in my line of work for the next 32-40 years, so am looking at the SIPP/LISA/ISA combo to hopefully allow me to retire in 20-25 years if somehow I'm still healthy and alive at that stage.
I do have an emergency cash fund if required, but should I maybe consider making my ISA investments <80% equities to encourage stability in case I need them (esp if SIPP/LISA are 90/100%) ?

OK the NHS pension is a good one but I can understand you wanting some flexibility via other investments. You will know that investing via a SIPP will bring you tax relief, although your money is tied up for longer and you will pay some tax later on it.
Normally the recommendation is to keep your emergency cash fund in an easy to access savings account . Sods law is that you would need it just after VLS 80 dropped 30% so you would be having to crystallise losses.

rundmc-k

@MaxiRobriguez Yes I see your point, I had read about the UK weighting of the VLS80. So you're saying that I would have such a high equity % anyway that the VLS would potentially only reduce the profitability of the portfolio, without softening any of the downturn blows? If you were in my shoes, would you consider tying LISA, SIPP and ISA to 100% equity, or try to have a potentially much less volatile fund for the ISA, e.g. VLS60?

rundmc-k

@Albermarle I definitely agree about keeping some emergency cash available, I haven't quite decided on how much that will be, but will have a think about it. The SIPP plan is indeed partly to avail of tax relief, with an aim to withdrawing it in such a way in the future so that <40% of the pot gets taxed.
I think you are essentially suggesting that if I do have left over funds after investing in LISA+SIPP that I should just be careful about how much I would put into a S+S ISA, to ensure I still have a main emergency fund in a savings account.
Would you have any thoughts on what level of equity investment might be reasonable in an ISA at that point?

bowlhead99

rundmc-k said:

I think you are essentially suggesting that if I do have left over funds after investing in LISA+SIPP that I should just be careful about how much I would put into a S+S ISA, to ensure I still have a main emergency fund in a savings account.
Would you have any thoughts on what level of equity investment might be reasonable in an ISA at that point?

This is a very personal thing as some people are more risk averse than others.

Generally new investors tell themselves that of course they know they are in it for the long term and that only a fool would take their money out when they see lower market prices because that's when it's better to buy more rather than sell at low prices. But then in reality they see share prices down 20% they get nervous, while holding on and being really annoyed with themselves for picking the high-equity investment choice. And then later, further into the crash / recession they see they are down 25-30% from their peak and they still hold on but start to ask questions on forums about what everyone thinks they should do, and then later they see they are down 40%, and they can't afford to lose more because this is pre-retirement money not 'forget it for another twenty years money', so they think sod this for a game of soldiers, sell up and move to something less risky; or even to cash - and then the market goes back up without them.  So, there is some 'behavioural' self-inflicted risk as well as pure market risk.

If you go 100% equity once you have built a good 'emergency fund' of several months living expenses, you know that simplistically, the money being put into that 100% global equity pot might double if left for a decade (7% annualised for 10 years is 97%, and not implausible depending on what happens to inflation etc). But you also know that the value might crash in value by 40-60% in an 18 month period (e.g. global financial crisis from Autumn 2007 to March 2009, FTSE All-World dropped 58% peak to trough when measured in USD) and when it falls it may take several years to bottom out (e.g. 2000 to 2003) and when it does start to come back it could be long and slow rather than being a quick V-shaped bounce.

If you are going to track an international index of stocks (especially as 95% of them won't be UK stocks if you are using a developed world or all-world tracker, and even the UK stocks will be heavily weighted to international currencies if you are using a market-cap weighted index to get the UK exposure), then you can get quite drastic swings of value. And remember if you are contributing to the ISA annually, by the time you have been doing it for a decade you will have ten years contributions in it, plus nine years growth on the first year's contribution, and eight years' growth on the second year's contribution, and seven years growth on the next year's contribution etc - so, there is a lot of money in the pot which is going up or down on a daily basis often without rhyme or reason.   You are hoping that the overall trend is up but the monthly movement will often not be.

That means "What level of equity investment might be reasonable" is a very personal question, but for context you could probably think 'what percentage of a 50% loss of my accumulated ISA balance would I be willing to see fall away over a couple of years'. If you would not be willing to see a 50% paper loss on your accumulated capital and growth but could perhaps handle three quarters of a 50% loss, (i.e. 35% ish), then only put three quarters of the ISA contribution into equities and the other quarter into something that is not equities and is either much less volatile or not correlated with equities so it doesn't crash at the same time.

Albermarle

Would you have any thoughts on what level of equity investment might be reasonable in an ISA at that point?

It would be different for different people . The theory is that when you are younger , you should go for high equity content.

However when the market goes through a bad patch , not everybody can stomach the big and fast drops, even though beforehand  they thought they could. Personally I am a bit more the cautious type, so even if I was younger I would probably not go for 90% equities, even though the historical evidence would be in favour of it.