S&S ISA Beginner Questions!

Haveaheart

Hi Everyone, new here and after a little advice.
Background info:
29 years old, 6 months emergency fund saved (6 months salary), 30K savings (earning next to nothing!), debt-free (other than mortage).

I'm a business owner, and until now, have no sort of pension, investments or retirement plans (other than cash savings and growth in business).
I now want to look ahead to my retirement, and long term (25 year) investments.
After a lot of reading and considering, I decided a S&S ISA would be a good starting point, keeping things simple and investing in the FTSE100 for example, and letting things run their course.

Its a mind field for a beginner investor like me, and many months of reading, watching and trying to figure out exactly how S&S worked, I thought I would just jump in and open a S&S ISA, with a small investment (which I can easily afford to lose) to get comfortable with a trading platform, how it worked, the fees, and so on.

So, I opened an S&S ISA with Hargreaves Lansdown, threw in £500, and invested it all in HUKX (HSBC ETFS PLC FTSE 100 UCITS ETF). The trade cost me around £12, and the plan was then leave this alone, and to drip-feed another £100 a month in at first, until I'm comfortable, and then look to make a bigger investment of around 10K with monthly additions of 3-500£.

However, what I didn't realise (and not sure if it's the case?) is that for every £100 I want to invest in the HUKX per month, I will have to pay a £12 fee? this seems a high percentage of my monthly investment, and surely not that profitable long term

Is this correct? Am I on the right path or have a made an error in my plans here?

As I say, I'm new to investing in S&S and wanted to really start with something simple, fairly reliable, and be committed to it for the next 25 years with continuous payments, and re-investing any dividends.

eskbanker

If you're a business owner with no pension yet, it's likely to be most advantageous to have the company pay into a pension for you, rather than you independently investing already-taxed money.

jimjames

Haveaheart said:

However, what I didn't realise (and not sure if it's the case?) is that for every £100 I want to invest in the HUKX per month, I will have to pay a £12 fee? this seems a high percentage of my monthly investment, and surely not that profitable long term

Is this correct? Am I on the right path or have a made an error in my plans here?

As I say, I'm new to investing in S&S and wanted to really start with something simple, fairly reliable, and be committed to it for the next 25 years with continuous payments, and re-investing any dividends.

I agree with the previous comment about the company but yes you have made an error choosing the ETF and platform. If you use a fund instead then there is no £12 fee. Easy to fix and if you look to use your company instead then you may not end up adding much more to this anyway

grumiofoundation

Not just are you spending £12 to buy it but will need to spend £12 to sell it. So need 24% growth just to break even. 

There is no charge for dealing funds on HL, so these are more suitable for  amounts you are talking about. 

https://www.hl.co.uk/investment-services/isa/savings-interest-rates-and-charges

Why did you decide to just invest in the largest 100 uk companies? Investing solely in the FTSE 100 is far riskier than investing in a globally diversified index tracker. ( E. G. See below links). If you opt for the accumulation version then you don’t have to worry about manually reinvesting any dividends. https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-ftse-global-all-cap-index-accumulation

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-ftse-all-world-index-class-c-accumulation

(Although you shouldn’t solely invest based on past performance check out the difference between these and the FTSE 100). 

If you want to diversify further and want to try and reduce short term risk not be 100% invested in equities there are a number of multi assets funds available from various providers (most if not all would be available on HL). 

https://monevator.com/passive-fund-of-funds-the-rivals/

It seems like it would be worth you doing (quite a lot) more research before investing any significant amounts of money. There is a myriad of resources available online, and reading some threads on this forum asking similar Qs to you make also be helpful (obviously not all posters agree on everything!). As well as researching what to invest in deciding the wrapper you will use (ISA, pension etc) is also important. The ongoing costs (HL is not the cheapest at 0.46%) can become a drag on performance when you get to much larger sums invested. Obviously you have already found out the perils of transaction costs for small amounts! 

dunstonh

After a lot of reading and considering, I decided a S&S ISA would be a good starting point, keeping things simple and investing in the FTSE100 for example, and letting things run their course.

That is likely to be wrong on two points.
1 - As a business owner, that suggests a limited company (otherwise you would be referring to yourself as self employed).  Contributions to a pension are far more tax efficient than the ISA.
2 - Investing solely in the FTSE100 is poor quality investing.  It's putting your eggs in one basket.

Its a mind field for a beginner investor like me, and many months of reading, watching and trying to figure out exactly how S&S worked, I thought I would just jump in and open a S&S ISA, with a small investment (which I can easily afford to lose) to get comfortable with a trading platform, how it worked, the fees, and so on.

They key to doing it on a DIY basis is sticking within your knowledge and understanding and not trying to do things that are too advanced.  You dont need a trading platform as you wont be trading.

So, I opened an S&S ISA with Hargreaves Lansdown, threw in £500, and invested it all in HUKX (HSBC ETFS PLC FTSE 100 UCITS ETF). The trade cost me around £12, and the plan was then leave this alone, and to drip-feed another £100 a month in at first, until I'm comfortable, and then look to make a bigger investment of around 10K with monthly additions of 3-500£.

That is another mistake. Spending £12 on fees buying an asset that isn't designed or priced to be bought for a small amount like £500 was a mistake.  If you really desperately wanted a FTSE100 tracker then you should have stuck with a Unit Trust/OEIC rather than an ETF.    UT/OEICs do not have dealing costs.

So, you probably should be using the pension tax wrapper rather than ISA tax wrapper.    You have also picked the investments badly (you could go FTSE100 for your UK allocation but where is your US, Japan, Asia etc) and you used an ETF rather than an OEIC/UT when you are only looking at small amounts.
Given your lack of knowledge, you should probably have stuck to multi-asset fund in the UT/OEIC universe.

DireEmblem

1) Have a look into a pension calculator - something like this I think is decent to give a reality check, and work back from how much you would like to live off, to how much you need to contribute to have enough savings to get there.
2) Look into the tax advantages of having your salary paid into your pension before tax.
3) If you are a higher rate tax payer, consider the fact that your pension contributions come out of your wage prior to being taxed, so you could effectively have the 40% tax you are paying paid into your pension.  You could even consider using part of your 30k cash savings if its not all needed as an emergency fund to help accelerate this.
4) If you are a lower rate tax payer, you could consider a Lifetime ISA.  You can contribute up to 4k a year, and the government would add £1k.
5). I would consider switching out of your FTSE 100 Index fund, into a FTSE All World Index fund.  Its more balanced and should help better protect and grow your savings at a global level.  Right now, and with a minimal pension, you may want to be in 100% equities as you could afford to take more risk for better gains, and then later start switching to more stable investments like bonds.  A simple means to do this could be to invest in the Vanguard Lifestrategy 100% fund on the vanguard platform(for the cheapest fees), and then switch down to their 80%/60%/40% as you near retirement.
6) As you are new to investing, consider taking advantage of some of the signup offers.  I'm not saying this is a good strategy long term, but I remember Nutmeg used to have a £100 bonus offer if you deposited £500, and invested £100 a month for 6 months.  Effectively almost a 10% head start.  Similarly MSE have bagged a deal with Wealthify, to invest £400 over a similar timeframe, for a £40 bonus.  I probably wouldn't stick with them for a pension long term, but again it is a good head start if you can get it.

Haveaheart

Thanks all - perhaps should have come here first, had read so much and couldn’t make a lot of sense of what these ‘funds’ and various options were, so went ahead and jumped in, and subsequently put the £500 in to see how it all worked... 

I am also looking at a pensions scheme (yes I am a director) but wanted a few variety of options.

Looks like back to the drawing board abs some more reading into some of these recommendations.

best just to leave the £500 invested were it is, or take this out?

I’m not sure I’m able to open another S&S ISA now this year am I? So best to look at the HL options mentioned above?

Haveaheart

And thanks for the detailed responses and suggestions, it’s much appreciated!

dunstonh

I am also looking at a pensions scheme (yes I am a director) but wanted a few variety of options.

The reason pension is better on that front is that you can make company contributions which reduce your corporation tax.  And it gets money out of your company without the need to draw salary or dividends (on that bit).  So, saving tax on those.  

TheAble

Investing in a FTSE 100 tracker is fine btw as a starting gambit. Over the long term you won't go far wrong. But as others have said you want to do it as a unit trust where you won't pay dealing fees.

dunstonh

TheAble said:

Investing in a FTSE 100 tracker is fine btw as a starting gambit. Over the long term you won't go far wrong. But as others have said you want to do it as a unit trust where you won't pay dealing fees.

100% in UK large cap is not a good idea.  The FTSE100 is a weak index to track.  It is too reliant on small number of businesses and is an index that generally focuses more on dividends than it does company growth.  That is held the economy back and investment returns with it.      You could probably excuse 100% UK FTSE all share at a push but its still 100% into UK equity.   The UK is much better at small and medium cap but you would be ignoring the US, Asia, Europe and elsewhere.