Regular deposits vs infrequent lumps with a cheap provider?

JustAnotherSaver

I've done a bit of reading on investing, trying to educate myself over time. A common theme runs throughout - invest cheaply. Obviously this wont apply to everyone but it's the approach I've taken.

My Lifetime ISA is with AJ Bell. I did this due to the low fees. My original Lifetime ISA was with Hargreaves Lansdown which I believe to be one of the dearer ones.

Without going and pulling the figures now, off the top of my head HL were 0.45% and AJ Bell were 0.20% - 0.25%?? So about twice the difference although the impact depends on how much you're investing I guess.

Due to AJ's £1.50 per trade charge, I decided to lump sum no more than twice per year. This year will actually be once. 

Even if I went twice per year, say at 6 monthly intervals, that is missing out quite a chunk of change. My investing with my SIPP is monthly. Without the £1.50 trade charge i'd do the Lifetime ISA monthly also. Instead it just goes in to regular savings and then deposited in to the L-ISA as and when.

I was then reading a recent thread on here and I think it was dunstonh who actually said, although it could've been anyone really - that people focus way too much on charges. It's not the be all and end all and paying a bit more could actually be better in the long run - which most of us are in for anyway I imagine.

There's various things people say that can apply. It's time in the market not timing the market for example. Keep your costs low as possible for example.

Just looking for a bit of experienced feedback on the topic of this. I was looking to switch from contributing mostly to the SIPP to the L-ISA recently and then I started thinking about the costs and whether it would actually be better paying a bit more with another provider (though who i'm not sure yet) for the freedom of no trading charges. If trading charges in the wrong term then surely you know what I am trying to say - paying in monthly to the funds you already hold?

Alexland

By reducing your trades on AJ Bell you are saving some £1.50s but then you are losing some investment growth that on average would have occured while you were sitting on cash waiting to invest.
But then the money you delayed investing was somewhere presumably earning interest so its really just the difference on the average investment return (including the bonus return if being picky) and interest that was earned compared to the £1.50 trade cost. On a larger rate of contribution it might be worth just paying more £1.50s.
As your account grows the lower 0.25% platform charge at AJ Bell (or less if you benefit from capping on exchange traded assets still paying £1.50 for trades if scheduled in advance) becomes more significant compared to HL's 0.45% than the £1.50 trade fees.

noclaf

I generally take the view that investors should not concern ourselves too much with timing the markets and my Vanguard S&SISA uses this approach as I have a monthly standing order setup that purchases units of a fund at a fixed amount irrespective of fund prices or what the market is doing generally... however when we had the covid-induced market drop in early 2020 I used this as an opportunity to top-up with a lump sum so I tend to use a mixed-approach to investing.
For example I recently opened a LISA with AJ Bell and am investing in a Global Equities ETF (based on a helpful suggestion by @Alexland) however as some markets appear to be quite high or a bit 'frothy' as some would describe it Ive decided to drip-feed my LISA balance over the next 6 months using AJ Bells regular scheduled investment option. My decision may or may not be beneficial depending on what the market does during the next 6 months but I don't have a crystal ball and it's a long-term gameplan/investment so no point over-thinking it.

RetSol

I have a S&S ISA with Aegon with a 0.39% annual platform charge but no dealing charges, charges for income reinvestment or charges for monthly purchases.  I use that for an income portfolio which consists of a number of funds. I also intend making small monthly purchases to add to a multi -asset growth fund..  I have also just opened an AJ Bell SIPP and ISA and will probably use AJB as the platform for a single for a multi-asset fund - perhaps making a partial ISA transfer out of Aegon eventually - so as to benefit from the lower platform charge of 0.25% without incurring too many dealing charges. I also have a DC pot with Legal and General where the annual charge is 0.2%.  In other words, by spreading your investments around a bit and using a horses for courses approach it is possible to lower the costs. 

JustAnotherSaver

Correct me if i'm wrong but Vanguard don't charge to trade and are also cheap and so would not be comparable with what I am actually asking?

I have an old S&S ISA with them and i'm fairly sure (though not 100%) that I paid no fees to contribute monthly. So since they (i think) don't charge per trade and offer their products about as cheap as you can get them and they're generally cheap then it wouldn't be an issue at all contributing monthly?

I was merely wondering about the AJ Bell situation I currently have as they charge per trade, so if i contribute monthly then I am charged each time. £18/yr1, £36/yr2, £180/yr10 and so on. £18/yr isn't retirement money but it all stacks up and the question is is it worth it. Could you be overall better off elsewhere due to these contribution charges.

I always get stumped with these workings out which is why I always have to head here to discuss with those who are better mathematically than me who also have decent investment knowledge

RetSol

it's a long-term gameplan/investment so no point over-thinking it.

I agree.  Charges are not the most important consideration.  Don't let the costs tail wag the investment dog, I say.  Just be aware of what the costs are. 

Alexland

JustAnotherSaver said:

I was merely wondering about the AJ Bell situation I currently have as they charge per trade, so if i contribute monthly then I am charged each time. £18/yr1, £36/yr2, £180/yr10 and so on. £18/yr isn't retirement money but it all stacks up and the question is is it worth it. Could you be overall better off elsewhere due to these contribution charges.

While the account valuation is small then trades are a high proportion of the platform cost but once the account gets big enough then the £1.50s don't really matter. Our LISAs are around £25k each and AJ Bell cap a £42 on holding an ETF and we do scheduled buy trades 5 times a year at £1.50 each so we each pay £49.50 total which is less than 0.20% pa. Once the accounts are £50k each then we will still pay £49.50 (unless they increase prices again...) but that will be under 0.10% so even cheaper than Vanguard's 0.15% if they offered LISAs.

Over the lifetime of us keeping the LISA accounts until age 60 the capped platform charges and trades (which stop at 50) will cost us about 1 year's bonus plus associated growth on that bonus. But then we are avoiding contributing and trading in our iWeb accounts for several months each tax year so it's not all extra platform cost compared to having all the assets in our S&S ISAs.

JustAnotherSaver

Alexland said:

 Our LISAs are around £25k each

How so?

I thought LISAs had only been going a few years. 3 or 4. Go with 4 for the higher end of my assumption and that's £20k with bonus.

Or are you talking inc growth within a S&S format - so you've made £5k from £16k cash + £4k bonus?

Not bad if so. Looking at my SIPP i've made £4.5k off of £20k so far. Though not entirely sure if that tells the full story as when we were at the £10k mark in a S&S ISA we pulled the lot and put it in to a SIPP.

Alexland

JustAnotherSaver said:

Or are you talking inc growth within a S&S format - so you've made £5k from £16k cash + £4k bonus?

Yes platform fees are considered against the valuation including growth. We have been investing near the start of the tax year since launch nearly 4 years ago and an accumulating developed world tracker is up around 50% since. While we have been buying at increasing unit prices we were able to make some of this tax year's contributions while the market was still a bit crashed out so overall around 25% growth (more pounds than the bonus) after paying fees.

maxsteam

There are a quite a few low-cost dealing platforms popping up every day, it seems, but, in my opinion, all of the providers mentioned in this thread are reputable. Others worth investigating are Degiro and x-o.co.uk.

JustAnotherSaver

As it's the start of a new tax year and i've been dealing with some other ISAs, my thoughts came back to this thread from a different angle...

"It's time in the market not timing the market". Common phrase. Well I suppose any buy-in is a form of timing the market in a way, even if you're not intentionally trying to time it.

Now pretty much I will pay in to my SIPP or LISA a set figure each month. It's what I've always done. So there'll be some purchases that will be higher and lower than others, obviously.

But I was thinking today about the possibility of, for the LISA at least, putting in the full £4k right at the start and taking this money from a savings account and rather than paying in to the LISA each month with let's say £333.33 per month I would then instead 'pay back' this money in to the savings account I took the £4k from. Taking the £4k isn't going to leave me dangerously short but at the same time I wouldn't want to keep taking too much from the account.

Issue there is whether on day 1 of the tax year you buy at record highs and everything just falls for the next 12 months (or to put the point in plain English - you buy high and the rest of the year is crap where you'd have been better off putting your cash in monthly).

So if it was you who is reading this, would you drop £4k in monthly instalments or would you do as I mentioned and take the £4k out of savings early on and then pay that back in to your savings in instalments?

Though I suspect the majority answer will be C) other.