MUSINGS OF A NEWBIE

natsplatnat

Morning All,

I am posting here looking for some thoughts on my thoughts (please excuse any incorrect terminology; despite reading & trying to learn all about this for several months, I'm new to all this)....

I am looking to open my first S&S ISA - I understand my capital is at risk etc.

I would be looking to invest £80 - £100 a month for 10-20 years and targetted toward retirement. This is a figure I am comfortable with to begin. I will also continue to 'save' in the conventional way at approx £400 per month.

I am thinking of a 'do-it-for-me' (passive?) fund to start - my thinking is that these have the lowest fees so won't make such a dent in my pot in the early days (don't want to be paying out £100+ a year when there's only approx £1000 in there)... or should I approach this differently?

Is there a specific time of year when new ISAs are launched?  Near the end of the tax year to grab new customers / at the beginning of the new tax year?

Has anyone had any experience with OpenMoney (it was mentioned by M.Lewis)?

My reading to date would suggest a globally diverse fund?

I guess I am looking to see if my thoughts are plausible and if there are any other things I should give consideration to?

Thanks in advance.

moneysavinghero

ISA's are available all year round. You just get an extra £20,000 allowance (currently) each tax year.

So you could open an ISA today and put £20,000 in it (as long as you have not paid into an ISA already this year which it sounds like you havent). Then in April when the new tax year starts you could add another £20,000.

Remember than an ISA is just a wrapper. It does not have any investments inside in until you put some in their yourself.

ChilliBob

There's lots of options for brokers, if you're putting cash in monthly as oppose to lump sum then I think you want one with regular investment plan where it won't cost much - otherwise if it were to cost £5-11 each time you invested each moth that would take a serious dent in your returns. 

Take a look here: https://monevator.com/compare-uk-cheapest-online-brokers/

The size of your pot, how often you intend to invest, and in what, will have a bearing in what's right for you. 
Vanguard is popular I believe - you're limited to their funds, and it's only suitable for smaller pots, but the vanguard funds are good for 'set and forget' type vibe and low fees. 

ChilliBob

Oh and you might want to read the MSE guides, there's a take that 'do it for me' could be using something like Weathify/Nutmeg etc as opposed to selecting a fund (even if it ends up as a fund, like Vanguard's Life Strategy, which does it for you sort of thing)

natsplatnat

moneysavinghero said:

ISA's are available all year round. You just get an extra £20,000 allowance (currently) each tax year.

So you could open an ISA today and put £20,000 in it (as long as you have not paid into an ISA already this year which it sounds like you havent). Then in April when the new tax year starts you could add another £20,000.

Remember than an ISA is just a wrapper. It does not have any investments inside in until you put some in their yourself.

Absolutely! I think what I meant was (and I know no one knows) is a there a time of year when they lauch new products that may (or may not) have different fees attached to them... historically has this happened in a particular month? For context, I'm the person that spends time looking for an item I want to buy at a price I'm happy with and buy it... and then 10 days later it goes on sale. Or I find a fair priced gas and electric tariff, tie in for 12 months+ and 1 month later a much cheaper tariff is launched. I know there won't be any hard rules for ISAs, but wondered if there had been any trends noticed.

Alexland

natsplatnat said:

I think what I meant was (and I know no one knows) is a there a time of year when they lauch new products that may (or may not) have different fees attached to them... historically has this happened in a particular month?

For cash ISAs there used to be points in the year with better interest rates but the best value S&S providers don't tend to have too many offers. Sometimes you can do well signing up via topcashback (but their ongoing fees tend to be higher to compensate so if you stay too long or contribute above the minimums you could pay more) of if you already have a large sum to transfer into them.

In your case I suggest the first thing to think about is if a S&S ISA is the best way for you to save towards retirement compared to making additional workplace pension contributions, a personal pension or a lifetime isa as appropriate for your circumstances.

natsplatnat

Alexland said:

In your case I suggest the first thing to think about is if a S&S ISA is the best way for you to save towards retirement compared to making additional workplace pension contributions, a personal pension or a lifetime isa as appropriate for your circumstances.

Thanks Alexland - I have 11% going into my workplace pension (combined employer and employee - I have opted to put more in than the statutory 5%) - this is my only pension and it was started when they rolled out a few years ago.

I'm 40 if this has any bearing on anything. 

In my mind (it can be a strange place!) it made sense to open a S&S ISA so that there were two independant 'pots' (wpp and ISA) each with their potential to grow a return... one may out perform the other?

Or as a basic-rate tax payer am I better diverting more into the pension because the spectrum of investments in each would potentially be similar and one wouldn't significantly out-perform the other?

I know the plan would be to not touch the ISA, but I can withdraw from it if I absolutely have to (not planning on having to btw) unlike the pension?

Alexland

So if you are already 40 that rules out opening a new Lifetime ISA but if you are a basic rate taxpayer there is a tax advantage in higher pension contributions where you save basic rate tax on the contribution now and then in retirement would expect 25% tax free and then to draw the remaining 75% with a mix of your tax free personal allowance (some of which would be used by state pension) and basic rate tax in retirement. If your employer operates salary sacrifice (so your contributions appear as employer contributions) then you could also save the employee (and sometimes employer) national insurance on the contribution.

You would need to consider the minimum scheme age for accessing the pension (which might increase) and realistically if you are likely to accumulate sufficient wealth to be in a position to retire before that using S&S ISAs. If you are unlikely to afford to retire before the minimum age and don't need access to the money (assuming you have a sufficient cash emergency pot) then you might as well go for the tax benefits of making pension contributions.

In terms of investment performance there is no reason why a pension or ISA would have a performance edge as they are both tax wrappers and it's the investments within them that will have a performance. Check what options are available in your existing pension(s) and it might be an option to transfer out lump sums into a SIPP if you want wider investment choice.

natsplatnat

Alexland said:

So if you are already 40 that rules out opening a new Lifetime ISA but if you are a basic rate taxpayer there is a tax advantage in higher pension contributions where you save basic rate tax on the contribution now and then in retirement would expect 25% tax free and then to draw the remaining 75% with a mix of your tax free personal allowance (some of which would be used by state pension) and basic rate tax in retirement. If your employer operates salary sacrifice (so your contributions appear as employer contributions) then you could also save the employee (and sometimes employer) national insurance on the contribution.

You would need to consider the minimum scheme age for accessing the pension (which might increase) and realistically if you are likely to accumulate sufficient wealth to be in a position to retire before that using S&S ISAs. If you are unlikely to afford to retire before the minimum age and don't need access to the money (assuming you have a sufficient cash emergency pot) then you might as well go for the tax benefits of making pension contributions.

In terms of investment performance there is no reason why a pension or ISA would have a performance edge as they are both tax wrappers and it's the investments within them that will have a performance. Check what options are available in your existing pension(s) and it might be an option to transfer out lump sums into a SIPP if you want wider investment choice.

Thanks Alexland - you have provided me plenty to think about.

I think I know I need to play catch-up with my pension, so will seriously consider upping my contributions there.

natsplatnat

Morning All,

Going forward from yesterdays comments on my musings, I have been looking at my wpp (my only pension).

Contributions started in May 2017 at something like 1% from me, 1% employer. these have been upscaled over time so contributions are currently set at 8% me, 3% employer. I can keep upping my % but the employer is at max %.

Retirement age is (currently set) to 68 (I am just shy of 41).

The pension offers 3 standard investment profiles, each has a 15 year glidepath...

Adventurous = up to 100% shares (41.5% in Northern America)

Balanced = 85% shares / 15% gilts, bonds, cash

Cautious = 60% shares / 35% gilts, bonds, cash

I am currently set at 'Adventurous' - The pension was opened at Balanced, but I thought that whilst there was less in there to potentially 'lose' I may as well try a higher risk to gain more. I can see the unit price on a monthly basis and it is higher than back in 2017 (obviously there are fluctuations over the years).

So, I guess I am wondering if I should stay on Adventurous for now and indeed for how long (the glidepath will kick in in around 12 years time)?

There is the option for 'self-selection' where I can choose my investment funds across a choice of 9 (no glidepath)- although 1 option is all-in. The pension site provides details about the makeup and past performance of each fund. Would I be a total nut job to think that switching to 'self-selection' would be a good idea (I am aware I know not a lot in this field!)?

cloud_dog

Just one question...  Are you paid under a Salary Sacrifice arrangement?  And, is your workplace pension a defined contribution scheme (pot of money).  Ok, two questions.