Stocks & Shares ISA

magd36

Albermarle said:

...The investment horizon should ideally be more than 5 years , ideally at least 10. If you invest each month rather than all at once some of the money may only be invested for a short period.

That's an interesting comment.  Does this effectively mean a stocks and shares ISA is not a good vehicle for a regular payment ISA?

Thanks

dunstonh

magd36 said:

Albermarle said:

...The investment horizon should ideally be more than 5 years , ideally at least 10. If you invest each month rather than all at once some of the money may only be invested for a short period.

That's an interesting comment.  Does this effectively mean a stocks and shares ISA is not a good vehicle for a regular payment ISA?

Thanks

5 years is too short for a regular contribution.   Typically, you need around 15 years.
5 years is fine for a single contribution but ideally you should aim for 10 years.

Economic cycles have been getting longer but you are looking at around 10-12 years.  If you invest for less than that then you are only investing for part of the cycle.   Are you going to get the good part or the bad part?

When you pay monthly, only the first payment is going to be invested for the whole period.   Each one after that gets 1 month less.  So, on a 5 year timescale, only the first payment will be in there 5 years.      What happens if we get a period of 2 or 3 years of losses in a row?

Historically, 5 years on single premiums has very few periods of loss.   15 years is what it takes with regular premiums to be the same.

MX5huggy

I find this investment period a real barrier to doing anything much to my detriment I think. We’ve got a bit of spare cash ATM also an 11 year old who might want to go to Uni. 7 years is too short for this money. There’s always a reason not to invest. I’ve decided to invest spare cash and just get on. The £5k invested this month if it’s worth £2k or £10k in 7 years won’t actually make a difference on whether they go to uni. 

magd36

dunstonh said:

magd36 said:

Albermarle said:

...The investment horizon should ideally be more than 5 years , ideally at least 10. If you invest each month rather than all at once some of the money may only be invested for a short period.

That's an interesting comment.  Does this effectively mean a stocks and shares ISA is not a good vehicle for a regular payment ISA?

Thanks

5 years is too short for a regular contribution.   Typically, you need around 15 years.
5 years is fine for a single contribution but ideally you should aim for 10 years.

Economic cycles have been getting longer but you are looking at around 10-12 years.  If you invest for less than that then you are only investing for part of the cycle.   Are you going to get the good part or the bad part?

When you pay monthly, only the first payment is going to be invested for the whole period.   Each one after that gets 1 month less.  So, on a 5 year timescale, only the first payment will be in there 5 years.      What happens if we get a period of 2 or 3 years of losses in a row?

Historically, 5 years on single premiums has very few periods of loss.   15 years is what it takes with regular premiums to be the same.

That seems a fairly brutal way of looking at it. I thought the idea of regular savings was to smooth out the ups and downs i.e. not all the investments would have been purchased at the highest or lowest price and not all the investment would have been through the good or the bad part.  If you combine it with a low risk fund I'd have hoped it would out perform a cash savings account over a 5-10 year period.  Of course nothing is guaranteed but I can't imagine it's only people with a 15+ year horizon are using regular saving stocks and shares ISA's. Maybe I'm wrong?

Albermarle

15 years maybe a 'brutal ' way of looking at it but for sure over 5 years , half of your investments will be less than 2.5 years old which is too short.
It could well be that the time horizons of regular s&S investors is less than 15 years but that does not mean they are doing the right thing.
In fact most regular investment goes into pensions which have a naturally long time horizon.

eskbanker

magd36 said:
I thought the idea of regular savings was to smooth out the ups and downs i.e. not all the investments would have been purchased at the highest or lowest price and not all the investment would have been through the good or the bad part.

Buying regularly is a way of smoothing fluctuations in purchase prices but shouldn't be perceived as a valid mechanism of reducing minimum investment timescales.  Having said that, much depends on your exit strategy at the other end, in terms of whether you'd need to sell everything in one go, or if you need a regular income, or if you have flexibility to delay your sale by multiple years if necessary....

magd36

Albermarle said:

15 years maybe a 'brutal ' way of looking at it but for sure over 5 years , half of your investments will be less than 2.5 years old which is too short.
It could well be that the time horizons of regular s&S investors is less than 15 years but that does not mean they are doing the right thing.
In fact most regular investment goes into pensions which have a naturally long time horizon.

eskbanker said:

Buying regularly is a way of smoothing fluctuations in purchase prices but shouldn't be perceived as a valid mechanism of reducing minimum investment timescales.  Having said that, much depends on your exit strategy at the other end, in terms of whether you'd need to sell everything in one go, or if you need a regular income, or if you have flexibility to delay your sale by multiple years if necessary....

I'd hope that I wouldn't need to sell everything in one go and have flexibility to delay the sale if necessary.

I'm not actually looking to reduce investment timescales or for a magic get rich quick scheme.

I'm simply looking at the best way to make regular savings. I already pay into a pension, fixed rate regular savings account and limited access savings account. I just thought having a stocks and shares ISA that I pay into regularly was another option.  If it isn't what would be the other options that I'm not already doing?

Albermarle

It is  valid option but it is just being pointed out that best to be aware of the time scales needed to give you the best chance of success.

dunstonh

That seems a fairly brutal way of looking at it.

Investing can be brutal if you suffer a negative at the time you need to draw it out.

. I thought the idea of regular savings was to smooth out the ups and downs i.e. not all the investments would have been purchased at the highest or lowest price and not all the investment would have been through the good or the bad part. 

What if the good part is at the start and the bad part is at the end?  All those units bought at higher prices now valued lower.

 If you combine it with a low risk fund I'd have hoped it would out perform a cash savings account over a 5-10 year period.

With many periods, a regular contribution would have resulted in a loss over 5 or 10 years.    

Of course nothing is guaranteed but I can't imagine it's only people with a 15+ year horizon are using regular saving stocks and shares ISA's. Maybe I'm wrong?

Its not.  They are either taking a calculated risk and hoping for the best.  Some will get lucky. Some will not.  Or they don't know the risks they are taking and again, may get lucky or may not.

Eco_Miser

magd36 said:

 I just thought having a stocks and shares ISA that I pay into regularly was another option.  If it isn't what would be the other options that I'm not already doing?

It's definitely a good option, but perhaps not in the five years before you want to take money out, since you might hit the bear part of the cycle with no time before or after for gains in the bull run to beat the losses.

Currently Premium Bonds have an expectation greater than most savings accounts, and it's even possible to persuade a bank to pay you £5 a month for buying more.