New Stocks & Shares ISA: Am I getting this right?

dutchcloggie

I have just opened a S&S ISA with HL. It is asking me to choose a fund or shares for a specific company. I only have put in £200 and £50 monthly investment until I fully understand how it all works.

I am not good with numbers and I don't tend to understand numbers just by reading instructions. It is too abstract. Hence investing a small sum and seeing what happens will teach me much better how it works. That way I can visualise reality, rather than abstract numbers. May not be for everyone, but it is the way I have always doney finances and I am content with this method. 

I have read everything and, as expected, I do not really know what to do next as I have no real life examples yet. I just want to check with you guys that in my own words, I am understanding this all correctly.

Investing in a fund is basically buying a stake in an "organisation/entity" that trades shares in different companies/markets and then I share in part of their profits/loss? Do I understand that right? And an investment company can run several different funds: a green fund, an oil fund, a tech fund and so on. Within a single fund, some shares can go up, others down and so on, so a loss for one company's shares might be compensated by a gain of another company's share in that same fund?  

Investing in a fund requires me to research what investments that fund makes and in what kinds of markets/businesses? Right? Different banks and financial institutions create different funds. And through a platform such as HL, I can buy into those funds. Both HL AND the funds will charge me money for buying and selling.

Buying individual shares means I get to do all the work but have a more direct view of what is happening. The HL platform allows me to buy and sell those shares directly and charges a fee for this. 

If all these assumptions above are correct, then that's cool, that means I understand the basics and I can make a start with choosing what to put my tiny bit of money into first.

The only thing I am not sure of is the automatic reinvesting of any profits. What do they reinvest in? In the same funds/shares that the profits were made from? 

Sorry if this is all a bit stupid. After reading so many explanations, I think I understand it but I just wanted to run it past someone in my own words.

Thanks.

Bravepants

Let's turn this around first of all...

How old are you?

What are your investment goals? (Why are you investing?) ... For the long term, say 10 years plus?

If you are young and just starting out with a little money you might be better choosing a global index fund such as Vanguard's FTSE Global All Cap...7100+ companies of various market capitalisations, geographical locations, and business models.

It's fees are low cost and there is no manager to "get it wrong" as it's a passive index fund. Once you get a 5 figure number in there, then you can start thinking about something else IF your goals have changed by then.

If you are starting out keep it very simple, set and forget your monthly drip feed into a single global index fund.

If you are close to retirement you might want to consider something with less volatility (more bonds in the mix) but while you are young and drip feeding monthly volatility is your friend. You are lucky in fact that there may very well be a recession around the corner, and you may be buying cheap to start out! 

dutchcloggie

Thanks for this. 

I am even more basic than investment advice. I just need to check if I even understand the terms correctly. That I understand the way it works, regardless of what I should do, if that makes sense. 

Once I am happy I understand funds, stocks, shares, brokers and so on, then I will be able to look at what I am going to do with that knowledge and which finds are best.

So, am I right in what I wrote in my initial post? 

If so, step 2 is indeed what I want to achieve. I am mid fourties, nurse and I only have a 6 year NHS pension (which I shall be contributing to until my retirement) I am working extra agency shifts so I can put an extra £300 per month in a pension through that agency. I have £89,000 in a mortgage at £450 per month. I put £100 per month in savings and now an additional £50 in the S&S ISA. 

I am fairly happy with my current disposable income and I kind of just want to make sure I will not be poor when I retire at 68. 

So it seems that investing in a relatively stable fund for long-term investments is the right choice. 

(Mind you, I wouldn't mind risking a couple of hundred quid on GameStop )

Audaxer

I agree that a globally diversified, low cost fund like the FTSE Global All Cap is a good option, especially if you are investing for the long term and contributing monthly. As it is a 100% equity fund, there will be the occasional equity crash where the fund value may drop up to 40% or more. However equity crashes are beneficial if you are contributing regularly as you will then be buying units at a cheaper price.

If however you would be happier with less volatility, you should consider a multi asset fund instead, such as one of the Vanguard LifeStrategy range of funds or the HSBC Global Strategy range. These and other multi asset funds are discussed a lot on this forum and come in a range of risk levels and are worth considering. 

Bravepants

Yes, you're more or less correct in your original post.

It's great that you are boosting your pension, many people around here when asked for advice recommend pension contrributions before risking anything else.

HL has a tool whereby you can set up an imaginary portfolio to get an idea of how things work, before investing real money. But you may not learn too much too quickly, you might want to give it a year or two of simulations. Even then you couldn't simulate a once in a decade crash.

Depending on how much risk you can afford to take on (and that's up to you) then sure you can gamble on a few individual shares. But bear in mind that you can NEVER predict some events that could tip the balance between that individual company gaining or losing. For example, people like Elon Musk only have to sneeze and Twitter, Tesla or SpaceX react! I'm a passive investor in a single index fund and a mixed asset fund containing thousands of companies. I don't do indivdual shares after being burned when I was younger and the shear amount of effort it takes to research and study them. 

dutchcloggie

Great. Thank you so much. Now that I am happy I understand how it works, I shall be able to understand discussions of how funds work in more details and why some funds are better than others. 
A bit like now I understand how a car  works, I can now start learning why some cars are better than others in specific circumstances due to different components for specific requirements. 

Cheers. 

Bravepants

Get yourself a copy of Tim Hale's Smarter Investing:

https://www.amazon.co.uk/Smarter-Investing-Simpler-Decisions-Financial/dp/0273785370

dutchcloggie

Bravepants said:

Get yourself a copy of Tim Hale's Smarter Investing:

https://www.amazon.co.uk/Smarter-Investing-Simpler-Decisions-Financial/dp/0273785370

You mean I should Erhm...invest in my knowledge? Sorry, lame. 

Investing with ADHD should be fun: oooh look a shiny new share!!

Eyeful

You seem to have got the basic ideas correct. 

If you buy the accumulating option of the Fund or ETF you are interested in, then any dividends generated will be automatically reinvested into that Fund or ETF for you.  Your number of shares will remain the same but the price of them will go up to reflect the reinvestment.

As others have said keep it simple and think of a low cost Global index tracker or multi asset funds such as those suggested above. 

The following may be of interest to you:
 https://www.ifa.com/indexfundsthemovie/
https://www.kroijer.com/

Albermarle

 Both HL AND the funds will charge me money for buying and selling.

I have found one error 

HL is an investment platform. They will charge you a management fee for holding your investments, running the website, offices etc . It is 0.45% pa and this is taken from your account monthly.

The investment funds have their own annual % charge. You do not pay this directly, they pay themselves directly out of the fund. Charges can vary from as low as0.1% for a simple tracker to 1.5% for a managed fund.

Despite some confusing info you might see, neither HL or the fund will charge you for buying or selling mainstream funds.

If you were to buy individual shares , it is different, but this is not really recommended for new and investors with relatively small amounts of money to initially invest.

Exodi

I just wanted to jump in (sorry I haven't read the other respnonses, this may have been covered):

You mention trading a small amount on HL and not sure about funds or shares.

Please note that HL charges a £11.95 dealing charge for investing in shares (on top of the annual management charge and ongoing charge.

It would not be a good idea to be buying shares or ETF's for a low investment value.