Stocks and shares ISA - Stick or twist?

susansue

I have held a stocks and shares ISA with Nutmeg for a couple of years. Although I realise the advice is to hold this type of investment for the longer term, what I didn't think through at the start was the fact that with an ISA, if you are not making a gain, you are in fact losing out twice. Once simply because there is no gain, but also a second time because you are not getting the benefit of  the 20% ISA tax relief. The value of my ISA is still less than I invested, and I am paying a (mis?)management fee for this. it seems to me that the market will have to rise substantially to make up for these joint losses compounded. Consequently, I am strongly considering moving this ISA to another platform such as peer to peer where interest rates have remained positive and healthy, and I would also gain that tax-free benefit.

Opinions please.

dunstonh

I have held a stocks and shares ISA with Nutmeg for a couple of years.

So, typically you look to invest for 10-15 years+  and you are 2 years in.

what I didn't think through at the start was the fact that with an ISA, if you are not making a gain, you are in fact losing out twice. 

That is true but you cannot look at that short term because of the zig zag nature of returns.

Once simply because there is no gain, but also a second time because you are not getting the benefit of  the 20% ISA tax relief.

ISAs do not get tax relief.  Are you thinking of pensions?

The value of my ISA is still less than I invested, and I am paying a (mis?)management fee for this.

For equities, 2022 was a mild negative but a strong positive in 2023  (except UK equities)
For bonds, 2022 was a heavy negative but went positive in 2023 but fallen back in 2024.

Why do you think it is a mismanagement fee?
What are you invested in?

. it seems to me that the market will have to rise substantially to make up for these joint losses compounded.

What market are you referring to?   it seems unlikely you have much in the way of stockmarket. (exc UK)

Consequently, I am strongly considering moving this ISA to another platform such as peer to peer where interest rates have remained positive and healthy, and I would also gain that tax-free benefit.

Would that give you double digit returns?  like the stockmarkets did last year (ex Uk)

Is this money for the short term or the long term?

Albermarle

The value of my ISA is still less than I invested, 

This all depends on the investments held within the ISA, so without knowing that it is difficult to comment.

Also when you say you have held it a couple of years, what exactly do you mean by that, as it can make a big difference. For example do you mean from Feb 14th 2022 until today? or all of 2022 and 2023 ? or something else?

Consequently, I am strongly considering moving this ISA to another platform such as peer to peer 

Peer to Peer is quite a niche area, especially since many of the bigger players went bankrupt or pulled out.

j_netprofit

I'm new here so forgive my naivety, I understand a S&S ISA is a long term investment but surely within just two years you'd expect to have some kind of gain? Just comparing to my own investments where I've had approx 8% in less than 1 year!

I think the most important question here is, what are you invested in?

eskbanker

jay_ftw said:

I'm new here so forgive my naivety, I understand a S&S ISA is a long term investment but surely within just two years you'd expect to have some kind of gain? Just comparing to my own investments where I've had approx 8% in less than 1 year!

Not always, no - short term volatility is one of the main reasons why they're recommended for the long term, i.e. to improve the chances of recovering from the negative periods that must always be expected.  There will be plenty of investments down over the past two years but up over one year, as 2022 was a poor year....

dunstonh

I'm new here so forgive my naivety, I understand a S&S ISA is a long term investment but surely within just two years you'd expect to have some kind of gain? 

What made you think that?    Long term doesn't mean 2 years.
There have been four consecutive negative years since 1969.    One of those was three years in a row.

Around 1 in 5 years is negative.    So, lets say year 1, just after you start, you suffer a 30% fall.    The following year is a 15% gain, then 25%, then 2%, then 18%.  In that scenario, you wouldn't show a profit until late in year 3.

j_netprofit

dunstonh said:

I'm new here so forgive my naivety, I understand a S&S ISA is a long term investment but surely within just two years you'd expect to have some kind of gain? 

What made you think that?

jay_ftw said:

I'm new here

Only really started investing a month ago 

susansue

Dunstonh Thanks for your reply.
dunstonh said: 

I have held a stocks and shares ISA with Nutmeg for a couple of years.

So, typically you look to invest for 10-15 years+  and you are 2 years in.
Nutmeg suggest 3 - 5

what I didn't think through at the start was the fact that with an ISA, if you are not making a gain, you are in fact losing out twice. 

That is true but you cannot look at that short term because of the zig zag nature of returns.
But the average should be positive, and so far it has been all zag and no zig. A substantial gain will be needed to recoup the shortfall, if only to compensate for inflation.

Once simply because there is no gain, but also a second time because you are not getting the benefit of  the 20% ISA tax relief.

ISAs do not get tax relief.  Are you thinking of pensions?
No, I am a tax payer. I am thinking of the 20% tax you don't pay on ISA gains, their raison d'etre.

The value of my ISA is still less than I invested, and I am paying a (mis?)management fee for this.

For equities, 2022 was a mild negative but a strong positive in 2023  (except UK equities)
For bonds, 2022 was a heavy negative but went positive in 2023 but fallen back in 2024.

Why do you think it is a mismanagement fee?
What are you invested in?
I have a fully managed fund, for which I pay an appreciable fee. The fund is their choice, their mix of established and developing market equities, Gilts and corporate bonds.

. it seems to me that the market will have to rise substantially to make up for these joint losses compounded.

What market are you referring to?   it seems unlikely you have much in the way of stockmarket. (exc UK)
Yes, I mean the stockmarket

Consequently, I am strongly considering moving this ISA to another platform such as peer to peer where interest rates have remained positive and healthy, and I would also gain that tax-free benefit.

Would that give you double digit returns?  like the stockmarkets did last year (ex Uk)
That is no consolation when my Nutmeg fund remained negative. Double digit returns would be nice, but 
even NS&I were offering 6.2% on a 1 year account recently, by my calculation a rate equivalent to an ISA yielding 4,9% 

Is this money for the short term or the long term?
I originally planned to go with the suggested 5 years, but as I have said, it seems to me that a spectacular gain in the fund in the latter years would be needed to make up the shortfall compared to the gains which could have been made elsewhere, capital erosion due to inflation, and loss of the tax advantage both compounded.

I hope that this makes sense.

eskbanker

susansue said:

dunstonh said: 

I have held a stocks and shares ISA with Nutmeg for a couple of years.

So, typically you look to invest for 10-15 years+  and you are 2 years in.
Nutmeg suggest 3 - 5

what I didn't think through at the start was the fact that with an ISA, if you are not making a gain, you are in fact losing out twice. 

That is true but you cannot look at that short term because of the zig zag nature of returns.
But the average should be positive, and so far it has been all zag and no zig. A substantial gain will be needed to recoup the shortfall, if only to compensate for inflation.

I hope that this makes sense.

But that's the whole point, the average should be positive over the long term, not over two or three years - Nutmeg themselves publish a chart of historical performance from a study over about fifty years, illustrating the decreasing probability of loss the longer one stays invested:

Albermarle

Everything said so far is correct but I do believe Nutmeg funds have underperformed compared to similar ones recently.

I'm new here so forgive my naivety, I understand a S&S ISA is a long term investment but surely within just two years you'd expect to have some kind of gain? Just comparing to my own investments where I've had approx 8% in less than 1 year!

I have three largish DC pension pots and a S& S ISA, with a mixture of investments

Since they peaked around December 2021, they have only recently recovered to a similar level. A year ago I was a few per cent down and in real terms ( taking account of inflation ) I was probably not far off 20% down.
However over 10 years it is a much more positive story and hopefully history will repeat itself, at least to some extent.

dunstonh

So, typically you look to invest for 10-15 years+  and you are 2 years in.
Nutmeg suggest 3 - 5

Doesn't mean you should do 3-5 years.  The shorter the term, the more likely you will fall below your starting value.  

But the average should be positive, and so far it has been all zag and no zig. A substantial gain will be needed to recoup the shortfall, if only to compensate for inflation.

The LONG TERM average should be positive.    The short term average will be highly volatile.
It will always be zig zag.  Always has, always will.   But it will zig zag in an upwards direction over the years.  And by years, we are talking 10-15-20+ years.

No, I am a tax payer. I am thinking of the 20% tax you don't pay on ISA gains, their raison d'etre.

There is no 20% tax on gains outside of an ISA either.

I have a fully managed fund, for which I pay an appreciable fee. The fund is their choice, their mix of established and developing market equities, Gilts and corporate bonds.

Correction.  You select the pre-built portfolio.  They don't choose it.

Yes, I mean the stockmarket

As you are in a loss position, it would suggest you don't have much stockmarket content.

That is no consolation when my Nutmeg fund remained negative. Double digit returns would be nice, but 
even NS&I were offering 6.2% on a 1 year account recently, by my calculation a rate equivalent to an ISA yielding 4,9% 

6.2% for one year.    Stockmarket was double that last year.     Hence why I believe you don't have much stockmarket.
Its important to know what you have because you refer to the markets but it seems you are not much in the markets.

I originally planned to go with the suggested 5 years, but as I have said, it seems to me that a spectacular gain in the fund in the latter years would be needed to make up the shortfall compared to the gains which could have been made elsewhere, capital erosion due to inflation, and loss of the tax advantage both compounded.

Without knowing what you are in invested in, we cannot say what your likely gains will be.     My gut feeling on your description is that you went bonds heavy/equities light and bonds had their worst year in over 100 years in 2022 and continued to fall over 2023 until the final quarter.  

The chart below shows the last 2 years with equities in red and bonds in blue (global spread of both).  I cannot put Nutmeg's portfolios on there as they don't make their data available to independent parties.