Where to start with stock market tracker funds?

manchesterlady

Hello there.

i would like to research and identify a suitable stock market tracker fund into which I can invest £100 a month. I am looking for something with minimal fees that requires just an annual review - so something that fits the definition of a ‘passive investment’.

My intention is to have something that tracks the market, that will
build over the next few years, and will provide an additional pot that can be used when I retire.

Is an ETF a suitable vehicle for this?

For context: I have used my ISA allowance for the year, I am 52, I already have a ‘Fund and Share’ account with HL. I am a higher rate tax payer.

Thank you. 

dunstonh

Is an ETF a suitable vehicle for this?

OEICs, UTs and ETFs are the three main choices.  (UT/OEICs effectively being the same thing nowadays - just technical differences).   ETFs don't get FSCS protection but OEICs do.     Some platforms are priced better with OEICs. Some with ETFs.   

For context: I have used my ISA allowance for the year, I am 52, I already have a ‘Fund and Share’ account with HL. I am a higher rate tax payer.

Are you maximising the pension allowance?     Pension beats ISA and you're maximising the ISA allowance.  You may be doing yourself short if you are not using the pension allowance as much as possible.

ColdIron

manchesterlady said:

i would like to research and identify a suitable stock market tracker fund into which I can invest £100 a month. I am looking for something with minimal fees that requires just an annual review - so something that fits the definition of a ‘passive investment’.

A Global index tracker of some sort would fit the bill, there are plenty of them and the fund manager charges are usually low

Is an ETF a suitable vehicle for this?

Yes if you can avoid trading fees, with £100 a month they will kill any growth

With a low amount you want a percentage fee platform with no trading fees. Funds (OEICs) with these platforms are usually free to buy but EFTs often have associated trading costs

Vanguard Investor doesn't charge for buying ETFs as long as you use their batch buying facility, once a day, and no live pricing. Funds are free to buy. They have an annual platform fee of 0.15% pa for either (£0.90 in your first year). They only sell Vanguard funds and ETFs but there is plenty of choice and it doesn't matter much whose tracker you buy as if they are tracking the same index the performance will be pretty much the same

Hargreaves Lansdown's Fund and Share account doesn't charge for buying funds but there is an annual platform fee of 0.45% (£2.70 in your first year). However for ETFs there is no annual fee and if you use their monthly purchase option no trading charge either

Albermarle

Are you adding enough to your pension to get as much 40% tax relief as possible ?

Linton

A top level overview.  If you want more details please ask.

  There are a number of different global equity (ie stock) trackers available from a range of different fund managers that differ on:
 - Whether they cover the whole world or just the developed world
 - whether they cover a wide range of company sizes or just the largest
 - fund charges
 - whether they are an ETF or a standard fund.  This may affect charges made by your particular platform

In practice the difference in returns will be small, certainly not life changing.  So you may well choose the cheapest for your platform that covers the widest range of underlying companies - that will be a balance.

If you are not used to stock market funds you do need to accept that very roughly once a decade there will be a fall in prices of possibly 50%.  It is essential that you do not sell the lot in a panic but rather wait for the inevitable up-turn.  If this sort of price behaviour would upset you, you may be better advised to look for a "multi-asset fund" which invests in the stock market and in a range of other quite different things reducing the variability of a pure stock market tracker at a cost to long term returns.

JohnWinder

That would be a good part of a retirement portfolio, and expect some good suggestions.

But if you aren't a bit familiar with the ideas of how to choose an asset allocation, and poor investor behaviours that can damage your opportunities however good was the fund you chose, then make these your next investing issues to learn about.

As to equity funds, you're right in doing your own research rather than simply taking a recommendation. Some issues to consider are: will one fund do it; how much home bias towards UK stocks is right for you; is currency hedging better for you; how 'broad' should you go (to the smallest stocks, or to emerging markets)? Here's some short reading (referencing Vanguard, but that's not my suggestion), but you ought to know Tim Hale's book Smarter Investing is a very good resource.

'https://occaminvesting.co.uk/best-vanguard-passive-index-tracker-fund-uk/

https://www.bogleheads.org/wiki/Investing_from_the_UK 

jimjames

manchesterlady said:

For context: I have used my ISA allowance for the year, I am 52, I already have a ‘Fund and Share’ account with HL. I am a higher rate tax payer.

Presumably that's a cash ISA? You might find it better to use part of your ISA allowance for S&S ISA rather than cash as that will be more tax efficient long term as you won't need to keep records and have no need to worry about CGT or tax on dividends. At £100pm if you have a flexible cash ISA you can remove £1200 from it and that will then be covered by your 12 payments of £100. Next year just pay in the cash ISA the amount minus the value you'll pay into S&S ISA.

GeoffTF

manchesterlady said:

My intention is to have something that tracks the market, that will build over the next few years, and will provide an additional pot that can be used when I retire.

The are no equity funds, tracker or otherwise, that are guaranteed to grow over the next few years. Broadly based trackers usually do better than cash over long periods of time, but there is no guarantee of that either.

eskbanker

manchesterlady said:

My intention is to have something that tracks the market, that will build over the next few years, and will provide an additional pot that can be used when I retire.

[...]

I am 52 

What are your retirement plans, both in terms of timescale and funding, i.e. when are you likely to need this additional small pot and is it relatively insignificant to those plans?

manchesterlady

Thank you for all the comments so far. To answer a few of the questions:
1. I am contributing the maximum to my S&S ISA
2. I’m putting as much as I can into employer pension (including Additional Smart Contributions)
3. I’d like to retire from full-time work by 60 (I’m 52 now) so want an additional vehicle to add to my existing set of pensions (employer and private) and S&S ISA.
4. I’m looking at an 8-10 year investment span
5. Considering a global stock market tracker at present, but open-minded

Also: Thank you for the links and book recommendations- some bedtime reading!

dunstonh

2. I’m putting as much as I can into employer pension (including Additional Smart Contributions)

Maximum would be 100% of salary or £60,000.

3. I’d like to retire from full-time work by 60 (I’m 52 now) so want an additional vehicle to add to my existing set of pensions (employer and private) and S&S ISA.

So, remember, pension beats ISA.  If you have scope to increase your pension as you are not paying 100% salary in then consider switching money away from the ISA to the pension.