Fund & Share account v stocks & shares ISA

The_BigE

Hi. 

I have a Fund & Share account with a very modest amount in with a small direct debit of £50 paid in each month, as i am at University retraining so don't have much in the way of disposable income. It is linked to the S&P 500 Index. However, when i graduate i will be looking to invest significantly more, maybe £200-£250 per month, and then rising in line with my wages. I am early 40s years old so will probably be looking to invest until i am 60 or 65 years old.

I have a question:

I am linking to the S&P 500 as i understand it to be one of the closest things you can get to a guaranteed return given its long history of averaging approx. 10% annual growth. However as my investment figure becomes a smaller and smaller part of the value and the value growth/interest becomes a larger part with the compounding effects, I'm worried that i will start to be taxed excessively on the growth figure when I 'cash out' so to speak - assuming i would pay a huge amount in capital gains tax. Therefore I was wondering if something like a stocks & shares ISA would 'protect' the money from tax better, but still allow me to invest in the same tracker fund?

Mark_d

Yes definitely go for the S&S ISA over a fund and share account.  It's a no brainer

ColdIron

The_BigE said:

I am linking to the S&P 500 as i understand it to be one of the closest things you can get to a guaranteed return given its long history of averaging approx. 10% annual growth

I would re-visit that assumption. You could be in for a very nasty shock

Therefore I was wondering if something like a stocks & shares ISA would 'protect' the money from tax better, but still allow me to invest in the same tracker fund?

Using an ISA rather than a GIA is a no brainer under almost all circumstances. Pension would be better. You can invest in the same fund

Mikeeee_2

Personally, I would consider a SIPP for the tax relief extra bonus. Especially, as you say, you're not looking to access the money until you're 60-65.

Albermarle

 I am early 40s years old so will probably be looking to invest until i am 60 or 65 years old.

In which case investing via a pension would be the best option, due to the tax relief.
As with a S&S ISA all investments growth etc is protected from tax as well. 
If you are currently not earning the max you can add is £2880 per tax year and £720 tax relief will be added on.

dunstonh

I am linking to the S&P 500 as i understand it to be one of the closest things you can get to a guaranteed return given its long history of averaging approx. 10% annual growth.

Not a good assumption.

a) you in the UK.  You will have exchange rate fluctuations that US investors will not have unless you currency hedge
b) for some of the life of the S&P500, the US was considered an emerging market rather than a developed market.  
c) nothing is guaranteed.  
d) these things cycle and you can have prolonged periods of underperformance relative to global.   This period has been good for the US because it came of a long period of under underperformance and there has been a tech boom.    

I'm worried that i will start to be taxed excessively on the growth figure when I 'cash out' so to speak - assuming i would pay a huge amount in capital gains tax. Therefore I was wondering if something like a stocks & shares ISA would 'protect' the money from tax better, but still allow me to invest in the same tracker fund?

Pension beats ISA.  ISA beats GIA.   With your objective, pension would likely be the best wrapper unless you are maximising.

Eyeful

1. Pay off any high interest debts first.
2 Have an emergency savings account to pay for things like:
broken boiler / car or having to sell shares during market crashes
3. Use tax shelters whenever possible:
(a) Pensions for very long term investing: you get "free money" & you pay no tax, at  least until you draw on it. 
(b) Stocks & shares ISA for long term investing:, lets say at least 10 years.
(c) Cash ISA: For money you expect to need within 5 years should be in a savings account. 
4. Watch this first:-
https://www.kroijer.com/
Then consider a passive low cost Global Index Fund or ETF.
If you want more control & less risk consider a passive low cost Global Multi Asset Fund at a share/bond split you are happy with.

Remember
Investing means putting your money at risk, you hope to get more out than you put in, there are no guarantees
In the short term you are the punter going into the casino. In the long term you own the casino.. 
Don't jump ship just because the markets crash (classic newbie reaction).