ISA with reinvested dividends

brendanm

My 2 children aged 19 and 21 want to start investing in a stocks and share type of ISA. They are looking at long term investing. They have both opened accounts with Trading 212. Their plan is to transfer money into the account each month and then when they have a sizeable lump, make their purchase. So this could be an investment of £50 per month and perhaps a once yearly purchase of stocks/share/ETF etc.
I am suggesting that they invest in something that will pay dividends, and that the dividends be reinvested, say Vanguard All World High Dividend - VHYG.
I would welcome other peoples opinions and suggestions as I am certainly no expert on ISA's or investing in general.

Mark_d

I'm not sure why you want dividends that would be reinvested back in to the same company/ETF.

Personally I save up cash throughout the financial year and whenever I've got a good amount, I look out for what to invest in.  I then transfer the cash to my S&S ISA and by the shares.

I believe dividend stocks are less risky than ones that don't pay dividends - so most of my shareholding is in dividend stocks.  The dividends sit in cash in my ISA account until I've accumulated enough cash that I want to purchase more shares.  Those shares would be in the companies I feel are best investments at the time and may be completely unrelated to the company/industry the dividends came from.

Can I suggest your children consider a S&S Lifetime ISA with AJ Bell? 

brendanm

Mark_d said:

I'm not sure why you want dividends that would be reinvested back in to the same company/ETF.

Personally I save up cash throughout the financial year and whenever I've got a good amount, I look out for what to invest in.  I then transfer the cash to my S&S ISA and by the shares.

I believe dividend stocks are less risky than ones that don't pay dividends - so most of my shareholding is in dividend stocks.  The dividends sit in cash in my ISA account until I've accumulated enough cash that I want to purchase more shares.  Those shares would be in the companies I feel are best investments at the time and may be completely unrelated to the company/industry the dividends came from.

Can I suggest your children consider a S&S Lifetime ISA with AJ Bell? 

Thank you for your reply, makes sense. My reasoning for the automatic reinvestment of dividends is that they don’t have to think about it, it just happens. But of course, as you’ve pointed out, it is only more of the same, which may or may not be a bad/good thing.
Why AJ Bell? I’ve not heard of them before. Better (cheaper) than Trading 212?

dunstonh

I am suggesting that they invest in something that will pay dividends, and that the dividends be reinvested, say Vanguard All World High Dividend - VHYG.

In the current cycle, equity income has been out of favour with total return being favoured..   In the previous cycle it was the other way around.

So, the decision will be a management one.  i.e. your choice as to what you feel is best.

jimjames

brendanm said:

I would welcome other peoples opinions and suggestions as I am certainly no expert on ISA's or investing in general.

I can't see the point of focusing on dividends. It's far less admin to have a fund that is acc version so no dividends are paid. As you've admitted you're not an expert it might be advisable for them to do their own research so there isn't any thought of blame if things don't work out as they expect. 
If they already have a decent emergency fund then a S&S ISA would be a good option to look into as suggested. At their age if it's planned for long term then having a global index fund might be all they need. The other option to consider is pensions - if their employer matches contributions then it's worth making sure they add the maximum to get those matched for example.

Kotokos

Mark_d said:

I'm not sure why you want dividends that would be reinvested back in to the same company/ETF.

Personally I save up cash throughout the financial year and whenever I've got a good amount, I look out for what to invest in.  I then transfer the cash to my S&S ISA and by the shares.

I believe dividend stocks are less risky than ones that don't pay dividends - so most of my shareholding is in dividend stocks.  The dividends sit in cash in my ISA account until I've accumulated enough cash that I want to purchase more shares.  Those shares would be in the companies I feel are best investments at the time and may be completely unrelated to the company/industry the dividends came from.

Can I suggest your children consider a S&S Lifetime ISA with AJ Bell? 

Why wouldn't you want your dividends reinvested into the same Fund/ETF? Why would you initially invest in something that in your mind wouldn't be good to invest in in the future?

You'd let your dividends sit in cash until you've enough cash to purchase other funds etc? funds that are only worthwhile investing in for a short time and then saving the dividends to invest into yet another fund etc? and repeat, repeat,repeat until God knows when.
Think, time in the market. You're advocating time out of the market. 

Kotokos

brendanm said:

My 2 children aged 19 and 21 want to start investing in a stocks and share type of ISA. They are looking at long term investing. They have both opened accounts with Trading 212. Their plan is to transfer money into the account each month and then when they have a sizeable lump, make their purchase. So this could be an investment of £50 per month and perhaps a once yearly purchase of stocks/share/ETF etc.
I am suggesting that they invest in something that will pay dividends, and that the dividends be reinvested, say Vanguard All World High Dividend - VHYG.
I would welcome other peoples opinions and suggestions as I am certainly no expert on ISA's or investing in general.

Consider Vanguard FTSE All-World UCITS ETF ACC (VWRP) if you want to stay with Trading 212 and forget about reinvesting dividends. 

wmb194

brendanm said:

My 2 children aged 19 and 21 want to start investing in a stocks and share type of ISA. They are looking at long term investing. They have both opened accounts with Trading 212. Their plan is to transfer money into the account each month and then when they have a sizeable lump, make their purchase. So this could be an investment of £50 per month and perhaps a once yearly purchase of stocks/share/ETF etc.
I am suggesting that they invest in something that will pay dividends, and that the dividends be reinvested, say Vanguard All World High Dividend - VHYG.
I would welcome other peoples opinions and suggestions as I am certainly no expert on ISA's or investing in general.

Why wait? T212 is commission free and offers fractional shares: just invest the £50 every month in whatever it is they want to invest in.

Hoenir

An accumulation fund of some kind makes far more sense. With the sums they are initially investing. Something diverse as well. High level of dividends normally comes at the expense of real growth. Lower yielding companies whose shares progressively raise their dividend over time is often the more attractive investment option. 

ColdIron

brendanm said:

I am suggesting that they invest in something that will pay dividends, and that the dividends be reinvested, say Vanguard All World High Dividend - VHYG.

VHYG is the accumulation version of the distributing VHYL. A decent enough ETF for income but it would be a rotten choice for your children as they don't need that income as they can work (especially as the dividends are retained within the fund anyway). Most 'high' yield funds provide significantly less total return than their growth counterparts which is what your kids need at this stage

Look at VHVG (FTSE Developed World) or VWRP (FTSE All World, includes Emerging Markets). Both accumulating

brendanm

Thank you everyone for your input. Lots to think about