Financial Times ISA article

zagfles

AstonSmith said:

eskbanker said:

That's a very simplistic way of looking at it - most investors will do so for the long term and won't get back less than they put in, or pay huge fees for that matter.  If you have a pension, what do you think is happening with that money?

I'd love to know where these investors go, then. When I last looked there were charges for buying shares, selling, holding the portfolio... whereas a cash ISA has none of these, and nor does the term matter. An ISA for one year always gains you money. Shares for one year might not.

Cash ISAs have charges, they're hidden in the rate. Do you get the BoE base rate on cash ISAs? Bit like "commission free" foreign currency, some people believe that too. 

Cash ISAs are not guaranteed to gain you anything in real terms. If inflation is higher than the interest rate, your investment has lost value. The only way to guarantee real return is to buy index linked gilts below par and hold to maturity. Or use some other inflation linked investment, if there are any (don't think NS&I still do them). 

WillPS

zagfles said:

AstonSmith said:

eskbanker said:

That's a very simplistic way of looking at it - most investors will do so for the long term and won't get back less than they put in, or pay huge fees for that matter.  If you have a pension, what do you think is happening with that money?

I'd love to know where these investors go, then. When I last looked there were charges for buying shares, selling, holding the portfolio... whereas a cash ISA has none of these, and nor does the term matter. An ISA for one year always gains you money. Shares for one year might not.

Cash ISAs have charges, they're hidden in the rate. Do you get the BoE base rate on cash ISAs? Bit like "commission free" foreign currency, some people believe that too. 

Moneyfacts lists 6 easy access cash ISAs above the base rate presently.

Newbie_John

@zagfles, sure, but the same applies to stock & shares ISAs.

If I put £20k to 4.5% cash ISA I know I will get £20900 after a year, more next year and again again. So in X years I'm planning to save I know I will have more than initial £20k.

Stocks&Shares ISAs are more of a lottery, they can result in greater interests, but may not - the value will be going up and down and if we end up needing to deep in at the wrong time - all the saving may have not been worth for us.

For banks it's a different story - they take a low % cut every year, no matter if our £20k is £25k or £19k.

zagfles

WillPS said:

zagfles said:

AstonSmith said:

eskbanker said:

That's a very simplistic way of looking at it - most investors will do so for the long term and won't get back less than they put in, or pay huge fees for that matter.  If you have a pension, what do you think is happening with that money?

I'd love to know where these investors go, then. When I last looked there were charges for buying shares, selling, holding the portfolio... whereas a cash ISA has none of these, and nor does the term matter. An ISA for one year always gains you money. Shares for one year might not.

Cash ISAs have charges, they're hidden in the rate. Do you get the BoE base rate on cash ISAs? Bit like "commission free" foreign currency, some people believe that too. 

Moneyfacts lists 6 easy access cash ISAs above the base rate presently.

Not looked but probably short term loss leaders eg with a temporary "bonus" rate. 

zagfles

Newbie_John said:

@zagfles, sure, but the same applies to stock & shares ISAs.

If I put £20k to 4.5% cash ISA I know I will get £20900 after a year, more next year and again again. So in X years I'm planning to save I know I will have more than initial £20k.

Stocks&Shares ISAs are more of a lottery, they can result in greater interests, but may not - the value will be going up and down and if we end up needing to deep in at the wrong time - all the saving may have not been worth for us.

For banks it's a different story - they take a low % cut every year, no matter if our £20k is £25k or £19k.

The point is you can choose investments in a S&S ISA which are not a "lottery", and even less of a "lottery" than cash ISAs. You invest £20k in a cash ISA for X years, even if the rate is fixed, you don't have a clue what it'll really be worth in X years time. You might know how many £s, but not how much spending power those £ will get you. Whereas if I buy index linked gilts which mature in X years, I can guarantee the real value X years later. 

eskbanker

AstonSmith said:

eskbanker said:

That's a very simplistic way of looking at it - most investors will do so for the long term and won't get back less than they put in, or pay huge fees for that matter.  If you have a pension, what do you think is happening with that money?

I'd love to know where these investors go, then. When I last looked there were charges for buying shares, selling, holding the portfolio... whereas a cash ISA has none of these, and nor does the term matter. An ISA for one year always gains you money. Shares for one year might not.

False dichotomy - nobody was talking about investing for a year!  Your post simply dismissed the entire concept of investing, whereas I was highlighting that it's likely to be the best thing to do in some circumstances, and the duration in particular being a relevant factor.  I repeat: if you have a pension, what do you think is happening with that money?

kempiejon

I had a chat with a retired friend who wanted me to sense check their plans for an inheritance as apparently I know about all these finance things. We agreed they were already doing smart things, no rolling credit card debts, emergency fund, couples full allowance of premium bonds, fill the ISAs and the rest in savings account.
When I told them thay'd be paying tax on the extra cash savings they well most of it's in the ISA. So I explained that the unsheltered emergency cash had a bill that would probably be sorted in their tax code and as they had plenty of cash in PBs I thought they should consider S&S in the ISAs. 
We talked about inflation which concerned them, we looked at some graphs of global trackers and the long term trend of equities compared to cash. Mostly they said that shares are gambling and they didn't want to lose Aunt Judy's gift. Me explaining that I wasn't suggesting picking a couple of speculatives stocks for their life savings but asset allocation to compliment all the cash they already had in collective investments that benefits from global commerce and contains thousands of names in big business many they would recognise and that they could profit from. More graphs of what could happen to their £40k in 10 years which looked good but I couldn't get them to shake the opinion that it wasn't for people like them and that it was gambling and they'd lose all their money. They couldn't be lucky with the stock market like other people are.
I tried gilts to minimise the tax on savings interest but if you need a broker, I gave Halifax as my example, to buy them that's not for them, they not not people who use stockbrokers. We got into the weeds about government backing the returns too.
So they already had their finances sorted but didn't want to expand on my suggestions to reduce interest tax and potentially have some of the money match and outpace inflation. Fair enough, I think it is a missed opportunity and I'm sure they think they've dodged a bullet. 

LHW99

Once upon a time, some big banks (I think HSBC was one) offered products that guaranteed a medium rate of interest on a capital sum (usually a few thousand), plus a proportion of any rise in a specific index over the (probably 5) years the account ran for.

You didn't lose your capital, and would make a known minimum return, with the possibility of beating general interest rates over the time.

I guess the financial crisis and proliferation of dodgy "bond" products killed them off, but they did have a place in the days of PEP's and TESSA's (remember those?)

kempiejon

zagfles said:

The point is you can choose investments in a S&S ISA which are not a "lottery", and even less of a "lottery" than cash ISAs. You invest £20k in a cash ISA for X years, even if the rate is fixed, you don't have a clue what it'll really be worth in X years time. You might know how many £s, but not how much spending power those £ will get you. Whereas if I buy index linked gilts which mature in X years, I can guarantee the real value X years later. 

Now that's an interesting comparison point you're making between cash and il gilts in an ISA.
With low coupon index linked I'd not necessarily use the ISA protection. I have both linked and conventional gilts in my pension and ISA for a 5 year ladder of maturities however I started to use low coupon short dated unsheltered when bank savings rates went up.
People who describe investing as a lottery I think haven't grasped the concept of markets, collectives and asset allocation. I don't think it's hard to learn but if someone doesn't want or aren't up to it they can't be made to.
Although received wisdom and decades of evidence is it would make them wealthier over the years, trying to make people invest if they've closed down as it isn't for them is futile. And like the man says the value of investments can rise and fall; some are not prepared to see any fall even in a long term trend of rises, that suits them.

Albermarle

AstonSmith said:

eskbanker said:

That's a very simplistic way of looking at it - most investors will do so for the long term and won't get back less than they put in, or pay huge fees for that matter.  If you have a pension, what do you think is happening with that money?

I'd love to know where these investors go, then. When I last looked there were charges for buying shares, selling, holding the portfolio... whereas a cash ISA has none of these, and nor does the term matter. An ISA for one year always gains you money. Shares for one year might not.

The cost of investing for the general public is way lower than it was in the past. Mainly due to the internet.

For example you can hold a S&S ISA with some companies for zero, or almost zero charge.
You can buy globally diversified funds , with zero charge for purchase ( or sale) and 0.1% to 0.2% annual fund charge.