Getting into the market

valuepack

Hi all

I have an inheritance in the pipeline and I'll be maxing out my ISA allowance. I think it'll be after the end of this financial year.

I'll be saving with a stocks and shares ISA, and I wondered what people's thoughts are on the best way to load up the ISA:

1. Dump the 20k straight in and get the investment going at the full amount.

2. Keep the money in cash savings and feed in the money over a period of time to avoid a big loss due to a sudden drop.

I understand that time in the market is very important so I want to get going asap, but I don't want to be foolhardy.

Any comments welcome.

jaypers

There are pros and cons to both approaches, ie: Big Bang Vs Drip Feed. From the sounds of it you’re not an experienced investor, and based on that my advice would be to drip feed in order to mitigate the risk against sudden changes in the markets. I would look at Funds rather than individual stocks, and do as much reading up as you can beforehand. If you stick to well established Funds, you should do well over time. Good luck. 

p00hsticks

Depending on particular provider, you can sort of do both - dump all the money into the ISA as cash asap to make use of this years allowance before April , but then gradually buy the investments. The issue there is that you will probably pay more in dealing costs by buying in smaller tranches...

masonic

What you are planning to invest in could have some relevance. For example, there is little point drip feeding into a money market fund.

It's also worth considering what this £20k represents in the context of your other investments (e.g. in pensions) and the amount you may invest over the course of your life.

If you do decide to drip feed, then on average there is a one in three chance of it being the better option. Of course the market can wait patiently for you to be fully invested before it crashes.

Finally, a lot could happen between now and when you receive your inheritance. If markets have already fallen significantly, the odds may be more in favour of investing the lump sum, whereas if they have gone up another 10-20%, you may feel differently about doing this.

valuepack

Thanks everyone for your replies.

I am new to investing and am a basic rate taxpayer.

I do have a stocks and shares ISA in equities, but I only started in December.

It's the Vanguard all world accumulator, I pay in £250 per month at the moment.

The plan is to max out the ISA for the current year (whenever that is) and also transfer a payment into my pension up to my end of year max earnings amount.

Then, I have a vague plan of having the remainder of the inheritance lump sum working for me in some way, but being able to make another pension payment and a new ISA in the next tax year, and so on until my inheritance is invested in my pension and ISAs.

How does this sound?

Sam_666

Why not plan to max your pension first?
You will get min 20% boost from start. And repeat same from April.
Rest can go in S&S Isa.

kempiejon

There's a lot to investing and planning for ones future that isn't how much money and where to put it. Age, income, mortgage, pensions, tax, blah blah. But if I was starting over with a lump sum earmarket for investment equivalent to a few years of my gross income I'd fill both ISA and SIPP as cash as soon; buying every 3 or 4 months if nervous of an all in approach. The back testing suggests all-in is the best strategy on average but for any specific case anyone could be unlucky short term. Quaterly investing is a compromise with lower dealing costs than a monthly deposit might endure and might help psychologically if investing all-in in a falling market.

jimjames

If you've not used your 2024-25 allowance then it's worth trying to use that as well if you can depending on the amount of the inheritance. With a flexible ISA even if you can put the money in just before 5th April and remove it just after you'll have secured that allowance.

Albermarle

kempiejon said:

There's a lot to investing and planning for ones future that isn't how much money and where to put it. Age, income, mortgage, pensions, tax, blah blah. But if I was starting over with a lump sum earmarket for investment equivalent to a few years of my gross income I'd fill both ISA and SIPP as cash as soon; buying every 3 or 4 months if nervous of an all in approach. The back testing suggests all-in is the best strategy on average but for any specific case anyone could be unlucky short term. Quaterly investing is a compromise with lower dealing costs than a monthly deposit might endure and might help psychologically if investing all-in in a falling market.

AS above a compromise position can work. Say 40% straightaway, 30% in 3/4 months, 30% in another 3/4 months.
Of course it is always possible that the day after you put the last tranche in, the market crashes.

Couple of other points;

1) 100% equity global index fund is a good choice for a long term investments, but be aware it could drop alarmingly at some point and the worst thing you can do is panic and pull out at the bottom. If you think you might do this, then you might be better in a less potentially volatile fund.
2) Your pension will be invested as well. Make sure you know the details and are happy with them. 

valuepack

Thanks again everyone for your comments.

I recently read How to own the World by Andrew Craig. Then I read the Gone fishin' Portfolio by Alexander Green. Then I went back and read How to own the World again to get a better understanding of the bits I struggled to follow

My workplace pension contributes a generous 15% and I contribute 5.5% at the moment.

I've moved it from the default fund to 100% equities. They didn't offer an all world fund, so I selected two funds: 95% BlackRock World index fund excluding UK and 5% BlackRock UK index fund.

I had a play with seeing how far I can increase my own contributions, and it maxes out at 15% and 30% total. It does offer an option to make a payment, but I need to check if that has to be within the 30%.

As a back up I've opened a SIPP with Invest engine, just in case I cannot pay 100% of my earnings per year into my workplace pension.

The reason I was planning to get my inheritance invested in both my pension and stocks and shares ISAs was because I thought this was the quickest way to get the money invested in a tax efficient way.

Is it not?

ZeroSum

p00hsticks said:

Depending on particular provider, you can sort of do both - dump all the money into the ISA as cash asap to make use of this years allowance before April , but then gradually buy the investments. The issue there is that you will probably pay more in dealing costs by buying in smaller tranches...

If you're using a platform that just takes a % of your investment value like Vanguard then that doesn't happen & not an issue