Vanguard S&P 500

CashMoney

Good morning,

So I have delved into the S&P 500 a few weeks ago using some of my savings. I have decided to go for the accumulating option(VUAG). I have a couple of questions which I’m hoping someone can help with.

1) I have set up a direct debit for £120 per month to automatically purchase a unit on Hargreaves Lansdowne. Is this okay?
2) Currently the price is £108.78. What happens to the left over £11.22?
3) If the price jumps above £120, does this mean I need to increase my direct debit amount so that I can afford a unit then?
4) On a side note, do you think I’ve made the right decision in investing into the S&P 500 or should I have bought individual dividend paying stocks instead i.e Legal & General, M&G, Tesco etc

Thanks, your help and opinions are much appreciated.

Aylesbury_Duck

https://forums.moneysavingexpert.com/discussion/6670783/vanguard-s-p-500

Welcome to the world of investing!

Forgive the bluntness, but I think you ought to do a little more reading to increase your understanding before deciding where to invest. You're asking the sorts of questions I needed to ask several years ago, when I realised I didn't really know enough. To give you a start (but I'm by no means an expert…):

Do you have cash savings that could cover at least six months of living costs? If not, you're probably not ready to start investing.

Questions 1-3: I don't use HL but when I've done a similar direct debit into Vanguard, I would buy £120 worth of units rather than buying a specified number of units. That way, some months your £120 buys more than one unit, some months less. The good thing about monthly investments is that when markets are dropping, you're buying cheaper units each month, so while it can look worrying to see the value of your investment dropping in the early years, it's actually better for you in the long term.

Q4 No one can advise, and everyone will have a different opinion. What you do need to do is decide what your goals are, when this money might be needed, etc. If you're investing for something in five years' time, then perhaps investing in this sense isn't the right move, and retaining cash might be better, for example. If you're intending to build this investment over many years (at least 10, probably many more) and are happy to ignore market fluctuations and just let it do its thing, then the fund you've picked might be a good one. Personally, I take the view that I don't know enough to invest in individual stocks, and not enough to pick certain funds, so I've just selected a Vanguard Lifestrategy fund that meets my risk appetite. That happens to be VLS60 for me, but I could have chosen VLS80 (generally more risk/reward) or VLS40 (less).

CashMoney

@Aylesbury_Duck - Thank you for your reply. Yes I do have cash savings that cover at least 6 months of living costs. This money is just “spare leftover” after all my monthly expenses that I would’ve otherwise put into a savings account. I am thinking long term investment as I have just turned 40.

LHW99

S&P500 only covers the larger US companies. You are missing the rest of the World if that is all you invest in. That said, the US makes up 60%-70% of most global trackers, so as long as you are young and can leave this investment alone for at least 10 years, it's not too bad a start.

If you money isn't all used up in purchase each month, then it would likely stay in the account, and mount up as cash. You could then do a "mopping up" buy every few months.

Generally, unless you already have a large amount put by, funds are a relatively "safer" investment than individual stocks. An individual company can go bust with very little warning, a fund (particularly a tracker) may lose money but is unlikely to completely disappear with your money.

You mention "dividend paying stocks" - US stocks generally don't pay as much out as dividends as eg FTSE100 stocks would. If you want / need dividends at some point, then an equity or equity / bond income fund may be a better choice.

Aylesbury_Duck

https://forums.moneysavingexpert.com/discussion/comment/82019963#Comment_82019963

Excellent. And how long do you envisage contributing, and at what point do you envisage you might want to access the money? Might it be to build a bridge between stopping working and drawing a pension, for example?

What pension provision do you have, by the way? Investing in a pension wrapper might be a better option for this spare money. Pensions beat ISAs in many circumstances, but it would mean your money would be locked away for at least the next 17 years, possibly longer if legislation changes and pension ages rise.

dunstonh

4) On a side note, do you think I’ve made the right decision in investing into the S&P 500 or should I have bought individual dividend paying stocks instead i.e Legal & General, M&G, Tesco etc

you have told us about the fund you have selected for your US allocation. But you haven't told us about the funds you are using for the rest of your portfolio.

The fund you have is designed to be held in a wider of portfolio of funds and not in isolation.

Its a newbie error to buy this fund in isolation.

CashMoney

@Aylesbury_Duck - Would love to contribute for at least 10-15 years. Not sure when i might have to access the money but definitely not in the next 10 years. And yes would love to fill that gap with it. In terms of pension, I pay into a private work pension.

@LHW99 - Thank you for clearing that up.

Aylesbury_Duck

https://forums.moneysavingexpert.com/discussion/comment/82019992#Comment_82019992

I'd take a good look at whether you might be better off putting some of this spare money into your pension, given your investment horizon is going to take you close to the age at which you can (currently) access your pension. What pension provision do you (and any partner) have, in terms of current value? How much are you contributing? What does your employer contribute? Does your employer raise their contributions if you do? Are you contributing via salary sacrifice? How is your pension invested? It might be in a very conservative default fund, for example, when at your age you might consider something a little more adventurous. Are you likely to receive full state pension at 67 (or whatever age it can be drawn when you get there)? Will you have a mortgage debt to pay off at some point after you intend to stop working?

Loads of questions, but as you're discovering, yours isn't a question that someone can give a straightforward answer to. There are so many things to consider.

Albermarle

As above - if you are likely to be older than 57 when you want to access the money, then it would make sense to increase your pension contributions, due to the tax advantage.

Also how is your workplace pension invested - is that also in S&P 500 ?

chiang_mai

The S&P 500 is very very concentrated in the Tech sector, especially when Communications is added in. The fund is intended to be diluted by other funds in different geographies, sectors and market capitalisation. My recommenmdation is to either dilute those holdings or trade for another fund that is much more diversified, in every way. HSBC's FTSE All World has one of the most diluted US allocations at around 65%

kermchem

Given that some of your specific questions have not been answered, I will have a go, but answering from how I know A J Bell works.

1. You are paying £120 each month into a "cash account" with HL, and they use some each month to buy you one unit in your VUAG s&p 500 ETF.
2. The remaining £11.22 sits in the cash account, and probably receives some interest, and also pays the account fee. Once this gets to £108 you can splash out one month and buy two units.
3. If the price goes above what is in your cash account then you will not buy a unit that month.
4. As you are learning from others, most investors seeking a diverse portfolio would not invest in shares of a single company, or indeed in a single index that is currently dominated by a Magnificent Seven companies (soon to add SpaceX). Investing in a global index tracker would be more diversified, but with the caveat that most of that will be USA and s&p 500.

There is more than one way to buy the S&P 500 in an ETF. There are at least 24 ETF's available to UK investors that track the index. They have tiny differences in the management fee, all do pretty much the same job of tracking the index, but some cost more or less than your £108 per unit. The three largest in terms of funds held, cost £600, £108 (yours) and £11 per unit. It is just that the units are different sizes. If you buy SPXP then you can buy the same index each month, with almost all of your investment - don't need to sell the VUAG, keep it. Any performance difference between VUAG and SPXP will be less than what you lose by having cash not invested (assuming s&p 500 is going to keep going up)