Cash ISAs? Do me a favour, only for high rate tax payers

MrMicawber_2

CannyJock - not sure what you mean by the above. You can put lump sums into both cash ISA's and S&S ISA's and you can also do both by regular savings. Perhaps I have misunderstood your comment?

Han_naH

OK, I neglected to mentioned that fees on a fund are very important. Tracker funds are low fees (just 0.3 or 0.5% per year AMC - Annual Mgt Charge).

However, the other (managed) funds are much higher fees - often 5% on all payments in, then 1.5% AMC - or similar. These fees can really put a dent in the long term picture.

So not only do managed funds underpeform trackers, they are also more expensive in fees! :mad:

Oh and if your fees are high, use Cavendish Online as your chosen financial advisor, and they return the charges to you (good, eh?). Choose before you invest, for that all important initial charge pay back. Cav. Online charge a fixed £20 for this per fund. :T

To the poster who mentioned: are equities funds suitable for lump sum investing? In a word, I would say "no".
This is because when you make that fat payment, you might be at a peak for that fund, unbeknown to you at the time of course.
You can't pretend to know where the market will be when you make that payment, so average out your payments over the year. Even writing 4 cheques every 3 months is better than 1 cheque.

cloud_dog

Lee, I'd like to congratulate you.............. I think this is your first sensible / balanced post - congratulations. :beer:

Aegis

leejp wrote: »

Aeging, I never suggested not holding cash.

It's Aegis, not Aeging. not sure if it was deliberate, but you've made that mistake a few times and it would be nice to be referred to by my chosen handle. And your quote was pretty explicitly against cash accounts in general when you said it.

I suggested deposits which are not cash ISAs.

But you haven't actually looked at the figures I've provided and come up with any reason why a basic-rate taxpayer would benefit more from a stocks and shares ISA than a cash ISA. Please feel free to examine my posts and explain why a basic rate taxpayer couldn't get the benefits of cash ISAs and Stocks and Shares ISAs by splitting their investments to high-risk in the ISA and lower risk outside the ISA.

MargaretClare, I would recommend an S&S ISA which invests in an index tracker - like the FTSE All-Share of 900 companies (not so banking heavy). I don't recommend you buy individual shares, which would be too volatile for the amateur investor. An index tracker spreads your risk nicely and is proven to out perform 90% (or similar) of managed funds.

No it isn't. Look on citywire, most of the index trackers in most sectors fall into the 3rd or the bottom of the 2nd quartile over pretty much any timescale. If you ignore the bank funds (which tend to be poor in comparison to dedicated investment companies) then you can quickly identify some funds that outperform index trackers in nearly all conditions. in addition to that, the active funds can take a more defensive position during market downturns in order to minimise losses, while index trackers will just sink as far as the market wants to go.

They're suitable for some people, but they're higher risk than an equivalent active fund, and they certainly would not be suitable for someone with a low risk profile. Additionally, your recommendation is for a single fund, while sensible investors would look to diversify by investing in about 1 fund for every £1k invested for the first £10k or so. That way you invest across a variety of assets, sectors and locations and get a truly diversified portfolio that can take advantages of specific rises and can mitigate specific losses.

For people who don't see the difference between cash ISAs and S&S ISA growth, well see this graph:

http://www.nationwide.co.uk/NR/rdonlyres/A7CAF2C2-F207-4D05-A9E0-8BB6DC112368/0/historically_greater_return.gif

And that's just the last 10 years with the dot com crash and 9/11 thrown in for good measure, and still the return is double. :T

I don't think anyone here is claiming that investing is a bad idea. As it happens, I have an investment portfolio myself. However, my investments are part outside my ISA and part inside. There's no real benefit to me in having the whole lot inside the ISA. Next year I can transfer the units that do the best inside my ISA and can leave the others to continue plodding along. I can make further investments, and as time progresses I can continue to sell the units that might incur a chargeable gain in a few more years and re-buy them in the ISA. Essentially I can keep that strategy going for more than long enough to build up the substantial cash ISA pot that I want, and at that point (probably as a higher rate taxpayer) I will consider using my entire allowance each year, but will keep the tax free savings as my emergency money for as long as I don't need it for anything else!

thor

leejp wrote: »

Aeging, I never suggested not holding cash.

I suggested deposits which are not cash ISAs.

MargaretClare, I would recommend an S&S ISA which invests in an index tracker - like the FTSE All-Share of 900 companies (not so banking heavy). I don't recommend you buy individual shares, which would be too volatile for the amateur investor. An index tracker spreads your risk nicely and is proven to out perform 90% (or similar) of managed funds.

For people who don't see the difference between cash ISAs and S&S ISA growth, well see this graph:

http://www.nationwide.co.uk/NR/rdonlyres/A7CAF2C2-F207-4D05-A9E0-8BB6DC112368/0/historically_greater_return.gif

And that's just the last 10 years with the dot com crash and 9/11 thrown in for good measure, and still the return is double. :T

A word of warning. Just because stocks and shares have risen for decades, it does not mean that they won't decline for decades either. As with everything else dabbling in the stock market is a gamble. It is just dressed up as being respectful by the financial industry.

MrMicawber_2

No - I don't think it is a gamble or dressed up either. It is a calculated risk though.

I'm sure though that there are plenty of people who do gamble rather than invest carefully for the long term. I did read of someone who lost a load on property one year then thought Japan was going to go through the roof so had to be dissuaded from taking out a futher £100k on his mortgage. Fortunately he was dissuaded and Japan duly bombed. Now thats a gamble.

Aegis

leejp wrote: »

OK, I neglected to mentioned that fees on a fund are very important. Tracker funds are low fees (just 0.3 or 0.5% per year AMC - Annual Mgt Charge).

However, the other (managed) funds are much higher fees - often 5% on all payments in, then 1.5% AMC - or similar. These fees can really put a dent in the long term picture.

Unless you go through a discount IFA and get the initial charge rebated. Hargreaves Lansdown, for example, will refund pretty much the entire initial charge on most of their active funds, and will also significantly reduce the AMC for you. Trackers often have the exact same charges, albeit at slightly different percentages.

So not only do managed funds underpeform trackers, they are also more expensive in fees! :mad:

Only the latter is true...

Oh and if your fees are high, use Cavendish Online as your chosen financial advisor, and they return the charges to you (good, eh?). Choose before you invest, for that all important initial charge pay back. Cav. Online charge a fixed £20 for this per fund. :T

If you wanted to invest £500 in a higher-risk fund, then that would represent a 4% charge. There are definitely situations where this is a poor charging method, though it works out better in the long run for those investing a large amount in each fund with no intention of rebalancing or changing priorities.

My own preference is Hargreaves Lansdown. They're similar in that they rebate charges, but they still take an AMC each year and a small initial charge on some funds.

To the poster who mentioned: are equities funds suitable for lump sum investing? In a word, I would say "no".

Once again it's not quite black and white... If you know the markets are likely to be turbulent, you can definitely benefit from pound-cost averaging, but if the markets are at a low and likely to rise steadily you would benefit from lump-sum investing. This depends largely on the asset type and the volatility of the sector in question. If you were looking to invest in a FTSE tracker, as per your suggestion, then regular investing is almost certainly going to be a better strategy over the next year if you ask me.

This is because when you make that fat payment, you might be at a peak for that fund, unbeknown to you at the time of course.
You can't pretend to know where the market will be when you make that payment, so average out your payments over the year. Even writing 4 cheques every 3 months is better than 1 cheque.

"Better" is very subjective and will only truly be decided after the investments have gone through... Like I said, for volatile investments regular payments will probably do better for funds which see a modest amount of growth in any one year. For very steep rises or for steady non-volatile rises, you'll do better with a lump sum. With drops in value and with very volatile investments without large rises, you'll do better with pound-cost averaging.

It's probably fairly good for most investments that are discussed here.

poppy10_2

http://www.amazon.com/Dow-36-000-Strategy-Profiting/dp/0609806998

Aegis

poppy10 wrote: »

http://www.amazon.com/Dow-36-000-Strategy-Profiting/dp/0609806998

I love some of the customer reviews of that book

Han_naH

It's pretty much consensus that index trackers outperform their managed fund counterparts. Of course, you can pick star performers, but the following year they might be star losers. I'm talking average over several years, and the index trackers prevail.

Groan, Aeged the managed funds that go defensive are also in that mode at a time when the FTSE soars - and they miss the boat - it goes both ways I'm afraid. This is why anyone at The Motley Fool will tell you to buy into an index tracker every month. Simple.

I too have hedge funds and escalator funds but trackers are best for most - especially the beginners.

You think MarieClare et al should take that big inheritance cheque and make a lump sum investment in equities? How many people know enough to time the market? Exactly.

I have to rip this quote apart:

"If you know the markets are likely to be turbulent, you can definitely benefit from pound-cost averaging, but if the markets are at a low and likely to rise steadily you would benefit from lump-sum investing"

What utter nonsense. This guy can see the future. Example: Hey, the markey fell 30% over the last year. This means it is "likely to rise" next year. So I will invest a lump sum now. You're not that good, my friend. :rotfl:

Someone mentioned the performance of equities not necessarily continuing.. yes I would agree completely with that possibility. That means cheap share prices for all of us, buying regularly every month by DD... :T