Everything I Always Wanted To Know About Funds In An ISA But Was Afraid To Ask

gandalf

This is a follow-up to the thread named "Scared of shares...". If you are an expert on choosing funds for your ISA and have made consistent money over the years, please drop a few nuggets of wisdom...

Question 1: Which fund supermarket should I move my ISA to? Fidelity or H&L (or something else)? What should be my selection criteria?

Question 2: How do you select sectors to invest in and then choose the funds?

My first thoughts on Q2 are:

Divide the money into 4 hypothetical pots:
- Equity
- Bonds
- Commodities
- Property

The initial allocation for each is 25%. If I decide a sector is not performing then the other sectors get that money. I'll then choose two 'top' funds from each qualifying sector:
- The fund that has had the best return over the last 3 months.
- The fund that has had the best return over the last year.

I'll then review the situation every 6 months and switch sectors/funds (or is this too soon?).

Would you normally be invested in all sectors all the time, or get out of some sectors sometimes?

savingpennies

Several years ago I invested in a tracker fund with L&G drip feeding £100 a month over several years. It did ok but I came to realise after a lot of research that I could do better with my money. I transferred the lot to a Vantage ISA with HL and selected my funds. The whole process was very easy. The website is straightforward and I can check my ISA whenever I want. Switching funds is also easy.
I selected my funds on the basis of the managers on the whole but also tried to make sure I allocated my funds over different sectors.
I used other websites to help with research, mainly Trustnet and Morningstar.
I am still very much an amateur but I am pleased with what I have done so far. There are people on here who are far more knowledgeable and very helpful, Dunstonh being one of them

gandalf

Quick question: does stamp duty apply on fund transactions within an S&S ISA account?

dunstonh

I prefer sector allocation to asset allocation personally as its harder to get asset allocation right with funds. You really need to be using shares or investment trusts to get asset allocation right.

Typically with sector allocation, you would look at the following sectors and put a percentage into each that is weighted towards your risk profile:

Cash
UK fixed interest
international fixed interest
Property (bricks and mortar)
UK equity
European
US
Asia Pacific exc Japan
Japan
Emerging Markets
Specialist.

You can then fine tune the risk by utilising funds of different risks within each sector to suit.

There are other strategies, such has high yield, which you can use. Each has merits. Often the important thing is to have a strategy (regardless of which one) and not use a hit and hope or rely on fashion investing.

gandalf

Thanks for that. How often would you switch funds, given that too frequent switches would eat away all the money (with spreads and fees).

earlgrey_3

dunstonh wrote: »

Often the important thing is to have a strategy (regardless of which one) and not use a hit and hope

Aw, that's a b*gger, my strategy is hit and hope. 50% of the time it works perfectly.

chris1

gandalf wrote: »

Quick question: does stamp duty apply on fund transactions within an S&S ISA account?

Stamp duty is charged on purchases of individual shares inside or outside an ISA, but not on funds.

dunstonh

Thanks for that. How often would you switch funds, given that too frequent switches would eat away all the money (with spreads and fees).

switches do not eat away all the money. At worst you are likely to see 0.25% as the switching cost on the amount switched. Some charge nothing. So, if you switched £5000 of your portfolio each year to rebalance and further diversify then its cost you £12.50. Thats less than a typical days movement in the markets.

Its better to rebalance than leave it alone as you keep the portfolio within your risk profile and protect your profits following periods of good growth.

chris1

dunstonh wrote: »

At worst you are likely to see 0.25% as the switching cost on the amount switched. Some charge nothing.

I believe this is true for fund supermarkets, but beware if you go direct or use another channel, as some change considerably more.