Legal & General Stocks & Shares ISA

jaqui59

Hi everybody ...

Ive yet to use my ISA allowance for 2008/9 and have more or less decided I would like to take a little gamble with £7200.00 and put this money into a Legal and General Index Tracking Stocks and Shares ISA linked to the UK Index with an annual charge of 0.52%

Do you think ive made a good choice or are there better options to consider.

Any advice would be great ... Thanks

Aegis

Why did you decide on that fund, and do you really want to invest all your money into a single area of the stock market?

Baldur

Sounds as though you may have been talking to an 'adviser' at Nationwide, who offer the Legal & General products?

dunstonh

A few of the banks/building societies tie to L&G.

£7200 in a single FTSE tracker fund is old fashioned investing, med/high risk and likely to result in generally poor returns over the long term compared to a spread of say 7x£1000 (ok, one can be £1200 )

turbobob

Just my opinion, but you should consider diversifying. There is nothing wrong with that fund in itself, but all your money is in shares and in one geographical area (i.e. the UK). Also its tracking an index so it will always give average performance. So if the UK stockmarket as a whole takes a dive, then it is 100% certain the fund will as well.

If you go direct to Legal & General, if you wanted to choose a range of funds you would have to choose from just their own funds. If you go through a fund supermarket (like Hargreaves Lansdown) you can combine several companies funds in one ISA. This is an advantage because some companies may be great at running some types of fund but have some real turkeys within their range as well..

dunstonh

To highlight the level of risk being taken, that fund has dropped by 45% in recent times. Are you willing to accept a 45% loss on your money in the short term?

Ian_W

dunstonh wrote: »

To highlight the level of risk being taken, that fund has dropped by 45% in recent times. Are you willing to accept a 45% loss on your money in the short term?

And just to qualify what "short term" means if you'd invested your £7200 in August 2000 it would have been worth less than the original investment until around the end of 2005 in that fund, at the bottom being worth just £4,100 or thereabouts.
I agree with turbobob - with the full S&S allowance you should consider diversifying using several funds covering different areas and even different asset classes.

A "little gamble"? Depends on how you define "little"!

earlgrey_3

dunstonh wrote: »

To highlight the level of risk being taken, that fund has dropped by 45% in recent times. Are you willing to accept a 45% loss on your money in the short term?

Really? When was that? Over what period?

Ian_W

earlgrey wrote: »

Really? When was that? Over what period?

Erm, does this answer it?

if you'd invested your £7200 in August 2000 it would have been worth less than the original investment until around the end of 2005 in that fund, at the bottom being worth just £4,100 or thereabouts.

The "bottom" being January 2003.

dunstonh

Some very common errors by inexperienced investors are:

1 - investing above their risk profile
2 - going with fashion investing (picking whats doing well at the moment and typically high risk with it)
3 - putting all their money in one fund
4 - Assuming a FTSE tracker is low risk when its really medium/high risk.
5 - using past performance as a guide to future returns
6 - investing with the focus on charges and not investment potential.
7 - not understanding the difference in risk in funds in the same sector and why a particular fund may have outperformed another.

You can often spot the people that have done this in the past as they are typically the ones that say they will never invest on the stockmarket again (or take any risks regardless of potential) because they lost money in the past. What they really mean is that they invested above their risk profile, invested in the short term and pulled out when there was a decline.

Ian has given some info on the decline periods already but actual figures on the L&G Index tracker was that it peaked on 6/9/2000 at 145.2p and dropped 43.62% by 30th Jan 2003 to 81.86p a unit. It didnt break even to that peak until 28th Dec 2005.

earlgrey_3

dunstonh wrote: »

Ian has given some info on the decline periods already but actual figures on the L&G Index tracker was that it peaked on 6/9/2000 at 145.2p and dropped 43.62% by 30th Jan 2003 to 81.86p a unit. It didnt break even to that peak until 28th Dec 2005.

Ah I see, that was what you meant by "recent times".

Wouldn't it be as well to issue the same health warning about all managed UK equity funds too which mostly fell by a very similar amount or in some cases very much more - partly due to the incredibly high management fees we pay for unit trusts in the UK?

Would agree with you that just because it's a low cost tracker fund it doesn't necessarily make it any safer than a comparable managed UK equity fund.

Should be remembered though that a managed unit-trust fund will charge much more for losing your money than a tracker fund.

Obviously people considering equities rather than boring old savings need to understand these falls can happen and could well be repeated over the next 5 years. The FTSE 100 is still well below the peak in 2000 and who knows where it could go from here. We're in interesting and unpredictable times.

Looking at Trustnet at performances I noticed the average losses for unit trusts for the last year have been:

• Managed UK Equity Growth 7.7% loss
• Managed UK Equity Income 10.2% loss
• Managed UK Equity Growth and Income 7.5% loss

The figure for the L&G UK Index tracker is a 5.4% loss. As far as I can see its performance has never been out of the second quartile (including for the period you mention) which would be a rare achievement for any managed fund.

The average loss for all unit trust funds last year seems to have been 6.8%, while for all tracker funds the figure was just 2.7%. Managed funds having to carry management fees of up to 2% and more, much of which is paid as annual commission to advisors, was presumably part of the reason for that.

An interesting quote from Patricia C. Dunn, former CEO of Barclays Global Advisors: "Investment managers sell for the price of a Picasso what routinely turns out to be paint-by-number sofa art." :rolleyes:

Some of the unit trusts that did most badly seem to have been the former favorites of financial advisors such as Jupiter, Henderson and New Star. The once much recommended New Star funds seem to have done especially badly with typical losses on their UK equity funds of 20% or more across the board last year.

The Financial Times have been long term advocates of tracker funds and will send out a booklet about them, "Index Funds - A guide for the private investor", or available in PDF format from http://www.brochurecentre.co.uk/pdf/file_55.pdf