Stocks and Share ISA advice...

MRLX69

I'm just wondering if, in the long term, would stock and shares ISA almost always outperform cash ISAs?

I haven't invested my allowance for this year but I'm not sure if I should get a stocks and shares one and dump £72000 in or just a cash one and put in £3600?

If I were to go for stocks and shares, what would you recommend? - Index tracker? - Self selected?.. I'm very confused about stocks and shares ISA...

debbie42

MRLX69 wrote: »

I'm just wondering if, in the long term, would stock and shares ISA almost always outperform cash ISAs?

I haven't invested my allowance for this year but I'm not sure if I should get a stocks and shares one and dump £72000 in or just a cash one and put in £3600?

If I were to go for stocks and shares, what would you recommend? - Index tracker? - Self selected?.. I'm very confused about stocks and shares ISA...

Historically (and on average!) investments in equities have statistically outperformed savings. There are no guarantees as to future performance.

The ISA is just a tax wrapper, so you need to work out what your investment strategy is (risk etc.) first. There is a good thread on S&S ISA. I'll try and find it.
(incidentally, I think you made a typo, as it's only £7200 for this year!)

debbie42

Just bumped the thread (again!)
http://forums.moneysavingexpert.com/showthread.html?t=416337

munk

MRLX69 wrote: »

I'm just wondering if, in the long term, would stock and shares ISA almost always outperform cash ISAs?

I haven't invested my allowance for this year but I'm not sure if I should get a stocks and shares one and dump £72000 in or just a cash one and put in £3600?

If I were to go for stocks and shares, what would you recommend? - Index tracker? - Self selected?.. I'm very confused about stocks and shares ISA...

If you're a basic rate tax payer AND you're aiming to invest in a cash savings account (ie cash ISA) I don't think that there's any benefit from using the full £7200 allowance just on S&S due - you're better using up £3600 in cash ISA and the other £3600 in S&S. I might be wrong though, to be honest I'm still slightly confused about whether dividends paid out on investments inside an ISA are taxed or not. As I understand it the only tax you're avoiding paying on an ISA is CGT, dividend payments are still taxed (used to be dividends were tax free until a few years back).

AS for whether S&S do better than Cash - I've seen a stat bandied about in the press a lot about how over 20 years the average return on S&S is 6.9% (of course though that's the average, some equities will do a lot better, some a lot worse). What the average return on cash is ... who knows, I guess it'd be around 4-5% over 20 years but tbh can't remember what the articles said about cash.

At any rate you want to be looking at your investment in S&S for at least 5-10 years to iron out any 'bumps' - like those over the last 6 months! Not a bad time perhaps to be getting into S&S given prices have fallen a fair bit recently.

As for what to choose, that's dependent on your attitude to risk. Investment funds (unit trusts or OEICs) let you leave the picking and choosing of stocks to the fund manager and in turn you pay a charge to them for doing this. Picking individual shares in a stock or stocks is a lot more risky and probably best once you've dabbled in funds first?

As for how to choose the funds... there have been a few new articles in the savings/investments section on this site recently (look at top menu where it says 'banking/saving'). Have a read of some of those article see if you can get any ideas. I don't think they recommend funds though, you'd have to go to a financial advisor to get advise on which funds are best for you.

If you do have a look around and end up choosing a selection of funds (a portfolio), maybe come back on here and ask for *opinions* on your selection (don't ask for advice, is against forum rules). To give you an idea, I read up for maybe 3-4 months pretty heavily before I contemplated settling on a portfolio. If you're not up for that then maybe it'd be best to just pay an IFA (if your time is important to you it might be worth paying them instead of spending 100+ hours researching investing! (although it does pay to at least be savvy of what you're getting into)).

http://unbiassed.co.uk/ have a good list of IFAs local to you.

debbie42

munk wrote: »

If you're a basic rate tax payer AND you're aiming to invest in a cash savings account (ie cash ISA) I don't think that there's any benefit from using the full £7200 allowance just on S&S due - you're better using up £3600 in cash ISA and the other £3600 in S&S. I might be wrong though, to be honest I'm still slightly confused about whether dividends paid out on investments inside an ISA are taxed or not. As I understand it the only tax you're avoiding paying on an ISA is CGT, dividend payments are still taxed (used to be dividends were tax free until a few years back).

That's my understanding: if you are a higher rate taxpayer then you avoid paying extra tax on dividends if your shares are in an ISA, but otherwise (i.e. lower rate, or non-tax payer) it's the same. Of course, if you pick a multi-bagger share then the CGT benefits would warrant it being in an ISA. I live in hope!

btw, the link should be https://www.unbiased.co.uk

MRLX69

munk wrote: »

If you're a basic rate tax payer AND you're aiming to invest in a cash savings account (ie cash ISA) I don't think that there's any benefit from using the full £7200 allowance just on S&S due - you're better using up £3600 in cash ISA and the other £3600 in S&S. I might be wrong though, to be honest I'm still slightly confused about whether dividends paid out on investments inside an ISA are taxed or not. As I understand it the only tax you're avoiding paying on an ISA is CGT, dividend payments are still taxed (used to be dividends were tax free until a few years back).

AS for whether S&S do better than Cash - I've seen a stat bandied about in the press a lot about how over 20 years the average return on S&S is 6.9% (of course though that's the average, some equities will do a lot better, some a lot worse). What the average return on cash is ... who knows, I guess it'd be around 4-5% over 20 years but tbh can't remember what the articles said about cash.

At any rate you want to be looking at your investment in S&S for at least 5-10 years to iron out any 'bumps' - like those over the last 6 months! Not a bad time perhaps to be getting into S&S given prices have fallen a fair bit recently.

As for what to choose, that's dependent on your attitude to risk. Investment funds (unit trusts or OEICs) let you leave the picking and choosing of stocks to the fund manager and in turn you pay a charge to them for doing this. Picking individual shares in a stock or stocks is a lot more risky and probably best once you've dabbled in funds first?

As for how to choose the funds... there have been a few new articles in the savings/investments section on this site recently (look at top menu where it says 'banking/saving'). Have a read of some of those article see if you can get any ideas. I don't think they recommend funds though, you'd have to go to a financial advisor to get advise on which funds are best for you.

If you do have a look around and end up choosing a selection of funds (a portfolio), maybe come back on here and ask for *opinions* on your selection (don't ask for advice, is against forum rules). To give you an idea, I read up for maybe 3-4 months pretty heavily before I contemplated settling on a portfolio. If you're not up for that then maybe it'd be best to just pay an IFA (if your time is important to you it might be worth paying them instead of spending 100+ hours researching investing! (although it does pay to at least be savvy of what you're getting into)).

http://unbiassed.co.uk/ have a good list of IFAs local to you.

Thanks a tonne for this amazing post! And thanks Debbie!

I want to get into Finance so I'm more than prepared to read tonnes about investments... at the moment I'm working from several finance books - some on option, futures and other derivatives and others less mathematical, more MBA style...

Also, I do think it's one of the best time to get into investing, heard on bloomberg today that analysts at Morgan Stanley thinks that it can't get any more worst than this... (even if it does get worse, I'll just buy on the way down and hopefully I'll ride out the bumps).

It's a bit late for me now - got work tomorrow, will read up on funds tomorrow. Thanks again!

But I think I'll learn more by actually investing, hence I want to start! I'll look up more on funds as begin with funds as you said.

MRLX69

Oh, and about risk, I'd say Medium to High. I want bigger returns... I'm young (only 20 years of age) and so I can work and recuperate my losses, with no family to support, I don't mind losing a bit...

dunstonh

corp bonds, other bonds etc still benefit on the income front from being held in the ISA. They still claim the tax credit back. Also, if you are aged over 65 and basic rate then the income doesnt count towards age allowance reduction so equities in an ISA can benefit there from an income point of view.

Oh, and about risk, I'd say Medium to High. I want bigger returns...

One person's medium/high is another persons low risk or anothers speculative risk. You need to put it in context and a quick and simple way is to consider how much you are prepared to lose in percentage terms before you get cold feet.

snarffie

MRLX69 wrote: »

I want to get into Finance so I'm more than prepared to read tonnes about investments... at the moment I'm working from several finance books - some on option, futures and other derivatives and others less mathematical, more MBA style...

Can you tell me which finance books you have found to be useful. I'm at the stage where I have a decent amount of cash in ISAs (which I will leave alone) and now want to have a go at investing in 'something' within an ISA wrapper.

MRLX69

snarffie wrote: »

Can you tell me which finance books you have found to be useful. I'm at the stage where I have a decent amount of cash in ISAs (which I will leave alone) and now want to have a go at investing in 'something' within an ISA wrapper.

The books I read are mainly techniques used within the financial industry... nothing to do with personal finance / investments.

Won't really help you at all but if you really want to know, try "Options, Futures and other derivatives" by Hull - it's very mathematical.

MRLX69

dunstonh wrote: »

corp bonds, other bonds etc still benefit on the income front from being held in the ISA. They still claim the tax credit back. Also, if you are aged over 65 and basic rate then the income doesnt count towards age allowance reduction so equities in an ISA can benefit there from an income point of view.



One person's medium/high is another persons low risk or anothers speculative risk. You need to put it in context and a quick and simple way is to consider how much you are prepared to lose in percentage terms before you get cold feet.

I'd say, I'm prepared to loose up to 40% before I pull out.....

I can't seem to find the article on funds on this website...