Stocks and Share ISA advice...

munk

Replying to your PM here MRLX69 hope you don't mind, better that way then everyone can benefit from the discussion hopefully.

But just to clarify, a S&S ISA is just like buying ordinary shares but with the ISA wrapping and so it's tax free, right?

An ISA or Individual Savings Account is a 'wrapper' that 'wraps up' investments inside it with the purpose of sheltering those investments inside from tax (to some extent anyway). It's the governments aim to try and help/encourage people save for the future by giving them the incentive of not having to pay tax on anything inside the wrapper (usually you'd pay income tax on bank savings accounts which seriously cuts back the interest you earn).

So, one of the things you can place inside an ISA wrapper is 'stocks and shares' (S&S) - of course the other alternative is cash. With an S&S ISA you can put quite a variety of different investment 'instruments' /investment types into it I believe. Probably the most popular choice to place inside an S&S ISA is investment funds (unit trusts (UTs) and open ended investment companies (OEICs), basically the same thing) and of course directly held stocks/shares.

For more info have a read in the 'banking/saving' section (look on navigation bar above) and search for ISA - you should find the link. Other places to look are http://www.moneymadeclear.fsa.gov.uk/ and perhaps have a read through some broker sites like Hargreaves Lansdown.

Also, the average return is 6.9% you mentioned... do you know if this is the actual net income? less all of the fees and charges?

Yes that would be net of fees/charges - I hope I quoted that right, fairly sure it's right... to my mind it sounds about right as an average for equities over 20 years. It doesn't sound like much of an improvement but the point is that whilst everyone thinks of stocks/shares as being a high-flying high earning area, the truth of it is that on average the return isn't massive. Something worth remembering when you hear about 'bull markets' and even cautious funds soaring with double digit returns - you have to take the ups together with the downs and understand over the long period on average you're looking at a conservative estimate of 7% return. It's easy sometimes to think 'yeah I'll bag 15% easy pa'... but just keep in mind the averages

As you know, it also very much depends on how much risk you're willing to take. As you said above though if you're only 20 you've got time to ride out the bumps so you can afford to look at a higher risk portfolio than normal - but of course always know what you're getting into before doing it!!!

If you're up for it have a chat with an IFA, hopefully they can explain all your options. You don't have to take their advice usually, they'll give you an initial meeting free - from there you can then maybe do more research on what they've given you and perhaps look at doing something similar yourself. It's worth spending some time on research though, at the end of the day you don't want to flush your money don't the drain... I must have spent 100s of hours reading up and all that before deciding on a portfolio

My only suggestion from personal experience is to not go into a really high risk portfolio to start with, even if you think you can take it - maybe ease into it slowly and see how you feel as time goes on. If you find yourself not worrying about your investment going down 20% over a few days/weeks then drip feed in a little more into your chosen portfolio. You can always add more but you can't take away from a portfolio if it's fallen rapidly in value!

- it doesn't seem that much of an improvement from the current high interest fixed term accounts!!

Well... they're high interest accounts and so of course they'll be higher than the average savings account!! Even so over 20 years it would be interesting to see what the average return of hi savings accounts is - it won't always be 'this good', rates are only really so high right now because of the pressure on banks to raise funds to increase their liquidity after the credit crunch. Generally I would imagine even hi savings accounts on average over 20 years would be lower than 6.9%.

karen_newcastle

I've has a stocks and shares ISA for 8 years. I've paid in £40 a month so far (£3840) but as of yesterday the balance was £3808. It's totally pants.

Aegis

karen_newcastle wrote: »

I've has a stocks and shares ISA for 8 years. I've paid in £40 a month so far (£3840) but as of yesterday the balance was £3808. It's totally pants.

Probably more to do with the provider than anything else. I'm guessing that you're paying into a single fund with a fairly high initial and annual charge rate. Even then, in most funds you should be seeing a gain over that period.

Maybe it's time to re-evaluate your investment strategy and pick one that works a little better? What do you currently have, and what are your objectives in the long run for this money?

karen_newcastle

I really made a mess of this to be honest. This PEARL savings plan was set up for me after advice 8 years ago from a family friend who was a financial advisor. He KNEW it was for my daughter and I feel it's been invested very inwisely. That said I could have sorted this out earlier and havent.

I thought it was a CASH ISA and in March I opened an A&L ISA and filled in the form to get my PEARL ISA transferred into it. At this point I found out it was a stocks and shares ISA and it cant be transferred. I have to cash it in instead.

But this leaves me with a problem as I will get a cheque for £3808 which is more than this years ISA allowance. I want to continue saving £50 per month for anothr 2 years until my daughter is 18.

So do I pay in £3000 and continue saving £50 per month and then find somewhere to put the remaining £800? Can my 16 year old open an ISA for herself andf stash it there?

Baldur

karen_newcastle wrote: »

Can my 16 year old open an ISA for herself andf stash it there?

16 to 18 year-olds can open a Cash ISA (but not Stocks & Shares ISA) - although, from memory, some ISA Managers are still saying over 18s only, so you may need to 'shop around.'.

Aegis

karen_newcastle wrote: »

I really made a mess of this to be honest. This PEARL savings plan was set up for me after advice 8 years ago from a family friend who was a financial advisor. He KNEW it was for my daughter and I feel it's been invested very inwisely. That said I could have sorted this out earlier and havent.

As horrible as it sounds, if your financial adviser friend gave you bad advice, it might well be worth filing a complaint. 8 years of non-growth when you were saving specifically to give something to your daughter is absolutely awful, and given that you thought it was a cash ISA, it seems that the risks weren't explained to you at all, which is an example of extremely negligent business transacting on the part of your friend.

You probably won't get anything out of them, but it might be worth trying to claim for 5% compounded over 8 years given that that's probably what you would have got out of a cash ISA in the time. Using a spreadsheet, that comes to about £2100 in lost interest.

I thought it was a CASH ISA and in March I opened an A&L ISA and filled in the form to get my PEARL ISA transferred into it. At this point I found out it was a stocks and shares ISA and it cant be transferred. I have to cash it in instead.

But this leaves me with a problem as I will get a cheque for £3808 which is more than this years ISA allowance. I want to continue saving £50 per month for anothr 2 years until my daughter is 18.

So do I pay in £3000 and continue saving £50 per month and then find somewhere to put the remaining £800? Can my 16 year old open an ISA for herself andf stash it there?

Your ISA allowance this year is up to £3600 for cash and up to £7200 Stocks and Shares, with an overall contribution limit of £7200. As such, you could remove £3600 and add that to a cash ISA, with £200 left over for other uses. I still think it is worth filing a complaint, as they clearly did not ensure that you were aware of the risks if you thought it was a cash ISA until this year!

karen_newcastle

Aegis wrote: »

As horrible as it sounds, if your financial adviser friend gave you bad advice, it might well be worth filing a complaint. 8 years of non-growth when you were saving specifically to give something to your daughter is absolutely awful, and given that you thought it was a cash ISA, it seems that the risks weren't explained to you at all, which is an example of extremely negligent business transacting on the part of your friend.

You probably won't get anything out of them, but it might be worth trying to claim for 5% compounded over 8 years given that that's probably what you would have got out of a cash ISA in the time. Using a spreadsheet, that comes to about £2100 in lost interest.

OMG surely I haven't lost out on that much?? I have only invested £3840 so it seems strange that I could have earned £2100 interest. But I really don't know a lot about these things.

I really dont want to file a complaint as it's my cousins husband nd I know it will cause a huge fuss in the family but I totally appreciate your comments and I will give it more thought.

I think I will invest the £3600 in this years ISA to make the most of that tax free allowance and maybe open another ISA in my daughters name to save the other £200 and the £50 a month I intend to save until she is 18.

Do you think I am making a wise move with this plan? I don't want to get it wrong again :-(

Update - forgot to mention cousin's husband no longer provides financial advice and hasn't done so for many years.

Aegis

karen_newcastle wrote: »

OMG surely I haven't lost out on that much?? I have only invested £3840 so it seems strange that I could have earned £2100 interest. But I really don't know a lot about these things.

I was quite surprised myself at the amount! However, I ran the numbers again, and even at 4.5% gross with monthly interest paid, you'd be looking at a lump sum of £5786.50 at the end of a 96 month investment term. Quite a substantial difference from what you've now got, and more than achievable with good cash ISA rates over the last few years.

I really dont want to file a complaint as it's my cousins husband nd I know it will cause a huge fuss in the family but I totally appreciate your comments and I will give it more thought.

You should certainly point him in the direction of this thread. Perhaps the figures will make him realise what a bad plan he helped set up for you. It would certainly be in his best interest to try and rectify the situation through a goodwill gesture outside a formal complaint, as it's clear that his advice was bad and that he didn't adequately explain the risks associated with this product to you.

All in all, it's a good lesson as to why business should not be mixed with family unless you're absolutely certain you're doing the right thing for their needs and that they fully understand everything you're recommending.

I think I will invest the £3600 in this years ISA to make the most of that tax free allowance and maybe open another ISA in my daughters name to save the other £200 and the £50 a month I intend to save until she is 18.

Do you think I am making a wise move with this plan? I don't want to get it wrong again :-(

If it's what you want to do, then it's a fairly safe plan. Your daughter would probably have to open the ISA herself because of the type of account, but it's certainly feasible for you to gift her the money and for her to then put it into a savings account.

Update - forgot to mention cousin's husband no longer provides financial advice and hasn't done so for many years.

Fairly irrelevant all in all. Advice given is open to complaints for the life of the product, and possibly later. He should still be maintaining some sort of professional indemnity insurance if he was operating as an adviser, unless his employer had a scheme in place for covering any complaints.

jem16

Aegis wrote: »

I was quite surprised myself at the amount! However, I ran the numbers again, and even at 4.5% gross with monthly interest paid, you'd be looking at a lump sum of £5786.50 at the end of a 96 month investment term. Quite a substantial difference from what you've now got, and more than achievable with good cash ISA rates over the last few years.

Are you sure on that?

£40pm for 8 years at 5% gives a return of £4707. A lump sum of £3800 gets nearer to your figures though.

Aegis

jem16 wrote: »

Are you sure on that?

£40pm for 8 years at 5% gives a return of £4707. A lump sum of £3800 gets nearer to your figures though.

Hmm, my bad. I was working out £50pm rather than the £40pm stated by karen.

At £40pm my figures show an expected result of £4709.62 at 5% from the investment of £3800, which is much more realistic! Still a loss of £900, which is significant enough to want to complain if it's going to a young loved one.