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  • FIRST POST
    • cjdavies
    • By cjdavies 12th May 18, 4:42 PM
    • 3,407Posts
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    cjdavies
    Pros and cons of stocks and shares ISA?
    • #1
    • 12th May 18, 4:42 PM
    Pros and cons of stocks and shares ISA? 12th May 18 at 4:42 PM
    Having been using a cash ISA over the years, a saving of 20,000 is nothing in terms of interest.

    I have heard of stocks and shares ISA.

    What are the pros and cons? Can you lose money? Any tips before considering it?

    Thank you
Page 1
    • Tom99
    • By Tom99 12th May 18, 5:04 PM
    • 2,404 Posts
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    Tom99
    • #2
    • 12th May 18, 5:04 PM
    • #2
    • 12th May 18, 5:04 PM
    Yes you can lose money.
    Advice to new investors is generally to invest in a fund rather than individual shares.
    The fund will invest in many different companies thus spreading your risk by sector and even by country if you say choose say a world wide fund.
    The importance difference to a cash investment is that you should look on it as a longer term investment, say at least 5 years.
    Shares can go up and down, how would you feel if your 20,000 became only worth 12,000 next year, would you sell out or be prepared to hang on since in all likely-hood the investment will recover.
    • Joe_Bloggs
    • By Joe_Bloggs 12th May 18, 5:08 PM
    • 4,448 Posts
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    Joe_Bloggs
    • #3
    • 12th May 18, 5:08 PM
    • #3
    • 12th May 18, 5:08 PM
    Diversify/Split your assets into smaller parts so that that individual investment setbacks will not appear as sudden overall losses to the grand sum of your portfolio of investments.
    Consider the new/innovative tax shelter, IFISA

    J_B.
    • dunstonh
    • By dunstonh 12th May 18, 5:12 PM
    • 93,457 Posts
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    dunstonh
    • #4
    • 12th May 18, 5:12 PM
    • #4
    • 12th May 18, 5:12 PM
    Remember that cash ISAs are typically losing money and have been for the last decade. Most interest rates are less than inflation. So, whilst the balance hasn't dropped, the spending power has. So, its lost money in real terms.

    Cash gives you straight line balances. investing balances zig zag. One day up, another day down. You have to average out the ups and downs with a view to long term returns.

    if you cant handle the zig zagging then its not for you (although you can invest with different risks to reduce the degree of zig zag).

    its really all about timescale. cash is short term. Investing is long term.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • cjdavies
    • By cjdavies 12th May 18, 7:42 PM
    • 3,407 Posts
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    cjdavies
    • #5
    • 12th May 18, 7:42 PM
    • #5
    • 12th May 18, 7:42 PM
    Yes you can lose money.
    Advice to new investors is generally to invest in a fund rather than individual shares.
    The fund will invest in many different companies thus spreading your risk by sector and even by country if you say choose say a world wide fund.
    The importance difference to a cash investment is that you should look on it as a longer term investment, say at least 5 years.
    Shares can go up and down, how would you feel if your 20,000 became only worth 12,000 next year, would you sell out or be prepared to hang on since in all likely-hood the investment will recover.
    Originally posted by Tom99
    I would be thinking that it took ages to save it and to lose it with nothing to show for it or a decent holiday.
    • lpgm
    • By lpgm 12th May 18, 7:55 PM
    • 236 Posts
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    lpgm
    • #6
    • 12th May 18, 7:55 PM
    • #6
    • 12th May 18, 7:55 PM
    I would be thinking that it took ages to save it and to lose it with nothing to show for it or a decent holiday.
    Originally posted by cjdavies
    So are you saying that, in this example, you'd sell everything at a loss?
    • cjdavies
    • By cjdavies 12th May 18, 8:46 PM
    • 3,407 Posts
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    cjdavies
    • #7
    • 12th May 18, 8:46 PM
    • #7
    • 12th May 18, 8:46 PM
    So are you saying that, in this example, you'd sell everything at a loss?
    Originally posted by lpgm
    I don't think in would but I would be on edge and what if I needed the money for something unexpected.
    • Alexland
    • By Alexland 12th May 18, 9:00 PM
    • 2,748 Posts
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    Alexland
    • #8
    • 12th May 18, 9:00 PM
    • #8
    • 12th May 18, 9:00 PM
    I don't think in would but I would be on edge and what if I needed the money for something unexpected.
    Originally posted by cjdavies
    S&S is not intended for easy access - keep your emergency money in the best cash products on the market. If you do have money that you will not need to access for 5+ years (preferably 7-10+) then a diversified S&S fund has a high probability of beating inflation if you can cope with the volatility along the way.

    Alex
    • Tom99
    • By Tom99 13th May 18, 1:51 AM
    • 2,404 Posts
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    Tom99
    • #9
    • 13th May 18, 1:51 AM
    • #9
    • 13th May 18, 1:51 AM
    Just to give you an example of short term stock market volatility and using the FTSE100 index just as an example, since 1st Jan 2000:
    1 year after an investment:
    The index has been up on 60% of days
    The index has been down on 40% of days
    The biggest fall over 1 year is -42%
    The biggest rise over 1 year is +59%
    • cjdavies
    • By cjdavies 13th May 18, 9:18 AM
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    cjdavies
    Tank you all, I may invest 10,000 (1/2) - that way I have some emergency money if needed.

    Can I also have a cash ISA alongside the S&S ISA?

    Do I pick the company to invest in? (I hope not I would have no idea - knowing my luck they would bankrupt - just thinking of Toys R Us and Maplin for some reason).

    Is it best not to get obsessed with looking at it every so often and come back in say 5 years and check it?
    • le loup
    • By le loup 13th May 18, 9:29 AM
    • 3,835 Posts
    • 3,805 Thanks
    le loup
    No. When you start you buy a fund or investment trust. They invest in anything between 30 and 100 different companies so your risk is spread.
    • Linton
    • By Linton 13th May 18, 10:07 AM
    • 9,409 Posts
    • 9,550 Thanks
    Linton
    Thank you all, I may invest 10,000 (1/2) - that way I have some emergency money if needed.

    Can I also have a cash ISA alongside the S&S ISA?

    Do I pick the company to invest in? (I hope not I would have no idea - knowing my luck they would bankrupt - just thinking of Toys R Us and Maplin for some reason).

    Is it best not to get obsessed with looking at it every so often and come back in say 5 years and check it?
    Originally posted by cjdavies

    If you are investing you need to keep an emergency fund in cash - say about 6 months living expenses. This will avoid the need to sell investments when prices are low if for example you lost your job or needed to replace a central heating boiler.


    You can have an S&S ISA as well as a cash ISA. Though whether it is worth having a cash ISA is open to question since you can get higher cash returns outside an ISA even after paying tax.


    Do not invest in individual companies, at least not until you have perhaps 50K available, and even then it is only justifiable in particular circumstances. Each individual company has the potential to go bust when you will probably lose the total investment. Invest in funds holding large numbers of shares, prices will fluctuate but the chances of losing everything are virtually zero barring global catastrophes when the cash in your ISA could also be of little value. You need to accept the variability as in the long term, with sensible investing, you are very likely to make much higher returns than with cash. Matching inflation is the minimum you could reasonably expect, whereas with cash this is a frequently unattainable target.



    Whether you obsessively keep looking at progress is a matter for you. The important thing is not to let short term events affect what you invest in. Dont buy because prices are rising quickly and dont sell because they arent.
    • lisyloo
    • By lisyloo 13th May 18, 10:09 AM
    • 22,028 Posts
    • 10,705 Thanks
    lisyloo
    No you don!!!8217;t invest in a single company in your position for exactly the reason you mention - you could lose the lot.
    This is why you use funds which invest in many companies. If one company goes bust and 99 don!!!8217;t then the impact is much smaller - hopefully most of the 99 have gone up in value.
    You can have multiple funds and multiple territories.
    My ISA and pension has about 15 funds and some are US not UK and some other parts of the world.
    In you position I!!!8217;d be looking either for a good all-round fund that covered everything or to follow a standard portfolio of funds.
    I!!!8217;m not very sophisticated so I let an advisor do mine.
    When I was forced to use a different company for my employers pension scheme, I copied one of their example portfolios.

    Are you also contributing to a pension? If so how much?

    It!!!8217;s about balance. I am constantly trying to get a good balance between

    - cash for easy access
    - pension for an early and comfortable retirement
    - better returns for long term investing
    - spending and enjoying it now as none of us know how long we!!!8217;ve got
    • ValiantSon
    • By ValiantSon 13th May 18, 10:25 AM
    • 2,251 Posts
    • 2,136 Thanks
    ValiantSon
    Tank you all, I may invest 10,000 (1/2) - that way I have some emergency money if needed.

    Can I also have a cash ISA alongside the S&S ISA?
    Originally posted by cjdavies
    Yes, you can. You can have one of each type of ISA; S&S ISAs and cash ISAs are two different types. The maximum you can contribute to ISAs is 20,000 this tax year. That money can be split between the two different types of ISAs as you wish.

    Do I pick the company to invest in? (I hope not I would have no idea - knowing my luck they would bankrupt - just thinking of Toys R Us and Maplin for some reason).
    Originally posted by cjdavies
    I would very strongly advise against picking individual stocks. You would be best off choosing a multi-asset fund which then invests in thousands of companies all over the world. This gives you the benefits of diversification. To do this you need to pick a multi-asset fund to invest in, and then a platform to do this on. Some possible funds worth considering are Vanguard LifeStrategy; HSBC Global Strategy; Blackrock Consensus. Each of these comes in different versions depending upon how much of the fund is invested in equities (shares) and fixed income (bonds). The higher the proportion of equities the greater the volatility, but also, likely, the greater the gains over the long term. Only you can know your attituded to risk, but based on your earlier coments, I suspect that a balanced fund might be right (c.60% equities and 40% fixed income). Below are links to details about the balanced versions of each of these funds:

    Vanguard LifeStrategy 60: https://www.trustnet.com/factsheets/o/acdq/vanguard-lifestrategy-60-equity

    HSBC Global Strategy Balanced: https://www.trustnet.com/factsheets/o/g1hd/hsbc-global-strategy-balanced-portfolio

    Blackrock Consensus 60: https://www.trustnet.com/factsheets/o/gfza/blackrock-nurs-ii-consensus-60

    When you have chosen a fund, you need to choose a platform on which to purchase and hold it. It is the platform with whom you set up the ISA. Each fund will have an OCF (an on-going charge that you pay for the investment) and the platform will also charge a fee. There are different fee models, but with a low investment amount you will most likely be best off on a platform that charges a percentage of your total investment. You can compare the different platforms here: http://monevator.com/compare-uk-cheapest-online-brokers/

    The OCF for the funds are taken directly out of the fund and are reflected in the NAV (the value of each individual unit in the fund), so you never actually stump up cash for this. The fees for the platform can normally be paid in cash, or taken by selling some of your investments. You don't want them to do the latter! Each platform allows you to pay the fees in different ways. Many require you to leave some cash in your acount to cover the fees, while some others allow you to set up a direct debit for them.

    If you choose to go with the Vanguard fund, then you would almost certainly be best off holding them on Vanguard's own platform, Vanguard Investor: https://www.vanguardinvestor.co.uk/. This is because Vanguard charges an extremely low platform fee of 0.15% and does not charge any fees to buy funds or transfer out to another provider at a later date. They also allow you to pay your fees by direct debit (much my prefered method) and, if you want, to set up a direct debit for regular monthly investing too. As a comparison, on Vanguard Investor buying LifeStrategy 60 will cost you 0.37% per annum, while on the next cheapest platform - Cavendish - it would cost you 0.47% (and Cavendish don't have the same options for direct debit). These fees are made up of 0.22% OCF and 0.15% or 0.25% platform fee.

    Is it best not to get obsessed with looking at it every so often and come back in say 5 years and check it?
    Originally posted by cjdavies
    That all depends on how likely you are to panic and sell when the value is down. I check my investments pretty well every day, but I know that I won't sell, and that I will keep investing - seeing the fall in value as an opportunity to buy more at a cheaper price.
    Last edited by ValiantSon; 13-05-2018 at 10:29 AM.
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