Mar

31

don’t forget to use your ISA allowances

Filed Under investment, savings | 2 Comments

If you have more money to put in your ISAs for the 2007-08 financial year, you have until 5th April to do so.

The allowed amounts are up to £3000 in a mini cash ISA, up to £4000 in a mini stocks and shares ISA, and up to £7000 in a maxi ISA (basically stocks and shares).

Mar

25

basic guide to Stocks and Shares ISA: conclusions

Filed Under investment | 8 Comments

the guide to Stocks and Shares ISAsFor a while now, I’ve had a trickle of requests for a basic guide to investing in UK Stocks and Shares ISAs. As I want to go through things carefully, I’ve split all the details into several different parts, starting with thinking about yourself and what you want with the money, and moving into what there is available, and the nuts and bolts of products and investments.

Previously on the basic guide to Stocks and Shares ISAs:

what have we done?

If you’ve been following the series, you should be able to work out how best to invest your Stocks and Shares ISA allowances for 2007-08 and 2008-09.

We’ve covered your goals and timescales for your money, and the amount of money you have available. We’ve then talked about risk and the things we need to consider when relating risk to investments - especially asset allocation. We’ve also covered funds and providers that you might be interested in using to create your asset allocation.

If you use the ideas and tools in the guide, you will be able to make a reasonable attempt at defining your investment plan for your stocks and shares ISA, and a reasonable attempt is probably good enough for now. You should know what you want to invest in, and a pretty inexpensive way of doing so.

what next?

Open a Stocks and Shares ISA account with your chosen provider. If you know what you want to invest in (and I’d suggest that you don’t open one until you do) then it’s no more difficult than opening a bank account. Just remember to have the names of the funds and the percentages you want allocated to each written down correctly.

You can usually set up a direct debit or standing order if you want to invest monthly, or you can generally do a bank transfer or send a cheque if you’ve got a lump sum to invest.

Investing doesn’t have to be hard, and to a certain extent you can “set and forget” but just as regular shopping around for the best savings accounts will earn you more interest, keeping an eye on your investments intermittently will allow you to manage them better.

The most important thing to keep your eye on is your asset allocation. Different funds will grow at different rates so your investments will veer away from the percentages that you initially set up. This is ok, all you need to do is rebalance selling what you have to much of, and buying what you don’t have enough of. Rebalancing is one of the easiest ways to make yourself buy low and sell high - the surefire way to investing success. 

The final thing is don’t forget that if your investment goal has a specific timeframe associated with it (like school or university fees) then you probably want to start “lifestyling” it, and changing the asset allocation about 5 years out.

If you’ve got any more questions about Stocks and Shares ISAs, please let me know in the comments below.

PS The tax year 2007-08 ends on 5th April 2008, so if you haven’t used your Stocks and Shares ISA allowance yet, you need to get cracking on with it.

Mar

20

basic guide to Stocks and Shares ISAs part 6: all about providers

Filed Under investment | 4 Comments

the guide to Stocks and Shares ISAsFor a while now, I’ve had a trickle of requests for a basic guide to investing in UK Stocks and Shares ISAs.

As I want to go through things carefully, I’ve split all the details into several different parts, starting with thinking about yourself and what you want with the money, and moving into what there is available, and the nuts and bolts of products and investments. This is part 6 of the basic guide to Stocks and Shares ISAs.

Previously on the basic guide to Stocks and Shares ISAs:

separating out funds and providers

The key to thinking about ISAs, is remembering that they are just containers. You want to pick the best investment that you can, and then put it into the cheapest container that you can. So the way to find the best ISA provider for you, is to pick your funds, and then find a cheap provider of them.

When your money is in the fund, it doesn’t matter who you bought it from it will return the same underlying performance. It’s just that a cheap provider will take out fewer fees so more of the performance will be returned to you.

the rules on Stocks and Shares ISA provider

Firstly, implications of one of the basic rules of ISAs. In any given tax year, you are only allowed one Stocks and Shares ISA from one provider (you may also have one Cash ISA from one provider). This means that you are restricted to using the investments available through the provider of your ISA.

Suppose you want to invest in the Legal and General UK FTSE All Share Tracker Index Fund and so open an ISA with Legal and General. If you want to invest in any other fund as part of your asset allocation, you have to invest with a fund offered by Legal and General. Fortunately, there are a couple of loopholes.

funds supermarkets

Firstly, there are funds supermarkets; these sound like what they are - a place where you can buy all sorts of investments that are offered by all sorts of companies. They also do Stocks and Shares ISAs, so if you open an ISA through a funds supermarket, you can pretty much invest in whatever you like. In addition to offering you more choice, they generally offer discounts on funds.

Generally, a fund may have an initial charge, and an annual management charge. Funds supermarkets generally discount both of these, often discounting the initial charge all the way to zero.

The typical fund in the UK has an annual management charge of 1.8%, so for every £100 held in the fund each year, £1.80 will go to the management company. There is usually no charge for holding an ISA with a funds supermarket.

stockbrokers and exchange traded funds

Exchange traded funds (ETFs) are a lot like regular funds, except that you buy and sell them like shares. Just as regular funds collect together everyone’s money and then invest it, so do ETFs, but because they float like shares their prices per unit can go up and down. This isn’t too important as there is a good market which naturally regulates the price, so for a long term buy and hold investor, this shouldn’t matter.

ETFs generally have very low fees typically around 0.4% annually, with no initial fee. However, you need to buy them from a stockbroker, who do have fees. These tend to start at about £10 per trade, plus stamp duty of 0.5%, so a £100 initial investment would cost approximately £10.50 in fees.

As you can imagine, if you want to use ETFs you need to minimise the number of separate transactions you make, so they are better suited to lump sum investments.

comparing providers

In my other life, I’m a spreadsheet queen, so I’ve created an interactive spreadsheet that’s all zipped up for you to download. If you don’t have a spreadsheet program on your computer, I recommend using Open Office, free and open source, my copy definitely opens this spreadsheet.

The spreadsheet compares two inexpensive funds supermarkets - Hargreaves Lansdown and Fidelity - and two inexpensive stockbrokers - TD Waterhouse and E*Trade. As far as possible I’ve used comparable funds which are the cheapest available from each provider, details of the funds are in the spreadsheet.

You can input your details into the pink boxes - you should have the amount and frequency that you want to invest, and your asset allocation. The spreadsheet is a little simplified, but it should be good enough for comparing costs (not performance).

Let me know if you have any problems, and I’ll see what I can do.

still to come…

Coming up in the basic guide to Stocks and Shares ISAs:

  • conclusions – what’s been covered, and what to do next

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