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Saturday 10 January 2004

Investment advice [lurks]

The wife and I get paid into a joint account and the balance of this has been growing steadily as our little nest of savings. The thing is, it's just a working account so it pays zero interest and the fact it's there - makes it pretty easy for us to go spend on our joint cards and eat into the savings. What's needed is some proper savings and I've had a sort of cursory look around in order to get a handle on things. Normally you'd see an independent financial advisor but basically the last one I saw wasn't very independent at all and I'm thinking since we have this Internet thing and a bunch of people who must be in the same boat, maybe we can have an actual useful blog discussing the subject. Novel eh?
I think what I need is basically an ISA and this is what I've managed to work out so far; An ISA (investment savings account?) is a governmental scheme to encourage saving and hence it's protected from tax up but has limits on how much you can invest to stop rich bastards from using it as yet another way to dodge paying their share. There's a mini ISAs and maxi ISAs. The minis can be either shares, life insurance or cash. You can have one of each from the same or different companies. They've got limits in how much you can pay in, the cash and share mini ISAs are £3K per year each, the insurance one is £1K a year.
Or you can have a maxi ISA which appears to be all three rolled into one, with the same limitations. Where it gets kind of confusion is that you can just open a cash one and slap dosh in it yourself or you can go maxi and pay in a regular amount and specify a sort of investment portfolio - normally you'd just pick a pre-packaged sort of one to save doing your head in, ranging from fucking risky through to safe as houses.
So I thought I needed just a plain ISA but I'm thinking, it'd be foolish not to just get a maxi one and pay in a regular amount into a share investment scheme and then shift any spare disposable into the cash component as I see fit. That sort of makes sense to me.
Of course... my original plan was to get some joint savings with the missus but I think all this is basically for individuals and I don't know if there's any way to do this with a joint account. This isn't a show stopper but really we were planning to put this money away so we could slap down a phat deposit on our next house or something. Nothing to stop us from doing this individually I suppose, if necessary.
Firstly, have I got the above right? Secondly, are there any flaws with my reasoning? Thirdly, what are you lot doing?

17 comments:

  1. I'm somewhat fortunate as my dad is an accountant of long standing. He set me up with an ISA (mini) and then there's various long term accounts he had me open; when I was with Lloyds it was a Tessa Gold account, and then he invests stuff for me too.
    It gets real confusing real quick, despite all the 'plain english' leaflets, so I'm rather unhappy to say that I just fork over cash to dad and he sorts it.Tell you what though, my bank (First Direct) offers a truly awesome share dealing service online via their web site. I had a play with it recently (a demo, not a real money thing) and was sufficiently impressed that I may be giving it a go for real in the near future.
    I'm sure other banks do the same, and if you hedge your bets and don't go crazy, I can't see why it couldn't be of good value in the longer term.

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  2. not an expert by a long long way - but would it not be wise to avoid shares, as its hardly boom time in the city? Our company pension plan is a bit 'depressed' as the section of it that has been invested in the stock market is worth fuck all..
    That said I hold my hand up as to knowing nothing :)

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  3. I lost a vast sum on my pension fund due to that. It seems to be basically OK now but yes... I think I'm interested in slapping the vast bulk of my earmarked monthly savings investment into a cash ISA with maybe something moddest like £50 a month into the shares component.

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  4. Thats what I'm planning to do. Sub £100 a month to play with the shares market, since I'm obviously no wheeler dealer yet I'm quite keen to learn how it all works.

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  5. I've always fancied it but the trading fees seemed so large that you have to be pretty sure of making a decent whack on each trade to make it worth while. Current thinking is that life is too short, so I'd rather let a fund manager go and sort it out for me. IE some bloke wot knows what he's doing. Of course... if only I could persuade my missus - who handles announcements for an alternative stock exchange - to send me coded tips, then I'd be a bazillionaire. Tart is far too honest though. Bah!

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  6. You can have joint savings. I've got the bulk of my savings in National Savings (good ole post office) at the mo, they give a reasonable return and it's nice and safe.
    Only other thing other than ISA's you might want to consider is putting more into your pension perhaps?Regarding shares, if you do want to go that way, it might be better to use something like a fund supermarket platform rather than investing directly yourself. You can weight risk vs return that way at least, and move your money around easily if things start going pear.Oh and the last thing that can be fun is Premium Bonds. No guaranteed return, but it is fun putting a wad of cash in there for a chance of big money with very low risk.

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  7. What you're calling a fund supermarket is exactly what I was talking about when I meant putting some dosh into a managed portfolio type thing. You just slap in some money and someone else does it. You just pick what sort of portfolio you fancy, risky to safe etc. The pension stuff is a point. There's no scheme at my work so I've not done anything with it although I still have an 'account' with one firm from my last job and although they lost me staggering sums of money, there's still money in it. I should probably err close it or something, not sure what I do. With that, you get your employer to pay into it so you don't pay tax on it right? Or you can pay yourself and reclaim the tax (argh). This all sucks. :(

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  8. I'm a bit unsure whether you've got the handle on the Maxi-ISA. They originally were vehicles for people wanted to put a big wad into one type of investment, so you could have a Maxi Cash ISA and no others, but you could save £7000 a year in it. These are really rare, what you do see more are the Maxi Shares ISA, where again you can have 7k of shares, unit trusts and OEICs. Which is a bit rich for my blood, I'm happy to be able to save some cash and dabble with the stocks part.
    Most go for the mini cash ISA, Which? did a current list of best buys this month, if you are interested. The key is to look for one that offers transfers in and out, that way you can easily switch if the current provider drops their interest rate.
    As for shares, if you invested in a stockmarket tracker fund last year, you'd be 13% up on the year... try finding a building society paying that! However, if you'd got said fund the year before, you'd be barely breaking even. With shares most punters can't afford to invest in individual shares because of the high purchase cost, and the overall cost of building up a balanced portfolio.
    The solution is to invest in unit trusts and OEICs (don't ask), which are bundles of shares picked across the whole sector, uk and internationally, then shelter them under an Shares ISA umbrella/wrapper (protecting you from tax)
    You pick your funds based on how much risk you want to take, and you can pick a basket of them, so you may pick high-risk Asian Offshore Technology and low-risk UK Household Names. The charges are a lot lower than buying individual shares and you have a fuller portfolio.
    I use www.fidelity.co.uk and they have developed their web site to allow you to also buy funds from Fidelity's competitors and wrap it all up in an ISA.
    As for Joint accounts, I don't think they exist. I would be nice but defeats the Individual tax concepts the last two governments have pushed.

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  9. I was considering this recently. It came down to : Honda S2000, mortgage, ISA/Shares etc. or starting a business. I went with the latter, and as of Feb 1st I'm a free man, director of my own co. and well, taking risks but that's what life's for when you're 25...

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  10. Lurk, you posted that stuff while I was typin so I didn't see it. I'd definately sort your pension out, but I'd go with a personal one that you can take with you, it avoids all the fees that can go with starting a new pension as you move jobs, etc. You do then have to claim the tax back rather than have it deducted before you pay tax, so there's a bit of a chore. Gives you control of it though. My pension is ace, it's got a web control panel that lets me move it into different funds, manage the splits that kinda thing, or I can just let them manage the investment completely, its top.

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  11. I ended up looking at Fidelity through Smile, via some sort of re-branded stuff. I was set to apply for something but I got cold feet seeing rebranded stuff. Smile sort of appealled their rates are good (if you have an existing account with them, like I do), I like the language on their web site and I could really do without one more bank type web site to log into. I guess I should see if the terms are any different in going direct or doing it through Smile.
    Afty, that's great stuff. I'm happy for you fella. I expect a proper blog about setting up your own biz. Not gonna bang on about that here and hijack my investment blog :)

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  12. Nice one Afty! Wanna buy some hosting? :)

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  13. Cheers for the congrats gents. I won't hijack this blog, but suffice to say I will do a blog sometime in Feb about it (my position here ends 30th Jan, when I go for a weeks skiing, woot).Cheers again. And Brit, I was about to try our firstdirects stuff online, when I noticed in their privacy policy they state they can send your details all over the world, and to any company to use in any spurious way, so declined...

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  14. I'm sure when you're selecting a share portfolio that it would be possible to find one based on firms with known communist party connections. :)

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  15. Saving s0x0rs big time - interest rates are pathetic.
    If you do want to save (I've always spent 110% of what I earn personally - remember you are going to die one day) then buy premium bonds until interest rates go up - you will probably make more and its FUN! (and tax free)
    However your best bet is to get a flexible mortgage account that combines your current bank balance with the amount you borrowed and works out the net (and obviously lower interest) on a daily basis. You will save a fortune over the years.
    Shares? good luck m8ees!!! I've nearly always lost on shares but always won on buying properties and renting them out. There are some good 'buy to let' mortgages about and the interest is, of course, tax deductible against the rental..
    Alternatively look at moving and renting your current property out instead of selling it. My m8 has rented his flat in north london and bought a house in milton keynes. The rent he gets on the flat covers both that mortgage and the one on his new house! He has done some basic improvements to the Milton Keynes house and added over £50k to the value in less than 6 months. Thats real money cause he could sell it, get his tenant out and move back in to the flat with his jeans stuffed with twenties....(which of course is what he is going to do :-) )Saving s0x0rs big time - interest rates are pathetic.
    If you do want to save (I've always spent 110% of what I earn personally - remember you are going to die one day) then buy premium bonds until interest rates go up - you will probably make more and its FUN! (and tax free)
    However your best bet is to get a flexible mortgage account that combines your current bank balance with the amount you borrowed and works out the net (and obviously lower interest) on a daily basis. You will save a fortune over the years.
    Shares? good luck m8ees!!! I've nearly always lost on shares but always won on buying properties and renting them out. There are some good 'buy to let' mortgages about and the interest is, of course, tax deductible against the rental..
    Alternatively look at moving and renting your current property out instead of selling it. My m8 has rented his flat in north london and bought a house in milton keynes. The rent he gets on the flat covers both that mortgage and the one on his new house! He has done some basic improvements to the Milton Keynes house and added over £50k to the value in less than 6 months. Thats real money cause he could sell it, get his tenant out and move back in to the flat with his jeans stuffed with twenties....(which of course is what he is going to do :-) )

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  16. Houmous, I planned to do exactly that. Basically I wanted to stick cash in something accessible like a mini ISA, and then use this for the big deposit we'll need to move into a new house with a fresh mortgage.

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  17. You've got ISA's right there Lurks basically. The maxi's really are for shares and the minis are just the overall limit (7k) broken down into component maximums allowing you flexibility.
    Now as to the main point of the blog, the deal with all investments is to keep on reminding yourself 'why am I doing this'? So in this case the point is to accumulate wonga for a deposit on a house. Now that means that you have a short-term investment horizon because you don't want to move in ten or probably even five years time. As a result your priority is to accumulate but more importantly not lose money. The volatility of the stock market therefore rules out the sensibility of investing in stocks because if you walk into a market downturn you're going to lose 20% of your investment and with the purpose you have, that's going to suck piss.
    So basically, you've got it right - a cash ISA is what you want because you'll pay no capital gains tax on your interest. The only reason you wouldn't do this is to avoid using up your yearly allowance for investment in ISAs if you also had the cash to invest in stocks because it would be more sensible to apply your CGT exemption to that. But I suspect like us all you're not in that kind of savings league.
    As to the joint - no the limits are separate as you suspect. There's no biggy here - the only reason you'd mind is divorce or death and in the former everything's on the table anyway and on the latter it's not CGT that matters but inheritance tax and I suspect as long as you own your house as joint tennants where it will stay with the survivor outside of inheritance tax, the rest of your individual wealth will not be subject to inheritance tax (the first 255k is taxed at 0%).
    As to investments in stocks and shares, again timeline is important. THe market had a massive dive in 2000 which we're only recovering from now but at the end of day with a 25 / 30 year time horizon you are more than able, in your pension to cope with that and stocks and shares return best over the long term (about 12%p.a. since 1925). You just need to make sure as you get closer to retirement to go lower risk to avoid downturn risk at an inappopriate time when you no long have the ability to weather it out.
    Couple of things here - market timing i.e. trying to get out before downturns and get in before upturns is a mugs game and not even the best in the world can do it. Don't mug yourself. What you do is invest in the same amount month in month out regardless of the conditions. This, believe it or not, will return your highest overall rate in the long term.
    Second I personally believe individual stock picking is the road to rack and ruin for personal investors. Unless you know something you shouldn't (and remember insider dealing is massively monitored by neural net type programs at exchanges and can land you with criminal record), you simply aren't as good, haven't got the time and etcetera to beat professional money managers. Remember that the price of a stock *already* incorporates all the anticipated upside of new news etc.
    Thirdly it's a truth that the richer you are the cheaper things get. Conversly for us the cost of investment is very high. YOur average managed OEIC fund may charge you as much as 5.75% for the priviledge of investing up front and then high management fees thereafter. This is typically where the manager is 'active' i.e. persues his own investments. However the much more cost effective way is to invest in 'passive' funds which basically just buy all the market and 'track' the index. These typically have no front end load and a basic 1% management fee or thereabouts. You would go active if you believed your manager was good (like the ones I work with) but 80% of active managers underperform the index so as a betting man, not having enuff cash to invest with my lot, I reckon my chances are I'll pick an underperformer and therefore I go passive funds because they are much lower cost.
    Fourthly if you're still thinking active - don't! One of the old pratfalls is to look at performance and think that someone who has outperformed the last couple or few years must be a good bet. In fact there's a massive amount of stats which show that managers who outperform are the most likely to underperform significantly when their time is up. This is due to them having a 'style' that works for a bit very well but then when it comes out of sync with the markets tends to work very badly indeed.
    So there's a few thoughts. It's all irrelevant to me at the moment cos I'm freeing up every cent to put into the new gaff and I know the housing market will come off as interest rates rise but again, it's all a matter of time horizons - it's a long term investment and I get the maximum benefit out of it in the interim - a nice place to live in.

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