Finally, I have done it. (S&S ISA)

[SkipdiverJohn]

Oh dear.

US wibble-wobble re inflation spooks global financial lemmings and we are back down to 2.57% growth since Feb 27.

Volatility can be your friend, if you invest actively in particular. Quite often you will get runs of several trading days where the market falls a little each day. Over a week, the market might fall by say 3 or 4%. Then sentiment will change and you'll get another mini-run of rising prices which recovers the previous falls. If you can buy in close to the bottom of each mini cycle, especially into those individual stocks that fell the most, you can often harvest a nice little gain when they start rising again. Even if you don't actively trade shares, obviously the dips are the most profitable time to buy - which is why I don't auto-reinvest my dividends because the reinvestment purchases might be made on a rising market day. I always try to buy into a falling market to benefit from the next bounceback.
If you aren't interested enough to actively invest, then just use an index tracker, auto-reinvest your income, and forget about it. Either strategy is better than dismal cash interest returns.

 

[SpokeyDokey]

Volatility can be your friend, if you invest actively in particular. Quite often you will get runs of several trading days where the market falls a little each day. Over a week, the market might fall by say 3 or 4%. Then sentiment will change and you'll get another mini-run of rising prices which recovers the previous falls. If you can buy in close to the bottom of each mini cycle, especially into those individual stocks that fell the most, you can often harvest a nice little gain when they start rising again. Even if you don't actively trade shares, obviously the dips are the most profitable time to buy - which is why I don't auto-reinvest my dividends because the reinvestment purchases might be made on a rising market day. I always try to buy into a falling market to benefit from the next bounceback.
If you aren't interested enough to actively invest, then just use an index tracker, auto-reinvest your income, and forget about it. Either strategy is better than dismal cash interest returns.

Yes. Agree with all you say. Although I do reinvest as currently CBA to monitor things that closely.

I'm aware of the volatility potential benefits and yesterday pushed a chunk of cash in the direction of the two S&S ISA'S we set up back in Feb. Only problem is that the buy mechanic is somewhat slow - grrrrr!

Not confident enough to deal directly in shares - this may change in the future when I get more used to participating in a fund. Everything else we have is passive on our part.

Our big challenge comes back end of next year as we have two fixed rate Isa's expiring (both around 2.5%) and these will need re homing via transfer. Slightly scary as they are large numbers but there seems to be no choice but to switch them to S&S Isa's. So, hopefully, this 'test' year for us will prove to be a posited experience.

 

[SkipdiverJohn]

The bulk of my ISA holding is invested for a decent dividend yield. Obviously the virus has upset the applecart over the last year, but in normal times I aim for a yield of around 5-6% overall and don't obsess too much about capital growth. This means leaving a lot of my holding in "boring" old economy stuff; energy utilities, telecoms, well established pharma, insurance, brewing, gambling, tobacco, oil etc. Most of those don't set the world on fire with spectacular price gains but they do bring in decent dividends. Oil stocks can be both quite volatile and also offer a good income, so are a special case to keep an eye on and pay attention to world events, like the shoot going on in Israel with Hamas rockets.
I'm a fan of Investment Trusts and have an increasing proportion of my ISA invested in these. I do look into the underlying composition though to see what they hold and the sort of income yields they are generating. For examply CTY yields more than 4.5% and has increased it's dividend every year for over 50 consecutive years irrespective of whether the wider economy was booming or busting. Some Investment Trusts can be bought at a discount to their underlying NAV (although CTY normally trades at a slight premium because it's considered so reliable), which offers further potential gains.
There are plenty of ways you can easily better a 2.5% fixed rate cash return in equities without taking undue amounts of risk. Just be boring and shun the shiny tech sector which, IMHO, is overpriced and under-delivers in terms of income generation.

 

[mikeIow]

Surely it’s a bit of a contradiction to be talking about investing in “boring old economy” stuff to bring in solid dividends, but also to suggest (previously) that “Volatility can be your friend, if you invest actively in particular” 🤔

Investing actively is bordering on day-trading, which I would suggest is crazy for the “Average Joe”.
Good for you if you have the time, knowledge, skills and access to systems to allow fast moves to take advantage, but that isn’t a way for the vast majority to behave.

Investing is quite different to that.

I’m afraid I would disagree with your last comment about shunning the tech sector.
Having worked in it for 30 years, I would say it certainly was THE place to invest: my US funds have far, far outstripped my other ones for the past decade.
Sure, there has been a recent dip, but my amateur prediction (no magic crystal balls here!) is that it will very much come back. The world is changing at an incredible rate now, and tech is driving that change, and will continue to do so.

Eggs and baskets, of course: we have a decent chunk of our ‘wealth’ in US tech-based funds, but a bigger chunk spread elsewhere to lower the volatility. Heck, we even have premium bonds loaded up: a broadly rubbish ”investment”, but a safe place for easily accessible cash.
For beginners to this stuff, take time to have a free listen to Lars Kroijer, he speaks a lot of sense. IMHO: others are of course welcome to disagree!

 

[SkipdiverJohn]

Surely it’s a bit of a contradiction to be talking about investing in “boring old economy” stuff to bring in solid dividends, but also to suggest (previously) that “Volatility can be your friend, if you invest actively in particular” 🤔

Yes and no. I do a bit of both. I have a significant ISA sum invested now and the majority of it is just left alone to generate me reliable dividend income. I am not doing day trading or churning over a significant amount of my holdings all the time.
At the same time, I am always looking for market movements and individual stock movements, for value buying opportunities. That's why I hold my dividend income as cash in the short term, not auto-reinvest it. If the whole market falls back and certain stocks that I previously considered fully priced suddenly become more attractive, I may top up my long-term existing holdings in that stock. Alternatively I might also buy an additional stock I don't necessarily intend to keep for years and years simply because I think it is oversold on negative sentiment and will recover strongly in due course. Such trades will usually be several thousand pounds a time, but not megabucks. If I get a good result and one of my "value" buys rebounds strongly I will typically sell half of it for around twice what I paid for it but retain the other half for diversification.
A lot of tech valuations are based on future expectations, not actual current real cash generation. It's like buying an empty jam jar on the promise the company is going to fiill it with jam for you some years down the line. Tech is also at risk of being derailed by disruptors who could turn the economics of a certain business model on it's head. The old economy might be boring but it's reliable and it generates real cash selling proven products which are going to remain in demand for the foreseeable future.
We've already had a massive tech bubble burst 20 years ago and plenty got their fingers burned. Investors who believe it's a one-way bet don't believe another crash can happen - until it does. There is no way I'm putting my cash into anything with crazy P/E ratios that don't actually pay out any income. Some, like Uber for example, will probably never turn a profit, but just spend years burning through their investors cash then going pop and getting bought out at a few cents on the dollar by a vulture fund.

 

[SpokeyDokey]

The bulk of my ISA holding is invested for a decent dividend yield. Obviously the virus has upset the applecart over the last year, but in normal times I aim for a yield of around 5-6% overall and don't obsess too much about capital growth. This means leaving a lot of my holding in "boring" old economy stuff; energy utilities, telecoms, well established pharma, insurance, brewing, gambling, tobacco, oil etc. Most of those don't set the world on fire with spectacular price gains but they do bring in decent dividends. Oil stocks can be both quite volatile and also offer a good income, so are a special case to keep an eye on and pay attention to world events, like the shoot going on in Israel with Hamas rockets.
I'm a fan of Investment Trusts and have an increasing proportion of my ISA invested in these. I do look into the underlying composition though to see what they hold and the sort of income yields they are generating. For examply CTY yields more than 4.5% and has increased it's dividend every year for over 50 consecutive years irrespective of whether the wider economy was booming or busting. Some Investment Trusts can be bought at a discount to their underlying NAV (although CTY normally trades at a slight premium because it's considered so reliable), which offers further potential gains.
There are plenty of ways you can easily better a 2.5% fixed rate cash return in equities without taking undue amounts of risk. Just be boring and shun the shiny tech sector which, IMHO, is overpriced and under-delivers in terms of income generation.

Okay, thanks for that.

I have started researching these this morning and access to CTY can be made via our AJ Bell a/c.

I presume we can set these up within this year's ISA allowances if we decide to proceed.

Possibly a dumb question but can you transfer from existing cash Isa's into the Trust?

 

[Bazzer]

Well, the investment manager of my unit trusts has earned his crust this last 6 months. The investment statement came through yesterday showing a 35% increase in capital during that time.
I shall be interested to see what Mrs B's shows as her's is with a different firm and one of the ethical funds.

 

[SkipdiverJohn]

Possibly a dumb question but can you transfer from existing cash Isa's into the Trust?

The normal way is to simply transfer an existing cash ISA into a stocks & shares ISA initially in the form of cash. Then you can add up to £20k new money in this tax year on top. Obviously this cash doesn't bring in any income so is only a stopgap measure. Once you have a functional stocks & shares ISA set up with your pool of cash in it, you are then free to invest in any traded investments on the market. I now have about 45 different FTSE shares, the majority are individual companies but a few are investment Trusts, which of course are holding entities.
Many of my individual holdings do overlap with those held by my trusts, but some of the Trusts holdings are not shares I own on their own, which means my portfolio is further diversified by the wider spread of investments held by the trusts. The overall net result is a halfway house between pure self-selection of indvidual shares, and a hands-off tracker fund approach. How hands-on or hands-off you are will depend partly on your approach to risk and partly on the amount of tme you are willing to spend actually buying and selling. I don't have a cavalier attitude and go all-in, but I'm prepared to back up my opinions with cash if I think something is worth a punt. The way I keep the risk manageable is I never do a single individual trade which exceeds a few percent of the total sum invested. As the years have passed by and I have always invested more new money every new tax year, the size of each buy or sell trade relative to the total portfolio is getting steadily smaller. I can't make an absolute killing on just one deal, but a few hundred or a thousand quid profit here and there, all adds up if you do it fairly regularly.
My assets now are in order of size; shares ISA, freehold house, work pension, cash savings, non-ISA shares, other misc stuff like vehicles. The compounding effect of an equities ISA reinvested and topped up yearly over a couple of decades is huge.

 

[SpokeyDokey]

The normal way is to simply transfer an existing cash ISA into a stocks & shares ISA initially in the form of cash. Then you can add up to £20k new money in this tax year on top. Obviously this cash doesn't bring in any income so is only a stopgap measure. Once you have a functional stocks & shares ISA set up with your pool of cash in it, you are then free to invest in any traded investments on the market. I now have about 45 different FTSE shares, the majority are individual companies but a few are investment Trusts, which of course are holding entities.
Many of my individual holdings do overlap with those held by my trusts, but some of the Trusts holdings are not shares I own on their own, which means my portfolio is further diversified by the wider spread of investments held by the trusts. The overall net result is a halfway house between pure self-selection of indvidual shares, and a hands-off tracker fund approach. How hands-on or hands-off you are will depend partly on your approach to risk and partly on the amount of tme you are willing to spend actually buying and selling. I don't have a cavalier attitude and go all-in, but I'm prepared to back up my opinions with cash if I think something is worth a punt. The way I keep the risk manageable is I never do a single individual trade which exceeds a few percent of the total sum invested. As the years have passed by and I have always invested more new money every new tax year, the size of each buy or sell trade relative to the total portfolio is getting steadily smaller. I can't make an absolute killing on just one deal, but a few hundred or a thousand quid profit here and there, all adds up if you do it fairly regularly.
My assets now are in order of size; shares ISA, freehold house, work pension, cash savings, non-ISA shares, other misc stuff like vehicles. The compounding effect of an equities ISA reinvested and topped up yearly over a couple of decades is huge.

Okay, thanks.

So just the standard process to trans Cash ISA to a Trust. We'll have a cog' and my leaning is that we'll trial it in advance of the bulk of our Isa's and FRB's terminating late 2022 to 2027 and, if interest rates are still miserably low, then Investment Trusts may well be their new home.

Will give me another thing to 'play' with during retirement if nothing else. 😁

Only issue is that the FRB's lie outside of an ISA wrapper, and there is quite a lot, and that will need some thought.

 

[SkipdiverJohn]

You create a Stocks & Shares ISA, either a new one or by transferring an existing one. Any investment trusts you buy are just another shareholding within the ISA. An Investment Trust is not tax-efficient if held outside an ISA, it is just like any other shareholding. A mature FRB can be used to fund your ISA up to the £20k tax year limit. Any excess would have to be invested outside the ISA. You could of course pump some into Premium Bonds up to the £50k holding limit, but they will only yield about 1% PA now as the prizes have been reduced. One good thing about PB's, aside from tax efficiency, is they can easily be liquidated into cash, so you could hold some for a year, then sell £20k worth next year and put the proceeds in an ISA.

 

[SpokeyDokey]

You create a Stocks & Shares ISA, either a new one or by transferring an existing one. Any investment trusts you buy are just another shareholding within the ISA. An Investment Trust is not tax-efficient if held outside an ISA, it is just like any other shareholding. A mature FRB can be used to fund your ISA up to the £20k tax year limit. Any excess would have to be invested outside the ISA. You could of course pump some into Premium Bonds up to the £50k holding limit, but they will only yield about 1% PA now as the prizes have been reduced. One good thing about PB's, aside from tax efficiency, is they can easily be liquidated into cash, so you could hold some for a year, then sell £20k worth next year and put the proceeds in an ISA.

Thanks but I do understand all that.

One of our problems is that we, despite being retired, generate a fair amount of surplus cash (partly why we have the FRB's in the first place) and when the FRB's reach full term we will have more cash on top of what we already generate and it will swamp our £40k allowance.

We already have a decent chunk in PB's as rapid access money but they are imo a complete waste of time on any other level.

Nice problems to have I guess.

 

[gzoom]

Thanks but I do understand all that.

One of our problems is that we, despite being retired, generate a fair amount of surplus cash (partly why we have the FRB's in the first place) and when the FRB's reach full term we will have more cash on top of what we already generate and it will swamp our £40k allowance.

We already have a decent chunk in PB's as rapid access money but they are imo a complete waste of time on any other level.

Nice problems to have I guess.

Sounds like a very nice problem to have

What's the aim with all the 'investments', any plans to spend the lot on something more interesting than numbers in a bank account?

Cash ISA are pointless now, we are using our entire pot up on a house refurbishment once they come out of the locked deal, but we are about 25 years+ to retirement so in a different part of life.

My parents are in a similar situation to you, they still generate far more income per month from various means than they spend........I keep on reminding them in the way nicest way possible regarding the one certainly of life that comes to us all in the end, and the total irrelevance of ££££ at that point.

They have their health, no need to worry about supporting me in any shape or form, yet refuse to spend any ££££ on anything but bare essentials. But what ever makes them happy I guess.

 

[SpokeyDokey]

What's the aim with all the 'investments', any plans to spend the lot on something more interesting than numbers in a bank account?

None really apart from protecting them against inflation.

Materially we have all that we want. We have enough coming in and saved to see us out. We are far from mean with our money and have a great life. All that really matters to us is our feelings towards each other, our health and having a blast.

 

[CharlesF]

Resurrecting the thread with some questions!

I know a S&S ISA should be for a minimum of 5 years, but, with the abysmal savings rates, is it worth starting a S&S ISA for around £10,000 when there is a possibility that the cash will be needed in 12 months?

Otherwise what is the best interest rate you know of that is fixed for a 12 months or less?

There have been interesting replies previously, so I’m hoping for lots of different options.

 

[vickster]

I’d say a decent S&S Isa will likely outperform any savings account (esp if ok with a bit of risk), you won’t get more than 1% on any fixed term.