Author Topic: Australian expat in London investing in Vanguard LifeStrategy fund  (Read 4477 times)

redbean

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My daughter is an Australian expat in London. We are both new to investing and everything to do with investing, so please be gentle with me.

She would like to invest GBP5000 with a monthly contribution of GBP200 to the UK Vanguard LifeStrategy fund i.e. the 60% Equity or 80% Equity Fund.

Presently, she has GBP5000 in her ISA account. What I would like to know is firstly, how does she go about using the GBP5000 in the Cash ISA to buy shares in the above funds? Is it best for her to open an ISA S&S account and transfer GBP5000 to the ISA S&S account to invest in the Vanguard LifeStrategy fund.

Secondly, why canít she buy one of the above mentioned funds directly with Vanguard instead of through a third party such as Alliance Trust or Hargreaves Lansdowns?

Thirdly, what are the benefits of using one of the platforms mentioned i.e. Alliance Trust or Hargreaves Lansdown to get Vanguard funds instead of with Vanguard?

Infact, if someone can explain to me the whole investing process, that will be much appreciated.

Thanks

MarcherLady

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Re: Australian expat in London investing in Vanguard LifeStrategy fund
« Reply #1 on: March 22, 2014, 06:01:34 AM »
Hi Redbean, I'm not sure I can manage the whole investment process, but I can give you some ISA background, since I seem to be spamming the boards with my ISA knowledge recently (I haven't worked in Financial Services for a few years, so if anyone has any more recent experience I will defer to their knowledge :-))

OK, so, to start with the terminology.

An ISA is an Individual Savings Account, it is a tax efficient account, which means interest and capital growth earned on funds in an ISA is tax free. Dividends are taxed at 10%, but as I said elsewhere, that might have changed in the budget too, if it has, it has changed to reduce that 10%, but I'm too lazy to look it up.

ISAs have an annual limit.  The tax year runs from 6th April to 5th April, usually shown as '14/15' for the tax year that starts in April 2014.

A Cash ISA is just as it sounds, an ISA that you hold cash in. 
A S&S or Stock and Share ISA is one that you hold stocks and/or units in.  You cannot transfer stocks into a S&S ISA, it is funded by paying cash into the account and then buying the stocks with that cash.  The same goes for exiting the account, you have to sell the stocks and withdraw the cash proceeds.

Important: If you want to move funds from one ISA to another, you must not take the money out yourself, you must go to the new account provider and ask them to make a transfer request to the old provider.  If you take the funds out, you lose the tax benefit, and it gets complicated.

Under the old scheme you could have one cash and one S&S per year, the total amount you subscribed across the two accounts could not exceed the maximum limit.  In addition, you could not subscribe more than 50% of the limit to cash, although you could subscribe 100% of the limit to S&S if you wanted, or somewhere in between.

Rule changes as of this week
After the announcement this week, the new annual limit is £15000, and you will be able to have both Cash and S&S in one account, referred to as a New Isa (NISA).  The rules around transferring from one ISA to another will stand, and it will depend upon your provider whether they convert your old ISA into a NISA.  Obviously if you don't like the NISA that your old provider is offering you can transfer to a different provider.

However, the new rules don't take effect until July, to give the providers time to get themselves sorted out  and work out how to convert to the NISAs (which is a pretty short timeline for the providers, I'm glad I'm not the one worrying about that any more!)

To answer your specific questions:

1) She cannot use her Cash ISA to buy shares, but she could, as you suggest, open a S&S and get them to transfer some or all of the £5k into the S&S to buy Vanguard.  Be aware that not all ISA providers will let you buy Vanguard funds, so she needs to check that with the provider before opening the account. - She also needs to check what the providers management charges are, and that they accept monthly payments, some will only accept one payment a year "Lump sum".

Because of the rule change, she has two options right now: a) Open a S&S ISA, get the cash transferred over, and buy immediately, b) wait until July and see what her cash ISA provider is going to do about the NISA rules (ie will they convert her Cash ISA to a NISA?) If they do, it's less paper work for her to then use the £5k cash to buy.    I would suggest that a) is a better option financially, because she's getting into the market sooner. 

2) Yes, she could buy directly with Vanguard, but:  Unless Vanguard offer an ISA  - I don't think they do, but haven't checked for myself - the holdings won't benefit from the tax advantages of an ISA.

3) Aside from the ISA issue, hmm, I'm not sure, possibly none, but holding the funds in an ISA is a big benefit for the tax purposes.  I would recommend she should only buy outside of an ISA if she has already reached the ISA limit for the year, but there may be other tax implications that I'm not aware of that affect your daughter. 

I hope that helps.  www.monevator.com is a great resource for an introduction to UK investing.   


warfreak2

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Re: Australian expat in London investing in Vanguard LifeStrategy fund
« Reply #2 on: March 22, 2014, 06:08:36 AM »
2) Yes, she could buy directly with Vanguard, but:  Unless Vanguard offer an ISA  - I don't think they do, but haven't checked for myself - the holdings won't benefit from the tax advantages of an ISA.
Vanguard UK requires direct investors to buy in for at least £100,000. There's no mention of ISAs on their site, but £100,000 is way over the maximum you're allowed to put into an ISA in one go.

redbean

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Re: Australian expat in London investing in Vanguard LifeStrategy fund
« Reply #3 on: March 22, 2014, 08:56:41 PM »
Thank you, MarcherLady for a most comprehensive explanation on ISA. :)

Can you please clarify whether there are three parties involved when one wants to invest in the UK?

1. a bank account where one opens a S&S ISA;
2. a platform/broker to buy index funds, and;
3. Vanguard fund?

Thanks


redbean

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Re: Australian expat in London investing in Vanguard LifeStrategy fund
« Reply #4 on: March 22, 2014, 08:58:16 PM »

Vanguard UK requires direct investors to buy in for at least £100,000. There's no mention of ISAs on their site, but £100,000 is way over the maximum you're allowed to put into an ISA in one go.
[/quote]

Thank you for the above information.

NearlyThere

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Re: Australian expat in London investing in Vanguard LifeStrategy fund
« Reply #5 on: March 23, 2014, 03:29:58 AM »
2) Yes, she could buy directly with Vanguard, but:  Unless Vanguard offer an ISA  - I don't think they do, but haven't checked for myself - the holdings won't benefit from the tax advantages of an ISA.
Vanguard UK requires direct investors to buy in for at least £100,000. There's no mention of ISAs on their site, but £100,000 is way over the maximum you're allowed to put into an ISA in one go.

This isn't quite correct. You only are required to deposit £100,000 if investing with vanguard directly. Using the likes of HL, Youinvest or TD Direct to open an ISA, you can buy any of the Lifestrategy funds with a minimum of £100 to open the account. They also allow for regular investments, which is perfect for you. Vanguard themselves don't provide ISAs.

The text year is near over, so get your lump sum invested or at least within your account before (I believe) 5th April. This means you'll be able to use your full allowance next year if money was available.

www.monevator.com is a huge resource for UK investing and they massively advocate the Lifestrategy funds. I myself have 90% of my S&S investments in Lifestrategy 100.

In relation to your last question. You only need point 2. A platform to buy your funds.

Hope this helps!


redbean

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Re: Australian expat in London investing in Vanguard LifeStrategy fund
« Reply #6 on: March 23, 2014, 06:41:11 AM »
Just wondering if she should invest in the Vanguard LifeStrategy fund as we are not sure how long she will remain a resident in the UK. If she is no longer a UK resident, could she continue to invest in the UK or just leave the fund to grow?

Thanks

warfreak2

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Re: Australian expat in London investing in Vanguard LifeStrategy fund
« Reply #7 on: March 23, 2014, 06:45:55 AM »
2) Yes, she could buy directly with Vanguard, but:  Unless Vanguard offer an ISA  - I don't think they do, but haven't checked for myself - the holdings won't benefit from the tax advantages of an ISA.
Vanguard UK requires direct investors to buy in for at least £100,000. There's no mention of ISAs on their site, but £100,000 is way over the maximum you're allowed to put into an ISA in one go.

This isn't quite correct. You only are required to deposit £100,000 if investing with vanguard directly.

redbean

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Re: Australian expat in London investing in Vanguard LifeStrategy fund
« Reply #8 on: March 23, 2014, 08:51:56 AM »
?????? To Warfreak!

NearlyThere

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Re: Australian expat in London investing in Vanguard LifeStrategy fund
« Reply #9 on: March 23, 2014, 09:40:25 AM »
Just wondering if she should invest in the Vanguard LifeStrategy fund as we are not sure how long she will remain a resident in the UK. If she is no longer a UK resident, could she continue to invest in the UK or just leave the fund to grow?

Thanks

If it were me, the money would be invested post haste. No point sitting with cash that is being eroded by inflation. The benefit of an isa is that its contents can be taken at anytime. So if the situation changes, extract and bank