Author Topic: UK advice on my investment plan.  (Read 17444 times)

BritishBob

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UK advice on my investment plan.
« on: August 26, 2013, 06:47:48 AM »
Hi  guys,
Firstly I’m not sure if I’m in the right place. I have searched the site and I think this is the best place to start.  I’m from the UK.  I don’t know if you guys have a specific “UK  advisor” who might be better placed to answer some of these questions.


My plan:

OK I’ve paid off my debts and have about £65000/$101000 in savings. This is currently sitting in a UK bank account loosing money.  My house is about 55% paid off. I could pay it all off now if I needed to.

I don’t mind having money tied up for  5- 10 years.

My plan is to have £2500/$3900 a month passive income coming in, then retire to live a frugal life travelling the world, honing my skills at low cost worldwide travel. I’m 35 and would like to have this in 10 years or what ever it takes.

My partner and I currently save about 66% of our salaries if not a bit more.  We’re hoping to be more in the region of 75% savings rate next year.

I’m looking to make regular investments, maybe holding back a bit of cash for when the markets crashes so I can buy more at a cheaper price.

MMM’s investment path to retired lifestyle appeals to me because I understand it. I’ve done a bit of research on shares, I just have a few questions on how to buy them, sorry if they seem like stupid questions.


First question:
I am thinking about seeing a financial advisor about my first steps to investing in shares, do you think this is a good move, or should I just do it the  MMM way and not bother with the financial advisor?
He’s not asking for any money up front, but I know he’ll steer me to the funds he gets a percentage for. 


Second Question:
I’m interested in Vanguard.  I know it’s an index fund, how do I buy into it? Is it as simple as opening an online trading account and looking for the Vanguard code and buying it? Or do you have to set up an account with Vanguard first?

I’ve been to their site and I’ve seen all the funds available to buy there. Is that the only way to buy into Vanguard funds?

Looking on their site they have mutual funds, life strategy funds and ETFs. Reading MMM’s post on “How To Make Money in the Stock Market”, I’m guessing I need to buy JUST mutual funds, yeah?

Seeing as I want passive income, I just want to buy the “fixed income” funds NOT the “equity” funds, is this correct?



Third Question:

In the UK you can invest £11000 through a tax free  share ISA. How do I get my Vanguard investments into a share ISA?



Fourth Question:

Can I still put foreign investments in a UK Share ISA?



Fifth Question:

I think the UK will go tits-up as soon as interest rates rise. I’d rather not have my money tied up in UK Vanguard investments; can I buy into the U.S. Vanguard options instead? If so what problems will I have buying US Vanguard shares, and what steps can I take to overcome them?

When I go the UK Vanguard site to buy “fixed income” funds, I can’t see an option to buy any US funds, why is this?

The option to buy US Equity index funds is there, but there is no option for US “fixed income”?

Is it because as far as the US is concerned, I’m a foreign investor ?



Sixth Question/Speculation:

I’m asking you to speculate here but do you agree that the US is a safer investment vehicle than the UK over the next few years due to rising interest rates, or do you think I’m paranoid?



Seventh Question:

If all my Vanguard investments are foreign (i.e. not UK Based), can my government still raid my Share ISA if the UK goes bust.?

(Yes I know how paranoid I sound, remember I live in Europe and this shit has already gone down in Greece, Portugal, Spain and Italy)





If you need any further information on my overall “plan” to make a better judgement, please just ask.

daverobev

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Re: UK advice on my investment plan.
« Reply #1 on: August 26, 2013, 12:09:11 PM »
Phew, ok.

Fee-based advisors might be ok; ones that work for a financial co are more inclined to sell you what will make them money. Buyer beware and all that. So, I'd say, this one, avoid. You can figure it out yourself. You know what you want (steady-ish income stream); you know how old you are. You need to figure out how risk-averse you are (market drops 50% - panic, can't sleep; or smile, buy more?).

Vanguard - there are ETFs. What I only just realised was that Vanguard ETFs are not domiciled in the UK. You will pay foreign withholding tax on Vanguard ETFs. I believe this will be lost if held in your ISA. It is 20% withholding.

Now... I have two FTSE 100 ETFs, VUKE.L and HUKX.L (Vanguard and HSBC respectively). VUKE has a lower MER, but HUKX is Irish Domiciled so no withholding. I haven't done the maths; I think HSBC is 0.2% higher in MER, but you don't lose the 20% of the dividend. Personally - and this is just an opinion - I will buy HSBC knowing that. Anything that is European should be ok, pretty much. For example I also hold some DB ETF, which is German domicile I guess.

As to which funds, how to do it: Personally I would go the ETF route as they are "just like shares". You buy and sell when you want. If you want to, with my brokerage, you can set up regular purchases, and forget about them (that is cheaper, too). The only downside is that ETFs only work in whole units - you can have 0, 1, 2 units of an ETF, but 1.15 of a mutual fund. With a larger chunk of money it is probably better to go the ETF route. But YMMV, as they say.

Fixed income funds are often a bad deal, I think - you'd have to post which fund in particular you were looking at.

You will need to open an ISA with a brokerage to buy ETFs and funds. I use iWeb Share Dealing (they were/are part of what is left of the Halifax in Lloyds) - I believe they are cheaper than many of the others, and the system is OK. I have never done mutual funds with them, just ETFs, but I think you *can* do funds.

Funds often have "loads" when you but them too, that's another reason to avoid. Funds vary... often much of the load gets credited back to you.

You can put anything into an ISA, I believe, BUT you need to check the brokerage in question deals on the market you want. You have to fill in extra forms to buy US stuff. IMHO you don't need to bother - there is plenty available on the LSE. In terms of diversification, you're fine.

On Vanguard UK you'll only see the things that are listed on the LSE. To see their US stuff you need to go to Vanguard.com.

Again - you will lose out on withholding if you do this.

US vs UK - just bear in mind, the FTSE 100 is very international already. Many of the companies are multinationals. I'd look into Euro and developing investments before worrying, too much, about the US. They will do the same over time. I would be more worried, in the medium term, about the collapse of the American Empire than the collapse of Europe. That's not to say I wouldn't invest in the US; but I wouldn't worry about the extra hassle of making sure you can buy US stuff, when there is a nice diversified market available to you already.

The UK cannot go bust, unlike the Eurozone countries. The UK can print money. Now, that's not to say the UK can't have hyperinflation; but that's where diversification is the key. Again - look at the US' debt levels. It's no better than the UK.

Take all the different countries in Europe and average them.. and you have a nice diversified portfolio.

Anyway - it looks like HSBC do a US ETF, HMUD.L, so that's ok. It has UK reporting status so there should be no withholding.

Not sure how much that's answered, haha.

BritishBob

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Re: UK advice on my investment plan.
« Reply #2 on: August 26, 2013, 01:17:43 PM »
Thank you ever so much for a such a swift and concise reply.

I need to go and research everything you've just said so i can understand it better. But for now let's assume you've answered everything.

And you make a very good point on the Eurozone v US. 


Again
Thank you very much. :)
« Last Edit: August 26, 2013, 01:21:38 PM by BritishBob »

daverobev

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Re: UK advice on my investment plan.
« Reply #3 on: August 26, 2013, 02:48:35 PM »
*If* I were you, I'd take that huge lump of cash you have and pay off your mortgage. And implement a monthly saving plan ASAP.

Unless you've got one at 2.6% or something (my eyes popped when I saw Nationwide were doing mortgages at that rate).

It's not the smartest, financially - but it's REALLY good on cashflow. Obviously you get no tax benefit from having the mortgage. And assuming you're earning a decent amount, you'll pump up your savings every month anyway.

Actually, first I'd make sure to fully utilise your ISA this year, THEN pay off the mortgage.

Alternatively - and this may be slightly bonkers - I'd look for an investment property in the US. The returns are much better there than in the UK (or rather - they can be, if you find the right place). You could do a 2-for-1 - have a holiday in the US but do it as a business trip, too. There are complications - you'd have to register to pay US tax - but.. you can get a 10% ROI. And you can do it for $40k.

BUT as I said, slightly bonkers. Only because you're far away. You can find a proper management company who will deal with most stuff. Depends how 'hungry' you are.

Either way make sure you use the ISA! It's great!!

BritishBob

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Re: UK advice on my investment plan.
« Reply #4 on: August 26, 2013, 03:04:03 PM »
I'm already one step ahead of you. Both of us have maxed out our cash ISAs.

If I paid the mortgage off it would still leave me with about £45000.

I was thinking about buying a rental property near us, property is quite cheap and rental yield is about 10%

I was going to start investing instead of saving because even using my cash ISAs you barley get inflation beating rates.

I was thinking about buying a property for cash instead of paying off the mortgage because our rate is really low, about 3.0%

I just think having a nice little investment that pays out a reasonable dividend every month would be a lot easier than property, maybe not as good ROI ....but easier.

I just need to learn the specifics.


daverobev

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Re: UK advice on my investment plan.
« Reply #5 on: August 26, 2013, 03:44:06 PM »
Ok, you know you have a total limit of x, of which 1/2 can be used in a cash ISA, right? You can transfer from a cash ISA to a stocks & shares ISA, I think once per year.. you'd need to check.

Saving in a cash ISA at the moment is just a slower way of losing money, though I guess often savings accounts return less than inflation. There are NS&I real return things you can buy - not sure how they work, or when you can buy them, but they are govt backed.

With only 20k remaining on your mortgage... well, up to you. Is your mortgage rate greater than the return you're getting on cash? If so... probably best to pay it off!

If you can get 10% DO IT. You should be able to find a property manager for < 10% gross per month. The only thing is you're unlikely to get a 3% mortgage on buy to let - AFAIK.

One nice thing about North American companies is that they tend to pay dividends quarterly, whereas UK companies tend to pay out twice per year, and 2/3 and 1/3. ETFs tend to be a bit more regular.

I agree though - stocks/funds are much easier than houses! Easier to buy, easier to sell, easier to manage. Unfortunately I left the UK in ~2009 with a house I wouldn't sell cheaply enough to actually sell, so I'm a landlord by mistake ;) It works out alright.

BritishBob

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Re: UK advice on my investment plan.
« Reply #6 on: September 02, 2013, 12:31:49 PM »
Sorry it's taken so long to reply, I've been brushing up on a few things. Unfortunately a load of great sites are American, and they're subject to different regulations. If you know of a UK site, let me know.

Firstly I'm going to take that money, pay off the mortgage then buy a rental property with the rest.

Now onto the investment side of things. We're going to stick with Vanguard.

I'd like to put about 70% into shares and the rest in bonds. We intend to keep maxing our ISA's out for the next 7 - 10 years or until we have enough to retire.

Both of us want to max out our Share ISA's in the coming years, we can put about £960 per month each, in to a regular investment program, and we'll be keeping a bit of extra cash in case the market drops so we can buy more.


Now......
What do we buy?


Ideally we want something that pays out a decent dividend, so should we go with ETF's of Mutual funds?
What mutual funds or ETF's would you recommend for our strategy?
Which ones pay the better dividends?
What should we choose to give the best dividend rates assuming we'll be re-investing all the dividends?
What bonds would you recommend for our strategy?

One last question(could you clarify). Are bonds held in Mutual funds and ETF's? None of the tutorials seem to clarify this for me. If they are, can I forget about buying bonds all together?


Millions of questions...I know.
I have tried to research it but if I could have some advice/clarification, just to point me in the right direction?

Much appreciated.

daverobev

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Re: UK advice on my investment plan.
« Reply #7 on: September 02, 2013, 01:43:36 PM »
Ok, here goes.

An ETF, or a Mutual Fund, is just a wrapper - it's a container. There are all sorts of different ones (and often, if not always, if there is a mutual fund for something, there will be an equivalent ETF. The only difference is that ETFs are traded like stocks, where mutual fund prices update once per day and you can hold fractional units (so you can have 0, 1... units of an ETF, but 0, 1, 1.13, 1.37 units of a MF).

So then the question is: What do you want to invest in?

There are ETFs that are 'dividend aristocrats' that buy companies with a long history of annual dividend growth, there are market-tracking ETFs (IMHO - these are "the best" - they follow the market they are named after, and tend to have a low MER - which is the fee you 'pay' invisibly - it's just deducted from the dividend).

There are also the ones the fund advisors will tell you are good - actively managed ones, that cost 1.5%, 2.5% in MER or fees a year. They tend to lag the return of the index-trackers by the MER - if not more - because the fund managers tend not to be able to beat the market. This is not what Vanguard does; they provide very cheap index trackers.

So you're going to put this in an ISA. That may or may not be the best plan for you with Vanguard due to the withholding - you'd need to check that out.

ETFs I mentioned before:

HUKX.L and VUKE.L are HSBC and Vanguard, respectively, tracking ETFs that follow the FTSE 100.
HMCX.L follows the FTSE 250
XESX and H50E follow the Euro Stoxx 50 index (50 largest Eurozone companies I believe)

There will be bond ETFs as well - XG5D.L is one (have a look on etf.db.com), but you'd need to research them as I don't hold any bonds at all at the moment.

If you are going to follow index investing, the dividends you get will follow the market the index follows. The FTSE 100 pays about 3% I believe. But, of course, you have capital appreciation on top. If you pay in for 7-8 years your yield percentage should go up.

There are 'multi-asset' products out there, that will have stocks, bonds, and other things in, if you want a one-stop shop. This is ok... but it's not hard, IMHO, to go: Ok, I want 60% stocks, 20% bonds, 15% REITs, 5% precious metals... and buy accordingly.

As I said, with iWeb at least, you can set up a direct debit, and automated purchases (so 960 in/buy 300 of a FTSE 100 ETF, 250 FTSE 250, 250 gilts, and the rest on something else).

Oh yeah - in the UK, (government) bonds are called Gilts. In the US, Treasuries.

BritishBob

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Re: UK advice on my investment plan.
« Reply #8 on: September 09, 2013, 03:04:15 PM »
Uuurgh, just when you think you've got a plan sorted, something always throws a spanner in the works.

OK. So if I was going to put non-Vanguard ETFs into my ISA, what would be the best ETF's to go for?  Any advice?

And if I was going to invest in Vanguard, perhaps outside of my £11600 annual ISA allowance, what would be the most tax efficient way?

Or should I just not bother with Vanguard because they're technically "foreign" stocks and always get heavily taxed?

Is there a British equivalent of Vanguard, like a UK low cost EFT, maybe something on the FTSE?

Just when I think I understand something, I end up with a whole set of new questions. Do you think it would be worth hiring an independent advisor in this case?
I mean I'm pretty sure my investment strategy SHOULD be simple, but every time I think I've got it licked, a new problem seems to arise. :(
« Last Edit: September 09, 2013, 03:05:59 PM by BritishBob »

daverobev

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Re: UK advice on my investment plan.
« Reply #9 on: September 09, 2013, 04:09:07 PM »
Ok you're misunderstanding I think.

Vanguard is an investment services provider - they sell units of products, and the products are ETFs and mutual funds.

Many other companies do this - DB, HSBC, etc.

Worry about the provider SECOND; worry about what you want to buy first. Then find the best provider of that product.

HSBC is, I suppose, British - though the ETFs in question are Irish domiciled - that is good enough. 'On the FTSE'? I think you mean that is traded on the London Stock Exchange?

Ok so - FTSE creates and maintains indexes (or indices if you prefer). They work out what should be 'in' the FTSE 100, the FTSE 250, and so on. There are other index providers too. Then the financial product company (Vanguard, HSBC) create a product that 'tracks' or follows the index. So when the FTSE 100 is rebalanced (based on company share prices - shrinking companies go down to the FTSE 250, being replaced by growing ones... and in the correct proportion based on the company's size or 'market cap' - basically the number of shares x the price per share tells you how much a company is worth, and its share of the index relates to that - in other words, for the FTSE 100 companies, each company is not 1% of the index!).

Digressing... I guess you need to find a couple of good books. Or just keep asking questions :)

BritishBob

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Re: UK advice on my investment plan.
« Reply #10 on: September 11, 2013, 02:35:21 PM »
Yeah I knew Vanguard were the providers, I didn't know that about the FTSE though. Thanks :)


I still want to invest in ETFs, I just want to put them into an ISA so I don't have to pay tax. I like the fact than Vanguard keep the cost if ETFs low, I'm just wondering how to get round the with holding, by maybe putting them into an ISA?


Are there any other providers that offer low cost ETFs that I could put into an ISA without affecting the withholding tax?

Explain to me why putting ETFs in an ISA is not tax efficient when it comes to the withholding tax?
I have googled this, but the first two articles weren't much help, and the third article was this thread :)

I am educating myself slowly, I appreciate this education will be necessary for the long term because investing is a life long process with necessary adjustments on the way. You don't just make an investment plan and stop. :)

daverobev

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Re: UK advice on my investment plan.
« Reply #11 on: September 12, 2013, 08:24:05 AM »
Ah, ok (I think).

Because the Vanguard ETFs listed in the UK (VUKE.L etc) are actually *wrappers* for US-listed funds (which in turn hold the UK shares), that is why you lose withholding. It's not huge - 10% I think.

Now, compare the MER - 0.35% with HUKX.L, 0.2% with VUKE.L. If you assume 3% dividends, subtract the MER = 2.65% HUKX (which is HSBC), 2.8% VUKE BUT less another 10% OF THE DIVIDEND so 10% of 3% = .3% so a total of 2.5%

In this case - I THINK - it is better, slightly, to go with HUKX.L than VUKE.L

One other thing is that HUKX.L pays its dividends out in the standard UK 2/3, 1/3 (so 2/3 gets paid in August and 1/3 in Feb), where VUKE pays out quarterly - because that is what the underlying US-based ETF/fund does.

The thing is, if you hold VUKE unregistered, you can claim the 10% withholding as 'foreign tax paid'. In an ISA, I don't think you can.

It's marginal. ISA is better than not, but in the ISA, HUXK is better than VUKE. But only slightly, and that's assuming I'm right ;)

BritishBob

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Re: UK advice on my investment plan.
« Reply #12 on: September 16, 2013, 02:46:14 PM »
I'm with you.

I'm going to go away and read up about this.
I also need to find an online dealer that allows you to make regular investments at a low cost.

I now see what you mean about with the withholding.

I'm not that worried about investing in HUKX.L. Even though I worry UK plc might not be the best place for money to be during the next crash (which I think will happen in 5-10 years), am I right in thinking most of the funds in HUKX.L are diversified enough not to be affected by a UK crash?

Or does HUKX.L  hold only British funds (which in turn might hold stock in international companies)?

Excuse the paranoia, I accept it's irrational and I'm working on keeping it under control. Consider the above question more academic than practical. :)




daverobev

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Re: UK advice on my investment plan.
« Reply #13 on: September 16, 2013, 04:47:22 PM »
Hey,

HUKX.L is an index tracker. It tracks the FTSE 100 index (if you listen to Radio 4, the 6 o'clock news or whatever, they'll say 'the FTSE 100 was up x points') - your fund will do almost exactly, less the MER and tracking error, what the index does.

Want to know exactly what is in the FTSE 100? http://www.iii.co.uk/markets/?type=ftse - this does NOT tell you the weighting of each component.

What is in there? UK-based stuff - Sainsbury's, Tesco, Morrisons; Lloyds; Next. Plus lots of multi-nationals - Vodafone, BP, Shell, Standard Chartered, HSBC; mining companies, etc.

So - the FTSE 100 won't do 'what the UK economy' does, exactly, as it is 'quite' multinational.

The FTSE 250 is a better reflection of JUST the UK.

HUKX does not hold *funds*. It holds the constituents of the FTSE 100.

If 'the UK' crashes, though, there will be a lot of pain for the FTSE 100, as (if you'll pardon the factual incorrectness) the UK is not an island. In terms of economies, I mean - if the UK is crashing, you can bet the developed world will also be doing, relatively, badly too.

iWeb Share Dealing allow 'regular investments' for 2 pounds a go. So if you were to set up a monthly purchase of 200 pounds of HUKX.L, it would cost 1% up front. That's all. iii (linked above) are another option. I'd have a look on Money Saving Expert to see what they recommend - I have not had any issues with iWeb, but there may be better options.

BritishBob

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Re: UK advice on my investment plan.
« Reply #14 on: September 25, 2013, 02:34:25 PM »
I'm going to bite the bullet and apply for the iWeb Share Dealing account, I had a look on money saving expert, and TD Waterhouse looked cheaper, but not for regular investments. So iWeb it it.

I guess the next question is...

Even though I'm investing for dividends/income, is there any scenario where I should sell my EFTs?

Cheers

daverobev

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Re: UK advice on my investment plan.
« Reply #15 on: September 25, 2013, 04:30:49 PM »
Sell in fear? Never.

Sell because you need the money? Sure. But don't flip/flop. You are talking about *investing* not *trading*.

The best strategy is to just set the investment up (200 quid of X, and Y, and Z, once per month, or whatever you can afford or that gets most of your ISA used!) and forget about it. Literally. Don't look, don't worry.

Rebalance once a year, or so (assuming you're buying a diversified mix - ie 20% FTSE 100, 15% FTSE 250, 20% bonds, or *whatever* mix works out for you) - best, if you can, to buy enough to return to your preferred allocation (ie if bonds have dropped, buy more when you rebalance!) - but if you have to, selling what has done well and buying what has done poorly is the "correct" thing to do.

Markets drop. Significantly. Like, 20, 30%. OR MORE. They also recover. Stuff I bought a couple of years ago is up 25%, whatever. It might drop back down, it might go up.

5-10 years before you retire, it's worth moving more into bonds and less stocks. Having a good plan - a readable map - is the best thing; and resist the urge to follow the herd. That leads to losses (if you buy in a hot market because everyone else is.. you'll be left holding the bag when the hot market drops like a stone).

BritishBob

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Re: UK advice on my investment plan.
« Reply #16 on: September 26, 2013, 02:22:25 PM »
The more research I'm doing, the more you seem to really know your stuff.

Thank you for taking time out to answer all my posts :)

Currently researching re-balancing.


But regarding HUKX.L , is there an option to automatically re-invest dividends (perhaps avoiding withholding) automatically?

This would free up my ISA to hold a more tax liable asset such as bonds (when they become cheaper to buy)?

daverobev

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Re: UK advice on my investment plan.
« Reply #17 on: September 26, 2013, 02:41:58 PM »
There is no withholding on HUKX.L as it is Irish domiciled. But, you don't get the enhanced UK dividend credit either.

With iWeb, I have an account option of what to do with dividends: Reinvest, pay out to my bank, or hold in the account. For the more expensive things, you'd need a LOT of money to get it to re-invest though - if you have 60 shares of HUKX I think that might do it, but of course that is 3,600+ pounds. And then it would only buy ONE share, ONCE a year (due to the 1/3, 2/3 dividend payment split!). For ETFs with a lower unit price, well, it kinda works better.

The ISA is great - what, just under 12k room per year? That is a lot of bonds (but good for you if you're going to save and invest more than that!). But yes - once you work out your asset allocation, you want to then figure out the best place to hold those assets. Bonds in ISA is good. Any FTSE listed stocks it is better to hold in a taxable account because they get preferential tax treatment (they have already paid corporation tax) - but sadly that doesn't effect the Irish-domiciled ETFs, or at least I don't believe it does.

At this level I get a bit wooly I'm afraid as I never had a stocks & shares ISA; I moved to Canada just as I was starting to learn. If you can find a true UK-domiciled FTSE 100 or 250 ETF, rather than Irish, it'd be better to hold *that* in a taxable account, so you get the dividend tax credit. There are also some tax-exempt things you can buy from the Post Office at various times, I believe.

Generally, though, if you have unused ISA room, you should use it before holding anything taxable. Only once you start hitting the limit every year do you need to worry about what goes where.

Sacadoh

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Re: UK advice on my investment plan.
« Reply #18 on: September 27, 2013, 11:43:14 PM »
Skim read your email chain.

I noticed you are paying off your mortgage now. This advice in question until your income and marginal tax rate and job security is considered. I'd also question buying another house just now too. I have done both in the past - paying off my mortgage and buying a small investment property. They both worked, but there are less risky and less hassle filled ways to build wealth.

Certainly you should also consider tax efficiencies and asset class risk spread in your strategy. I'd do some research on fixed income markets too. I know a bond fund manager who wont invest in his own funds just now for reasons you will easily uncover from some simple research.

For US readers - tax is a bigger deal in the UK. I could pay tax at a marginal rate on some of my income of up to 60% and lose £2,500 pa social security benefits unless I tax plan properly. Doing so this year has brought me down to highest rate of 40% on only a small portion of income, 20% on the majority and 0% on some - and retained the £2,500 social security (child benefit for 3 kids). The impact of this action has been significant on my net worth this year.

Let us know what you finally do.

BritishBob

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Re: UK advice on my investment plan.
« Reply #19 on: October 03, 2013, 03:29:47 PM »
Yeah tax is a big deal in the UK. Don't have any kids (and don't intend to), so I don't have to worry about tax credits being affected.
And I've gone off the whole rental property idea in the current climate. :)

Back to "The Plan". :)

I've found the Morning Star website that is basically a dedicated UK investment site explaining how EFTs, investment trusts and everything works in this country, I'm currently researching "how to research EFTs" :)

Quickrank lists all the funds currently available in the UK. I looked this morning for a UK domiciled FTSE index tracker low cost EFT, but I don't understand what filters I need to apply to return a UK domiciled ETF?

I did find some shares "iShares UK Dividend UCITS ETF (GBP) | IUKD", but on further investigation they were Irish domiciled?
Now I need to be finding UK domiciled ETFs to realise the maximum ISA potential, right?

Those HUKX funds are about 6540.00. (You did say they were pricey) but is that pounds and pence, or is it a points based pricing system.


Getting a bit confused at the moment. If you were starting out in the UK and had about £2000 per month to invest, what would you choose?








daverobev

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Re: UK advice on my investment plan.
« Reply #20 on: October 03, 2013, 06:24:05 PM »
"ETF" not "EFT" - exchange-traded fund - will probably help with googling!

I suspect all London Stock Exchange ETFs will be Irish (or other) domiciled rather than UK. There are good reasons for doing so (tax for the operating company) - which is why HSBC's funds are; iShares is Barclays. If those two do Irish, the rest will be too. Vanguard is different in that it's a US outfit, so stuff is just a wrapper for the US-listed ETFs.

In an ISA being Irish is fine. There is no tax withheld. Only the US-based take a slight hit (ie, Vanguard).

HUKX is in pence. Most places will give you the price of things in pence, not pounds.

Me personally, 2k a month, and starting afresh I'd go something like:

HUKX: 400
HMCX: 400
Something like IWRD ('world' stocks; lots in the US, but covers the rest of the world too): 400
IGLT: 600
INXG: 200

This is a classic 60/40 stocks/bonds; a good chunk UK, split evenly with the FTSE 100 and FTSE 250; a significant chunk of non-UK (you could scale back HUKX and HMCX and increase IWRD); mostly normal Gilts (UK government bonds), with a smaller amount of index-linked Gilts (their value goes up as inflation goes up).

If you're young, scale back the bonds and increase the stocks. One rule of thumb is your age as bonds; so if you're 30, reduce the IGLT and INXG, increase the rest.

And obviously put the bonds into the ISA first.

I'm NOT recommending - specifically - the iShares ETFs; this is just picking a few out from their site. I do hold HUKX and HMCX - what can I say, they do what they say on the tin - tracking the FTSE 100 and 250 respectively!

BritishBob

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Re: UK advice on my investment plan.
« Reply #21 on: October 15, 2013, 06:15:00 AM »
Sorry for the lack of input recently but it looks like I'm going the whole financially independent life on my own.  The ex seems to think there is some sort of shame in not working for a living.

Anyway I've been lurking on grace's "UK Investment advice for an absolute beginner" thread for the last week, and I intend to borrow heavily from the "couch potato" portfolio you suggested (maybe with 30% in bonds instead).

I've got my iWeb account set up and after numerous questions to the bods in support I now understand how it works (£2 regular investment trade, £5 bond trade).

Here's a thought....
It costs £2 per trade if I take the £1000 per month I hope to invest and instead of splitting it 25%, 20% 30%, 25%, in effect making four trades, why don't I just make one trade a month and just buy into one fund/bond a month?
I was thinking I could see what is the cheapest and buy that one. This effectively brings down my trading costs down to a quarter?

And how do you know if an investment is down in price? Do you look at the index, and if there is a green arrow it will cost more to buy, and a red arrow it will cost less?
I know that's a bit simplistic, but I need to work out how to rebalance too, and I'll need to know this.

And just to confirm.....
I need to ensure the bonds are wrapped in the ISA. You mentioned on grace's thread there was some type of personal allowance?

With my strategy there might be a small portion of ETFs in my ISA, but most of the ETFs will be outside the wrapper and subject to tax. Is this a wise/ stupid move on my behalf, and how much is the personal allowance, how does it work?

ETF, not EFT!!!! Stupid girl!! :) ....can I blame auto correct please?

daverobev

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Re: UK advice on my investment plan.
« Reply #22 on: October 15, 2013, 09:13:25 AM »
Ok, so your ISA allowance for 2013-2014 is about 11.5k - you can put that much in to your ISA this year.

Your personal allowance is the amount of income you can have before you start paying tax and NI - I think it's about 9k.

So - if you put as much as you can in your ISA, and the rest of your portfolio gives you 9k in dividends, you pay no tax. Yay!

In terms of the regular investments - ok, if you are going to invest a lump sum, you can do a 'one off' regular investment. You can fund your ISA with all 11.5k right now, set a regular investment for whenever the next one is, and add your 4 funds.

If you are going to do it monthly, yes you *can* do one ETF one month, one ETF the next - you just need to change the ETF you're buying by going in to regular investments, deleting the fund you just bought and adding in the new one. The disadvantage here is you are doing less 'dollar cost averaging' or rather 'pound cost averaging'. It doesn't 'matter'. The idea with DCA is that you buy a chunk of each thing every month, thus buying when the market is down AND when the market is up:

Say fund X is at $100 (no pound key on this laptop, ugh!). Next month it drops to $50, and the month after that it goes up to $200.

If you invest $200 a month, you'll end up with 2 + 4 + 1 = 7 shares. If you put your $600 in in month 1 you'd only have 6 shares.

Now - the counter argument is that you don't know what the market will do, and you will *usually* be better off just buying in lumps whenever you can - don't wait to invest.

I like to keep my dealing costs at 1% or lower, so a purchase of 200 pounds is the minimum. If you're investing 1000GBP a month into 4 funds, it's 'ok'. Yes, of course, lower dealing costs are better - if you have the discipline of going in and changing the fund every month, go for it.

If you want to see what a fund is doing, go to uk.finance.yahoo.com or something like that - http://uk.finance.yahoo.com/q?s=HUKX.L&ql=1 - you can see what the fund's been doing. BUT DON'T FIXATE ON IT! For your purposes it shouldn't matter if it's up or down! That is the key to index investing!! Ignore what the market is doing and just keep on buying.

You can also see within iWeb what your profit/loss percentages and amounts are.

BritishBob

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Re: UK advice on my investment plan.
« Reply #23 on: October 17, 2013, 05:59:40 AM »
So........
If I want to invest in these four, and say their price this month and their movement(represented by **%) is as follows:

HUKX.L : 5689.23     (up 12%)
HMCX.L : 5236.23    (down 5%)
IGLT.L: 4526.23 (down 16%)
IWRD.L : 1268.56 (up 20%)

So I would take my £1000 and buy IGLT.L this month.

But then the next month, the prices and movements were as follows:


HUKX.L : 5489.23     (down 8%)
HMCX.L : 5136.23    (down 3%)
IGLT.L: 4826.23 (up 12%)
IWRD.L : 1468.56 (up 10%)

now it would make sense to take my £1000 and buy HUKX.L...yeah?


If I did this every month, by picking the lowest performing investment out of the four, it should average out that you make less trades (keep costs down), and end up with more shares?

I agree this takes discipline and you must be able to ignore the market noise and keep focused on your 7-10 year goals.

I might try this for six months, if I really mess it up or find myself being heavily influenced by the news etc, then I will set up automatic payments  to buy set percentages of each, as you suggested.

OK my first regular investment of £1000 will be made in a few weeks, I need to put the funds in my trading account, and set up my regular investment for the lowest performing investment on the day.
This is a bit frightening but exciting at the same time.
Here goes........... :)

daverobev

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Re: UK advice on my investment plan.
« Reply #24 on: October 17, 2013, 09:13:57 AM »
You could do it like that - but you'd be in a permanant 'overshoot', especially at the beginning! Because you'd have 100% HUKX, 0% everything else!!

You'd want, in any case, to throw the money at whatever brings you back to your asset allocation. So if on investment day, your allocation vs ideal allocation was:

20/25
20/25
40/25
20/25

You'd want to push money into 1, 2 AND 4 to bring them up to 25%, which automatically pulls the %age of 3 down...

It's not the percentage movement on any given month you care about - it's what your asset allocation IS, and what you have planned that it SHOULD BE.

Most people doing this just set it to buy the correct percentage every month, and rebalance 6-monthly or yearly. It's not something you need to worry about. For the sake of 4 or 6 pounds... I'd just 'set and forget'!

BritishBob

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Re: UK advice on my investment plan.
« Reply #25 on: October 17, 2013, 10:58:46 AM »
Ok, Thank you. I'll do that then.

Its the rebalancing I need to work out next, but I've got six months or a year to work that out :)

daverobev

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Re: UK advice on my investment plan.
« Reply #26 on: October 17, 2013, 12:27:01 PM »
Ok, Thank you. I'll do that then.

Its the rebalancing I need to work out next, but I've got six months or a year to work that out :)

Rebalancing is easy! Say at the end of the year your preferred allocation is 25 split in 4 investments; one has done badly and is now 15%, two are 30% and the other is still 25%.

The *best* way to rebalance is to do it with new money - just add a load in at that point to the worst performing fund. But once you have a significant amount, you won't be able to do that - so you sell an amount of the two 30% funds to bring them down to 25%, and buy the other to bring it up.

Good luck!

BritishBob

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Re: UK advice on my investment plan.
« Reply #27 on: December 27, 2013, 09:53:53 AM »
Quick question.
Are HUKX.L and HMCX.L dividend paying ETFs or are they growth funds?

 I've been trying to do some digging but I can't find the answers online.
Cheers

daverobev

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Re: UK advice on my investment plan.
« Reply #28 on: December 27, 2013, 11:48:36 AM »
Quick question.
Are HUKX.L and HMCX.L dividend paying ETFs or are they growth funds?

 I've been trying to do some digging but I can't find the answers online.
Cheers

You mean 'distributing' or 'accumulating' I think? 'Growth' usually means something else.

These are distributing - the dividends that the companies in the underlying indices pay, get passed on to you.

See http://www.etf.hsbc.com/etf/uk/retail

HUKX yields 3.3%, HMCX 2.6 or something like that. HUKX pays twice yearly (with the usual 2/3, 1/3 split for UK companies), where HMCX pays quarterly.

BritishBob

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Re: UK advice on my investment plan.
« Reply #29 on: January 02, 2014, 05:41:41 AM »
Thank you :)

fluential

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Re: UK advice on my investment plan.
« Reply #30 on: January 05, 2014, 04:30:12 AM »
BritishBob: The way it works you setup an ISA trading account with any broker and you choose from available funds to be running on this, you don't pay tax. (check with your broker for additional costs of playing with foreign instruments )
If you want to have something outside of that, you get a 'trader account' with an option for ISA + outside.

Here you have a list of ALL sectors/funds that you can invest with ISA:
http://lt.morningstar.com/e4e1fvybwy/fundscreener/results.aspx?LanguageId=en-GB&Universe=FOALL%24%24ALL_1773&CustomCategoryId3=1&IncOrAcc=0%7c0%7c1&IMASector=LC00000007&CurrencyId=GBP&URLKey=e4e1fvybwy

Lots of 'US Large-Cap Blend Equity' that you said you are interested in.
Take a look also here: monevator.com/9-lazy-portfolios-for-uk-passive-investors-2010/ (updated July 2013)

In regards to 'income' or 'accumulation' shares (that is how it's called in UK, in the name of the shares you see INC/ACC) there is a nice article here: http://www.morningstar.co.uk/uk/news/69927/Share-Classes-Accumulation-vs-Income.aspx
which basically says, use accumulation shares while you work and rebalance closer to your retirement.

Also can anyone elaborate a little but more why BritishBob should not buy another property? Investing into property seems like a less risky, better long term idea than investing in stocks? I have the feeling that things are going only to get worse and we keep this financial system artificially up and running?
« Last Edit: January 05, 2014, 04:43:32 AM by fluential »

daverobev

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Re: UK advice on my investment plan.
« Reply #31 on: January 05, 2014, 09:50:02 AM »
BritishBob: The way it works you setup an ISA trading account with any broker and you choose from available funds to be running on this, you don't pay tax. (check with your broker for additional costs of playing with foreign instruments )
If you want to have something outside of that, you get a 'trader account' with an option for ISA + outside.

Here you have a list of ALL sectors/funds that you can invest with ISA:
http://lt.morningstar.com/e4e1fvybwy/fundscreener/results.aspx?LanguageId=en-GB&Universe=FOALL%24%24ALL_1773&CustomCategoryId3=1&IncOrAcc=0%7c0%7c1&IMASector=LC00000007&CurrencyId=GBP&URLKey=e4e1fvybwy

Lots of 'US Large-Cap Blend Equity' that you said you are interested in.
Take a look also here: monevator.com/9-lazy-portfolios-for-uk-passive-investors-2010/ (updated July 2013)

In regards to 'income' or 'accumulation' shares (that is how it's called in UK, in the name of the shares you see INC/ACC) there is a nice article here: http://www.morningstar.co.uk/uk/news/69927/Share-Classes-Accumulation-vs-Income.aspx
which basically says, use accumulation shares while you work and rebalance closer to your retirement.

Also can anyone elaborate a little but more why BritishBob should not buy another property? Investing into property seems like a less risky, better long term idea than investing in stocks? I have the feeling that things are going only to get worse and we keep this financial system artificially up and running?

I said miles above if they can get 10% they *should* buy a rental. But, in the long term, I'd say while it's unlikely a rental will go to 0, the FTSE 100 is also unlikely to go to zero. Both can fluctuate wildly (though you wouldn't 'see' it on a rental); but an index fund cannot *cost* you money - a house can be vacant and needing all sorts of repairs and maintenance.

If things are going to get worse the value of a house... well. Who's going to buy it, pay for it, if it all goes wrong? People still have to buy food (TSCO, SBRY, MRW), petrol (BP, RDS), etc, etc.

Foreign funds may have tax withheld in the country they are based in. Eg, UK wrappers for S&P500 ETFs will still lose 30% (or 15% if you do a W8-BEN I think.. not 100% sure) of dividends. I think if held in a pension fund it'll be withholding-exempt. Is it a big deal? No probably not, but it *is* an extra drag. I tend to avoid US stuff for this reason - rightly or wrongly. There is enough diversity elsewhere.

Ebenezer

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Re: UK advice on my investment plan.
« Reply #32 on: January 07, 2014, 07:08:52 AM »
I'm a Brit as well, and here's what I've been doing, in case it's any use to you.

I have some Cash ISAs; these contain about a year's living expenses.

I live in a modest (~120K) house with no mortgage. It's our intention to move somewhere better in the next five years or so, but keep the current place as a rental.

I also have a SIPP (Pension) and an S&S ISA. The pension has the same role as the 401K etc. in the American examples you will see, which is that it is intended to provide income after age 55, or even later than that if a future government decides to fiddle with the rules again. Benefits of a pension are that contributions are tax exempt at your highest marginal rate, and also that the fund is protected in the event of bankruptcy and is disregarded in calculating means-tested benefits, perish the thought.

The ISAs are where you can generate pre-retirement income; you pay in out of your taxed income, but any capital gains and income are free of further tax.

So, my pension contains almost exclusively "accumulation" type funds - most of which are ETFs, but this is a detail too far! In the end, this will probably be cashed out in one go, and I try to avoid having to deal with dividends etc. in the interim. My main aim here is to minimise costs, including those costs associated with reinvesting dividends.

The ISA contains funds and other stuff intended to generate income right now - which can be reinvested until the income is needed. Examples are "dividend champion" ETFs, Investment Trusts, REITs, bond funds, individual company shares, etc. I'm not drawing this income, but reinvesting it along with new contributions, so the marginal cost of reinvesting dividends is zero (ignoring stamp duty).

When this income exceeds current outgoings by a suitable safety margin, it will be time to hang up the gloves. To generate 2500 a month, or 30K a year, you will need the best part of a million pounds in income generating assets, so you are likely to need to buy some investments outside of the ISA wrappers.

The best UK site by far is monevator.com, and I say this as a 15 year veteran of the Motley Fool.

fluential

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Re: UK advice on my investment plan.
« Reply #33 on: January 07, 2014, 01:41:54 PM »
Thank you both for detailed summary that is very helpful!

BritishBob

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Re: UK advice on my investment plan.
« Reply #34 on: April 23, 2014, 05:11:28 AM »
I've got a lump sum to invest. £15000

Do I invest the whole lot at once, or is it better to increase my regular investments?

I'm thinking "time in" the market is what counts, so invest the whole lot at once?
Are there any tax implications or costs I should consider?

Any advice would be helpful.

daverobev

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Re: UK advice on my investment plan.
« Reply #35 on: April 23, 2014, 07:31:49 AM »
I've got a lump sum to invest. £15000

Do I invest the whole lot at once, or is it better to increase my regular investments?

I'm thinking "time in" the market is what counts, so invest the whole lot at once?
Are there any tax implications or costs I should consider?

Any advice would be helpful.

Conventional wisdom (ie, statistics) says invest it ASAP. You don't know which way everything is going.

Psychologically you might prefer to spread it out over 6 months.

BritishBob

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Re: UK advice on my investment plan.
« Reply #36 on: April 23, 2014, 10:49:52 AM »
Thanks again for the advice :)

BritishBob

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Re: UK advice on my investment plan.
« Reply #37 on: April 25, 2014, 08:44:14 AM »
The time has come to start analysing stock.


I was reading the article about aristocrat dividends.
Is there an British equivalent  of the S&P High Yield Dividend Aristocrats index?

This might take me a year before I actually commit my cash, but it's time to start learning.

daverobev

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Re: UK advice on my investment plan.
« Reply #38 on: April 25, 2014, 02:01:34 PM »
The time has come to start analysing stock.


I was reading the article about aristocrat dividends.
Is there an British equivalent  of the S&P High Yield Dividend Aristocrats index?

This might take me a year before I actually commit my cash, but it's time to start learning.

IMHO - and it is just that - avoid that stuff, just go for basic, core indices.

Looks like Vanguard do do a high yield ETF in the UK, though

https://www.vanguard.co.uk/uk/mvc/investments/etf

VHYL.L

BritishBob

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Re: UK advice on my investment plan.
« Reply #39 on: April 26, 2014, 01:22:11 PM »
Ohh that does look interesting, however it will be core indices for the time being.

No harm in learning though? ;)

daverobev

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Re: UK advice on my investment plan.
« Reply #40 on: April 26, 2014, 03:59:45 PM »
Ohh that does look interesting, however it will be core indices for the time being.

No harm in learning though? ;)

Well.. what I have learned is that any kind of restriction is, basically, market timing. Some home country (and region) bias is fine as you will need to spend the home currency.

But.. until you retire, high div.. you know, it's priced in. It's ALL priced in. Something with a higher dividend will have lower capital growth. Now, depending on your tax situation, you might want one over the other, but...

There is something to be said for sector-based buying but who knows. The thing with the core index is that you get it all. If the high street collapses and online goes through the roof? Your core index adjusts naturally. But your sector index might collapse. The high div index might collapse - say it holds supermarkets, and they get trashed? Uh-oh! (And I'm partial to supermarkets... Alas, I am not perfect, and I have been known to buy individual stocks. It's a bad habit).

BritishBob

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Re: UK advice on my investment plan.
« Reply #41 on: April 29, 2014, 05:53:46 AM »
I'm with you.
I'm going to stick with core index until I hit the £360000 mark, that's my first investment goal (I can retire then, if I want :) )
I guess stock picking is more of an interest at the moment.

I'm taking on board what you're saying though.

Thanks for the advice. :)