Vanguard ISA - £20k to invest

[Whoknows22]

Hi All,

Looking for some thoughts on what to do with my £30k for this year.

My background:
Aged 42
£132k in Vanguard ISA currently
Moved all cash into S&S ISA last year having held in cash ISAs previously. Based on interest rates being low and being able to take more risks to try to get higher returns.
Already put the maximum amount into my work pension each year
Have savings and so shouldn't need to withdraw ISA funds and can leave invested for 15 - 20 years to benefit from capital growth and tax savings

I have £20k to invest this year.
No need to withdraw cash soon and so if market declines further I can hang on and (hopefully let it recover)

Anyway, I have my £132k invested in a number of funds.
Overall the value is -0.8% over 12 months
There has been substantial deviation in how the funds have performed (to be expected)
Best performer has been the S&P500 fund + 6.46%
Worst performer has been the FTSE 250 fund - 9.79%

All of my investments are in risk categories 5 and 6 and so some volatility is to be expected.

What to do next?
The S&P has performed relatively well but there are some on these boards suggesting its a bubble.
The FTSE 250 has performed badly. If I buy more now am I buying at the bottom or close to the bottom or could it slide even further.
Do i take the diversified approach and put £5k into 4 different funds (different fund types and/or different regions)?

I'm not actually looking for answers to these questions but more thoughts of what I should be considering in my position and what others would do?

Any ideas welcome.

Thanks

[Urbandreamer]

Moved all cash into S&S ISA last year having held in cash ISAs previously. Based on interest rates being low and being able to take more risks to try to get higher returns. ....
What to do next?

Stick to your current or last years plan.
Last year you decided that the world had changed significantly that you needed to move significant amounts out of cash and into equities. While things can turn on a sixpence, it doesn't usually happen.

You seem to be debating with yourself where you will make the best returns. Is that really a passive investor position to take.

Possibly you should consider stopping contributing to the Vanguard ISA at the end of one tax year and starting another with a different provider the next. That would allow a greater range of investments. You could still buy Vanguard funds, but also other funds, Investment trusts or single company shares.

Want to invest in the space industry, the shipping industry, in solar panels on warehouse roofs... well there's a Investment trust for that.
ETF's that invest in automation and robotics or battery technology.
Individual companies that to everything from galvanised motorway barriers to soap.

Vanguard provide good index trackers and their ISA is cheap, provided that you are happy with the limits of what they offer.

What would/ am I doing? Well my situation is different from yours. I'm buying a range of global investment trusts that provide income and one dedicated to capital preservation. My earned income is expected to stop in 12 months time

[DrFfybes]

Are all the current investments Acc units or do divis get automatically invested?

You don't say what you have in total holdings, but if you hold a lot of different trackers you will end up heading towards a Global holding on Average, except with higher charges.

In which case go for a Global fund with the lowest charge and just sit back and wait.

Paul

[kempiejon]

I've not yet gathered all my cash together for the ISA but my plan is to invest it all into a vanguard global product VWRP which is the accumulation variety. That was my plan for last year too when to spread between organisations I chose a new account with iweb.

[Whoknows22]

Moved all cash into S&S ISA last year having held in cash ISAs previously. Based on interest rates being low and being able to take more risks to try to get higher returns. ....
What to do next?

Stick to your current or last years plan.
Last year you decided that the world had changed significantly that you needed to move significant amounts out of cash and into equities. While things can turn on a sixpence, it doesn't usually happen.

You seem to be debating with yourself where you will make the best returns. Is that really a passive investor position to take.

Probably not. I have ideas about being more active but don't really have the time available.

Possibly you should consider stopping contributing to the Vanguard ISA at the end of one tax year and starting another with a different provider the next. That would allow a greater range of investments. You could still buy Vanguard funds, but also other funds, Investment trusts or single company shares.

Yes, I would like access to further fund and so maybe I'll use this year's £20k to invest in another fund. I went with Vanguard last year as my research lead me to believe that their funds management fees are cheap (this still appears to be the case) and that their customer service was good (seem fine) but I would be interested in considering other fund managers. Are there any that offer a broader range of funds that i should consider?

Want to invest in the space industry, the shipping industry, in solar panels on warehouse roofs... well there's a Investment trust for that.
ETF's that invest in automation and robotics or battery technology.
Individual companies that to everything from galvanised motorway barriers to soap.

Vanguard provide good index trackers and their ISA is cheap, provided that you are happy with the limits of what they offer.

They are quite limited. I have an interest in renewable energy and the energy industry in general and so would like to incest in some funds linked to this but not sue how to do so. The investments will be very long term as I believe long term in the industry.

What would/ am I doing? Well my situation is different from yours. I'm buying a range of global investment trusts that provide income and one dedicated to capital preservation. My earned income is expected to stop in 12 months time

[Whoknows22]

Are all the current investments Acc units or do divis get automatically invested?

All investment accounts where re-invested. As mentioned I'm willing and able to leave the money in the ISA very long term and so if the fund performs OK and their is a dividend then I'm happy for that to be re-invested.

You don't say what you have in total holdings, but if you hold a lot of different trackers you will end up heading towards a Global holding on Average, except with higher charges.

Total holding is £132k. I'm now considering what to do with this year's £20k and also whether to put more of the existing money into cheaper passive funds.
I have them in a number of funds but generally either trackers or larger amounts in the Life Strategy or ESG funds. These trackers have the lowest fees and seem to be the best performing in average (S&P 500 & FTSE UK All Share). When researching previously it was recommended by some that I go for the LS and ESG funds. These haven't performed as well and the charges are higher.

In which case go for a Global fund with the lowest charge and just sit back and wait.

Seems reasonable. I've been looking at the FTSE 100 Index Unit Trust Accumulation. The fee is only 0.06% and it contains mining and energy stocks that wouldn't be in my ESG portfolios which make up about 35% of my total ISA value. I would expect that these companies would benefit from the current environment but quite possible that this is an obvious bet and the share values of these companies has already been driven up.

Understood.

Paul

[Urbandreamer]

Yes, I would like access to further fund and so maybe I'll use this year's £20k to invest in another fund. I went with Vanguard last year as my research lead me to believe that their funds management fees are cheap (this still appears to be the case) and that their customer service was good (seem fine) but I would be interested in considering other fund managers. Are there any that offer a broader range of funds that i should consider?

Just about ever platform offers a larger range of "funds", ETF's, IT's and shares in quoted companies than Vanguard. Vanguards strength is that they are good and cheap at what they do. Ideal for passive index tracking, I have recommended them myself.

I have an account with A J Bell (and II), and could buy the same Vanguard fund as you, but they would charge a larger fee to hold it. Others are with Hargreaves Lansdown, who tend to be a bit more expensive than A J Bell for funds while, II are cheaper than Bell for large fund holdings.

HOWEVER, were you to stick to Investment trusts or ETF's then it would not be hugely expensive with any of them.

Only you can decide if you want to pay for the extra flexibility.

Re renewable energy, there are plenty of investment trusts who invest in it. The advantage of the IT structure is that the manager does not have to try and sell wind farms if people start selling their shares to buy food to eat.

You do need to get your head around discount and premium though, if buying investment trusts. Basically they are cheaper than they are worth if few want them and more expensive than their value if everybody wants them. In my example, the renewable IT would continue and own the same wind farms, but the shares would trade at less than the value of the assets.

IT's in renewable infrastructure are popular, hence you have to "over-pay" in order to buy them. (TRIG) "The Renewables Infrastructure Group" is on a 14% premium, while (CSH) Civitas the social housing REIT is on a 19% discount. I hold both.

[Whoknows22]

Yes, I would like access to further fund and so maybe I'll use this year's £20k to invest in another fund. I went with Vanguard last year as my research lead me to believe that their funds management fees are cheap (this still appears to be the case) and that their customer service was good (seem fine) but I would be interested in considering other fund managers. Are there any that offer a broader range of funds that i should consider?

Just about ever platform offers a larger range of "funds", ETF's, IT's and shares in quoted companies than Vanguard. Vanguards strength is that they are good and cheap at what they do. Ideal for passive index tracking, I have recommended them myself.

I have an account with A J Bell (and II), and could buy the same Vanguard fund as you, but they would charge a larger fee to hold it. Others are with Hargreaves Lansdown, who tend to be a bit more expensive than A J Bell for funds while, II are cheaper than Bell for large fund holdings.

HOWEVER, were you to stick to Investment trusts or ETF's then it would not be hugely expensive with any of them.

Only you can decide if you want to pay for the extra flexibility.

Re renewable energy, there are plenty of investment trusts who invest in it. The advantage of the IT structure is that the manager does not have to try and sell wind farms if people start selling their shares to buy food to eat.

You do need to get your head around discount and premium though, if buying investment trusts. Basically they are cheaper than they are worth if few want them and more expensive than their value if everybody wants them. In my example, the renewable IT would continue and own the same wind farms, but the shares would trade at less than the value of the assets.

IT's in renewable infrastructure are popular, hence you have to "over-pay" in order to buy them. (TRIG) "The Renewables Infrastructure Group" is on a 14% premium, while (CSH) Civitas the social housing REIT is on a 19% discount. I hold both.

Thanks, lots of food for thought there.

With regards to the TRIG 14% premium what do you mean by this? A 14% premium against what?

[Urbandreamer]

With regards to the TRIG 14% premium what do you mean by this? A 14% premium against what?

That is exactly what I was pointing out as a difficulty understanding

Ok, Funds, simple. You invest, "they" buy. You divest, "they" sell.

Investment trusts are different. You usually buy from someone else who owns the shares. That means that "They" don't have to buy or sell.

TRIG shares are selling at 14% more than the price of buying the wind farms that "they" own! Of course you might need the odd mill to buy the wind farm. Instead you buy someone else's "share" of the wind farms. To do so you will have to pay enough that the owner of that "share" is willing to sell. Which is more than were the wind farm to be sold and the assets given to those who hold the shares.

My second example was of properties. Were all properties to be successfully sold at market value, the returned value to the share holders would be more than the price of the shares. Could that happen? Well it has in the past. Indeed "Asset strippers" and vulture venture capital are known for it.

For those coming from a "cash" perspective it's a really difficult concept to get your head around. That is even ignoring the difficulty of attributing a value to such simple things as property (or wind farms). NOBODY in fact knows what it's worth until it actually is sold. It is all just a best guess.

For many it's easier to just buy the market. Arguably you do as well or better than the likes of me, who put their money where their mouth is or "nail their colours to the mast".

You pay's your money.....

[XFool]

With regards to the TRIG 14% premium what do you mean by this? A 14% premium against what?

That is exactly what I was pointing out as a difficulty understanding

Ok, Funds, simple. You invest, "they" buy. You divest, "they" sell.

Surely not? (Or are you joking?).

IT's are simple, they are companies listed on the stock market. The discount/premium simply being between their latest calculated and published net asset value per share (NAV) and the price the shares are trading in the market - in other words whether they are going cheap or are expensive to buy. Same as with any share, just the metrics used are different.

"Funds"? Unit Trusts? OIECS? Accumulation Units/Income Units? 'I' shares, 'M' shares, 'R' shares? WTF is that all about?

[Hariseldon58]

With regards to the TRIG 14% premium what do you mean by this? A 14% premium against what?

That is exactly what I was pointing out as a difficulty understanding

Ok, Funds, simple. You invest, "they" buy. You divest, "they" sell.

Surely not? (Or are you joking?).

IT's are simple, they are companies listed on the stock market. The discount/premium simply being between their latest calculated and published net asset value per share (NAV) and the price the shares are trading in the market - in other words whether they are going cheap or are expensive to buy. Same as with any share, just the metrics used are different.

"Funds"? Unit Trusts? OIECS? Accumulation Units/Income Units? 'I' shares, 'M' shares, 'R' shares? WTF is that all about?

The premium/ discount is far more complex and nuanced than the difference between the published NAV and the current market price. The discounts can be quite large and you need to have an understanding of why, premiums are often less extreme and may reflect investor enthusiasms. Eg Lindsell Train, a disappointment can be a double loser.

Occasionally you may find a hidden bargain or arbitrage situation.

[XFool]

The premium/ discount is far more complex and nuanced than the difference between the published NAV and the current market price.

No it isn't. It is precisely the difference between the published NAV per share and the quoted share price. This is not complicated.

The discounts can be quite large and you need to have an understanding of why, premiums are often less extreme and may reflect investor enthusiasms. Eg Lindsell Train, a disappointment can be a double loser.

This is to speak of the reasons for the discount/premium which, unsurprisingly, is in the first instance caused by the demand or popularity for the shares. As to that... There are many and varied reasons, just as there are with individual companies or sectors.

I am not trying to start an argument over the merits of "funds" versus ITs - apart from pointing out that ITs are held to be best for investment in illiquid assets, such a private equity or property. Just that I have never really understood the notion of ordinary* ITs being "complicated". It seems to be one of those things that somebody, long in the past, once said (may even have meant something valid at the time) and it is simply repeated by everybody writing any article about ITs ever since, because everyone has heard it from somewhere else. A bit like how we all "only ever use 10% of our brains"!

* I exclude Split Capital ITs

[Urbandreamer]

I am not trying to start an argument over the merits of "funds" versus ITs

Nor was I. I have no issues understanding premium and discount, though I think that I did point out that NAV may be just someones best guess. Particularly if a given IT invests in the likes of private equity or real estate.

However I have a friend who simply can't get his head around the idea.

While it was not amusing for him, it was for me, that he was invested in property funds and locked in during the last property crash. You often can't just convert these assets to cash. With IT's, you can sell your holding to someone else. I wouldn't advise doing so, but it is an option. Unlike funds where the underlying asset has to be sold to provide you with cash.

[Hariseldon58]

The premium/ discount is far more complex and nuanced than the difference between the published NAV and the current market price.

No it isn't. It is precisely the difference between the published NAV per share and the quoted share price. This is not complicated.

The discounts can be quite large and you need to have an understanding of why, premiums are often less extreme and may reflect investor enthusiasms. Eg Lindsell Train, a disappointment can be a double loser.

This is to speak of the reasons for the discount/premium which, unsurprisingly, is in the first instance caused by the demand or popularity for the shares. As to that... There are many and varied reasons, just as there are with individual companies or sectors.

I am not trying to start an argument over the merits of "funds" versus ITs - apart from pointing out that ITs are held to be best for investment in illiquid assets, such a private equity or property. Just that I have never really understood the notion of ordinary* ITs being "complicated". It seems to be one of those things that somebody, long in the past, once said (may even have meant something valid at the time) and it is simply repeated by everybody writing any article about ITs ever since, because everyone has heard it from somewhere else. A bit like how we all "only ever use 10% of our brains"!

* I exclude Split Capital ITs

Well with regard to Lindsell Train it was not simply popularity but the belief that the its partial ownership of Lindsell Train was worth far more than its reported value. I think that separating my comments of a brief elaboration from a formal definition of premium/discount is disingenuous…

A further complication of the discount/premium is the effect of borrowing, you state that the premium/discount is the difference between share price and published NAV, you need to clarify the premium/discount to the NAV and the effect of borrowing, published NAV now generally reflects debt at market value rather than par, but an interested investor will dig deeper into the nature and interest profiles of that debt, this can significantly effect the discount/premium over time.

I have held ITs since the 1980’s, they can be complex, nothing to be frightened of but you need to dig a little deeper into the accounts and understand the capital structure, borrowing etc.

In one case an Investment Trust was on a substantial discount to the published NAV because it was believed that the portfolio, which was being liquidated in an orderly fashion, contained equities that were illiquid/hard to value etc , the published NAV was about the right monetary value but did not reflect the true nature of the portfolio, where most of the portfolio was actually in short gilts, this provided me with a nice profit because the portfolio was liquidated over time for very close to NAV, the vast majority being returned to shareholders very quickly.

Investment Trusts can be a good way of holding illiquid assets but not a panacea, look at Woodford’s Patient Capital, that did not end well.

My point would be that Investment Trusts are a lot more complex that OEICs, but provided you understand these nuances, the capital structure etc then they can be far more rewarding if you take a little longer to understand those details.

[Whoknows22]

Thanks for the useful responses and the interesting feedback.

I have much more reading to do on this but the debate above has certainly got me thinking.

My interest in renewable energy is possibly a little late now.

Looking at the share prices of companies like TRIG it would appear that there were opportunities to buy shares at far lower prices in 2015/16 (low power price periods) and 2020 (beginning of lockdown). My assumption would be that their shares will now stay high as there is so much interest in renewable energy.

Anyway, more work to be done.