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ETFs in an ISA

Investment discussion for beginners. Why you should invest your money, get help getting started
AaronTV
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Joined: November 16th, 2018, 1:18 pm

ETFs in an ISA

#180906

Postby AaronTV » November 16th, 2018, 5:39 pm

Hi

I'm new to investing (soon to be 19 years old) so very little knowledge and no actual experience in the market.

I was thinking of opening up an ISA with Interactive Investor (II) as the fees seem to be decent compared to others, now initial investment was going to be £1000 and then £100 a month from them on and then just compound any money to make to grow the portfolio over time as i'm in no real rush. Now my main question is regarding ETFs, there are a lot of them all doing different things, i was looking at some that tracked the S&P 500 and a few others, now i've been reading that fees are involved in holding ETFs in an ISA. Most of the information ive seen however is regarding UK ETFs and not US ones. So some information on fees would be helpful, even if you have a link which explains them to save you regurgitating the same information.

Now my second question again regarding ETFs is that instead of going to the ETF company such as Vanguard to buy into the ETF, i was going to buy the ETF on the stock market, for example VANGUARD IX FUN/S&P 500 ETF SHS NEW (VOO). Now this is where i get confused because i read that there are a few ETFs that can actually be held in an ISA but i wasn't sure if this meant ETFs which where technically a stock as they are on the stock market.Also if this ticker symbol was even purchasable in the first place as ive only seen information regarding UK ETFs.

Sorry for the long post but any information would be extremely helpful as im quite confused, even if its pointing me in the direction of information that would be appreciated.

I look forward to your replys.

Aminatidi
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Re: ETFs in an ISA

#180912

Postby Aminatidi » November 16th, 2018, 5:59 pm

II (and most ISA providers) will let you hold from a massive range of ETFs.

You mainly limit yourself by going direct to the provider i.e. if you go direct to Vanguard you can only buy Vanguard products.

If you're putting in £100/month look for a platform that offers a discounted rate for regular investing, which II does.

Or consider funds rather than ETFs simply because some platforms don't charge for buying funds but those platforms will charge a percentage based on how much you hold with them.

Swings and roundabouts but I would definitely do some work on fees because II for example you'd be paying £90 in year one on "only" £1100 of funds so you're probably paying more than you're likely to make.

At some point fixed price platforms make much more sense in my opinion.

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Re: ETFs in an ISA

#180923

Postby JohnB » November 16th, 2018, 6:25 pm

At your age I'd look at LISAs, Starting off funds can be cheaper because of dealing costs, but ETFs are more attractive as the sums grow. Go for ACC rather than INC ones to avoid the bother of reinvesting dividends (the reverse if investing outside an ISA). Look in the KID file (investment summary) for a "domicle" in the EU, typically Ireland or Luxembourg. UK "reporting" is good, but for tax reasons that don't apply for an ISA. Watch out for $ denominated funds for S&P 500, as you may be charged currency conversion fees each time

Urbandreamer
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Re: ETFs in an ISA

#180924

Postby Urbandreamer » November 16th, 2018, 6:29 pm

AaronTV wrote:Hi

I'm new to investing (soon to be 19 years old) so very little knowledge and no actual experience in the market.


Wellcome to a new and interesting world.

I don't have an account with III so can't really comment upon how they charge for ETF's, or other things.
I do however have an account with A J Bell in which I happen to own a ETF (though I'm really into other things).
They chaged me a flat fee four times a year for the account though they would charge extra if I held Unit trusts in it.
Please understand that I am not recomending that you buy the same ETF that I have. However I will use it as an example of ETF's.
I own this.
http://www.morningstar.co.uk/uk/etf/sna ... 0P0000Z9T7
ETF stands for "Exchange Traded Fund", you (or I) simply buy or sell them like I would BP or Shell.
Ignoring for a moment what it's tracking you can see that the manager actually invests in shares listed in the index that it tracks. It also invests in shares that are NOT part of the index. That means performance and returns will differ from the index.
Simpler ETF's may only invest in shares in the index but not EVERY share in the index. More complicated ones may attempt to track indexes that contain shares that they can not actually buy (ie China or other restricted markets). They achieve that by derivatives (placing bets). I would advise avoiding them until you have a lot more practice.

Another complication is that our regulators require that Key Investment Documents (KID) are produced in a given format. Not all companies do so and you won't be allowed to invest in ones that don't. Well intentioned but actually simply preventing you buying ETF's from some US companies. Still you won't be lacking for choice, so simply pick ones that you can invest in.

Different ETF's have different internal costs, which are a drag on returns. Most of the big ones are fairly cheap and you can largly ignore these costs. If you are interested in really cheap costs try this link.
https://www.investorschronicle.co.uk/fu ... -cost-etf/

You will pay a commission to buy and a commision to sell. These days you are likely to pay about £10. That's a LARGE part of your £100pcm. Unless you get a far better deal I suggest that you buy less often but in larger amounts.

Finally I suggest having a good look around. Investment trusts have many virtues as an alternative to ETF's. Don't assume that there is just one right choice.

AaronTV
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Re: ETFs in an ISA

#180927

Postby AaronTV » November 16th, 2018, 6:42 pm

Aminatidi wrote:
Swings and roundabouts but I would definitely do some work on fees because II for example you'd be paying £90 in year one on "only" £1100 of funds so you're probably paying more than you're likely to make.

At some point fixed price platforms make much more sense in my opinion.


Thanks for the information, do you have any recommendations for other platforms so i can have a look at their fees compared?

Thanks again for the information.

AaronTV
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Joined: November 16th, 2018, 1:18 pm

Re: ETFs in an ISA

#180933

Postby AaronTV » November 16th, 2018, 7:00 pm

Urbandreamer wrote:
Another complication is that our regulators require that Key Investment Documents (KID) are produced in a given format. Not all companies do so and you won't be allowed to invest in ones that don't. Well intentioned but actually simply preventing you buying ETF's from some US companies. Still you won't be lacking for choice, so simply pick ones that you can invest in.


Thanks for this information, one follow up question, im guessing the platform won't show the ETFs which cant actually be brought or will tell you that you cant buy them? As i don't want to be caught out investing in things which i shouldn't actually own.

Urbandreamer wrote:
You will pay a commission to buy and a commision to sell. These days you are likely to pay about £10. That's a LARGE part of your £100pcm. Unless you get a far better deal I suggest that you buy less often but in larger amounts.



Yea, i saw someone else talking about this, i would probably just save the £100 every month then invest it maybe every year to cut down on the impact of the costs. One thing i did see someone say with using II is that you can set up scheduled investments which are only £1 so cuts less into the investment every month so i would look into this when the time comes.

Finally thanks for the advice, i don't think im done looking at different platforms or even if i will invest using an ISA but the information you have provided is very helpful and saved me a lot of time having to look around for the information. Someone mentioned above that currency transfer fees can be issue and eat into your money when investing in foreign exchanges, do you know anyway to limit this cost or do you just let it be?

Thanks again.

AaronTV
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Joined: November 16th, 2018, 1:18 pm

Re: ETFs in an ISA

#180935

Postby AaronTV » November 16th, 2018, 7:04 pm

JohnB wrote:At your age I'd look at LISAs


Thanks i will take a look and see if its for me compared to an ISA.

JohnB wrote: Go for ACC rather than INC ones to avoid the bother of reinvesting dividends (the reverse if investing outside an ISA).


Could you explain what ACC and INC are, im guessing a abbreviation for something but i have no idea what so knowing what it means would be a great help.

JohnB wrote:Watch out for $ denominated funds for S&P 500, as you may be charged currency conversion fees each time


Will 100% see what conersion fees which they are charging as im guessing they will be worse than they actually are. Do you know anyway to avoid these fees if i was to invest in a fund which was in $ instead of £?

Thanks again for the information, i look forward to your reply.

Alaric
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Re: ETFs in an ISA

#180936

Postby Alaric » November 16th, 2018, 7:11 pm

AaronTV wrote:As i don't want to be caught out investing in things which i shouldn't actually own.


The way that ISAs usually work protects you from this.

It's a several stage process.

You first open an account.

Next you move some money to it from your bank account

Finally you select something to buy where you are restricted by what the platform will offer you.

A Google for "investment platforms uk" will come up with a list of names and a few ads. If you are looking to put in £ 100 a month, those that offer a cheap automatic dealing day once or twice a month are likely to be of the greatest interest.

Many funds are structured to offer a choice of accumulation (ACC) or income (INC) units/shares. In the former case, the dividends and interest earned by the fund will be rolled up into the price, whilst in the latter case, it will be periodically added to the cash balance in the ISA on your platform.

AaronTV
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Re: ETFs in an ISA

#180946

Postby AaronTV » November 16th, 2018, 7:48 pm

Alaric wrote:A Google for "investment platforms uk" will come up with a list of names and a few ads. If you are looking to put in £ 100 a month, those that offer a cheap automatic dealing day once or twice a month are likely to be of the greatest interest.


I get that some platforms have better fees than the ones that i was looking at, the main reason i was looking at an ISA is because of the no tax, i doubt that my investments will reach the point where they will reach the taxable amount for awhile but when/if they do i really dont want to go to the trouble of then moving to an ISA when i could just start with one and not have to worry. Your opinion on this would be helpful if you have one?

Alaric wrote:Many funds are structured to offer a choice of accumulation (ACC) or income (INC) units/shares. In the former case, the dividends and interest earned by the fund will be rolled up into the price, whilst in the latter case, it will be periodically added to the cash balance in the ISA on your platform.


Okay, thanks for letting me know what the abbreviations mean. I think i understand but confirmation would be nice, if i were to chose ACC the money made from the fund so the dividends will be reinvested into the fund so it would compound over time? Whereas the INC would just take the dividend and leave a balance in my account which i could then choose what to do with it?

Thanks for the information!

JohnB
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Re: ETFs in an ISA

#180960

Postby JohnB » November 16th, 2018, 8:55 pm

Look at the Monevator website, lots of platform advice there. Iweb don't have ISA custody fees, just (small) dealing ones. Your choice for LISAs is more limited.

You are right about ACC and INC

nmdhqbc
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Re: ETFs in an ISA

#180962

Postby nmdhqbc » November 16th, 2018, 9:05 pm

https://www.thisismoney.co.uk/money/diy ... tform.html

This might be useful. With your £1k then £100 a month into an ETF remit I'd go for VWRL (FTSE All-World ETF) and hold it on the Vanguard platform. I'd then change to iWeb when it grows to an amount where the number stack up on the charges. £40k I think. But then I'm not sure if iWeb do regular investments. Not something I've looked into. I like to wait for dips to buy anyway. Something to consider. Oh, and there's talk of exit fees being scrapped so the change of broker down the line may not cost anything. Would be cheap for one holding anyway.

AaronTV
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Re: ETFs in an ISA

#180969

Postby AaronTV » November 16th, 2018, 9:24 pm

nmdhqbc wrote:https://www.thisismoney.co.uk/money/diyinvesting/article-1718291/Pick-best-cheapest-investment-Isa-platform.html

This might be useful. With your £1k then £100 a month into an ETF remit I'd go for VWRL (FTSE All-World ETF) and hold it on the Vanguard platform.


I will have a look at this, the only thing which kind of sways me away is the fact that there is no dividends so im relying on the gain to be good enough where it will climb to the 40k which you mentioned. (i may be missing something as im new so please let me know if i am). I know the market has been always on the up for the most part so my investment should grow. The reason i was looking at dividend stocks / ETFs is so the money can be put back into stocks along with my £100 monthly investment which would make it grow even quicker. Am i missing something?

Thanks for the advice and if you could answer my question that would be great!

nmdhqbc
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Re: ETFs in an ISA

#180975

Postby nmdhqbc » November 16th, 2018, 9:50 pm

AaronTV wrote:
nmdhqbc wrote:https://www.thisismoney.co.uk/money/diyinvesting/article-1718291/Pick-best-cheapest-investment-Isa-platform.html

This might be useful. With your £1k then £100 a month into an ETF remit I'd go for VWRL (FTSE All-World ETF) and hold it on the Vanguard platform.


I will have a look at this, the only thing which kind of sways me away is the fact that there is no dividends so im relying on the gain to be good enough where it will climb to the 40k which you mentioned. (i may be missing something as im new so please let me know if i am). I know the market has been always on the up for the most part so my investment should grow. The reason i was looking at dividend stocks / ETFs is so the money can be put back into stocks along with my £100 monthly investment which would make it grow even quicker. Am i missing something?

Thanks for the advice and if you could answer my question that would be great!


Last time I looked VWRL was yielding about 2%...

https://www.vanguardinvestor.co.uk/inve ... tributions

But the whole dividend vs growth debate has and probably will rumble on in perpetuity. Growth shares have done better in recent years but who knows how it will go in the future. I personally go for both in my portfolio. Which by the way does not include VWRL. I am tempted and might buy some though. I only suggested because you talked about wanting trackers.

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Re: ETFs in an ISA

#180978

Postby nmdhqbc » November 16th, 2018, 9:56 pm


Alaric
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Re: ETFs in an ISA

#180982

Postby Alaric » November 16th, 2018, 10:18 pm

AaronTV wrote:I get that some platforms have better fees than the ones that i was looking at, the main reason i was looking at an ISA is because of the no tax


Until such time as you have more than £ 20,000 a year to invest, you should be looking at ISAs (or possibly LISAs). Almost every platform offers them.

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Re: ETFs in an ISA

#181019

Postby Aminatidi » November 17th, 2018, 8:52 am

AaronTV wrote:
nmdhqbc wrote:https://www.thisismoney.co.uk/money/diyinvesting/article-1718291/Pick-best-cheapest-investment-Isa-platform.html

This might be useful. With your £1k then £100 a month into an ETF remit I'd go for VWRL (FTSE All-World ETF) and hold it on the Vanguard platform.


I will have a look at this, the only thing which kind of sways me away is the fact that there is no dividends so im relying on the gain to be good enough where it will climb to the 40k which you mentioned. (i may be missing something as im new so please let me know if i am). I know the market has been always on the up for the most part so my investment should grow. The reason i was looking at dividend stocks / ETFs is so the money can be put back into stocks along with my £100 monthly investment which would make it grow even quicker. Am i missing something?

Thanks for the advice and if you could answer my question that would be great!


The Vanguard suggestion is a good one if you're going with a simple single fund and want the lowest cost whilst you grow the pot.

My personal view at 19 is forget about dividends and go with "Accumulation" units as that means that your investment is literally set and forget.

Essentially it means rather than you getting a dividend and having to think/remember to re-invest it, it happens automatically.

With all respect to the members here, you're 19 and many of them are older and are looking at dividends as a form of guaranteed income - you don't need that, you want to accumulate by growing the pot automatically IMO.

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Re: ETFs in an ISA

#181023

Postby JohnB » November 17th, 2018, 9:08 am

One thing I wish I'd understood better at 19 was the Total Return for a stock market index. While the media reports the value of an index, and says how it varies from 10 or 20 years ago, they omit the value of the dividends. Typically the growth in your investment after inflation is 1/3 capital gain in the share value, say 1.5% a year, and 2/3 in the dividends, 3.5% a year. So while it took 18 years for the FTSE 100 index to recover from the 2000 crash, if you look at the Total Return value, where dividends where reinvested, it is well ahead.

Automatic dividend reinvesting also helps with something called "pound cost averaging", basically you get more shares when they are cheap

And it saves you micromanaging, which while fun for some people (see HYP parts of this board), takes up a lot of time.

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Re: ETFs in an ISA

#181032

Postby Urbandreamer » November 17th, 2018, 9:44 am

Until such time as you have more than £ 20,000 a year to invest, you should be looking at ISAs (or possibly LISAs). Almost every platform offers them.


While Alaric may be being a bit too pedantic, depending upon if he means you (personally) or you (a group), I'd argue that he is very likely right in your case. Assuming that you have pension contributions sorted.

There is a strong argument that you should consider pension/long term saving. A SIPP will cost more than a LISA, but fees would be covered by the tax return on contributions. The issue is that the money can't be touched until 55. The advantage of a LISA is that you could use the money to buy a house. Using it for anything else before 60 leads to what I would describe as a fine.

Well I did say that the world you are entering is interesting didn't I.

With all respect to the members here, you're 19 and many of them are older and are looking at dividends as a form of guaranteed income - you don't need that, you want to accumulate by growing the pot automatically IMO.


I too suspect that many are older and may have been older when they started. I started at 28 in a far more wild child way, buying and selling random shares. Back then you needed someone to recomend a stockbroker (they were not alowed to advertise) and mine charged a minimum commission of £30 per trade or a percentage of the value of the trade! ETF's didn't exist back then either. With ETF's the choice between accumulation or dividends is simply one of if you need the income or not. It's slightly different if you are buying shares. With shares you need to decide if the company has a better use or investment options than if you had the money (as JohnB says).

Re ETF's you can't buy. You are unlikely to come across them in UK based investment mag's and your platform won't provide a "quote". I only mentioned them to point out that there will be restrictions.

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Re: ETFs in an ISA

#181045

Postby tjh290633 » November 17th, 2018, 11:01 am

I wasn't able to start investing until I was 24, on account of National Service and 4 years at university. Back in the 1950s life assurance received tax relief, but not as much as pension contributions. Consequently I combined life assurance with a simple monthly savings plan with a unit trust. Nowadays I would use a combination of term assurance and a share ISA for the same purpose. The LISA idea may be the best route for you, but as others have said, fee considerations come into play. You need to look at this carefully.

What medium to save in? I think that you could do a lot worse than one of the big Investment Trusts, like Witan (WTAN) or F&C (FCIT). I think that if you compare their total return after charges with those of a tracker ETF, they will compare very favourably. You get quite a wide geographic spread, plus some private equity.

The choice is yours.

TJH

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Re: ETFs in an ISA

#181049

Postby staffordian » November 17th, 2018, 11:45 am

As for the best broker, have a look at Halifax Share Dealing. Their ISA has an annual fee of £12.50, with no holding fees I'm aware of.

They also have a cheap regular dealing scheme where you can invest on four set days per month for £2 commission, as well as a monthly "sale" where you can buy or sell, usually in a two hour slot around 12.00 to 2.00pm for £3.95.

I've used them for many years and found the service efficient and straightforward to use.

Worth a look, I'd suggest.


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