ETFs in an ISA

[AaronTV]

Sorry, wrong link...

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

My mistake, i just Googled the ticker you gave me and it said no dividend yield, my mistake.

Thanks for the link and the additional information.

[TUK020]

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.

I would very much agree with Alaric, but would caution against accepting Urbandreamer's comment on pension as a long term saving at face value.

The key benefit of investing in a SIPP is the tax relief on contributions, and the ability this gives you to arbitrage the tax rates on contributions vs withdrawal later. E.g. get tax relief at higher rate going in, and pay tax at nil, or lower rate on withdrawal.
The disadvantages are that you lock up the money until you are 55 or later, and the government continually changes the rules while your money is locked up.

I suspect that at age 19, it will be a while before you are paying higher rate tax, therefore an ISA gives you much the same benefit, but with the flexibility of being to access the money when you need it (e.g. as a deposit on a property).
If you know that you are going to use the money for a house purchase, then go for a LISA and get the government top up. If you withdraw the money for anything else before retirement age, there are heavy penalties.

There are loads of companies offering ISA Stocks and Shares accounts, but not many offer LISA Stocks and Shares accounts. Hargreaves Landsdowne does have a LISA S&S, or at least did when I was investigating this for my daughter.
tuk020

[AaronTV]

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.

Thanks for the information, am going to take a look at Vanguard mainly due to like you said its set and forget and i don't have to worry about it.

As you said i don't need to dividend income at the moment so all i would do is just reinvest that dividend into the same stock or a different one but as you mentioned i could just naturally let it accumulate and then decide what i want to do at a later date.

Thanks for the help again!

[AaronTV]

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.

Thanks for the advice, i'll take a look at them in depth, the £12.50 put me off a little bit but will take a deeper look into them.

[colin]

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

if you pay a £10 dealing charge to buy £100 of an ETF you have just lost 10% of your money straight away.
For you I can't see why an ETF should have an advantage over an index tracking fund, take dealing costs into account when doing your research.

[Urbandreamer]

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

if you pay a £10 dealing charge to buy £100 of an ETF you have just lost 10% of your money straight away.
For you I can't see why an ETF should have an advantage over an index tracking fund, take dealing costs into account when doing your research.

Index tracking funds have their own costs. I suggest that you look into what they are.

I would STRONGLY advise against buying Virgin's index tracker for example.
https://www.thisismoney.co.uk/money/ind ... eason.html
As the article also points out, your platform may charge on top.

I'm not arguing that tracker funds don't have their place or indeed may be cheaper or possiby a better choice. Just that the subject is a lot more complicated than can be summed up quite that simply.

While on the subject of over simplification, can I apologise if I did so with the subject of pensions and long term saving. When younger I myself decided to target my surplus towards my PEP and later ISA. Over the years the pension system has changed and I have no doubt that it will continue to do so. That being the case the phrase "eggs and baskets" comes to mind. I just think that avoiding pensions entirely would be a mistake, not least because if you don't use an allowance you lose it.

[Lootman]

The key benefit of investing in a SIPP is the tax relief on contributions, and the ability this gives you to arbitrage the tax rates on contributions vs withdrawal later. E.g. get tax relief at higher rate going in, and pay tax at nil, or lower rate on withdrawal.
The disadvantages are that you lock up the money until you are 55 or later, and the government continually changes the rules while your money is locked up.

I suspect that at age 19, it will be a while before you are paying higher rate tax, therefore an ISA gives you much the same benefit, but with the flexibility of being to access the money when you need it (e.g. as a deposit on a property).

My youngest son is 29 and what you are describing is exactly what he does i.e. he contributes enough to his pension to keep him out of higher-rate tax, and then uses an ISA for anything else he can afford to invest. (Even at age 19 the OP may not be that far from higher-rate tax; my son started paying it when he was 26).

In my own case I always chose ISAs over pension contributions for a number of reasons:

1) The government is forever messing with pension rules and, generally, making them worse. Whilst changes to ISAs tend to be for the good e.g. increasing contribution limits, allowing AIM shares etc.

2) Pensions really just defer taxes and tax rates may be much higher in the future given deficits, borrowing, demographics etc.

3) ISAs are very flexible, as you note. You can withdraw any amount at any time, tax free. I only did that once, for a cash-only property opportunity. Otherwise I have maxxed out my ISAs since PEPs started over 30 years ago. It's a tidy sum now, and not a penny in tax ever.

4) Pensions can have more opaque costs structures.

[Urbandreamer]

2) Pensions really just defer taxes and tax rates may be much higher in the future given deficits, borrowing, demographics etc.

Well, yes and no Lootman.

They defer tax if you are to spend the money, while the money paid into a ISA is taxed but what you spend is not (until you die).
However, currently the pension is exempt from IHT when you die.

Ok that's probably of little interest to AaronTV, but it is a consideration for me.

That, and your point about manipulating tax bands is why I now pay into pensions instead of ISA. Unlike your son I could take 25% of it out tomorow tax free!

It seemed such a simple question didn't it Aaron?

Yet it has been pointed out that there are alternatives to ETF's and to ISA's and the options and ideas keep mutiplying.

My advice is to stick with your original idea and make a start. Starting is in fact the most difficult bit. Deciding that another alternative might be better is very easy, once you have taken the initial step.

[nmdhqbc]

My advice is to stick with your original idea and make a start. Starting is in fact the most difficult bit. Deciding that another alternative might be better is very easy, once you have taken the initial step.

I second that. Ultimately the exact right choice is impossible to predict. If what you do ends up being the 3rd or 10th best choice in the fullness of time it's still a 1000 times better than doing nothing. Don't let the vast seeming number of options stop you from taking action.