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Answers to YOUR Questions

See what's bugging others. 

And what our experts say.

Hello! I'm looking to start investing and after lots of research I'm torn between Evestor and Vanguard Lifestrategy as they both have low fees and passive investing. I understand Vanguard is more established with a traditional platform, while Evestor is newer to the market with a simple easy to use platform. The entry requirements are much higher for Vanguard (£500 upfront and £100/month) while Evestor starts at £1. Is there any benefit of stretching my investment to use the Vanguard fund? Also do you know with Vanguard if I miss a monthly payment, will I be charged? I know this is possible with Evestor to stop a direct debit, however I'm not sure what the consequences (if any) would be of missing a payment with Vanguard. Many thanks, Charlie

Charlie, UK

30 July 2019

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Michael Akinwotu

Hi Charlie,

As a start, you are right about both these providers offering low cost, passive investing options.

Both will cost you around 50p per year for every £100 invested, and there are not many cheaper options for a diversified investment solution.

Investing Comfortably

I think the key question is what you can afford to invest and what amount will be comfortable for you on a monthly basis.

Regular investing is a great way to start, as it allows you to invest smaller amounts and by setting up a direct debit it makes it a habit – similar to setting up a standing order into a savings account.

Making investing a habit is an effective way to build up a decent pot over the long term.

Investing is not like a savings account

Unlike a savings account where you may decide to put cash away to use for a holiday next year - with investing you want to stick with it over the longer term (at least 5 years) due to the effect of compounding, and some of the potential dips you could experience along the way.

Affordable investing

Because of this, it’s important that you are investing an amount you can afford.

So if that is less than £100 per month, I would say go with Evestor instead of Vanguard.

If you can comfortably afford £100 per month, then Vanguard is a great option (and for full disclosure, around half of my portfolio is invested in a Vanguard LifeStrategy fund.)

Direct debits

Regarding stopping direct debits, both providers allow you to stop a direct debit at any time, but you will likely need to give around 7-10 working days notice so they can stop the payment in time.

For missing payments, Vanguard also won’t charge you.

However you could be charged by your bank account if the direct debit is active and it bounces.

If you think this could be possible in the future, then I’d consider Evestor’s other brand OpenMoney.

They will ask you a few questions to understand your financial circumstances, and to understand if investing is suitable for you.

If they decide that investing is indeed for you, they will recommend a portfolio which matches your attitude to risk, as well as your investing goals.

 

Hope this helps,

Michael

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Financial services compensation: I have a SIPP and an ISA with AJ Bell Youinvest. Currently across them I have a portfolio of approx £123,000 of which £90,000 is in investments and the rest is in cash, which I am drip feeding into investments. I am already therefore over the £85,000 financial services compensation limit. Should I be worried? I am also about to inherit a sizeable sum and have a cash ISA of £70,000 to transfer to a Stocks and Shares ISA. Should I be setting up accounts with multiple platforms to be covered by the compensation scheme or is this not necessary? It would mean I would need 8 different providers if all were to be under £85,000 limit! Many thanks. Emma

Emma, London

22 July 2019

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Anna Sofat

Your SIPP and ISA are protected by the Financial Services Compensation scheme, and you have to think about the following...

Cash compensation vs funds compensation

First thing to be mindful of, is that you have different protection for your cash in the bank, and for the funds you invest in. For cash in the bank, you are protected up to £85,000 per bank.

The £90,000 you have invested has separate protection, and is protected up to £85,000 per investment firm you have investment with – please note that this is not per investment fund you might be invested in, but the underlying investment firm.

The £85,000 protection is applicable if the investment firm (and fund) is based (sometimes referred to as 'domicile') in the UK.

If the investment fund (and firm) is Irish based, then the compensation you would receive is 20,000.

What does this all mean?

So for example if you are invested in Vanguard FTSE All Share Index Acc (UK based fund) and Vanguard Emerging Markets Stock Index Acc (Irish based fund) then you would be protected by the UK £85,000 scheme as well as the €20,000 Irish scheme.

The fact that you are investing via AJ Bell Youinvest has no material impact on your potential compensation, as you will not have any investment with the firm – they are just providing administration services.

So my advice would be to spread your investment between different investment firms if you are really concerned, but it's better to understand what you are investing in and undertake reasonable due diligence on the funds you are investing in.

Emotional investing

However, it's never a good idea to let emotion dictate where you invest – all the mainstream funds are highly regulated, here and in Europe. The investor funds are ring fenced and separated from the investment firm’s own funds. The firm also has to appoint independent custodians, administrators and auditors whose job it is to ensure funds are ring fenced for the investors.

In the past, where there have been problems with mainstream funds, its been down to liquidity issues (such as the Woodford funds) or mismanagement (i.e. bad investment decisions). You would not be covered by the compensation scheme for either of these issues. So its better to do good due diligence as to the investment strategy followed by the fund manager and to understand who the custodians and trustees are.


Best of luck,

Anna

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Hi, my brother is 17 and I have instilled in him to save. He puts £40 a month in and 10% of what he earns. I want him to save for short term and long term. What are the best accounts for him?

Christine, Birmingham

19 July 2019

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Pete Matthew

Well done to you, Christine, on instilling the savings habit into your brother. And well done to him for adopting it.

If he keeps going, he'll be financially secure for the rest of his life...

Where to put his savings

As to where he should put his savings, as always it's a question of priorities.

Saving should generally be thought of in short, medium and long term pots.

Short term saving

So maybe he wants to take a holiday with his mates when he's 18 - that money should be held in a bank or building society account where it's accessible and where there's no risk of loss. Likewise if he wants to go to university, he would do well by building up a pot of money that he can draw from when he gets there - this too should be held in a bank account as the timescale is pretty short.

Medium term saving

Looking a bit longer, maybe he'll want to buy a car when he starts work, or get together a deposit to rent or even buy a place to live one day. As that is medium term, there's an argument for adding some risk to that money, hopefully to make it grow more quickly.

Perhaps a stocks and shares Lifetime ISA would be good if he wants to buy a home, or an ordinary Stocks and Shares ISA if not (a Lifetime ISA can only be accessed without penalty for the purchase of your first home, whereas a Stocks and Shares ISA can be accessed at any time without penalty). Be aware though, he'll have to wait until he's 18 to open such accounts.

Long term saving

There are not many 17-year-olds that are thinking about retirement, but before too long he would be well served to open a pension.

When he starts work he'll likely be automatically-enrolled into one anyway. When talking to him about this, frame this auto-enrolment as one of the best days of his financial life.

I wouldn't over complicate his life right now - he's 17 and doesn't need complex financial arrangements to stay on top of.

A decent interest-paying account (many banks have monthly savers which pay half-decent rates of interest if you put so much in per month) and maybe a Stocks and Shares (L)ISA when he hits 18 - that's probably all he needs for now. But the habits he builds now will serve him extremely well for the future.

Look at some of the challenger banks like Monzo and Starling, because they have great apps which encourage saving.

Give him my regards and tell him, no matter what, to keep saving.

Pete

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

I am torn between continuing to invest in my ISA, which holds around £40000 at present, and putting money into a personal pension. I know about the grossing up of pension contributions, and the 25% tax free cash. However I will inevitably pay tax on the 75% which is not tax free, whether I take it via an annuity or flexi-access drawdown. Whereas with the ISA, I don't get the grossing up benefit, but won't pay any tax at all. What do you think?

Christopher, Staffordshire

18 July 2019

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Helena Wardle

Hi Chris,

Great question and one that I am asked often.

Your income tax rate

It will depend on your income tax rate when you draw the pension at retirement.

Most pensioners are basic rate taxpayers (currently this means having taxable income below £50,000), and you can choose how you draw your pension income when you retire so you will have some control over this.

If you are saving for retirement and can afford to lock away access until you are 55 (this will increase to age 57 in 2028) then typically a pension would be better for you as shown in the table below.

Investment type

Pension

ISA

Initial investment
(What you put in)

£100

£100

Total investment
(Including tax relief)

£125

£100

Value if you withdraw investment*
(Minus any tax to pay)

£106.25

(first 25% tax-free, the rest taxed as income)

£100

If we assume that you will be a basic rate taxpayer in retirement, and compare investing £100 into a pension to saving £100 into an ISA as shown in the example below, you are £6.25 better off per £100 by saving into a pension.

You will also get returns on a higher starting amount in a pension than you would in an ISA due to the tax relief that gets added to the amount you save. To put it simply, you are earning a return on £125 as opposed to £100 using the example above and over time this should result in a bigger pot if you save into a pension versus an ISA.

The limits...

There are limits to how much you can save into a pension - up to your earnings or £40,000 whichever is lower.

This total limit is the contributions including the tax relief, and your income needs to be earned income to qualify.

If you don’t earn any income you can still pay up to £2,880 before tax relief into a pension, up to the age of 75. If you are unsure of the rules, speak to a financial adviser about your specific circumstances.

It may also be worth looking at a Lifetime ISA if you are under age 40. This would give you a 25% bonus per contribution, up to £4,000 per tax year, and you can withdraw this all tax free after age 60 or to buy your first home. Any access prior to this will have a penalty.

I hope this helps,

Helena

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

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