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I am planning on investing in the stock market. Due to the COVID-19 downward trend on the market, I decided it might be a good entry point for someone like me who has never invested in stocks and shares before. I am 24 years old and I am earning a decent salary, contributing to a pension pot which my company matches. I have put aside an emergency pot worth 6 to 12 month. I do not own a property and have no mortgage. I am planning on investing for the next 5 to 10 years when I would like to buy a property. My risk appetite would be medium to high. I am thinking of investing with Vanguard mainly due to their low costs and easy to use and understand platform. I am wondering if I should go for a fund like Vanguard LifeStrategy 80% or 100% equity or choose individual funds to invest in. As I mentioned my investment knowledge is limited and I would prefer not to tinker too much with my portfolio if I can. Another question is if I should do a lump sum investment of £5000 now or drip feed it. Since the markets are going down, drip feeding seems like the better option right now.

Ben, London

30 March 2020

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Holly Mackay

Hi Ben,

Lots of things to consider here. You sound like you are prepared for the market volatility of investing. As a word of warning as a first-timer, a 100% equity portfolio will be a bumpy ride. For a 10 year timeframe it’s not necessarily a bad option, but make sure you are mentally prepared!

You say you are investing for a property. In that case you should read up on the Lifetime ISA - which comes as a Cash or a Stocks & Shares version.

You get 25% contributions from the Government – so if you save up to £4,000 a year here, they will give you £1,000. There are penalties if you don’t use this to buy a property and take the money out before you retire so do read up on this.

Vanguard is a good option for a newcomer as their LifeStrategy range you mention sees them taking all of the day-today decisions. They do not have a Lifetime ISA but you can always open up a Lifetime ISA with another platform and buy the Vanguard fund there. Have a look at AJ Bell Youinvest for a low-cost option. Hargreaves Lansdown is also cheap for a £5,000 investment.

Both platforms will allow you to deposit the full amount this tax year if you get your skates on and then this can sit in the account as cash, and you can set up regular buy instructions to drip feed this into markets as little at a time. This will certainly help smooth out the volatility we’re seeing at the moment. This could be £500 a month, or £1,000 a month for example.

Do read up on the Lifetime ISA, get familiar with the penalties and weigh these up against the Government freebies. And then work out your timeframe.

The 100% equity option will likely do better over the long-term but in markets like these it will also tank the most. So timeframes are important. The 80% option will not do as well in stellar years, but will be cushioned slightly against falls such as the ones we have seen most recently.

Hope that helps.

Holly

 

Stock Market Meltdown

In a new series, Holly provides straightforward answers to your difficult questions.

I have £16k to invest, and now seems like a good time to invest it. I have put £4k into a cash LISA already this tax year (2019/20) but nothing into general ISAs. If time is a probably I can put the £16k into cash now and move to S&S later. My feeling is that it won't be a bad thing to invest in an S&S ISA now but it may be a better idea to drip feed from cash into funds/stocks over the coming year in case the long term Covid-19 effect coupled with hard Brexit means the markets drop further. I have a small investment in Moneybox and whilst it would be easy to keep all my investments in one place, they are telling me that to transfer from cash to S&S on their platform takes weeks... Do you know of any S&S ISA platforms where I can pay cash in, but drip feed to S&S relatively quickly? I'm not looking to trade per se, so a platform that can move in days rather than weeks would be fine. Any additional commentary/opinion you can provide on that strategy would be gratefully received. Thanks!

Malti, London

29 March 2020

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Holly Mackay

Hi Malti,

There are many platforms which will let you pay cash into the Stocks and Shares ISA account now, and then set up regular instructions to invest in gradual amounts over the coming months.

Most platforms will accept payment if you use a debit card – and the cash will get there on the same day as you process it.

Our Best Buys tables will help you to decide – with £16,000 I suggest you look at AJ Bell Youinvest or Hargreaves Lansdown – both of which also offer Stocks and Shares Lifetime ISAs too should you want to avail yourself of this down the track. You can always take the money out of the Stocks and Shares ISAs (NB not the Lifetime ISA where penalties will apply) if you want to.

Both these 2 platforms will let you set up regular buy instructions which will support you to drip feed in.

Hope that helps.

Holly

 

Stock Market Meltdown

In a new series, Holly provides straightforward answers to your difficult questions.

I have been using iWeb for about 6 years and I find its ok but I have not tried other platforms. I was going to sell when COVID-19 surfaced, but I know that iWeb takes 2-3 days to carry out a deal. Are any of the other platforms faster?

David, Strathclyde

26 March 2020

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Holly Mackay

Hi David,

iWeb is cheap as chips and extremely basic. It works, it’s functional and costs are low but it’s certainly not the prettiest! Depends what your priorities are. Neither does it have good research blended in, a nice app or a helpful interface. Depends what your priorities are.

Most trading platforms are governed by what we call ‘best execution rules’ on trading so this is not usually a point of differentiation.

Share trades are usually instantaneous unless you’re using a platform which clearly tells you that they keep costs down by executing in bulk once a day. Not many of these around though. It is probably the fund trades which you have seen to be slower.

Every fund has a ‘unit price’ worked out every day and strict cut-off times for applying this price. Let’s say I run the Holly UK Shares Fund. The fund’s price for Tuesday will be calculated on Wednesday. This price is called the NAV (net asset value). Normally, if you buy or sell a fund before 2pm on the Wednesday, you will get the NAV for the Tuesday. The fund manager then takes 3 or 4 days to sell the corresponding shares to get you your money, collate it and pay it out to you. This process is called settlement. Most funds will have a settlement time of T+3 or T+4 (T= trade).

Of course in practice a lot of buys and sells just cancel each other out so the fund manager is not literally selling 2 BP shares here and 5 Ocado shares there to get you your money back. But you get the point. There is a time lag with funs because you are part of a bigger collective structure.

Generally speaking no one platform will be quicker or slower here than any other as they’d get into trouble.
Have a look at our Best Buy tables and also our pricing calculator to see decently priced alternatives to iWeb if you are minded to shop around.

Holly

 

Stock Market Meltdown

In a new series, Holly provides straightforward answers to your difficult questions.

Hello Holly, Firstly I would like to thank you for such a wonderful and demystifying financial service you provide which has helped so many. I am one of the baby boomers approaching 75 this summer. I have mostly a cash pot and an aversion to financial risk. I have suffered the chronic savings interest rates for so long which seem to get worse and worse. I know everyone says that you should invest for five years but that is a long time for me. I was wondering whether to open a Stocks and Shares ISA up to £20,000 this year, probably with Hargreaves Lansdown, say for just two years and then perhaps cash it in. Would this be worth doing? Historically how much more interest would I make over this period, over say, doing a one/two year savings bond. I am not particularly au fait with ISAs and would seek something simple. Your thoughts on this matter would be appreciated. Kind regards Dale

Dale, UK

23 March 2020

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Holly Mackay

Good morning Dale,

Thanks for your email. I hope you are well and managing to stay chipper/have enough food and things to do in lockdown!?

Your question is pretty hard to answer – if I may you are looking to have your cake and to eat it. Cash rates as you say are rubbish and have just got even worse. I suspect once things have calmed down we will see inflation come back harder and so the increase and rise in the cost of living will almost certainly be higher than interest rates. So the buying power of cash will get weaker and weaker.
Savings Champion is a decent website that shows you the best rates for 1 -2 year bonds at the moment. It will be – to use a technical term – stuff all.

You are also right that investments should be seen as a 5 year game at least.

I don’t know why you are talking about a 2 year timeframe – are there circumstances which dictate this or are you just cautious and prefer to keep things relatively short-term? If there is no reason to think so short-term, can you have an amount which is in longer-term savings? My parents are similar ages and they have some shorter term stuff in cash and then some longer-term stuff in shares. Fingers crossed they’ll be around for a long time yet!

Sometimes it is helpful to think about how much you have (State Pension, cash savings, any final salary scheme pension etc) and then to think about your money in a short-term pot (easy access cash), a medium term pot (2 years-ish) and then longer-term (5 years+).
There is no point in investing for 2 years – as we have seen this month things an go pear-shaped and if you then are a forced seller at these times, you’re in trouble. Today – for those with 5 years + timeframes, we may not like the headlines but we don’t need to sell. I’m comfortable that things will come back although I suspect it will take time.

I think if the anxiety of stock markets would be too much for you, and if it really is 2 years – then stay in cash and Savings Champion will help. But if you can set aside a pot of 5 years + money then could some of this go into stock markets? You can open up one stocks and shares ISA in one tax year as well as a cash ISA – up to £20,000 across both?

The FTSE 100 and global markets are low right now so most people would objectively say it is a good time to buy in. If you do, as a novice investor I would stick to something called a ‘multi-asset’ fund which is a collection of investment mixed together for you by experts. You pick between about 5 risk profiles from the most cash like to the spiciest. Have a look at the Vanguard Life Strategy funds on their website – the “20% equity” one is the calmest – will never do great but will be cushioned from the worst – and the “100% equity” one is the spiciest which I’d suggest you should avoid as it will give you a hernia!

Hope that is all helpful and good luck. Give us a shout out if you are stuck or need help at home too by the way – with our community I am sure we can find someone near you to help. Don’t mean to sound patronising either – just trying to help!

Holly

 

Stock Market Meltdown

In a new series, Holly provides straightforward answers to your difficult questions.

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