A beginner investor recalls hunting for a stocks and shares Isa that wouldn’t cost too much in either time or money.
The word “uncomplicated” features on an Isa provider’s current online advert. As a beginner investor, this has plenty of appeal. Having attended two beginner events, I felt ready to pick my first “uncomplicated” stocks and shares Isa – but was I?
I still had questions: which companies should I consider? What should I put inside the Isa? I knew that you could pack different things - or assets in industry-speak - into Isas, including funds and shares. Most importantly, what was investing going to cost me in money and time? I have books, box sets and snackettes to binge on after all.
So, I shoehorned in articles at the weekend from Money Observer, Moneywise, Boring Money and the lang cat’s Isa guide for 2019 (with cat pictures). All four were sources of jargon-lite information, which was ideal given that I’d only just learned what a fund was (a diversified basket of investments, amirite?).
A “low-cost, globally diversified, multi-asset fund with auto-rebalancing” is what I ended up with. My Isa allows me to drip-feed money into it each month. Why invest regularly? It helps “smooth out” the highs and lows of the stock market. How? Each month you buy a bit of your fund, which means that sometimes you buy when prices are high (known as a bull market) and other times when they are low (a bear market), so everything evens itself out. Psychologically, drip-feeding suits me. Money for my Isa exits my bank account each month, which is preferable to watching a lump sum I spent years squirrelling away wax and wane at the mercy of global markets.
When I was considering Isa providers, I perceived safety in companies that had both bulk (size) and backstory (staying power). I mulled various names, before settling on a US investment management firm – Vanguard.
As well as satisfying my demands for a leviathan with longevity, Vanguard’s ongoing charge figure (OCF) is a minuscule 0.22% a year. It also charges a small percentage platform fee. These fees may be either flat or percentage-based. The latter suits me as a beginner investor, whereas flat fees are more cost effective for investors with bigger pots of money, of around £50,000 plus.
The Vanguard Life Strategy range has five funds with different percentages of global equities (20%, 40%, 60%, 80%, and 100%), and the rest of the fund invested in global bonds. Equities, or shares in companies, are viewed as riskier than bonds, but over the long-term they have the potential to deliver higher returns.
In terms of geographical diversity, you can find out where a fund’s holdings are invested by looking at the breakdown on the fund’s factsheet. Diversification across assets, geographies and sectors (tech, for example), is important because ploughing all your money into one thing is like eating only biscuits instead of having a balanced diet.
Before choosing a Vanguard LifeStrategy fund, words of wisdom from interactive investor’s head of personal investing Rebecca O Keeffe, echoed in my head. O’Keeffe advises investors to “take an appropriate amount of risk. Many people take too little risk, ending up as a result with a disappointing return. If your time horizon is long enough, you have time to ride out any short-term swings in the market.”
In other words, take your age into consideration and how long you want to be invested for. I made my fund choice (Vanguard LifeStrategy 80% Equity) and then recalled an encouraging investment adage: it’s time in the market, not timing the market that matters. This means that staying invested through stock market jitters is what matters, and that it is long-term investing that yields rewards.
I also try to remember there is always going to be background noise, as the professionals call it. From Donald Trump’s tweets to interest rate decisions, there’s always some sort of risk. But you can ignore it, or at least avoid checking your Isa too often.
Since opening my Isa, BlackRock has introduced MyMap – a cheaper range of funds to rival Vanguard’s LifeStrategy family. Money Observer has compared the two, see here. In the article the point is made that the Vanguard funds have operated only during a bull market. Furthermore, as the LifeStrategy funds are fixed in terms of asset allocation (the ratio of equities and bonds remains constant), when a bear market strikes there is no option to reduce exposure to equities. This is a valid point, but as I am investing for the long term, I shall just keep on repeating the “it’s time in the market that matters” mantra.
Finally, the Vanguard LifeStrategy fund I have gives me the option to create a core and satellite portfolio at a later date. But, wait! I’m running up the investment hill before I’ve learned how to walk.