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Novice Question

Investment discussion for beginners. Why you should invest your money, get help getting started
The57plan
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Novice Question

#308272

Postby The57plan » May 13th, 2020, 2:11 pm

Please the simplicity and nativity of the question;

I have a number of DC pensions (4) from various employers which have achieved little in recent years. I wish to become a more active investor and eventually consolidate the pots.

Starting with the smallest I would like to move one to a sipp and as I (hopefully) build confidence and knowledge I will introduce the others. The first pot I will move has had no input for 18 years and in fairness has doubled to 10K.

What are some of the basic and avoidable mistakes I’m just about to make?

Alaric
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Re: Novice Question

#308275

Postby Alaric » May 13th, 2020, 2:16 pm

The57plan wrote:What are some of the basic and avoidable mistakes I’m just about to make?


Don't move from a low charging plan to a high charging one. Don't pay an adviser large sums to make the transfer, particularly if they recommend the new SIPP goes into something wildly exotic or offers suggestions that the money can be withdrawn before the age of 55.

The57plan
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Re: Novice Question

#308293

Postby The57plan » May 13th, 2020, 2:51 pm

Thanks very much Alaric. I’m probably going for HL and starting cheap and basic in these early days. No interest in get rich quick or early access. Safe and sensible.

terminal7
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Re: Novice Question

#308294

Postby terminal7 » May 13th, 2020, 3:01 pm

HL is one of the more expensive platforms. Over the years their custody charges will build up and impact upon your return - just do the maths.

True their site is very good and their support is usually excellent.

T7

The57plan
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Re: Novice Question

#308296

Postby The57plan » May 13th, 2020, 3:03 pm

Thanks T7 I’d thought to start simple and move when I have more skill and insight. Where would you’re next step be in terms of platforms?

OLTB
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Re: Novice Question

#308301

Postby OLTB » May 13th, 2020, 3:25 pm

Welcome The57plan and I hope you get a lot from this site - I have.

I use HL for my SIPP and as I only invest in shares and ITs the annual charge is capped at £200 which I think is great value for me. The dealing charges are on the high side (£11.95) but as long as I trade at above £1,200 a time, I'm happy with that.

Cheers, OLTB.

Urbandreamer
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Re: Novice Question

#308302

Postby Urbandreamer » May 13th, 2020, 3:32 pm

Costs are an issue.

HL have a reputation for good service, but they do charge more than some others.
ie
https://www.investorschronicle.co.uk/ma ... providers/

I use A J Bell, but avoid unit trust. They charge less for Investment trusts and ETF's.

It's worth considering what you want to invest in. Some/many like passive investments, ETF's or index trackers. If that's your thing then Vanguard offer a cheap account provided that you use their funds. If you want more choice you will have to go elsewhere.

A common mistake, especially when starting, is to trade too often. I confess that I buy every month, but seldom sell. Buying regularly gains the advantage of something called "pound cost averaging", as well as working well with how often I am paid.

Many platforms offer a reduced commission for "regular" investments. They don't in fact have to be regular, they just have to be arranged in advance and the platform combines them with others to place a single purchase once a month. For me this months "regular" investment was not invested in the same place as last month.

If you have children likely to need a student loan in the future, keep a record of how much you contribute to your pension as you need to provide that information when filling out the form.

mc2fool
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Re: Novice Question

#308303

Postby mc2fool » May 13th, 2020, 3:34 pm

The57plan wrote:I have a number of DC pensions (4) from various employers which have achieved little in recent years. I wish to become a more active investor and eventually consolidate the pots.

Starting with the smallest I would like to move one to a sipp and as I (hopefully) build confidence and knowledge I will introduce the others. The first pot I will move has had no input for 18 years and in fairness has doubled to 10K.

What are some of the basic and avoidable mistakes I’m just about to make?

Starting with the smallest and later introducing the others. :D

Or, at least, doing so without considering your all-in position from the start, especially when it comes to the types of investments you'll be using and the platform on which you'll be holding them. Some brokers charge ad valorem, i.e. a percentage, and others charge a flat fee. Some ad valorem brokers have fee caps on some types of investments.

As a general rule of thumb, percentage charging brokers are cheaper for smaller sized pots and flat fee charging brokers are cheaper for bigger sized pots...often much cheaper. HL is one of the more expensive percentage charging brokers, esp. if you'll be investing in funds (OEICs/UTs) on which there have no fee caps (at least, not until you get to £2m :D).

tikunetih
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Re: Novice Question

#308314

Postby tikunetih » May 13th, 2020, 3:55 pm

The57plan wrote:I wish to become a more active investor

...

What are some of the basic and avoidable mistakes I’m just about to make?

...

I’m probably going for HL


Couple of things immediately stand out:

1. If by "become a more active investor" you simply mean taking more interest in how and what you're invested in, such as monitoring/overseeing the process more closely than perhaps you have previously, then all good... but not so good if you actually mean becoming more of a "hands-on" investor, making more regular decisions on what and when to buy and sell. The latter commonly leads to worse investment returns for private investors, not better, so that should generally be avoided unless you are particularly skilful, which most can't claim to be.


2. A second potential error is flagged by your HL reference: choosing a broker before (i) you've decided on an investment strategy, and thus before (ii) you've decided on what it is you'll be investing in, is putting the cart before the horse and not the way to do it.

See similar comment here today: viewtopic.php?p=308223#p308223

Once you know (i) and (ii), broker/platform selection should be straightforward. It is largely (not totally, but largely) a commodity market with only relatively modest differences in offerings, and it's often not worth paying much more than you need to. If eyes-wide-open you do decide to pay more for some reason, you'd still want to only be arriving at that decision after you'd decided on your investment strategy and its implementation (ie. chosen your investments).

It's common for novices to choose a broker/platform as their first step, not least because of the good marketing that firms like HL perform that encourages people to begin investing or take more interest in their existing investments (such as your case), but it's still a mistake to choose a broker first.


The important work you have to do is deciding upon an investment strategy/plan that's suitable for your goals and investment time horizon, and suits your temperament (volatility tolerance), risk tolerance (ability to recover from deep setbacks) and experience.

scotia
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Re: Novice Question

#308323

Postby scotia » May 13th, 2020, 4:09 pm

mc2fool wrote:As a general rule of thumb, percentage charging brokers are cheaper for smaller sized pots and flat fee charging brokers are cheaper for bigger sized pots...often much cheaper. HL is one of the more expensive percentage charging brokers, esp. if you'll be investing in funds (OEICs/UTs) on which there have no fee caps (at least, not until you get to £2m :D).

I use HL. they have an excellent site. You will find a full explanation of their SIPP charges on their site.
Summarising (hopefully without introducing errors) there are no additional purchase or sales costs on OEICs/Unit Trusts with HL - only an annual 0.45% platform charge. That amounts to £45 per annum for your 10K SIPP. As your SIPP grows, then so do the accumulated charges for OEICS/Unit Trusts, and it may be worth looking at IT and ETFs. There is a purchase/sale cost of £11.95 for each, and a platform charge of 0.45%, but this latter charge is capped at £200 per annum. There is no charge for holding cash.
My own choice has been to spread my investments over a range of OEICS/Unit Trusts, ITs and ETFs. HL have excellent tools to look at the performance of these products.

tikunetih
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Re: Novice Question

#308330

Postby tikunetih » May 13th, 2020, 4:24 pm

The57plan wrote:What are some of the basic and avoidable mistakes I’m just about to make?


3. Another key error is failing to recognise that you - the investor - are probably the weakest link in the chain.

So, your investment plan needs to recognise that and try to protect you from yourself (particularly from mistakes you may make under stress at some future point) by taking you out of the day-to-day loop as much as possible.

Doing that requires you to be humble and accept that investing is a difficult endeavour such that you
- like nearly everyone else - is unlikely to excel at it. In investment, merely achieving average results such as those provided by index-tracking products, should be considered a good result and a worthy objective.


4. Failure to sufficiently grasp the impact of costs on long term returns. What may seem like small percentages can, when translated to monetary amounts, and which compound over the years as a portfolio grows, turn into huge amounts of money that someone else is trousering at your expense.


5. Further, you want to keep things as simple as they can reasonably be. Complexity often adds costs (see 4., which you're attempting to minimize) with little or no benefit to returns, and sometimes disbenefits. Simple should also be easier to implement with less chance of errors (see 3.), and easier to monitor over the years to see whether your plan is on track.

mc2fool
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Re: Novice Question

#308334

Postby mc2fool » May 13th, 2020, 4:37 pm

scotia wrote:
mc2fool wrote:As a general rule of thumb, percentage charging brokers are cheaper for smaller sized pots and flat fee charging brokers are cheaper for bigger sized pots...often much cheaper. HL is one of the more expensive percentage charging brokers, esp. if you'll be investing in funds (OEICs/UTs) on which there have no fee caps (at least, not until you get to £2m :D).

I use HL. they have an excellent site. You will find a full explanation of their SIPP charges on their site.
Summarising (hopefully without introducing errors) there are no additional purchase or sales costs on OEICs/Unit Trusts with HL - only an annual 0.45% platform charge. That amounts to £45 per annum for your 10K SIPP. As your SIPP grows, then so do the accumulated charges for OEICS/Unit Trusts, and it may be worth looking at IT and ETFs. There is a purchase/sale cost of £11.95 for each, and a platform charge of 0.45%, but this latter charge is capped at £200 per annum. There is no charge for holding cash.
My own choice has been to spread my investments over a range of OEICS/Unit Trusts, ITs and ETFs. HL have excellent tools to look at the performance of these products.

Yep, as I said, percentage charging brokers are cheaper for smaller sized pots, even with HL's outsized charges, but the outrageous 0.45%pa HL charges for funds is one of the highest around and is, IMO, a complete rip off.

0.45% capped at £200 for everything else isn't cheap either. Where do you hold your OEICs/ITs?

Hey, if you're happy paying HL's humongous fees who am I to tell you you shouldn't be? Personally, I have my SIPP with IWeb. It's all in Vanguard OEICs and iShares/SPDR ETFs and it costs me £180pa. If it was with HL it'd be over £1,000pa.

monabri
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Re: Novice Question

#308359

Postby monabri » May 13th, 2020, 6:17 pm

Yes, platform costs are important but sometimes it is better to pay slightly more for an investment platform.
I learned this to my cost..I used SVS Securities as they charged £5.95 for dealing. All was well until they were forced to close at the start of August 19. I'm still waiting to gain access to the shareholdings and accumulated divis. We might have access to the ISA part in June ...that's a heck of a long time to not have any divis or be able to buy/sell.

The57plan
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Re: Novice Question

#308376

Postby The57plan » May 13th, 2020, 6:51 pm

Thanks all for you’re guidance, suggestions and tolerance.

I can see that HL is an expensive choice whose offering is designed to entice the novice, such as me.

I readily acknowledge that I’m the weak link, hence the reason I’ve held my breath for almost 20 years before becoming actively involved.

On the term active then, I had intended to (gulp) choose some investments myself. :oops

My thought process is that in a depressed market I would utilise a small % of my total in the two main companies in the sector that I’m employed. The weak players have been irradiated and the consolidation is already complete. Both have good prospects in the medium term but if one fails it would be to the direct benefit of the other. As this is a long term plan, retirement is 16 years away, I can wait out a mistake. Thoughts and criticisms very welcome.

fca2019
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Re: Novice Question

#308424

Postby fca2019 » May 13th, 2020, 8:46 pm

I have a few small pension pots, I'm thinking in future, of drawing them down rather than consolidating. A quarter is tax free, and balance taxable, but with personal allowance, most tax free. under 10k can be taken in one go. So wouldn't take long to use up the small pots. Leaving main pension to draw down after.

terminal7
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Re: Novice Question

#308428

Postby terminal7 » May 13th, 2020, 8:53 pm

You are being very upfront The57plan.

Firstly I would say
retirement is 16 years away
is not long in retirement terms and building a sizeable pension pot.

Secondly, I hope the sector you are talking about is not aviation!

Thirdly, there is the possibility that the market may become even more 'depressed'. With the uncertainty over CV19, the market could really tank. Then, we may wake up tomorrow and some lab has found a vaccine that solves the problem in 12 months.

So much depends for you on other factors such as company pension, property and other assets you may have. If you can afford to lose a sizeable chunk then yes there are some interesting plays - but I would suggest with high risk.

T7

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Re: Novice Question

#308452

Postby Urbandreamer » May 13th, 2020, 9:37 pm

The57plan wrote:On the term active then, I had intended to (gulp) choose some investments myself. :oops

My thought process is that in a depressed market I would utilise a small % of my total in the two main companies in the sector that I’m employed. The weak players have been irradiated and the consolidation is already complete. Both have good prospects in the medium term but if one fails it would be to the direct benefit of the other. As this is a long term plan, retirement is 16 years away, I can wait out a mistake. Thoughts and criticisms very welcome.


I started about 30 years ago, but would you believe that before I bought my first share that I had never bought a share!
Seriously you can't start without actually starting.
Choosing your own investments is not difficult at all. Of course you ARE going to make mistakes and lose some money. I still do. The thing is to know why you picked an investment and if it went wrong if you should have predicted that possibility.

I would however caution about the idea of investing in the SAME area that you are employed. Sure it's what you know and you are far more likely to outperform the professionals or WISE as known to us Fools. However you will be doubling down on your risks. Anything that affects your job will likely affect your investments or in this case pension.

It's both a difficult time and a great time to start investing. On the one hand many prices are depressed, on the other many are depressed for good reason.

When you start you may find it very odd. Because share prices change by the second you get a quote and have a limited time to act. When that time is over you need to ask again and the price will be different. Try some dummy buys allowing the time to expire so that you get use to the idea that you have a choice. You don't have to take the price offered. It scared the hell out of my daughter when I got her to buy SMT for her JISA. Hundreds of pounds spent in seconds! She liked using the "regular" investment method where money left the account and shares turned up while she wasn't watching and there was no time pressure.

Get a grip on both your attitude to risk and your ability to cope with reversals. It's no good accepting high risks if the downside is that you will have to sell a kidney. I personally have recently discovered that I tend to take on too much risk.

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Re: Novice Question

#308462

Postby The57plan » May 13th, 2020, 9:47 pm

Thanks T7, erm ok, why wouldn’t I be upfront? Or is that to imply bold or even reckless? I’m here to learn so feel free to be frank.

Your points are well made. In mitigation, at current valuations, I’d be risking about 3% of my collective pots so not a sizeable proportion. A sensible amount to ‘gamble’ with I’d suggest. Also, if the whole market tanks then I guess that few investors will do well, other than those utilising mechanisms so far beyond my understanding as to be irrelevant (to me).

Thanks again.

The57plan
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Re: Novice Question

#308466

Postby The57plan » May 13th, 2020, 9:53 pm

Thanks Urban Dreamer

I had considered the double jeopardy associated with investing in my own industry but it’s all I know and if I’m going to pick any stock surely it should be something I know to start with? The other advantage I saw was that, with my ear close to the ground, I can withdraw to cash if I don’t like the vibrations and buy back in when I do?

All sounds so simple doesn’t put like that doesn’t it! I’m sure it not, but is it a fundamentally unsound beginners strategy?

Urbandreamer
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Re: Novice Question

#308494

Postby Urbandreamer » May 13th, 2020, 10:46 pm

The57plan wrote:All sounds so simple doesn’t put like that doesn’t it! I’m sure it not, but is it a fundamentally unsound beginners strategy?


It's not a unsound strategy even if you are an experienced investor. Some of my best starts for research have come from a mag called "The Engineer", Which is for those who work in engineering and not at all about investing.

Just don't ignore the risks.

In truth I would be concerned about the viability of a sector that has two companies filling most of the space. Why can't it support more? Indeed I'm struggling to guess the sector/business. The closest that I can guess is either big plane builders or builders of jet engines. Advertising? Go on give us a clue.

Consolidation is not usually a great sign as it suggests that demand is drying up or in some way limited. Ideally we want to invest in businesses that are working flat out and still can't meet the demand. While there is demand more production can be brought online, it just needs money/investment.

I should point out that investing in individual companies is prone to mistakes. Collective investments such as investment trusts are well worth investigating.


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