S&S ISA advice

[plaguedbyfoibles]

Looking to open a stocks and shares ISA in order to have a passive income stream.

I am in my late twenties, earning just a little over UK minimum wage (£8.84/hr), no student debt, looking to move to a better paid role in the short term.

I am torn between Freetrade and Vanguard at the moment, but am open to hearing about other S&S ISA providers.

Both the S&S ISA providers I have mentioned above are FSCS protected.

Freetrade's flat fee structure seems quite useful to me, where it's just £3 a month for a S&S ISA with them and trades can be placed free of commission.

They point out that they don't charge a percentage as most ISA providers do.

I can also benefit from fractional share ownership.

I could potentially pay £9.99/mo for freetrade.io/plus, which covers the cost of the S&S ISA and offers me access to a few more shares, plus 3% monthly interest on any uninvested cash I hold with them (up to a maximum deposit of £4,000), but I think the £3/mo plan would suit me for now.

Some downsides of Freetrade:

- At the moment, I cannot purchase securities that require me to fill in a Nationality Declaration form, such as the likes of BAE and Rolls Royce.

Vanguard seems to have fairly low platform fees, but I would be limited to only their members' funds from what I can see.

If I were to opt for Vanguard, I would probably invest in their FTSE All-Cap fund, but am leaning more towards Freetrade right now, especially given the stocks available to me on the basic plan.

[JohnB]

First I'd read Lars Kroijer's "Investing Demystified" and decide whether you are on the active or passive side of the debate. If you aspire to be an active investor, changing frequently between a wide range of things, you might want a different broker than if you plan to trickle money into a world index tracker for 40 years. If you plan to do the same thing every month, you will find brokers offer regular investment plans. If as I suspect your sums will be small, you might want to build up cash and invest manually every quarter to reduce the trading fees. Some brokers treat ETFs like shares and don't charge the custody fees they do for funds. You can avoid Vanguard's custody fees by buying the same ETFs from a different broker.

Don't invest £100 a time and pay a £3 fee.

[GoSeigen]

Looking to open a stocks and shares ISA in order to have a passive income stream.

I am in my late twenties, earning just a little over UK minimum wage (£8.84/hr), no student debt, looking to move to a better paid role in the short term.

Welcome to Lemon Fool and congratulations on being debt free and looking to invest for the long term.

I think you'll agree the most crucial thing when you are starting off like this is to reduce costs to the absolute minimum. Otherwise your hard-earned cash just gets funnelled into a middle-man's pocket with no benefit either to you or the businesses you want to invest in.

Clearly, if the amounts you are looking to invest on each occasion are small (less than £1000) or tiny (much less than £1000) then the costs become a large proportion of your savings, especially if you are buying shares where the overheads are larger than other savings products.

That is one reason people are advised to first start building up savings in a bank or similar. You could buy shares, but if your overheads are 5% per annum then that is a huge hurdle and psychologically a disadvantage. In comparison a 1%pa fixed savings account looks attractive!

It doesn't mean you will always be saving, but you can save for a year (say) and then buy your first index tracker with a couple of thousand pounds you have saved up. The costs are then minimal compared to the value of your investment. Also, as your salary increases you will have more disposable income and you'll be able to regularly invest larger sums.

If you're determined to start now there have been brokers that have pretty low costs but I think most have raised their prices now. The only one I can think of that is really cheap is iDealing.com where you pay £25pa in ISA fees and IIRC £10 per trade. Even at these low prices, your portfolio must be worth more than £6500 to reduce the annual £65 overhead for just four trades to <1%. Hopefully you see the problem.

So look very carefully at both annual costs and ongoing trading charges (and don't forget, apart from these broker fees you are also paying stamp duty and trading spread) and if it's going to cost too much, stick to savings accounts until your funds have grown sufficiently.

Good luck.


GS

[EverybodyKnows]

Looking to open a stocks and shares ISA in order to have a passive income stream.

...

Vanguard seems to have fairly low platform fees, but I would be limited to only their members' funds from what I can see.

If I were to opt for Vanguard, I would probably invest in their FTSE All-Cap fund, but am leaning more towards Freetrade right now, especially given the stocks available to me on the basic plan.

Do you need the passive income just now? If not, why not use the low cost Vanguard option to build up your investment and then you could transfer to another provider if required?

I quite like X-O.co.uk for low cost dealing - approx £6 per transaction but I recollect vanguard is a percentage charge which might be better for you.

People ofter refer to https://monevator.com for comparing providers.

[GeoffF100]

There is no need to buy Lars Kroijer's book, you will find everything you need to know from his articles here:

https://monevator.com/tag/kroijer/

I also recommend you watch "Winning the Loser's Game":

https://monevator.com/high-cost-active-funds/

The break even point for Freetrade's £3 per month versus Vanguard's 0.15% is a portfolio value of £24K. For tracker funds, you have to use ETFs with Freetrade, whereas you can also use OEICs and Unit Trusts with Vanguard. (There is nothing wrong with ETFs.) You can hold accumulating ETFs and fractional ETF shares with Freetrade, neither of which is possible with Vanguard. With Freetrade, you could buy a fixed amount of VHVG each month. If you want emerging markets exposure, you could make every tenth purchase a purchase of VFEG.

You do not say how old you are. Unless you are very young, you should hold a proportion of your investment in cash/bonds. Irrespective of your age, you should have a cash reserve to meet emergencies.

[GoSeigen]

You do not say how old you are. Unless you are very young, you should hold a proportion of your investment in cash/bonds. Irrespective of your age, you should have a cash reserve to meet emergencies.

He does:

I am in my late twenties, earning just a little over UK minimum wage (£8.84/hr), no student debt, looking to move to a better paid role in the short term.

GS

[GeoffF100]

My mistake. If the OP is in his late twenties, 100% equities is reasonable, provided that he has a cash reserve for emergencies. He must, however, be prepared to pay in each month, completely ignoring market movements, and on no account sell because the value of his investment has fallen. Buy high, sell low is a sure recipe for failure.

[tjh290633]

I could potentially pay £9.99/mo for freetrade.io/plus, which covers the cost of the S&S ISA and offers me access to a few more shares, plus 3% monthly interest on any uninvested cash I hold with them (up to a maximum deposit of £4,000), but I think the £3/mo plan would suit me for now.

£9.99 per month is expensive. I use Lloyds Direct Sharedealing, which is a clone of Halifax Sharedealing, and pay a fee of £20 twice a year. I suggest that you have a look at the Halifax offering. You can invest in practically anything that you wish and they have cheap dealing days to reduce your costs if you are buying monthly.

If I had my time again I would have started on Investment Trusts, using one of the global trusts like Alliance, F&C and Witan. As it was, I started indirectly in what was then Investment Trust Units, to become Save & Prosper IT Units in due course.

The important thing is to invest regularly in your chosen securities and either choose accumulation units or reinvest the dividends as they arise.

TJH

[Boots]

I'd recommend reading Tim Hale's Smarter Investing. Even if you decide not to go down the passive path, it will give you a great deal of background information.

[DrFfybes]

Rule 1 : Never buy shares with money you can't afford to lose.

It sounds harsh, but at some point you WILL lose money on a purchase, markets go both ways. Often.


Rule 2: It is a lot easier to get rich slowly than to get rich quick.

Regarding which investment platform, generally you are better off with a percentage fee on rather than a fixed fee until your protfolio gets larger.However if you are looking at small regular investments then charges would be a large concern, and some platforms have very low charges.

HL do not charge for dealing funds (there will be a minimum purchase) and if you have a monthly DD of £25 or more into FTSE350 Shares/ETFs and some INvestment Trusts is it £1.50 per trade. Halifax used to do a sharebuilder account which might be worth looking at.

Regarding how to invest, I won't suggest how to do it, but will tell you what I did wrong. It is a lot easier to pick a bad company than a good one, anything in the Sunday papers has been known about by professionals for ages. Don't try to catch falling knives (anyone remember Jarvis?). Another mistake was when I did make a profit, I banked it all. Eg was selling all my Berkshire Hathaway in about 2014 as it had doubled and I thought Buffet was getting on a bit.

I will say that the UK makes up a relatively small part of the Global economy, and tending towards UK boased funds has stifled my returns over the years.

Paul

[GeoffF100]

On the assumption that the original poster does does not have a £20K+ lump sum to start, Vanguard is going to be the cheapest platform. That platform is restricted to Vanguard tracker funds. That is not a problem, because Vanguard tracker funds are an excellent choice. The account can be moved to another platform (e.g. Freetrade) when it becomes sufficiently large for that to reduce the cost. It is not worth trying to beat a global tracker, and it is not worth paying high costs.

[csearle]

Lots of good responses so far. Welcome! I'd just add that time is on your side so don't panic. Even if you do something that you later consider to be wrong you have time to develop your own strategy and employ it.

Chris

[plaguedbyfoibles]

Thanks everyone for the replies thus far.

I will definitely look at Tim Hale's Smarter Investing and Lars Kroijer's Investing Demystified (IIRC, I have a copy of Smarter Investing lying around somewhere)

Some of the posters have pointed out the downsides of a flat fee structure, so it might be best to follow the above strategy of investing in a Vanguard global tracker at first before migrating to Freetrade once my investment portfolio reaches a certain value.

I will definitely consider looking at some of the other providers mentioned above too, such as Halifax / Lloyd.

[LooseCannon101]

I would buy a low-cost world equity index tracker or highly-diversified global growth investment trust e.g. FCIT on a monthly basis and repeat forever, with dividends re-invested. The less you deviate from this path, the more that you will make.

FCIT has an excellent ISA savings scheme which costs only £72 per year. Other similar trusts e.g. Alliance and Witan are available.

[GeoffF100]

FCIT has an excellent ISA savings scheme which costs only £72 per year.

That is exactly twice the price of holding the same stock in an ISA with Freetrade. We have had lots of suggestions for accounts that would be expensive for the original poster.

[Boots]

You might find the Lang Cat Guide to ISA Investing quite useful. It's very easy to read and gives comparative costs for all sorts of providers and options. You can find it here:
https://langcatfinancial.co.uk/publications/guide-to-isa-investing-2021/

(I don't work for them!)

[Wuffle]

There have been some good suggestions here which answer the OP's question about stocks and shares ISAs.
However, on minimum wage, or close to it, the 40 grand you can put away over a week in April is an order of magnitude larger than can be saved if you are paying your way. There are individual allowances for dividends, interest and at a notional 5%, require a 60,000 pound portfolio to exceed in a non ISA share account.
Meanwhile, I would ask serious questions about the value of cash to a young person looking to progress their career without blinking when opportunities come their way. Remember, you will only ever save from the remainder of earnings and at minimum wage, there is a lot of headroom. And I would be concentrating there. Invest in yourself.

I may have judged this wrong, there may be a bit of inheritance which might deliver a meaningful passive income or a massive salary jump (but why mention the current minimum wage situation). With the information provided I would ignore ISAs and use savings as flexibility to progress my career.

Apologies if this is misjudged.

W.

[GeoffF100]

You are right Wuffle. If someone asks an investment question, we tend to take it at face value, but there is always a bigger picture. Do not invest money in equities unless you can afford to lose it. Everyone needs a cash reserve. Six months salary perhaps, but that depends on individual circumstances. We should also say that the most important factors for financial success are how much you can earn, and how little you can spend.

[tjh290633]

I would buy a low-cost world equity index tracker or highly-diversified global growth investment trust e.g. FCIT on a monthly basis and repeat forever, with dividends re-invested. The less you deviate from this path, the more that you will make.

FCIT has an excellent ISA savings scheme which costs only £72 per year. Other similar trusts e.g. Alliance and Witan are available.

Both Alliance and Witan have got rid of their savings schemes, now run by Interactive Investor and Hargreaves Lansdown respectgively. F&Cs continues but is now run by BMO Asset Management. Currently for a General Investement Account they charge £12.50 plus VAT, i.e. £15, every 6 months. You can find out more at https://www.bmogam.com/gb-en/retail/plans-explained/ which says that the charge for an ISA is £60 plus VAT, as stated above.

TJH

[XFool]

...Aberdeen (Sorry! abrdn ) still run a saving scheme for their investment trusts. Does anyone know of any others that survive? This always used to be the (very) cheap & cheerful entry into equity investing.