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One half question and one real question.
The half question, am I correct in thinking that I can transfer money between ISA funds to rebalance my portfolio without affecting this years allowance?
ie I transfer £5k between a FTSE 100 tracker and an all-share tracker without withdrawing money, I can still invest up to £20k this year?
My second question being, when I'm doing this am I better off doing it in one go, or regularly in smaller amounts over the years to take advantage of pound cost averaging?
Your allowance is per year for new investment so you can rebalance all you like.
Overall I guess if you have the money then it’s always going to have more potential to grow the longer it’s there. But with regular investments if you’re lucky you may buy some at lower rates from time to time.
I gave up on pound cost averaging because it was more effort than I was willing to put into things. Also apparently it doesn't work anyway though obviously other opinions are available.
ie I transfer £5k between a FTSE 100 tracker and an all-share tracker without withdrawing money, I can still invest up to £20k this year?
yes - provided the money stays within the ISA wrapper. You can chop and change funds to your hearts content.
My second question being, when I’m doing this am I better off doing it in one go, or regularly in smaller amounts over the years to take advantage of pound cost averaging?
Either way, in 5 years time it almost certainly won’t make an any meaningful difference in £ value. However if you need the emotional comfort of avoiding a slump in value if the markets crash next week that in itself may have value.
Basically don’t sweat it unless you need the money in the next 12 months and if you do a S&S isa may not be the best place for it.
Thanks all.
Interesting about the pound cost averaging not being that effective, sort of fits with what I thought myself, better to get it invested and hopefully growing than faffing about.
Get it sorted and then ignore it
That's what I have been doing. Hence me wanting to rebalance now.
ok but that's a bit of a stupid argument in that article.
For most people, most of the time, their savings are something that accumulates at a steady rate over time. If you are comparing pound cost averaging to a lump sum in that scenario, it's the lump sum that incurs the opportunity cost, because you have wait until you've accumulated all of it before investing, rather than trickling it in on a monthly basis from day 1 (well, month 1!)
But sure if you inherit a big chunk (or it comes from some other source like a house sale) then don't leave it sitting around as a pile of cash for a decade while gradually investing. Even in this case, putting it all into the market on one day might be a bit riskier than you'd like.
ie I transfer £5k between a FTSE 100 tracker and an all-share tracker without withdrawing money, I can still invest up to £20k this year?
yes – provided the money stays within the ISA wrapper. You can chop and change funds to your hearts content.
Mostly. That's correct in theory. In practice check the T&C's of the ISAs, some providers get a bit funny about transfers but there's no legal or tax implications against it, and most are fine with it.
Check your fees too. Some providers charge to sell and buy funds, but not for regular payments in. I often rebalance by changing where my regular payments go rather than buying and selling, to avoid these fees.
@dantsw13 - thanks, that's a project that I've got lined up for bank holiday Monday. It's a good job that I love a good spreadsheet.
I used to save up my excess cash and then invest at what I thought might be a good time. In reality I didn't really know what I was doing and I can clearly remember sitting on the bog one morning and hearing Theresa May opening her gob about something and the market crashing as a result. The day after I'd invested.
So I just set up a direct debit and dribble in each month. Check everything is in order probably quarterly and think long term or 5 years at least.
Checking fees was good advice I was given. There are some steep ones out there.
Who's good for low fees, then?
#outsourcedthinking
Low fees - Vanguard is the popular answer, but there are other options such as HSBC (assuming you are UK based)
Who’s good for low fees, then?
I'm honestly no expert but you can start by looking at providers like Hargreaves or fidelity or vanguard to compare the fee structures, and then look at individual funds to see what they are costing
I think I'm right in saying a tracker is going to give you the lowest fees. Managed funds more expensive.
You could simply Google best low cost tracker funds and you'll get a list of options to start comparing.
@jimmy if you've not started then I'd just set up a regular payment into a Vanguard Target fund.
Trackers are cheaper, but also more work and can be intimidating if you're new to investing.
Having said that I started by asking a mate who was a financial advisor about ten years ago which tracker he recommended for low fees and piled all my money into a FTSE100 tracker. That's not what I'd do today, and part of the reason that I'm working out how to rebalance, but the important thing is not to let the technicalities put you off and just get started.
A Vanguard Target fund will do diversification and rebalancing for you, but will cost you slightly more.
The great thing about trackers and passive investing is you can modify your strategy as you learn more.
If you do want to learn more, than reading something like Monevator wouldn't be the worst start.
I'm already started but have everything in HL accounts. I get the feeling there are cheaper options.
@kramer I'm interested in your comment about a tracker being more work. What is the thinking on that? I kind of thought they would be the opposite
@kormoran - other's may, and indeed do, disagree, but it depends on what your investing strategy is, and when you may need your money.
If you're in your 20s and it's not money that you're going to need for a house deposit or wedding, then stick it all in a shares index tracker because if it crashes you've got plenty of time for it to recover and you'll benefit from the increased returns that go with the higher risk.
However for other people, more diversification is likely to be beneficial. What you gain from the higher returns can be eat into by volatility, and so it makes sense to have a balance of different assets in your portfolio. So you split your investment between various trackers of stocks and bonds. However over time the different trackers grow at different rates, and so if you don't keep an eye on them and rebalance them occasionally you'll end up over-exposed to one particular sector.
@kramer you might like to look in to the Bogleheads investing philosophy. Here's their take on rebalancing. Make sure you follow UK specific advice if you decide to act.
@feenster - thanks - really useful stuff, fits with my (limited) understanding too.
Just stick it in a global tracker. Zero effort. Forget about it. Wouldn't stick money in the draw alone, you're already overexposed to the UK market (e.g. your house and job!)
(I am not an IFA, but I do practice what I preach!)