A bunch of questions!

Hi all,

So I had a few questions I wondered If people could help me with!

Just a background I own my own company paying myself 8k salary and taking the rest as dividends. Due to this, I have invested a lump sum once a year for just one year so far hah

I am aiming for stable growth, low risk, Just something that beats my pitiful 0.6% savings rate without having to keep an eye on it.

With this in mind, ive gone for a really simple (and im sure flawed ) plan of just picking stocks where I am either a customer or have dealings with in my day to day life, so its easier to understand their business model and how its going. In addition, I have since added some ETFs, especially interested in dividend ones.

So

  • people talk about low cost etfs, how do I decide if the costs are fair from the costs and charges sheet

  • why do some sometimes have negative costs?!

  • what are the best low cost etfs on freetrade

  • people talk about 2k dividend allowance, is this seperate from my business dividend allowance or shared ?

  • I have an isa, what tax do I actually save and how Can I model a prediction of this

Thank you!!

Ps would a screenshot of my etfs help

You will pay income tax on any dividends you receive as you are already over the allowance.

100% set up an ISA. You will pay no income tax on dividends and no capital gains tax on profits.

The amount you save in dividend tax alone will cover the ISA fee and some.

I can’t really help with the ETF stuff but I wouldn’t discount just investing in trackers.

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the broader the ETF the lower the cost … usually. It really just depends what you’re happy to pay. Most broad index tracking ETFs are ‘cheap’ <0.3% but it just depends what you want to invest in and if you believe the cost is favourable.

the costs and charges sheet is calculated on a yearly basis if I remember correctly. The transaction costs are sometimes a negative which I think is what you’re referring to, but they’re not actually a negative cost, you wont see money appear in your account. This has something to do with how the calculation is made. the funds are required to make this document and use a specific calculation, and information is sometimes not actually very helpful. that’s not the funds fault.

one for your accountant I think. I’ve no idea. unless someone else knows.

All the that may be applied to gains from stocks or dividends is gone. to make a model you’d have to consider how you’re investing, how often, how much etc. track those transactions and calculate your CGT. If you don’t have an ISA, you pretty much have to do this so you accurately report tax and of course take into consideration anything that may alter those calculations based on how to take money from your business.

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To compare low-cost ETFs, try this list: Low-cost index trackers that will save you money - Monevator

I don’t think I’ve ever seen negative costs, are you sure you were looking at the right thing? Share a link if you can?

As for the best ETFs, that depends on what you’re wanting to invest in. Since you’re looking for a lower-risk fire-and-forget fund, I’d suggest a global tracker for maximum diversity, you get a little bit of most countries and all industries. See the list above for some good candidates. If you are on Freetrade’s free package then any of the ETFs from Vanguard, iShares, and Invesco are available to you.

The dividend allowance is just one allowance for all dividends you receive, including those from your own company.

If you have an ISA, any income you get from shares held in the ISA, whether dividends or gains from selling shares, is not only not taxable, you don’t even have to report it on your tax return.

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Just to give an example of this

A dividend is a dividend. It doesn’t matter where it comes from. You have a £2k allowance and over that it’s taxed as income.

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Not advice, just what I’ve picked up since I’ve been reading here this month;

Can’t go wrong with Vanguard All World, a nice, broad ETF that goes well for most the part. The fee is slightly higher than some people like (0.22) but it covers the developed and emerging markets, so if there’s just one ETF you want to go for, this one is probably worth a look. The VWRP is the accumulating fund (reinvests dividends back into your holdings).

You can choose to go from there if you want to invest in other markets, places like Japan (SJPA, 0.10% fee) or if you’re happy for a little bit more risk; Emerging markets ETFS (they focus on China, India etc, potential future economic powerhouses), and offer the potential of higher gains.

But again, those are just potential additions.

You might consider breaking it up and investing per-month rather than just the one lump sum. From various discussions on here and other places, it appears more cost-effective to drip feed in over the year, but again, this is only something to consider.

That’s usually the way to go with stock picking - being a customer, knowing the products etc. Otherwise you’re going to have to put in lots of time to do your research and end up sucked into the trading game, which you may not want to do at all.

The higher dividend ones tend to be “aristocrats” ETFs, if you search for that in the app you’ll get some hits, some of them are locked behind a PLUS account, but if you go through the “Discover → See All - > Stock ETFs” on the app you’ll bring up the entire list of ETFs on the app, and you can see the “High dividend” Etfs there.

It is up to you whether you think the dividends they pay out are worth it though, I think many of them are just 2-3%, and some will feel it is better to invest in Accumulating ETFs if you’re here for the long term. Again, up to you, but have a look at the list on the app and you’ll have lots to read up on.

In my limited experience so far 0.1-0.30 seem to be low cost. The 0.1 or 0.01% tend to be on bonds though. Anything going higher than 0.30% would make me consider backing off. And anything 1% or higher is unlikely to be an ETF or would make me ask questions as to why it is so high when the competition is cheaper.

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Huh! I guess I’ve never dug beyond OCF and never noticed that level of cost breakdown. I’m sure you’re right, it’s an accounting artifact of done kind.

I cant remember the name, but there was a podcast of report on these calculations a while ago that briefly covered them. Essentially it has something to do with how they’re required to calculate these numbers that you can on occasion end up with a negative transaction cost. They don’t actually have a negative cost, they don’t get money back from the transactions but its an artefact of the mandatory requirements to repot these numbers a specific way.

The big weakness in that plan is that the company with the best product isn’t necessarily the most profitable company. What you see as a customer is not the whole picture. And you’re excluding companies that sell business-to-business.

Thank you for all the replies.

Thank you, will it also save the “tax withheld 15%” or is that always applied to dividend income?

@Eden

Thanks, people often quote the cost of an ETF as 1 figure (eg <0.3%) but freetrade offers “ongoing charges” and “transaction charges” are they including both in this?

Its weird as most of my ETFs are over 0.3% - 0.5% costs (eg Dividend asritocrats GBDV and nasdaq EQQQ ) but the FTSe 100 one is as low as 0.07

@FailedTuringTest

Thanks for the reply, is there a list of cheap ETFS that are on freetrade, as i see loads online that are no on here.

@RobOda

Which vanguard all world? I have 3 that appear and all are FTSE all world VWRL VHYL VWRP

I have freetrade plus - lots of my ETFS are over 0.3% let alone 0.2%!

I like the idea of dividends as it brings a bit of reality to it all. And as inefficient and physiological as it is, the more my app pings with dividends the more ill enjoy and want to inviest more :slight_smile:

@Eden @BOOM @RobOda @FailedTuringTest

Thanks for your comments
My “higher cost” ETFs are below, any thoughts on them?

High Div low Vol HDLG – ongoing cost 0.3/ transaction 0.02
Nasdaq EQQQ - 0.03 / 0.0
World divident WQDS— 0.38 /0.01
Battery value chain BATG - 0.49 / 0.12
Euro Div aristocrats EUDV — 0.3 / 0.1

Thank you all for your comments !

Ps - why is qouting other users so hard on this, what am i missing?!

For quoting, highlight the text and click ‘quote’. I had trouble figuring that out myself!

The ones I always see recommended are VWRL (distribution) and VWRP (Accumulating). As you like the ping for dividends, then VWRL is the one you’d like. :slight_smile:

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they’re all separate charges, these have to be reported/updated once a year. OCF if you see this is the ongoing charge figure isn’t all charges put together. Worth pointing out that these costs aren’t nexissailry the cost today. they’re the costs last year. They cant necessarily for example know what transaction costs would be like ahead of time.

the FTSE 100 at 0.07% isn’t unexpected. If you look at S&P 500 ETFs you’ll see they’re also extremely cheap. Im guessing because they’re easy to manage and popular so costs are lower per person.

I hold more expensive ETFs BATG at 0.49%, INRG at 0.65% for example, and trusts 0.69% for SMT for example (OCF exploding transactional and incidental costs). I still consider these costs good value

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I don’t think there is any such list, but look for the ones from Vanguard, iShares, or Invesco. Ah, I see that you said you’re a ‘Plus’ customer, so you’ll have access to more… but no, I don’t think the sort of comparison table that would be useful to you exists.

Regarding your ETF list… personally I think of anything with an OCF of less than 0.3% as ok, and anything above that as ‘expensive’. Narrowly-focused specialist funds like the battery one are more expensive than generic ones like S&P 500 trackers, and will be higher risk, too.

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That tax is levied by the US government and an ISA will not help reduce it.

A tax treaty between the UK and USA does recognise pension schemes, so supposedly you can reclaim withholding tax if the shares are held in a SIPP, but the details of that are beyond my experience level.

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