I have a question regarding ISAs and how they are treated in Freetrade. Believe me I have tried to find the answer here and there, but I was not convinced, so I decided to ask it directly here.
I recently moved to the UK, so I am not familiar with ISAs in general, but I did some reading but there are still some things missing:
What happens if I reach the 20K limit and the performance of the stocks makes the investment greater that 20K? - If letās say I invest 20K in ETFs through the app and the ETF performance makes those 20K in 21K in two months.
Once the first tax year is over, can I invest another 20K in the same ISA (i.e. Freetrade) for the next year? or do I have to change ISA provider? What happens to those 20K first invested in year 1?
I hope you find my questions valid, but I never found clarity in the things Iāve read.
I understand it as the 20K is a contribution limit and not a total value limit. You canāt contribute more than 20K of your own cash into the ISA. Once 20k āwrappedā under the ISA it can grow as much as possible without penalty
Once the tax year is over, you may contribute another 20K in the next tax year. So you will have 40k of contributions over the 2 tax years. Any growth is under the ISA wrapper so it wonāt deduct from your total 20k contribution allowance
Iām not an expert, but hereās my understanding.
You put Ā£20 k in cash in your Stocks and Shares ISA. You then use that money to buy shares in companies ETFs or other financial assets. According to the current legislation any gains realized with those Ā£20 k are tax free. So yeah, if the ETF price performance turns those 20 k into 21 k in two months, or in two days, or in two years, then yes that extra Ā£1000 is tax free if you were to sell the ETF at that point, cuz itās inside the ISA which is a tax wrapper. Any dividends received within the ISA are also tax free.
Yes you can. Unless the government changes the rules of the game.
No, you donāt have to change ISA provider. But you can if you want to. Just bear in mind you can only pay into one ISA per fiscal year.
It depends on what you want to do with it. You can keep it there, invested or in cash, you may be able to transfer it to another provider. You may withdraw the moneyā¦
Does anyone happen to know if institutional investors get access to earnings reports early? I.e. could the results be priced into a share before we get access?
No. That would be insider trading and the responsible people would go to jail for very long. Thatās the theory. In practice, some people might know and act on it.
Everyone should get earnings reports at the same time.
But compared to the average retail investor, analysts and institutional investors have more access to companies, more time to spend doing analysis and making investment decisions, and possibly more skillā¦ so it is always worth the retail investor considering whether the market is already pricing a stock accurately.
Like: What is it that I know that the market doesnāt? Maybe thereās never any investing edge from publicly-available data.
On a side note:
News will always be already priced into a share before you can do anything. Thatās algorithmic trading. You canāt compete with a machine that has already read the news and made a trade before you can even open the link to the news.
Thatās not a valid strategy for us retail investors.
Priced in or not, it doesnāt matter in my view. Investing is not the same as trading/speculating. If youāre speculating and day tradingāthatās not the same as investing. You canāt be as fast as the high frequency traders.
I follow a few rules. 1) Be very familiar with the companies you invest in even if they donāt seem like they are diversified in your portfolio. You have to have a conviction. If youāre passionate about cars, learn everything you can before looking at VW or Telsa. 2) Know your margin of safety and what your payoff diagram looks likeāif you lose money, whatās the maximum and can you afford it? If you can risk Ā£100 or $10,000, why not. With derivatives and structured products the payoff diagrams look different, so beware. 3) Do your financial researchālearn how to read US GAAP / IFRS earnings and trade reports. Most people donāt read the IPO prospectuses. Also, you probably cannot predict the future cash flows but do a bit scenario analysis. It doesnāt have to a complex model. Get to that intrinsic value. 4) Beware of own biasesāThinking Fast and Slow is a great book about that. 5) Learn about debt and how it affects the companyās standing. Equity market is not the same as the bond market. And even ToysRUS and Enron used to be worth a lot. And even legends of investing have crashed and burned during the dotCom and the gold trades post-2008.
And you can learn a lot online with Udemy courses, blogs, SeekingAlpha. No need for a fancy degree (I did specialise though at uni, but learned most stuff after graduation). Itās a marathon. Use google.
Warren Buffett:
āI never have an opinion about the market because it wouldnāt be any good and it might interfere with the opinions we have that are good,ā Buffett said. āIf weāre right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do. ā¦ If youāre right about the businesses, youāll end up doing fine.ā
I would just like to say please do some research on the companies you are investing in, check their revenue, net profit, debt levels (this can vary depending on the industry, General Motors will have more debt than Facebook for example). Take a look at their future plans and the reliability of their management.
You then have things like PB ratio, PEG etc I would suggest doing reading and watching some YouTube videosš
Invest in financially sound companies or in ETFs. Make sure you have a diverse portfolio. If you are going to invest in some riskier options (cough Tesla cough) donāt do it with your entire portfolio.
More importantly remember that this is a marathon not a sprint. There will be downturns/market corrections/recessions and if you have selected well, know that the stock market has always gone up in the end. Donāt panic during the tough times, in fact that is the best time to buy.
Warren Buffett
āBe fearful when others are greedy and greedy when others are fearful.ā
Baron Rothschild
āthe time to buy is when thereās blood in the streets.ā
These quotes are often misunderstood. it doesnāt mean buy a stock because the share price has crashed. Often that can lead to cases like Debenhams or Carillion where people buy low and then lose the lot.
What it is actually saying is when the whole market is down is a good time to pick up quality companies that are strong enough to survive the downturn
Yeah I understood your point, Iām just not keen on those quotes because a lot of people seem to think it means buy something when the share price has crashed without taking into account that it has often crashed for a reason
Some great advice here - thanks all. I was just wondering whether to top up my Taylor Wimpey holdings before their earnings report this morning. I did, and it wasnāt a particularly good decision
It doesnāt take into account shares that you have sold. that is the profit/loss on those two shares based on the price you paid for them and the price now
Thatās a pretty standard way of doing things. If you took into account shares you no longer hold it could get pretty complicated for someone who buys and sells repeatedly, also how far would you do back? would you want it to take into account shares you bought and sold 10 years ago?
Because you purchased and sold the same security within a 30-day period, the average price paid per share, sometimes referred to as the book cost, is subject to a process known as the āBed and Breakfastā rule.
This rule, amongst other things, is designed to prevent individuals selling and buying stock back over tax year end to avoid capital gains liabilities.
Essentially you have to discount any matching purchases / sales made within a 30-day period when calculating the average prices paid.
In the example above:
1 share at Ā£138.45 + 2 shares at Ā£158.38 + 1 share at Ā£191.02 ā 2 shares at Ā£164.36
becomesā¦ā¦.
1 share at Ā£158.38 + 1 share at Ā£191.02 = Ā£349.4. Divide that by 2 and you get to Ā£174.7. Then factor in any dealing charges.
I hope this makes sense. Itās quite a heavy subject.
itās so much clearer now.
