Hi, Iām looking to get started with monthly investment into an ISA. Recently Iāve realised Iād like more flexibility in how I use my savings than a pension provides and the Iād like to build up an ISA instead of overpaying my pension.
My current plan is to invest monthly and roughly follow the classic 60:40 split between stocks and bonds. I think thatās meant to give decent returns without excessive risk. For the stocks Iām planning to buy:-
20% - Ā£SWDA iShares Core Global
20% - Ā£VHYL Vanguard All World Dividend
20% - Other, changing month to month, maybe sectors or gold?
The bonds Iām much less sure on; all the UK Gilts seem to have performed badly over the last few years. Would putting 20% in Ultrashort Bonds Ā£ERNS and 20% in Global Agg Bonds Ā£AGBP or Ā£VAGS make any sense?
What do you think? First time trying this so comments would be appreciated!
To start, youāre trying to create an immediate all-in-one portfolio in one hit. Successful long term investing is typically done over time, so being intentional & building up those portfolio areas one at a time makes a lot of sense.
A friend built up $250K in the S&P 500 before diversifying into a Small Cap fund and a separate International stock fund.
Then he diversified into Reits (fundrise) building up a $50k position.
Then he diversified into a managed FX fund with a $10k position.
Quite an intentional process spread over 7 years.
I guess you could go straight up into the splits you have listed and try the 20% āotherā as more short term swing trades or momentum based. Then rebalance once per year.
The best wealth building plans (depending on the employers plan) in order are as follows:
Employer contribution match. (Best)
ISA. (Great)
General Investment Account. (Typically not that great unless you are following a tax loss harvesting strategy)
What you have listed is very standard & typical of almost every regular pension scheme. Have you already considered your employer scheme and continuing to over pay into that, whilst using the ISA to place ~5 mutual funds & trust funds with a 20% allocation to each, i.e;
20% US GROWTH
20% UK & US DIVIDEND GROWTH / INCOME
20% GLOBAL GROWTH
20% BONDS
20% REITS / COMMODITIES / INFRASTRUCTURE
Iām 45 and the timescale Iām looking at is complicated. I donāt want to go into details but recent events have made me want more control over when I use my savings than a pension provides. Iām planning to continue making contributions to my work NEST pension and I have the state pension and a small amount from an old pension.
I maybe able to keep the money in the ISA until retirement but I would like the ability to take some of the money out in 5 or 10 years if I need to. Iām happy to put some of my money into riskier/longer term investments but Iād like to offset some of that with less risky options. That is how I got to thinking about putting some money into bonds or possibly gold.
Iām not intending to chop-and-change all of the 20% portion every month, instead I was thinking Iād pick a strategy and stick with it for a few months.
Thanks for the long reply, lots of get my teeth into!
What would the downside of diversifying early be? Balancing the portfolio would be trickier but with free trades I thought Iād be able to make several small ETF purchases each month without it costing more.
Unfortunately I donāt think my work has any sort of matched investment scheme but Iāll look at that.
Investing into REITs and property makes sense to me, are there recommended ETFs for that?
Do you expect the US and UK to continue outperforming the rest of the world? I was concentrating on worldwide funds in order to spread the risk that there might be a localised recession.
All employers need to match 3% of your salary and you pay in 5% unless youāve opted out. Check your company handbook / policies - my company offer two scheme but you have to opt into the better one which is worth much more.
Youāll get tax relief on pension contributions but if you value the flexibility more than an ISA is a decent solution. I think youāre on the right track.
There is a great thread which is worth a read through about setting up passive investments, I found it invaluable when I brought my pension over to
This is for pension contributions isnāt it? I work for a small company and they definitely contribute to my NEST pension each month. Can this contribute to an ISA instead? Iām not sure Iād want to do that anyway.
Thanks for the link to the other topic, Iāll have a proper read through!
They cannot contribute to your ISA but check to make sure youāre using all of their matches savings. They could have 7%\10% matched contributions on offer so that would be free money.
Firstly, your approach to ISA, and diversity therewithin needs to be a risk strategy youāre comfortable with. Iād look at the yields, and use a historic compounding calculator to do some 5/10/15 year comparisons across your chosen asset classes. Whilst history is often not ideal for informing short term gains, itās generally a good guide for longer term movement.
As an aside, I think pension saving is so poorly misunderstood. Every year my employer gives me extra money, then the tax man gives me 45% relief. Assuming I donāt hit my tapered annual allowance, my return on investment is unreal. If you can balance ISA saving with pensions, Iād strongly advise it. Likewise, because of the stiflingly low lifetime allowance, eventually your pension doesnāt need any more money to compound to that golden 1mil mark, and then you can focus more money on diversifying, knowing your nest egg is taking care of itself.
Donāt forget though, that if you have other sources of income, itād be relatively easy to get into the position where youāre taxed on your pension income in later life. Most probably you will save more by using a pension, but donāt just blindly assume this is the case.
Also, donāt forget that the total lifetime cap on value of approx Ā£1m might seem high but 10 years at 7% will double the value of your pot, so depending what happens to the market, your pot that looks very small now could easily hit this threshold 20 or 30 years down the lineā¦
Hey Ralf, for sure. Hence my final sentence - essentially that pension starts taking care of itself because of how low the lifetime allowance is. However, where the question is about ISA contributions, Iāve assumed that pension saving may not have been fully considered.
Thanks for the replies all; Iāve checked that Iām getting the maximum matched pension contributions I can and had a good long read through the passive investor thread.
Iāve tweaked the plan slightly to the following:-
30% - iShares Core Global (SWDA)
20% - Vanguard All-World High Dividend Yield (VHYL)
10% - iShares Emerging Markets (EMIM)
10% - Vanguard Global Aggregate Bond hedged GBP (VAGS)
10% - iShares TIPS 0-5 years hedged GBP (TI5G)
10% - iShares Gold (SGLN)
10% - iShares Developed Markets Property Yield (IWDP)
I think that this covers the asset classes I feel are most important. In a year or so Iāll look at the TIPS and gold ETFs and decide whether theyāre worth keeping around or whether it makes sense to simplify things.
Now I need to get my joint account connected to Freetrade and I can start investing! Iāll post my breakdown to passive investor thread then.
That looks like a good split.
I have something similar now, but I started out trying to setup a 60/40 portfolio and quickly found the under performing bonds dragging down the value of my portfolio.
So I switched to an 80/20 split between equities and bonds+fixed income - a bit like you have listed above.
My portfolio has the following breakdown:
80% equities:
40% All World (VWRP)
10% NASDAQ 100 (EQGB)
30% Shares (TESL, AAPL)
10% bonds:
5% UK Gilts (IGLT)
5% Global Agg. Bonds (VAGS)
10% fixed income:
5% Developed World Property (IWDP)
5% Physical Gold (SGLN)
Iāve gone with the āaccumulationā version for the funds that have them, based on a comment in monevator indicating that they grow at a slightly higher rate than their dividend equivalent - I would be interested in other opinions about that.
I rebalance every year when I top up my ISA, trying to max my allowance if possible (have done it for 2 years so far). I try not to sell any shares so just top up to restore the balance, again Iām not whether that is the right strategy.
Iām not brave enough to go for an 80:20 split yet! Iām thinking about it more as a 60% equity, 20% bond and 20% other split. Or alternatively:-
40% growth from world stocks and emerging markets
30% steady from dividend stocks, global bonds and property
20% inflation/crash hedge from TIPS and gold
The mix you choose is totally a personal choice based on your risk profile. Iām just stating what works for me.
Good luck with your split! But be prepared to adjust over time after reviewing the overall performance of your portfolio.
