Hi, from the sale of my property, I'm about to receive just over £10K. For the coming year, I will be living in rented accomadation with my partner, and will be looking to use the £10K as part of a deposit for property.
Interest rates are low for savings, and I would really like to at least get the money back at the end of the period.
I'm not too sure how long this money will be "put aside", but I expect between 1 and 2 years. What are my best options for getting the most out of this money? I'm a standard rate tax payer, but this will change in the next few months.
Stick as much as you can into a Mini cash ISA (Max 3K, per person - so you and your partner can stick 6K away like this) - it's tax free, and you can get good 5% rates @ no risk to the capital (See Fool.co.uk) (Quick calculation... 3K will get you approx £10-12 per month in interest - tax man gets nowt). For the rest, stick it in a Mini-stocks ISA, though these are on the stock market, and there is a risk you will loose the capital. Some good ones are out there. If you don't want the risk, find a high interest savings account (Again, Fool.co.uk will offer comparisons etc), but you will pay tax on the interest earned here. However, you can then switch this money into next years ISA allowance, so you won't be paying tax on the interest next year.
I guess you could stick it in an Index-Tracked account. Using a maxi-isa would let you both save £7k each. Index-trackers are good in the long run but are considered risky in the short run. Having said that, the indexes are currently going up (I got a FTSE all-index tracker last august and it's up 24%), so you could get one sorted and take it out the minute it goes below your start value, or whatever it is at the start of the month or something.
In message , snipped-for-privacy@altavista.co.uk writes
Im not sure any stock market linked tying is goof for a year or so but even if it was, I would avoid a tracker, all you will get is average performance and mediocrity.
Go for a good 'stock picking' fund or mix a few funds from the likes of Jupiter, InvescoPerpetual Fidelity and the likes in a wrapper.
thanks for your replies - I think I'll go for an ISA up to my limit and look at a tracker or fund on the remainder. I'll take a look at Jupiter etc, and see what their charges are.
Dont get sidetracked by the charges. Look at performance AFTER charges. Comparing a tracker v a managed fund on a charges basis will give you the wrong answer. Look at Jupiter European, Income or their Merlin Funds.
Not so. Your are generalising and pulling out some pretty old and misleading data methinks produced by a supposed 'independent' firm paid for by Virgin to push their tracker and since discredited. You are also getting side tracked by charges. If you invest in a tracker you MUST get mediocrity together with a huge over exposure to just a few stocks. Trackers purport to be 'safeish' but they are skewed to a handful of shares.
Look at the performance of Invesco Perpetual Income, Jupiter Income and Jupiter European (after charges) V a FTSE tracker. I havent just picked these retrospectively I have been saying the same thing about these same funds in this group for over 10 years, (ish).
Probably someone has mentioned this already, but you can minimise the charges you pay by investing through a fund supermarket. For example, with
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[1], with most funds you save almost all of the initial charge and also have a discount on the annual fee. You can also manage all the funds through a single company A
[1] I have no connection with this company and I don't have any experience of using them. You can find other fund supermarkets on Google.
Or Fidelity's Funds Network. I do have experience of them and they have a slick online operation where you can deal 24 hours a day. If you buy your first deal through Best Investments
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you can lower your charges even more - to zero in many cases.
Branson certainly transferred a lot of his expensive funds into trackers , but I wasn't talking about that - it's just a fact that a tracker based on the market as a whole does better than anything else in the long term.
Some of them, but it's inexpensive to weight companies and buy the shares accordingly. I think there's going to be a new FTSE weighted index pretty soon.
Sure, some of them do well - statistically some of them have to. The companies which run them quietly drop or merge the ones that do badly, so to do a true comparison you'd have to look at all the funds that started, not just the ones which are still going today.
Let's suppose we have two other trackers, "T1" based on the 'first half' of the market, and "T2" based on the 'second half' of the market. Let's suppose they have different returns.
The *average* of T1 & T2 will equal the tracker based on the "whole" market (which you said "does better than anything else") -- this means that one of T1 and T2 is better than yours (and one is worse).
They are only 'good' if they meet the investor's requirements for risk v reward. I use them as examples because they consistently beat the indices which are generally used as the basis of trackers.
We you actually said 'does better than anything else in the long term."
But I take your point and would say you are falling into the old trap.
If an investor look at all the Unitised Collective Funds (about 2000 of them) in UK, a huge proprtion of them are funds that set oput to do something other than the investor wants, i.e. it could a Gilt Fund, or Corporate Bond, or a Property Fund, or a Pacific Rim Fund etc.,. For somebody wanting UK equities these should be excluded. Next we should look at the huge 'balanced' and @Managed ' (with a capital M) funds which deliberately err on the side of caution. The we look at the funds managed by, or for, the Banks & Building Societies and most of those offered by Insurance Companies on the basis that they are there mainly for direct sales organisations. You are left with the funds that a decent IFA would have been picking form over the last 15 years or so. It seems to me to be wrong to compare trackers with a load of funds that are either attempting to do something completely different or are excluded by most investors anyway.
If you concentrate on these handful of fund managers, you find consistent performance that beats the mainstream index trackers.
Moving to risk, many investors invest in trackers thinking they are investing in a spread of the market and they perceive that in, say a FTSE100 tracker fore example, their risk is spread evenly over 100 companies. If they knew that 30% was to be invested in just 3 companies, they wouldnt feel as comfortable. A mainstream UK equity fund of the likes I have referred to can often provide lower volatility over a more evenly spread selection of holdings and give better performance.
The FTSE All Share is? Also, you can invest in more than one index to spread the risk.
The cost to the company which runs the tracker of the share buying and selling they need to perform to track whatever index they're tracking and using whichever weighting system they've chosen is presumably passed on to the person buying the tracker.
Well that's jolly nice for you. Which fund would you have been recommending over the last 90 odd years? Any which would have beaten an index tracker? Around 80% of them don't. Good luck chosing the manager of the moment!
It's certainly worth checking in case that index trackers start to lose you money in the long run. You have the odd blip, like the dot com nonsense, but it's not as if actively managed funds weren't hit by that either.
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