ISA advice please TerryP

#1
My partner and I both have stocks & shares ISA accounts with HL. We also have a joint Fund & Share account. In previous years we have sold funds from the joint account, then put half the cash each into our individual ISA accounts. Finally purchasing more funds from the cash.

My question is, now we are both retired and paying no tax should I bother doing this ritual every year, or just leave the joint funds where they are ?.

#2
It really depends on the amounts. Retirement doesn't exempt you from CGT or income tax but you do have a £5000 dividend allowance. If there is no difference in cost then it's probably safer to have the money inside the ISA in case other taxes change.

#3
The fact that you have a F&S account and are doing an annual Bed & ISA suggests that you can easily fill your double allowance every year. This level of investment could generate capital gains well above your annual allowances and give you a nasty shock if you needed to sell quickly. There are practically no downsides to an ISA and if nothing else it saves the record keeping you are obliged to do with unwrapped investments and that alone would make it worth it for me. On top of that you never know what the future holds regarding tax, use it or lose it. Consider a Chancellor McDonnell

#4
Thank you both for your replies. We will indeed sell some funds and transfer to our ISA's. Next question, should we sell some funds that have done very well and are still riding high. Or ditch some of the funds that have not performed so well, then reinvest in fresh funds ?. Simple question, but I am guessing there is not going to be a straight forward answer. As you will have guessed we are pretty green when it comes to the investing.

#5



Thank you both for your replies. We will indeed sell some funds and transfer to our ISA's. Next question, should we sell some funds that have done very well and are still riding high. Or ditch some of the funds that have not performed so well, then reinvest in fresh funds ?. Simple question, but I am guessing there is not going to be a straight forward answer. As you will have guessed we are pretty green when it comes to the investing.
Originally posted by TerryP


If you have investments in your non-tax-protected fund and share account which have gone up in value and could eventually pose a capital gains tax problem when you come to sell, it may make more sense to sell them now as the priority (rather than the ones that have not performed so well), using your annual capital gains tax exemptions to pay no tax, and buy them back inside the ISA.



However when it comes to whether you should buy back the same funds or different funds with the money that you put into the ISA... the answer is what you should do is make sure you have a sensible balanced portfolio at all times



So for example (keeping it simple), let's say across your entire portfolio you had £1000 of funds invested in US companies, £1000 in UK companies, £500 in Europe, £500 in Asia, £500 in bonds and £500 in commercial property, and you were happy with that overall global mix.



Then over the last year to today, the US equity fund grows in value by 50%, UK equity goes up by 10%, Asia and Europe go up by 20% each, bonds by 5% and property is down 20%.



So instead of £1000, £1000, £500, £500,£500, £500

(25% of total, 25% of total, 12.5, 12.5, 12.5, 12.5%)



You would now have £1500, £1100, £600, £600, £525, £400, for a total of £4725 instead of £4000.



This means your allocation has gone from

25%, 25%, 12.5% 12.5%, 12.5%, 12.5%

now

32%, 23%, 12.7%, 12.7%, 11.1%, 8.5%.



You are asking whether you should sell the one that is "riding high" and giving you almost a third of your money in the US compared to the original plan of only a quarter? Yes, that sounds very sensible to me. You don't want all your eggs in one basket.



Similarly, should you dump the fund that has fallen? Well, you originally wanted 500/4000 in property which was one eighth of your total holdings. But now you only have 400/4750 which is about a twelfth. It has become a much smaller portion of your portfolio than you intended, because foreign companies did very well (strong US market and weak sterling making the US companies worth more pounds), while domestic UK commercial property (office buildings, shopping centres etc) became worth relatively less due to fears over Brexit etc.



However, that doesn't mean you should suddenly decide that your portfolio shouldn't have any property in it, and dump that fund, and instead go and buy a fund that invests in something that recently went up in value. All sectors have their "day in the sun" from time to time, and you will feel pretty stupid when there is a US stock market crash and everyone else is glad to be holding their bonds and property in a nice balanced portfolio.



The best thing to do is likely to be to bring your overall allocations back to what they were originally, assuming the original plan had some sensible planning behind it.



That will involve "rebalancing" by selling relatively more of the funds that went up a lot, to buy more of the funds that only went up a little, or fell. In doing so, you are "selling high" and "buying low", which is the right way round, when running a diverse portfolio, rather than buying high and selling low.



Of course, if your original plan had no rhyme or reason to it and you were just following the fashions of the day when picking funds out of a fund supermarket, the best thing to do is quite possibly to sell everything and start from scratch with a sensible plan.



The above "rebalance" concept is not trying to say you should never sell a poorly performing fund. If it is the worst fund in the entire market sector (e.g. property) over three and five and ten years, then sure, sell it and buy a better property fund with a competent investment manager. However don't just say "UK property has done worse than emerging markets companies or U.S. smaller companies in the last 12 months, so I should stop having any property funds and buy some more emerging markets funds or IS smaller companies funds"; that would be silly.



Read some books and websites on asset allocation and portfolio allocations.

#6
Wow,thank you for spending the time to give us the fullest answer. Our investments were originally set up by an HL adviser. Since then we have handled things ourselves by reading up on each fund using the HL research. You are right, we should by a beginners guide to investing. Thank again.



TerryP

#7
I can't comment on the quality or the independence of the advice received from HL. However, if you asked them again for advice I expect it's unlikely an advisor would recommend dumping all the lower performing holdings and buying new ones, if the original advice was sound and your needs have not changed significantly.



If the original ratios of holdings were suitable then it is likely that those original proportions are better /more appropriate for you than whatever the proportions move to over a few years of market swings where some funds have shot up to be a relatively large piece of your pie and others are relatively smaller than they were once intended to be.



Markets and world events do change over time and the risk and volatility profile of a particular fund can change over the course of an economic cycle. So constantly dragging everything back to their original proportions without giving it any thought whatsoever, is probably not a perfect solution. However, steadfastly holding on to funds that have grown to dominate your overall ISA and non-ISA portfolio, just because they happened to be in sectors that happened to have a few good years, can leave you with a lopsided portfolio. Ask all the people who loved holding their high-growth technology funds in 1999 and financial services businesses in 2007 - those are the types of people who cried when they lost 50-70% the next year.



And certainly the dumping of funds that are perfectly fit for purpose but were in an "unlucky" lower-growth sector for a year or two, can be destructive to your total pot. You will do better by trying to balance across the different fund sectors (acknowledging that it's fine for some to be bigger than others if it suits your risk profile). But by all means, if a fund has a high fee and has done much worse than others in the same sector with a similar objective, consider culling the bad ones. Or buy some independent advice.

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