Investing in stocks alongside a managed stocks & shares ISA

(Simon) #1

Hi all,

I am looking for some advice on investement. I currently have a socially responsible Nutmeg stocks & shares ISA which I pay a relatively small amount (£100) into a month which is set at a relatively high risk level (7/10). I have had this account since January.

I interested in expanding my investments by investing any additional spare cash directly into stocks, probably using Freetrade. I have a few questions I would like to get the communties advice on:

  1. Do you think this is a good idea? Or should I instead be paying any additional money I can save into my Nutmeg ISA?
  2. What are the best resources for deciding which stocks to purchase? I am keen to only invest in companies I have some personal understanding of, so will not be investing in companies simply because they are a ‘good buy’.

I hope I have explained my thoughts clearly enough - I look forward to hearing what you have to say.

Cheers,
S

1 Like
(Jordan) #2

Hey Simon :wave:t2:

I have a Nutmeg LISA and am probably weighing up the same debate as yourself!

Just as a disclaimer you won’t be able to open another Stocks and Shares LISA so anything you open in the Stocks and Shares world you would have to account for the tax implications (unless you open a SIPP (I think?)).

Diversifying isn’t necessarily a bad thing - and building your own portfolio can have its benefits. Quite a lot of information was put on this thread: Which stocks and shares app is best? so that may help you!

I think it all depends on your circumstances, what are you saving for, what are your goals with your money, how long do you want your savings to be “unaccessible” for. There are a lot of things to consider.

In terms of research and understanding of where to invest you’ll find a lot of information on previous threads on the forum.

Hope this helps, although not very decisive on what you should do - but that’s because it is your money!

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(Nick) #3

Disclaimer: this reply isn’t financal advice, I’m just sharing my experiences.

I’m a (relative recent, because Android) Freetrade user. I was attracted to it because of the fee-free nature. It is my first time investing because prior to that the maths didn’t add up for me - any money I invested through traditional platforms would’ve been swallowed up in fees long before I earned anything from it.

  1. I can’t answer this question because a lot depends on how much you have in your Nutmeg ISA already. Freetrade also offer an ISA (albeit only through iOS at the moment), so it could be worth crunching the numbers and seeing if a Freetrade ISA would work for you.

  2. I’m of the view that picking stocks is essentially a lottery. As all resources are effectively trying to predict the future, their results are more often than not due to random chance than any particular skill. Again, I would stress this is my personal view.

Because I’ve only been able to invest small amounts myself, and I’m only two months in, the majority of my picks so far have been with ETFs - VUSA, VWRL, VJPN and HMCH. This I hope should provide market-tracking gains over the long term.

It should also, I hope, help offset any terrible mistakes I make with picking individual stocks. For example, I threw some money at MANU because I thought they’d turned a corner with Solskjaer and would qualify for the Champions League - that hasn’t turned out well.

Back of the envelope sums say that at least for probably the next year I will be putting the majority of my investments into ETF in order to build a safe base before dabbling too much in trying to pick particular stocks.

Also all my investments so far have been with the intention of being long-term holds. I’m staying well away from thinking I can beat the market by finding a stock where it’s low and selling it when its high. My mantra, if I have one, would be “Time in the market beats timing the market.”

Repeating the disclaimer again - this is not financial advice. I’m sharing my experiences. What you do (or don’t do) is up to you.

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#4

I don’t think this is the best way to think about it, unless your literally picking stocks at random on the off chance of “winning”. If that’s why you’re picking stocks that’s probably why you should stay away from them and stick with funds.

I recon starting new the best thing you can do is as @HoldenCarver mentioned, putting money into an EFT, probably just one, probably a global tracker or similar. Its the least riskiest riskiest option you can take, in that your only need to do one thing, pick a global tracker, and you cant really do anything else to screw it up.

It does two things in my mind, it gets you invested now, and gives you time to gain a little more understanding of things before looking at anything else.

I have some individual stocks and even i wouldn’t recommend doing that unless you have a very clear goal of what your trying to do. You’re buying part of a business, would you do that normally without understanding the business? As for the best resource? The news, company financial reports, agm notes, board meeting notes, etc.

I assume you’ve already put money into your ISA this year? (april, may)

(and as above, this isnt financial advice, just my thoughts :smiley: )

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(Nick) #5

I’ll accept that it is more nuanced for seasoned and experienced investors, especially those with clear goals and conditions - buy at X, hope to reach Y and sell, but sell at Z if they start dropping instead.

However, at its most reductive, I do stand by saying its like a lottery. You could make a solid and astute analysis of a business, but something out of left-field could brush away all of that. A natural disaster could have a negative effect if you’ve picked a business with all their factories (or what have you) in the area; government policies could have an unexpected effect - from changing of taxes, regulation, or a trade war; or it could turn out that someone has been fiddling the books (Patisserie Valerie, Metrobank).

Again, while experienced investors may have plans to mitigate against these things, it’s why in broad terms - and especially for most investors I know - would still say it’s a lottery.

1 Like
#6

You are exactly wrong. Sorry.

In one of the best books on investing, “A random walk down wall street”, Bernard Malkiel claims that “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”

He was wrong too. As Rob Arnott says, “The monkeys have done a much better job than both the experts and the stock market.” His company, Research Affiliates randomly selected 100 portfolios containing 30 stocks from a 1,000 stock universe. They repeated this processes every year, from 1964 to 2010, and tracked the results. The process replicated 100 monkeys throwing darts at the stock pages each year. Amazingly, on average, 98 of the 100 monkey portfolios beat the 1,000 stock universe each year. Most fund managers (around 75-80% of them) do NOT beat the stock universe each year, let alone over 5 years.

It’s such a common thread amongst beginners - “I will be the one in a billion who can actually beat the market”

Don’t throw Buffet at me, he was a hedge fund manager with a tiny edge. He may be the one in a billion. But without creaming off >20% of the profits you make for a shed load of other people, you won’t replicate his performance.

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#7

So you think we should just randomly select 30 stocks? I’m not sure i agree.

You quote from Arnott mentioned monkeys but its important to remember there were no monkeys involved, it was just picked randomly. Even then despite the apparent success of just randomly picking stocks via a machine, Arnott himself doesn’t take this advice, his funds are not randomly picked.

If they don’t even follow their own advice, why?

Saying all that, your assumption also seems to be that the only reason to buy a stock is for it to grow, then to sell when its high? But this isnt universally true. People don’t buy utilities for example for there growth, or for randomness, they have specific goals in mind, with specific risks in mind.

So you may like the method of just pick a few dozen random stocks, but the fact is that’s also just another “I will be the one in a billion who can actually beat the market” strategy, which is foolish for anyone to think no matter how they are investing.

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#8

Come on, the monkey analogy is to show that random is as valid a method of picking stocks as any “expert” approach.

And of course his company doesn’t pick stocks that way - nobody tells their customers that a random number generator can do just as well as they can.

But the facts remain - very very very few people can reliably beat the market. So, I invest mostly in the market, and with a small proportion of my portfolio I invest in things I believe/calculate/feel in my bones will beat it.

I’ve been lucky, but I don’t pretend it was my superior skill.

4 Likes
#9

I never said anyone can beat the market, only that if you’re just randomly picking stocks hoping they go up its probably a bad idea. I never said anything else on that, no one asked why. Even you don’t do it.

Why? Because humans with the information we have wont pick stocks truly randomly. If you want to do your approach, which you could do, you’d need to set up a program to actually randomly pick those stocks. At that point i think my point still stands, the stocks might be random, but your not picking stocks with no purpose, your specifically picking stocks as randomly as possibly via machine. ‘randomisation’ is your goal at that point, not to pick the winner but to pick so randomly that the majority do better. Which isnt picking stocks like a lottery.

If its beating the market they absolutely should. Low fees, minimal staff, better returns. Why not make it an option.

(Simon) #10

Thank you all for your responses so far - some great stuff in here.

Cheers for this @JustJordds & @HoldenCarver - I know I won’t be able to open aother Stocks and Shares ISA (or LISA) - I am fine with that. I am self employed anyway so used to figuring out the best way to manage my tax bill. I am quite happy to leave my Nutmeg ISA to be a long term savings account.

On this a quick tax question just incase anyone knows off hand - presumably you are not liable to pay tax on shares increasing in value unless you sell? At that point presumably it is a captial gain (of which it will be a long time before I make more than the £12000 allowance)?

Thanks for this - I definitely see the benefits of ETFs, but as my Nutmeg investment is already primarily invested in ETFs I’d prefer to use this auxillary investment to pick individual companies.

There’s been a lot of discussion about the idea of ‘randomly’ selecting stocks to invest in - I am actually rather reassured by this.

I think @DaveTMG has best summised how my gut feels at the moment - allow my ETF focused ISA with Nutmeg to hopefully track the market to some extent, and use the extra investment to buy into companies I believe in and have positive experiences with.

Thanks for this - I think if I do buy individual stocks on Freetrade it would certainly be for a long term hold rather than any attempt to time the market.

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#11

This is correct. You’ll pay CGT on shares when you sell up to the limit that year. £12k, £6k for trusts.
Also consider dividends, you’ll pay tax on dividends over a £2k tax free dividend allowance. but you probably wont hit that for a while if you do.

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(Louis Otto) #12

And the allowance isn’t per year but rather at the time of sale :slight_smile:

(Jordan) #13

No problem - I thought I’d just highlight it.

Actually you can have a S&S LISA and and S&S ISA - they are different ISA products so you can have one of each!

I have the S&S LISA and have the Dozens S&S ISA and from what I can understand that is ok!

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(Louis Otto) #14

Absolutely! And there’s merit to having both at the same time!

#15

I wondered what you meant there. Its not per year as in you can accure £12k a year of CGT allowance until you sell. but it is £12 CGT allowance very year, dont use it that year? you lose it.

You pay CGT based on the price you bought at, based on when you sell. So for example if you sell this year at a gain of £12k you pay not tax, then if you sell more next year up to a gain of £12k you pay not tax.

(talking myself through it in case anyone else wondered :smile: )

#16

And absolutely this. There are four ISA types, you can contribute to one of each per year.

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(Louis Otto) #17

Yeah, sorry, what I meant was, you don’t get the allowance on a stocks growth in the year but rather the allowance counts against lifetime growth.

If you had a stock that grew from, say, £10,000 to £14,000 over two years, and you sold the entire lot, you’d be £2,000 over the limit for the year.

If another one of your stocks lost £2000 over, say, 5 years. But you sold it at the same time, you’d go back to the limit and be absolutely fine in terms of CGT.

The next year it’d reset, and you could sell another stock that grew over many years.

I guess what I meant was, the profit doesn’t have to happen in the same tax year as the CGT allowance you are drawing from.

Phew!

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(Simon) #18

Thank you - I certainly won’t be hitting £2k dividends! :joy:

Surely you’d only pay CGT on the ‘gain’ - i.e. the £4000 net profit rather than the gross amount?

Thanks for this, I probably should consider opening a LISA but buying a property is incredibly low on my priorities and retirement is a long way away. :innocent: Still, I should probably capitalise on the gov bonuses as soon as possible.

(Nick) #19

In the example given, wouldn’t you be £8,000 under the limit because the tax would be on the £4,000 gain and not the £14,000 full value?

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(Jordan) #20

Yeah I think whilst it is available it is worth putting £1 in even just to ensure you’ve got the ability for the 25% bonus - that is what my main aim for saving is atm which is why I haven’t delved into creating my own portfolio.

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