SIPP and SS ISA sanity check

[Dark Black]

I've been doing loads of research lately (including reading the various threads on here) with regards to taking out a SIPP and a stocks & shares ISA.

I'm in need of a sanity check before I take the plunge and I know many of you have various experience of one or both investment types, so have some questions

In no particular order:

1. As said, I'm aiming to take out both a SIPP (for irregular contributions from my Ltd) and an ISA (regular personal contributions). This is to allow me to both save for retirement and having somewhere to save and dip into as and when. With regards to funds I'm considering the Vanguard LS 80 as a good starting point for the SIPP but does it make sense to use the same fund for the ISA or would I be better mitigating the risk and choosing a different fund (for the ISA) to start with (I'm thinking as I gain more confidence/experience that I would diversify anyway)?

2. Again, to mitigate risk does it make sense to hold the ISA with a different provider than the one I use for the SIPP or is that being overly paranoid (i.e if a provider goes bust can I still access the fund i've invested in in some way?)

3. When it comes to contributions, for the ISA I will make regular monthly payments to "drip-feed" the fund however the SIPP will have lump sum payments made from my Ltd. In this case I think it would pay to not invest the lump sum immediately but leave it in the cash account with the SIPP provider and then drip-feed the fund monthly from there to smooth out market fluctuations - does this sound sensible or am I over thinking it?

4. Which provider: I've spent what seems like an age trying to compare providers, not just in terms of charges but apparent ease of use in terms of website and customer service. I'll be honest I was tempted to just go with Hargreaves Landsdown since I know several people who use them for general investing and are very happy with their service, however their charges do put me off, compared to the likes of Cavendish / Close Bros who both seem well regarded on here. I was unsure of Cavendish initially as they don't currently offer pension drawdown. However things change over time and otherwise I like their site and charges seem very reasonable so it's looking like I'll go with Cavendish certainly for the SIPP. OK this was more a statement of intent rather than a question but if anyone has had probs with Cavendish please speak up (or PM if you prefer).

[Edit] I'll add a question on that as I can't find it anywhere - anyone here who uses Cavendish for their SIPP know if I'm able to set it up with out an initial personal contribution, just direct from my Ltd?


Thanks in advance, hope this wasnt too rambling...

[SueEllen]

1. I was always told to spread my risk of where I invested and then told to get trackers if I was lazy, which I am. Personally I would try to invest smaller sums more regularly with both a pension and ISA, trying not to leave it in the account in cash. While markets do fluctuate trying to guess the market is hard work which I don't have time for. Plus there is a delay when you decide to invest which can be 24 hours and the market may have risen by then.
2. Dim has a thread in General about what protection SIPPs have and posted an email from HL about the protection they have. You can ask Cavendish the same.
3. See 1 and 2
4. Go for the cheapest one that you can use easily.

[Cirrus]

With regards to funds I'm considering the Vanguard LS 80 as a good starting point for the SIPP but does it make sense to use the same fund for the ISA or would I be better mitigating the risk and choosing a different fund (for the ISA) to start with

The argument is that with funds like LS 80 you are getting Vanguard to diversify for you so it's not a bad single strategy. I've got all of my ISA in LS 60.

And it's only lost £900 since I took it out.

[Dark Black]

1. I was always told to spread my risk of where I invested and then told to get trackers if I was lazy, which I am. Personally I would try to invest smaller sums more regularly with both a pension and ISA, trying not to leave it in the account in cash. While markets do fluctuate trying to guess the market is hard work which I don't have time for. Plus there is a delay when you decide to invest which can be 24 hours and the market may have risen by then.
2. Dim has a thread in General about what protection SIPPs have and posted an email from HL about the protection they have. You can ask Cavendish the same.
3. See 1 and 2
4. Go for the cheapest one that you can use easily.

Thanks for that

Yep I saw DPs thread, according to the Cavendish T&Cs the protections (as far as they go) are the same.

As far as leaving cash in the account is concerned it's just the intiall lump sum that I want to contribute from my Ltd before year end (which is end of this month) but I thought it's a bad idea to invest a large amount straight away and maybe better drip-feeding it from the cash account over the next few months?

[Dark Black]

The argument is that with funds like LS 80 you are getting Vanguard to diversify for you so it's not a bad single strategy. I've got all of my ISA in LS 60.

And it's only lost £900 since I took it out.

Yep I get that, but my thinking was if I was to use via the same fund in both SIPP and ISA then even with the fund diversifying if it performs badly it will still effect the returns of both SIPP and ISA no?

[Cirrus]

if it performs badly it will still effect the returns of both SIPP and ISA no?

Sure but of course if it performs well and you've taken out a load of it into another fund, then you'll be missing out. Personally I like to have a range of funds (eg UK Equities, India Equities, Emerging Markets, Fixed Income, etc) and include some cash and property (usually you have that with your house anyway). Essentially you can't out-think the markets so just decide whether you want to play safe or concentrate your investment to gamble.

[SueEllen]

Sure but of course if it performs well and you've taken out a load of it into another fund, then you'll be missing out. Personally I like to have a range of funds (eg UK Equities, India Equities, Emerging Markets, Fixed Income, etc) and include some cash and property (usually you have that with your house anyway). Essentially you can't out-think the markets so just decide whether you want to play safe or concentrate your investment to gamble.

Standard advice is the nearer you are to retirement age the less you should gamble.

[SueEllen]

As far as leaving cash in the account is concerned it's just the intiall lump sum that I want to contribute from my Ltd before year end (which is end of this month) but I thought it's a bad idea to invest a large amount straight away and maybe better drip-feeding it from the cash account over the next few months?

There are no rules.

All pension and investment advice tells you to drip feed into your investments from the originating account e.g. your limited company bank account, monthly to help avoid market peaks and falls.

[WordIsBond]

The theory behind drip-feeding is that you get more shares when the prices are lower, in a volatile market. I'll give a simple illustration.

Suppose you put £500 into a share that has a £1.00 price today. How many shares do you have? 500.

Suppose you put £100 into it every month for five months. Suppose the share price on the purchase dates is 100p, 90p, 105p, 85p, 120p. That works out to an average of 100p, same as if you bought them all today at 100p. But how many shares did you get?

Month 1: 100 at 100p.
Month 2: 111 at 90p.
Month 3: 95 at 105p.
Month 4: 117 at 85p.
Month 5: 83 at 120p.

How many shares do you have? 506. If the price moves from 100 to 120p during this time frame, the initial investment is worth £600. The drip feed investment is worth £607.20.

The theory is that for an asset with a volatile price, you benefit more from the lows and are hurt less by the highs if you invest the same amount regularly and hit both the lows and the highs.

Now, if you are able to predict the future, you wouldn't do that. You'd wait until month four, put all £500 when the price is 85p, and sell a month later for 120p. You'd use the proceeds to fly to Vegas and predict the future there.

Drip feeding is not always good. If the price is stable and steadily increasing, you are far better to get in as much as you can as early as you can. If the monthly prices are 100p, 105, 110, 115, & 120, you will kick yourself for dripfeeding rather than just putting in the £500 in month one. So you want to think about the type of investment it is. But if it is something relatively volatile, drip feeding is the way to go. And most high-profile shares are relatively volatile because people are just gambling and if Theresa May sneezes or Boris Johnson talks out of his backside or Donald Trump tweets, the market jumps.

[Dark Black]

The theory behind drip-feeding is that you get more shares when the prices are lower, in a volatile market. I'll give a simple illustration.

Suppose you put £500 into a share that has a £1.00 price today. How many shares do you have? 500.

Suppose you put £100 into it every month for five months. Suppose the share price on the purchase dates is 100p, 90p, 105p, 85p, 120p. That works out to an average of 100p, same as if you bought them all today at 100p. But how many shares did you get?

Month 1: 100 at 100p.
Month 2: 111 at 90p.
Month 3: 95 at 105p.
Month 4: 117 at 85p.
Month 5: 83 at 120p.

How many shares do you have? 506. If the price moves from 100 to 120p during this time frame, the initial investment is worth £600. The drip feed investment is worth £607.20.

The theory is that for an asset with a volatile price, you benefit more from the lows and are hurt less by the highs if you invest the same amount regularly and hit both the lows and the highs.

Now, if you are able to predict the future, you wouldn't do that. You'd wait until month four, put all £500 when the price is 85p, and sell a month later for 120p. You'd use the proceeds to fly to Vegas and predict the future there.

Drip feeding is not always good. If the price is stable and steadily increasing, you are far better to get in as much as you can as early as you can. If the monthly prices are 100p, 105, 110, 115, & 120, you will kick yourself for dripfeeding rather than just putting in the £500 in month one. So you want to think about the type of investment it is. But if it is something relatively volatile, drip feeding is the way to go. And most high-profile shares are relatively volatile because people are just gambling and if Theresa May sneezes or Boris Johnson talks out of his backside or Donald Trump tweets, the market jumps.

Great post - very good example of the pros (and cons), thanks