It’s been a very long while since I have written an update about my stocks and shares ‘experiment’, so I thought it was time I wrote up a quick post as to how I’m getting on.

My trading platform of choice (iii) had a free trading day on Friday, so I took advantage of that to re-allocate, re-balance (a bit), and generally have some fun without the commission on top.

Prepare yourself for some weekend laughter, probably directed squarely at my direction! It’s ok. I can take it.

Disclaimer

I’m an oblivious, amateur, very-long-term-outlook investor. I am not a financial advisor, and none of the advice found on this website should be construed as financial advice. It isn’t. This is what I am doing. If you choose to follow me, you can cry in your own beer instead of mine.

Deal?

My Current Allocation

Click for larger view

Slightly over three-quarters of my asset allocation currently sits within the UK banking sector. This is one of my longer term positions, as the majority of the assets within that sector are priced significantly below what they have historically run at between recessions.

The remainder is split between:

• ~3% iShares FTSE EPRA/NAREIT UK Pty (IUKP)
• ~10% iShares FTSE 100 (ISF)
• ~10% HSBC Japan Index Ret Acc

My Stock/Fund Purchase Method

I purchase my stocks and funds via iii.co.uk, which has one of the easiest to use trading platforms I’ve seen. I use their Regular Investment system to automatically purchase a pre-allocated sum of money against a pre-set purchase list of my choosing. They then conduct this trade at a time to suit them (within that month), keeping costs low.

This automated method is suitable for me as I’m taking the Pound Cost Averaging route over the longer-term view, so hitting spikes or not taking advantage of unusual lows is of a lower priority for me than most day-traders would even consider.

With the exception of last Friday, where they had a zero-commission/no-fee day for ISA stock purchases, so I have thrown an extra £100 into the pot more than usual and had fund hand-picking my targets.

My Stock/Fund Storage Method

All my trading is conducted within an ISA to shelter me from (most) tax liability. If you are doing stock trading for yourself, under £11,280 per annum, you really should be doing the same. For more information on ISA’s check out my ‘A Guide To: Individual Savings Accounts‘.

Profit / Loss Report

Ah. We have come to the sick part. But it is fine! This is not a short-term operation, and I am mildly optimistic that at some point things will rebound.

Currently across all sectors, I am -26.91% in terms of purchase-cost v. current actual. That smarts a little bit, but I’m going to smile anyway because in 2, 5, 10, 20, or 500 years time, it’ll swing the other way.

Right??

Did you blink? The last financial year comes to an end at the close of trade today (Thursday, 5th April) and if you still have an allowance in your 2011/2012 ISA, now is the time to be sending those Faster Payments or internal transfers to it. Any transfers that clear after the close of business today will not count!

If you are unsure of when your ISA provider closes, give them a very quick call!

See my feature article A Guide To: Individual Savings Accounts.

Your Cash ISA allowance for this year is £5,340, and rising to £5,640 as of tomorrow (2012/2013). If you’re short of that figure, be sure to take advantage of the tax-free savings an ISA can bring. Do remember though that if you have taken money out of your ISA you can’t put it back. If you have raided that particular piggy-bank, you will need to calculate what your remaining allowance is.

For the numerically challenged (I include myself in that statement), this can be easily worked out as follows:

£5,340. Minus whatever you have put into your ISA, regardless of whatever you have taken out.

Whatever is left, will be your remaining allowance (if anything).

I’ve seen some weird and wonderfully confusing sums to perform for this same calculation but that really is the simplest way of doing it without getting overly fancy about the whole thing. The bottom line is you can put in to an ISA, and you can take out what you’ve put in, but you can’t then put back whatever you have taken out. It’s a one-way savings account.

Your Stocks and Shares ISA allowance is also £5,340 and will close at the same time, using the same rules. The 2012/2013 total allowance will rise in total from £10,680 to £11,280.

Be sure to shop around for next year’s ISA – do not automatically assume the one you have is the best out there. Shop around, and look for the best interest rates, no management fees (unless the rate offered significantly trumps those fees), and make sure transfers in are permitted to take the most advantage of the given rate.

Happy Tax Free Saving!

Paying tax may be something that we all have to do, and there might not be any way to get out of it, but there’s no reason to pay more than you absolutely have to. Take your savings account as an example: chances are that if you’re over 18 and not a student, you’ll be paying tax on the interest you earn on your savings. If you have investments, you’ll most likely have to pay tax on the dividends you earn, right?

However, there are also some interesting investments that you can make that help you to beat the tax man, perfectly legally. Probably the best known, and one of the most popular examples of this, is the stocks and shares ISA. Let’s find out more… 

ISA Investment – The Basics

Many people are already familiar with how a shares ISA works, but here’s a quick overview just in case. Essentially, ISAs offer you a tax-free form of savings. This means that you don’t have to pay tax on any interest or dividends you earn through your investment ISA. This means you maximise your investment and make sure your money is working is hard as it possibly can.

There are a couple of things to note when it comes to shares ISAs: there is an annual investment limit, which means you can only put a certain amount of money into your ISA in a single tax year. The current ISA allowance for 2011/2012 is £10680. You can choose to invest all of this in your shares ISA or split it and put half into a cash ISA instead – it’s up to you.

It’s also worth knowing that there are quite a few different shares ISAs around, from climate change ISAs (investing in companies that have lighter than average carbon footprints) to FTSE tracker ISAs, so it’s worth looking around to see which one would be best for you.

A good option, for many reasons…

But why should you consider investing in a shares ISA? There are lots of reasons you might want to invest your money, my friend Jason started an investment ISA after receiving some money from his family. His parents had downsized their property and, very kindly, passed some of the money they made on the sale down to their son with the aim of helping him get on the property ladder.

Of course, the property market being what it is, even his parents’ generous donation plus what he’d already saved couldn’t finance his mortgage deposit, so he decided to take the chance and go for an ISA with the aim of maximising his investment and eventually raising a deposit. In this case, he chose a FTSE all-share tracker ISA, which invests in all of the companies listed on that index.

Why that ISA? Essentially, he didn’t want to put all his eggs in one basket and was fairly new to investing so spreading the risk over a large number of companies seemed prudent. There were other options, but based on his situation and goals, he decided that one was best for him.

That’s not the only reason people consider investing in ISAs, though. You might come into money due to a competition win, a bonus from work, your own house sale or inheritance. You might be saving for a car, a holiday, your kids’ education, a rainy day… The important thing is making sure you choose the right ISA for your needs.

 Is the risk worth it?

As you probably know, there is a risk attached to shares ISAs. This is because they are investments and, like any investments, they aren’t guaranteed to grow. This means it’s a good idea to evaluate the risk before taking the plunge and do some research into different ISAs to make sure you get one with a good reputation. We can’t deny that some ISAs do underperform; however, the best stocks and shares ISAs are careful about where they invest and even though the economy has seen its ups and downs of late, there are still some very good ISA success stories around.

Also, if you invest wisely, it is possible to spread the risk and limit your chances of an unfortunate investment. For example, there are bonds and gilts ISAs available, which are still investments but are lower in risk than other ISAs attached to the stock market. You could alternatively split your money between a cash ISA and a share ISA, or put some into a regular savings account so you’re limiting how much is at stake.

Plus, there is a risk in not moving your money. It’s said that people are more likely to get divorced than they are to move their bank accounts, and millions of people end up leaving their money in savings accounts where the value is actually going down due to inflation and low interest rates. There might be a risk involved with shares ISAs, but there’s still a good chance your money will grow, unlike many current and saving accounts – and if you look at the performance of many ISAs over the past three years, it’s easy to see that even in challenging circumstances, it’s still possible for significant gains to be made.