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susanna simmons
Posted: 18 February 2013 23:28:06(UTC)
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I have a small sum invested in 4 funds since 1998 when I inherited from my dad. I now need to raise 10k for a remortgage and have no idea how to decide which of my funds to sell. Can anyone advise me where to start please.
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Michael Edge on 24/02/2013(UTC)
TJLamb
Posted: 19 February 2013 07:33:00(UTC)
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I don't think it is an exact science.
Ideally, you would sell the funds which are showing the least promise (either because of the manager's performance, or because of the sector they are in), and retain the ones which show the most promise of making you more money in the current market, and whilst doing this, manage to maintain some kind of balance to your portfolio.
If you are lucky, applying this methodology might be an obvious process, but I doubt it will be that straightforward.
If the decision isn't obvious, I would just go for it, trying to forecast where the markets will be in 3, 6 or 12 months is a guesstimate at best.
If you posted which funds you hold and in what proportion, you may get opinions on the way forward, but that's all they'll be - opinions.
Good luck!
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P L
Posted: 19 February 2013 08:42:43(UTC)
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Firstly it might help to know what they are and how they are being held.
For instance are they in/out side of an ISA wrapper. Are they being held cost effectively with a discount broker. If not you might want need to think about cost and possibly CGT.

You also don't say how the investment is structure. Was it designed in the first instance or is just a random selection of funds.

In general the view taken by most professionals is to maintain a balanced portfolio over the long term which basically means selling best performers to buy poor performers (talking in terms of sectors not specific funds). The aim for most being to get rich slowly over the long term whilst trying to minimum the stomach churning moments when all your investments drop as one. In which case the aim would be to sell to bring your portfolio into alignment with the planned allocation, assuming you have one of course. If not this might be the place to start.

Whilst this approach seems slightly illogical and has been liken to digging up the flowers and watering the weeds the theory basically assumes sectors cycle in and out of favour and no one knows what is going to be the next best thing. So whilst seeing your tech stocks doubling in value every six months and your old economy stocks growing only in single digits may suggest these are the ones to sell, you never know what is coming around corner that could wipe all you gains out. I know this all too well, but luckily I follow my own advice. In essence all you are doing by rebalancing is reseting your risk level. Think of it as up a ladder cleaning your windows, you lean out further and further to reach, gaining an advantage in doing so, but eventually you have to move the ladder because you either think it might fall or unfortunately it does. Moving it makes you a bit safer again but extends the time it takes to finish the job, much like rebalancing.

I think the best advice I have read was to simply apply a simple out of balance limit say for argument 10%. Once a particular sector has risen more the 10% above the original allocation it is sold and the portfolio rebalanced. I think various studies have been done into this and the general result I think has been that complex schemes that are constantly rebalancing are no better than simple schemes, plus minimsing transactions keeps the costs down.
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6 users thanked P L for this post.
susanna simmons on 19/02/2013(UTC), Aidan Williams on 19/02/2013(UTC), Interceptor on 20/02/2013(UTC), Guest on 24/02/2013(UTC), martin hargan on 25/02/2013(UTC), dlp6666 on 25/02/2013(UTC)
susanna simmons
Posted: 19 February 2013 13:52:40(UTC)
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Thank you for your help. My current holdings are as below. As you'll see, the only ISA is Framlington -and it has performed poorly (-7% I believe) over the last 5 years.
It's a very small portfolio, but as I need to raise 10K it would be nice to think that I was holding on to the 'correct' fund(s) ! I'm afraid I don't understand the question about a discount broker. I am not anticipating any charges associated with selling any of these funds.
FUND HOLDING value
Henderson Global Growth 321.47 £4612
Henderson Global Technology A nett ACC 154.63 £1062
Axa Framlington Financial R Inc ISA 318.30 £3750
Allianz mid-cap A ACC 145.49 £4387

Any advice/opinions very gratefully received.

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mark senior
Posted: 19 February 2013 16:57:50(UTC)
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Susanna,

If you have more than 20 years to retirement, i would

Sell all 4 holdings, subtract your £10k requirement and reinvest the balance split between Aberdeen global smaller companies and Aberdeen Global smaller emerging companies.

Kind regards

Mark
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P L
Posted: 19 February 2013 21:24:59(UTC)
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Susanna,

Re my comment about using a discount broker. If you are holding the funds directly with the fund managers you may find it cheaper to re-register them with a online execution only platform or assign an agent (discount broker - for example CommShare). Although they may not charge you any exit fees they may charge another lot of initial commission (upto 5%) when buying/switching.

Also by holding direct you are giving the fund manager the proportion of the annual charge earmarked for advice (normally about 0.5% of the fund value/year) and not getting any. A discount broker or execution only platform will rebate all or some of this.

The most user friendly online execution only platform is probably Hargreaves Lansdown (also probably now the biggest), the best saving is currently I think with Cavendish online who use the Fundsnetwork platform. Both have 0% upfront fees on almost all funds and free fund switching but you may only get 0.25% instead of 0.5% rebated annually with HL. BestInvest are also good but don't rebate any AMC unless you have 50K. There advantage over HL is they offer index tracking funds without the extra charges that make them uneconomic to hold for small investors under HL.

Personally if you're new to this and have a smallish sum to invest HL or BI would be my recommendation. It's dead easy to re-register (which means the funds are not sold) or transfer (funds sold and cash transfered). It will takesome time to do, weeks not days.

If you not into online dealing using a platform then I've found Commshare helpful and you still get the advantage of having a 0% upfront fee and a potential AMC rebate whilst still dealing direct with the fund managers.

The advantage of holding funds on a platform is you get easy access to hundreds of funds and can easily switch without cost and minimum out of market time.

I agree with the last post re ditching the funds with one caveat - sell the non ISA funds first.

Ideally unless you really have to, try to avoid selling your ISA (or as little of it as possible). It's a valuable tax haven not to be lightly thrown away. Switch it to a less specialist fund(s). As to the funds to pick, you're best bet might simply be to use the suggestions offered by the likes of BestInvest "https://select.bestinvest.co.uk/fund-research/select-portfolios" or HL "http://www.hl.co.uk/funds/master-portfolios". since normally the minimum investment per fund is around £1000 moving the ISA as a whole would allow you to invest in smaller amounts than normal. On the whole I've found BI recommendations to be more profitable than HL, bearing in mind no one can really tell what will do well in the long term.
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Martina on 20/02/2013(UTC), Guest on 24/02/2013(UTC), dlp6666 on 25/02/2013(UTC)
susanna simmons
Posted: 19 February 2013 23:36:19(UTC)
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thank you so much for such a comprehensive reply. I'm just starting to realize how little I have understood about my investments in the past which I greatly regret. I initially had around 90k to invest following a bereaverment , had what I now believe was lazy if not poor advice, cashed in about 80k to fund an extension and now have around 15k invested. I am now determined to learn more and to take control.
I will definitely digest your advice and take some action. do I understand that I can just go ahead and move my funds to a platform prior to selling whichever I need to thereby saving whatever fee my IFA might draw ?
and, probably an extremely naive question: I have many years of unused ISA allowance. does this still mean that selling my ISA is to be avoided or is it possible, say, to sell my current funds, re-invest in more promising funds and to transfer these into ISAs ?


thank you again for your advice and patience.
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jeffian
Posted: 20 February 2013 00:06:45(UTC)
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susanna,

Whether you decide to sell the fund in the ISA or not, I would definitely not draw the proceeds out of the ISA as, once 'out', it can't be put back in. Over the years, use your annual allowance to move as much as you can from your portfolio into the ISA 'wrapper' (many providers - e.g. Hargreaves Lansdown - provide a 'bed & ISA' service). You can build up quite substantial sums which are not only free of CGT but, when you reach the point you want to draw an income (as I have at retirement) you can take an income which is entirely outside the tax net.
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sugrja
Posted: 20 February 2013 09:19:21(UTC)
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I was interested to read the reply about putting shares into an ISA. I have a number of shares, which I've had for a very long time, in Santander, Lloyds, BG, Centrica, Rolls Royce, British Airways and National Grid. One member posted that shares should be put in an ISA wrapper but I have no idea how to do this. I do put £300 a month in funds with Skandia in an ISA. Would I be able to gradually put my individual shares into my Skandia ISA?
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P L
Posted: 20 February 2013 10:54:40(UTC)
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Sugrja,

Yes you can bed & ISA shares.
Unfortunately however not all providers allow shares to be held.
Skandia as far as I know do not and only allow funds. Since as part of the bed and ISA process they would have to be sold (and repurchased) anyway you could simply sell and move the cash.

One big word of warning, most execution only platforms that allow shares ie Hargreaves, BestInvest etc etc will charge an annual fee (around £60/year) to hold shares which may make holding them within an ISA wrapper uneconomic unless you have a large amount of capital.

The other aspect is that holding individual shares is generally more risky unless you have a diverse portfolio, in which case funds likely to be the cheapest way to reduce risk whilst maintaining equity exposure. You can then reduce your costs to a minimum by holding them via an execution only platform that rebates the trail commission.

If you are paying any upfront fee on your investment (ie do they deduced a sum from your £300/month before investing it) with Skandia and are being charge the entire annual management fee (normally around 1.5% / year) you might want to review what you are getting for your money. You may well be able to invest in the same fund without any initial decuction and get upto 0.50% back iwith someone else.

Before switching platforms you must check for exit fees. However there is nothing preventing you stopping your ISA subscription with one and then starting a new one with someone else. The only rule you cannot have more than one active ISA per year.






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Martina on 20/02/2013(UTC), Guest on 24/02/2013(UTC)
Alan Selwood
Posted: 20 February 2013 21:27:37(UTC)
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Susanna,

There isn't much left of your investments after taking out £10,000 so a lot of the comments made are not particularly relevant to you unless you have other investments that you haven't yet mentioned.

Hope you have a reasonable cash reserve for emergencies, quite apart from any money being talked about here.

You may find that cashing in ALL the holdings you listed and using the proceeds to slightly reduce the mortgage you need will be just as effective as retaining just a few thousand pounds in investments.

For sums invested such as you have or will have, a generalist investment trust would be my own choice - something like Murray International would cover most essential investment needs on a fairly global basis. A good spread and fairly low annual costs. Alternatively, one of the 'golden oldie' investment trusts like Lowland, Temple Bar, Scottish Mortgage, Bankers, or City of London could be useful, though all these are likely to invest more of your money in the UK and give you a bit less of a global spread. They are all very cheap to own and hold, and that should be better than paying high fees each year to a fund manager.

I don't see why everyone is making such a fuss about keeping a couple of £1000s in the ISA, since if you cashed it in, you could replace it by a fresh ISA each year in the future of over £10,000 p.a. if you have that much to invest.

Just sixpennyworth of comments from a long-retired financial adviser!
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Guest on 24/02/2013(UTC), martin hargan on 25/02/2013(UTC), dlp6666 on 25/02/2013(UTC)
Alan Selwood
Posted: 20 February 2013 21:30:29(UTC)
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Following on from my previous post:

I assume that the fund values you quoted are current values, not the 1998 values. There could be a significant difference between the two!
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rik
Posted: 20 February 2013 22:08:16(UTC)
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Hi,
Sell them all.

Use any cash left over to buy individual shares. Never ever waste your money paying somebody else to decide what to do with it. The worst thing that can happen is that you make poor decisions about which shares to buy. This is no different to making a poor decision about which fund to buy.

You have much more to gain by manageing your money yourself thean any fund manager will ever let you know.

After all, its only about 4 grand, and after your extension your house must be worth maybe 300k.

Good luck

Rik
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susanna simmons
Posted: 23 February 2013 15:11:07(UTC)
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Thank you Alan - I was wondering why everyone was so concerned that I hang on the ISA particularly as it hasn't performed particularly well.
It seems that perhaps my best bet is to sell the non-ISAs immediately and then to look at investing the ISA amount a little differently - perhaps an Investment Trust such as you suggest.
The only other funds I have avaialble are:
720 Standard Life Shares
165 Barclays
£3000 in NSCI
and an old endowment which matures next January worth around £16K. I was anticipating that I'd probably use that to further reduce the mortgage as I'm not acually into taking big risks.

Thanks again for your help.
susanna



Alan Selwood;18154 wrote:
Susanna,

There isn't much left of your investments after taking out £10,000 so a lot of the comments made are not particularly relevant to you unless you have other investments that you haven't yet mentioned.

Hope you have a reasonable cash reserve for emergencies, quite apart from any money being talked about here.

You may find that cashing in ALL the holdings you listed and using the proceeds to slightly reduce the mortgage you need will be just as effective as retaining just a few thousand pounds in investments.

For sums invested such as you have or will have, a generalist investment trust would be my own choice - something like Murray International would cover most essential investment needs on a fairly global basis. A good spread and fairly low annual costs. Alternatively, one of the 'golden oldie' investment trusts like Lowland, Temple Bar, Scottish Mortgage, Bankers, or City of London could be useful, though all these are likely to invest more of your money in the UK and give you a bit less of a global spread. They are all very cheap to own and hold, and that should be better than paying high fees each year to a fund manager.

I don't see why everyone is making such a fuss about keeping a couple of £1000s in the ISA, since if you cashed it in, you could replace it by a fresh ISA each year in the future of over £10,000 p.a. if you have that much to invest.

Just sixpennyworth of comments from a long-retired financial adviser!

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Alan Selwood
Posted: 24 February 2013 15:48:14(UTC)
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Susanna,

A few more thoughts:
1. If you sell the non-ISA holdings immediately, it's worth double-checking where you stand in the current tax year (to 5/4/2013) re other disposals you might have made since 6/4/2012 that are subject to capital gains tax. You can cash in holdings in the tax year without c.g.t. charge if the total PROFITS taken in the year do not exceed £10,600.
It sounds quite probable that you would not have a liability this year from the information you've supplied, however.
2. Once we get to 6/4/2013, a new tax year's cgt allowance becomes available, of £10,900.
3. Your Standard Life shares and Barclays shares are, in my view, relatively, high risk, since they concentrate a fair bit of your investable wealth in the financial services/banking sector, which took a real pasting in 2007, followed by a sharp recovery from 'the pits'.
4. NSCs - these are no longer on sale, so you are holding a rare breed there! I personally would keep them if they are index-linked certificates, as protection against future inflation, but if they are fixed-rate, they are vulnerable to future rises in inflation.
If you are given the chance to roll over the existing certificates into a future issue of index-linked certificates, it's probably worth taking it up.
5. The endowment policy: don't cash it in before maturity, to avoid sacrificing the final bonus (if any). I have been a firm believer in NOT putting money into endowment policies or insurance bonds for about 20 years now, since they are not transparent to the investor, the payouts are controlled by the insurance company, not by the value of the investments held by that insurance company, and the charges are likely to be much higher than what you can achieve much more transparently elsewhere.
6. Mortgages are a minefield these days - so many different types. If you have any choice in the matter, study the options very carefully indeed. Read all terms and conditions, and ask the provider if you don't understand exactly what the benefits and drawbacks are.
7. Mortgages become cheaper if you can overpay and thereby reduce the amount owed faster, and/or reduce the term. Do look at offset mortgages if you have a highish salary coming in, because this type of mortgage allows you to reduce (each month) the outstanding amount on which you have to pay interest that month.

Hope some of the above helps!
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Guest on 25/02/2013(UTC)
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