How does one compare index-tracking ISAs?

[fivemack]

The aim is, in the further reckless pursuit of responsible frugality, to put £100 monthly into an index-tracking ISA. I presume that I can do this despite having put £3000 into a mini cash ISA this tax year.

So I google for 'index-tracking ISAs', and get the impression that these are less well-catalogued by independent sources than cash ISAs; fool.co.uk has a list of index-tracking ISAs consisting entirely of sponsored links. Google is a little better, and I come up with a few fund-management companies and grovel around further.

M&G Index Tracker A	0.30% annual charge	Tracks FTSE All-Share; "dividend type: distributing"; "regular saving scheme: yes"
L&G UK Index	0.53% annual charge	Tracks FTSE All-Share; doesn't say anything about dividends
Fidelity Moneybuilder UK Index Fund	0.1% management charge	Tracks FTSE All-Share; doesn't say anything about dividends; minimum investment "500, top-up 250"

This would seem to be an easy decision, so I must be missing something. I can't work out what 'dividend type: distributing' means: obviously I want dividends to be reinvested.

On a third hand, given how the pricing of computers and cameras has historically behaved just after I finally decide to buy them, and how the pricing of equities has historically behaved just after I lose confidence and sell everything, maybe I should stay in cash until the unprecedentedly well-correlated set of handbaskets that seem to be making up the international markets proceed up the roller-coaster


to that place where all handbaskets are proverbially destined.

Comments

[stephdairy.livejournal.com]

With Legal and General there's a choice of Accumulation Units or Distribution Units. Accumulation Units do the reinvestment thing, whereas Distribution Units pay out your net income by BACS.

(S)

[vicarage.livejournal.com]

Avoid L&G, they made a complete mess of my Tessa. One of my top 5 most hated companies.

I've been with M&G for 15 years, and they are very good. They reinvest my dividends

[aldabra]

When you find a good ISA will you tell me what it is please?

[fivemack.livejournal.com]

For cash, I have at the moment a Barclays Tax Beater Cash ISA, which pays 6.5% tax-free on £3000 but will probably automatically switch to a lousy rate on 31 March 2008. Though I gave them a cheque to fund the account three weeks ago and they haven't cashed it ... the man in the branch claimed that the account would be funded as of the date I filled in the forms and they'd cash the cheque rather later, but it still makes my current account look rather odd.

I'm still waiting for various companies to write back to me when I ask for an actual schedule of charges; M&G's advertised 0.3% turns into 0.46% (there's a Management Charge, an Administrative Fee and an Estimated Custodian Charge, of which only one appears in the adverts).

[papersky.livejournal.com]

You want to extend that graph to ten or even better twenty years, but you're absolutely right that buying at the top is seldom a good idea. Is this the top? Well, could be.

The best basic financial advice, after "don't ever have more than a third of your investments in the market", is "don't micromanage". Think in terms of the long term. Short term (5 years is short) money should be in the building society or in gilts or GIBs.

Fidelity run a set of managed unit trust portfolios. Look at their twenty year performance if you want a decent comparison.

Of those three, I'd be looking at the M&G, but I'd also be looking to see if Friends Provident do one and if so how theirs compares. They were doing ethical investment (and making a bomb at it) before anyone else.

Not a FIMBRA member. (But heck, what can they do to me at this distance?) Information out of date. Never had any capital, so knowledge entirely derived from experience with other people's money. Close cover before striking. Do not baboon.

[fivemack.livejournal.com]

Friends Provident seem to want to sell me life insurance or a pension - I've already got a pension, and life insurance seems unnecessary if I have no dependents. Their Web site raises innavigability to an art form, and whilst their list of funds (PDF) (http://www.friendsprovident.co.uk/doclib/xinv16e.pdf) has an attractive picture of a respectable-looking white-haired gent relaxing in a rowing boat on the cover, it also indicates that they want to charge 1.35% annually for the privilege of owning their UK index tracker.

Bonds seem to have no advantage over keeping the money in good savings accounts in the current market, though I suppose 3.65% tax-free (http://www.nsandi.com/products/fisc/rates.jsp) actually means 6.08%. But I would not be amazed if interest rates rose to the point that a best-buy Internet savings account paid more than 6.08% by 2009.

Not babooning.

[carbonel]

Any chance you could put this behind a cut tag? It's doing weird things to the width of my page.

[fivemack.livejournal.com]

I've made the PRE bit into a table, and that seems to have fixed your page.

[arnhem.livejournal.com]

The cashier in the Cambridge B.S. today was trying to entice me into something that doesn't appear to be listed on their web site, and so presumably is another financial service provider's product that they're pushing (annoyingly, I didn't check the advertising bumph I was shown closely enough, so don't know whose it was).

It claimed to be a 3 year ISA-able bond (no withdrawal in that period; you can transfer to it from an ISA, and on maturity back to an ISA) with a 10% guaranteed rate tax-free, but FTSE-tracking as well (and mutterings of "up to 30%" associated with that).

I don't think I'd particularly care if it never went above 10%, to be honest (although I suppose that base rates could easily go there in the next three years, so perhaps it's not even quite as good a deal as it appears).

[arnhem.livejournal.com]

Ah, a bit of googling suggests that, even if it's not the same thing, it's probably indistinguishable from this.

[arnhem.livejournal.com]

At which point this motley fool article is probably worth a quick skim.

I've also seen a bunch of criticisms of the more general category of index-tracking bonds, suggesting that you have to look very carefully at the small print (things like five year bonds where the start ftse rate is the average in the first year, and the end ftse rate is the average in the last year, magically giving you a five year bond that measures four years of ftse growth ...). Admittedly that's a problem that's specific to bonds, rather than the more general tracking products ...

As far as I can tell, bonds have the advantage of being (I was told) do-able within the cash half of the ISA thing ...

[fivemack.livejournal.com]

That deal pays 10% over the three years, not 10% a year; 3.2% annually is deeply unexciting, especially since, as you say, cash is likely to be paying 6% by the autumn.

30% over the three years in the event of the stock market going up perhaps a further 50% from where it is now, which is about 9% annually, doesn't really impress me.

Thanks for the Motley Fool link; I tried to figure out how this kind of offer works in terms of atomic financial instruments several years ago, but knew neither enough financial terms nor enough financial people to work out the answer. It looks like a way of arbitraging the difficulty that mortals have in trading options and bonds.

[arnhem.livejournal.com]

Goodness, I read it even less carefully than I'd thought I'd done (but I did have a little voice going "that's implausibly good for a safe bet" in the back of my head 8-) ).

The motley fool link is good, isn't it? I don't mind financial institutions getting their slice, but it's nice to understand the mechanisms they use.