Is is actually a bad time to open a stocks and shares ISA with share prices being at a record high?

[Snowbell]

A question for those who know more than me! I have some money to invest and want to open a stocks and shares ISA before I lose my allowance for this year. Am I right in thinking that this is a bad time to buy shares when prices are high. The one I am thinking of opening is a tracker ISA with about 30-35% invested in shares and the rest bonds/property, etc. Should I open the ISA but avoid buying shares for now and change the mix later? Or do the share prices being high mean that market prices for other types of investment will have gone up as well? Or should I just use the cash park facility in the ISA for now so I don't lose my allowance?

You can put your money in a cash ISA if you want, and transfer it to a S&S ISA when you get round to it. However you may be quite slow in getting round to it.

Or, since interest rates are negligible, you may as well put it into a S&S ISA as cash now and dribble it into investments as and when you feel like it.

Or, if you've decided that you want to invest in equities, you might as well get on with it rather than hoping you can outwit the market and guess the best time.

I wouldn't entirely agree that prices are at an all-time high. The FTSE100 is a tiny bit higher than it was in December 1999. Since that time there has been inflation. If my salary returned to what it was in December 1999 I wouldn't think that was very good. There are always things to worry about. Today it is the collapse in the oil price (if you are an oil producer, but not if you are an energy consumer such as a brick or cement maker) and Mr Putin's military adventures (if you are a meat exporter but not if you are a tank maker).

p.s.

Trackers are extremely cheap to run. However some have high charges, for the benefit of the managers, not the investors.

Annual charges in the 0.1% to 0.2% are readily available.

Make sure you know the charges and the tracking error of the scheme you are looking at. You say it includes bonds and property so I think it is not really a tracker.

Can you read this article? www.investorschronicle.co.uk/2014/12/03/funds-and-etfs/unit-trusts-and-oeics/tracker-funds-surge-in-popularity-as-providers-cut-fees-inNndd4EjILbdG2ynuQrKP/article.html

quote:

"Source: Legal & General Investment Management

Vanguard's fee cuts took effect from 1 September. The ongoing charges of its index funds now range from 0.08 per cent to 0.38 per cent, although for some funds you have to pay a purchase cost to compensate for Stamp Duty Reserve Tax expenses."

I invest a lot in the stock market. I always wait for a dip (e.g. The last time I put new money in was last October). There is always a dip. If you want a tracker, I would wait until the last possible minute and the take out a cash ISA in the interim if there is no dip. I'm not going to add new money until the market drops to at least 6600.

Having said that, if I needed to use up an ISA allowance this year, I'd bung it into a European fund (I'm in Jupiter and Henderson) ASAP.

I'd suggest getting the account opened but just putting a token sum in for now. You have five weeks until the end of the financial year, plenty of time to pay in money IF the account is ready to go. This may not be quick if they decide to do ID checks on you.

there are introductory offers of a year without management charges, and as noted you can get very cheap trackers.

Thanks for your advice everyone. I'm going to open it with cash and invest it at a better time.

This mighty be the start of the dip...

Easy access Cash ISA - best rate is only 1.5% now. Stock market indexes seem to be high but not all shares are expensive. Go for global giants such as HSBC and Shell. They pay about 5% dividend yld based on recent prices. Both operate in v challenging environment now but they are global champions that can whether this. I would not touch Tesco. If u have ever been to lidl or aldi u won't be going to Tesco.

...and it wasn't the dip...

Firstly, I agree with you that markets are looking a little overheated...I expect a sell off in the second half of the year (just my opinion!).

I also disagree with Taz1212 - Europe is looking weak to me, I would look at funds with heavy exposure to Singapore ;-)

An ISA is just a wrapper - you could put it into one fund which is low risk (bond for example) and then more it into a higher risk (equities) one once you are happy with the level of the market.
Have you looked at the Nutmeg ISA - nutmeg.com? You can decide you level of risk and they will select the equity/bond country sector blend for you.

It is not possible for anyone to say with any certainty whether the market at any time is at a high or a low in the context of the future. And we only make decisions about the future.

To avoid the risk of investing at a high compared to the immediate future, then invest over a period of time (pound cost averaging) rather than in one go. You wont get the accidental reward of unwittingly investing now at a low compared to the immediate future, but that's down to your attitude to risk.

Generally inflation looks under some control, Eurozone inflation and growth will be low and so interest rates may be under some reasonable control for 10 years or so. That favours a growth market.

Anything can happen of course. There is always the unknown.

Really hard to "time the market" - so many factors in play - both known unknowns (e.g. when will interest rates start going up again?) and unknown unkowns (e.g. errr???).

Whatever you do, there is a risk of high regret. Do nothing, market goes up, it will hurt to eventually buy at a higher level. Go full in, market goes down, it will hurt to see that paper loss (remember a gain or loss is never crystallised until you sell again).

That's why savvy investors (and academic research supports this) do something called "pound cost averaging". Let's say you want to get invested over the course of a year. Divide the amount you invest into twelve and invest (eg in a multi-asset fund) in 12 equal lumps each month.

That way you are likely to be invested at the average level for the year, rather than a particularly good or bad day. If it's a lot of money, you might want to do it over 2 years (so divide by 24).

Most DIY investment platforms allow minimum monthly "regular savings" of £50pcm, so in theory you can do pound cost average if investing £600 (£50 x 12) or more.

Pound cost averaging also means you are taking a disciplined approached to investing rather than being driven by mood/headlines which is a sure way to get hurt.

I generally don't bother trying to time the market either, although like Taz I will buy if I think that a particular share looks undervalued. I did well buying Tesco last year when they looked too cheap at £1.80 and selling a couple of months ago when the price recovered, but that's the exception for me and it's not for the faint-hearted.

I just buy good quality shares for the long term and try to balance my portfolio across different sectors. I buy stuff I understand, e.g. retailers I think have got their offering right, manufacturers with decent brands or engineering businesses with good technologies. I buy some ETFs, which work best for investing in different global sectors in my view.

You might end up buying near the top, but if your strategy is 'buy and hold' then a good share is worth buying for the long term. It's not just about the increase in the share's value: you also get the dividends and the real gains come from reinvesting those.

I look at the PE ratio. It tells you how many years you'll have to wait to make your money back in dividends. Too high and the stock may be overpriced. Too low and it's either a bargain or the business is a dog. You have to look at the overall picture and trust your gut.

Good luck.