Is this the worst way to start an ISA?

So this started out as a bit of a shorter post for today, although it hasn’t ended up that short. As I was staring out of the train window this morning, I was reflecting on the Go T’ Pub ISA setup and if I could have got things any more wrong!

Smiling to myself as I reflected back on the last few days and my mind wandered, I was glad I was looking out of the window rather than round the train itself, so that people didn’t give me a lovely new jacket that allowed me to give myself free hugs all the time.

For those who have been following know that I have setup the rules, selected a provider and have kicked off the preparation (although I should probably reduce the size of the image there… note to self).

This was the first time I have started to look in anger at it, and my cash ISA transfer has been completed.

So the first thought I had was more around timing the market. Right now the markets are very high, so is it really sensible to be investing now? Well, there were a few scenarios I thought of – the main thing to remember is that I see this is a long term investment – i.e. I will be keeping this going for 5 years as a minimum (it will depend on growth of various portfolios as to what I do).

Scenario 1: A major stock market crash at the beginning

So, in the first year suppose there is a major crash and all my money put in halves in value. So, I will have lost money on the investments I have made so far, but the joy of regular investment means I will just be buying more stocks for the same money. The likelihood is that then the market will go back up so the overall portfolio would nicely grow. So for me, no real risk provided I keep the drip feed of money going in.

Scenario 2: A major stock market crash just before I need the funds

So, the worst possible scenario for almost anyone – all those years of building up a nice diversified portfolio, only to see it halved by circumstances outside of your control. Take it to the extreme and assume that the market remained static during the years of investments you lose half the investment. Well not quite – don’t forget all those dividends reinvested.. The minor fluctuations, the dividend reinvestments means that the portfolio will still have grown. And if it crashes on the last day? That is a paper value – hopefully the dividends will continue, but even if there is a year without any, I would have a couple of years cash for a safety blanket so really, it shouldn’t matter in the slightest as then things would have gone back up (just look at the changes from the financial crisis – I haven’t looked at dividend payments during the great depression as yet).

Scenario 3: Some random combination of the first two

So otherwise it would be some random combination of the above. Well… who cares! Either way the money will be flowing in steadily, so a crash or drop at some point is bound to happen given how long this bull market has been going. That just means more shares  when it’s down, and less when it is higher.

One thing I believe is that I am mentally prepared this time for the investment. I know it sounds odd, but I am mentally just forgetting about the money – it goes out of my account just after payday and the purchase is automated so I don’t even need to log into the account to check on cash availability. The only time I am really expecting to check it will be on the month end update. Whilst I will update my DigitalLook portfolio page to show both portfolios, for some reason our work connection is blocking the login so I can’t check even if I want to!

The Cash ISA #%&* up….

So I thought to share this for peoples amusement. As I am mentally set that the GTP ISA to take VWRL ETF I don’t really think properly, least of all on a Friday. This was demonstrated very well when I purchased my stock with my Cash ISA transfer.

I logged into my account, very much on autopilot, and saw the funds. Great! So this was my first opportunity to try out the Selftrade purchase method. The stock portion of the Go T’ Pub ISA was ready to start! So I went ahead, as excited as a little kid (or even a big kid) with some new Lego (make it Star Wars related Lego and even more excitement!). I promptly bought up some VWRL.

I then slammed my head against my desk, called myself some very rude words, and went to get a fresh mug of coffee.

I then came back, promptly sold the VWRL (yes, taking a double hit on trading costs). If you want a “How to lose money trading” I don’t think I could have demonstrated this any better.

So having thrown away some money I then bought the Investment Trust I was planning to with that money (to be revealed in the month end update for this ISA) – taking yet another hit on trading cost, as well as the usual stamp duty. This means that the Stock comparison of my Cash ISA has taken a massive up front hit. Well, I guess that will show people in a few years what the difference may be.

There is a silver lining – it would appear that, unlike TD Direct, Selftrade allows you to reinvest dividends in an ETF, so of course I will look to automatically reinvest even though I was looking to hold the cash. I won’t complain at that!

I hope that at least put a smile on your face on a Monday!

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Author: fireinlondon

Fighting the high cost of living in London

4 thoughts on “Is this the worst way to start an ISA?”

  1. Isn’t that the worst! That’s always my worst nightmare… Hitting that buy button only to later find out there was an error. I make online transfers frequently between my brick and mortar bank and online high yield savings account and I’m always afraid I’m sending the money the wrong direction or there’s an extra zero! Glad yours was fixable with only modest fees.

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    1. Hi JW,
      Yes I was furious! I am normally really careful – I usually transfer £1 first and make sure it has worked for bank transfers, and my bank is good at storing the details so once it’s done its always the same, but it was just a lack of thinking properly and trying to just quickly do it! As you say at least it wasn’t major – yes trading costs and spread costs, but in the scheme of things it’s not a lot!
      Cheers,
      FiL

      Like

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