Question
I have a number of shares in a trading account which is being transferred into interactiive Investor platform. Most of the shares are in Blue chip dividend paying companies eg Vodafone, Astra, Centrica, Tesco, I was looking at UK equity funds and noticed that a number of them have more or less the same shareholdings as I have in the trading account.
I wonder if you could give me pros and cons of having individual shares or sell them and buy a good UK equity fund?Answer
Of course. The main advantages of using funds are convenience, diversification and fund manager expertise.
It's convenient as you don't have to bother monitoring your shares and decide when and what to buy and sell. A fund manager does this for you and if they're good they might make you more money overall versus doing it yourself. Funds also typically hold around 50 or more shares, reducing the impact of any one company, and provide easy access to overseas markets which can be tricky to trade yourself.
A less obvious potential benefit is tax efficiency, provided the shares are held outside of an ISA and the sums are large. Every you time you sell shares and make a profit it's subject to capital gains tax (if total net gains over the tax year exceed your annual allowance, £10,600 for 2012/13). Share trades within a fund don't suffer this tax, it instead applies when you sell the fund itself at a profit. Obviously, this is less relevant if you seldom trade.
On the downside, you'll have to pay the fund manager, which could cost around 0.75% or more a year, and they might turn out to be not very good (many aren't) - making you less money than had you just carried on holding your shares. Plus it's rare for a fund manager to disclose all their investments, you'll usually just be shown the largest 10 holdings (updated monthly), so a fair amount of trust in their approach and abilities is required.
You could consider a lower cost tracker fund (costing around 0.3% a year) which simply tries to mirror a stock market index such as the FTSE 100. This will contain the blue chip shares you mention and avoids the risk of a fund manager's 'expertise' actually destroying value. The main thing to bear in mind is that most indices (including the FTSE) are weighted, that means the larger companies and sectors dominate the index hence your investment too - the 10 largest FTSE 100 companies usually account for around half the Index.
I have a number of shares in a trading account which is being transferred into interactiive Investor platform. Most of the shares are in Blue chip dividend paying companies eg Vodafone, Astra, Centrica, Tesco, I was looking at UK equity funds and noticed that a number of them have more or less the same shareholdings as I have in the trading account.
I wonder if you could give me pros and cons of having individual shares or sell them and buy a good UK equity fund?Answer
Of course. The main advantages of using funds are convenience, diversification and fund manager expertise.
It's convenient as you don't have to bother monitoring your shares and decide when and what to buy and sell. A fund manager does this for you and if they're good they might make you more money overall versus doing it yourself. Funds also typically hold around 50 or more shares, reducing the impact of any one company, and provide easy access to overseas markets which can be tricky to trade yourself.
A less obvious potential benefit is tax efficiency, provided the shares are held outside of an ISA and the sums are large. Every you time you sell shares and make a profit it's subject to capital gains tax (if total net gains over the tax year exceed your annual allowance, £10,600 for 2012/13). Share trades within a fund don't suffer this tax, it instead applies when you sell the fund itself at a profit. Obviously, this is less relevant if you seldom trade.
On the downside, you'll have to pay the fund manager, which could cost around 0.75% or more a year, and they might turn out to be not very good (many aren't) - making you less money than had you just carried on holding your shares. Plus it's rare for a fund manager to disclose all their investments, you'll usually just be shown the largest 10 holdings (updated monthly), so a fair amount of trust in their approach and abilities is required.
You could consider a lower cost tracker fund (costing around 0.3% a year) which simply tries to mirror a stock market index such as the FTSE 100. This will contain the blue chip shares you mention and avoids the risk of a fund manager's 'expertise' actually destroying value. The main thing to bear in mind is that most indices (including the FTSE) are weighted, that means the larger companies and sectors dominate the index hence your investment too - the 10 largest FTSE 100 companies usually account for around half the Index.
Read this Q and A at http://www.candidmoney.com/askjustin/826/should-i-swap-shares-for-a-fund
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