How To Open A Stocks and Shares ISA in the UK.
My goal here at Helping The Little Guy is to get ordinary people, like you, to care more about your money and to help you receive a higher rate of income than you would otherwise find from the list of Individual Savings Accounts currently being offered.
Looking at the aptly named website, money.co.uk, the best UK interest rates with no fixed terms on the Cash ISA’s are:
Ford Money, 1.11%
Skipton Building Society, 0.90%
Royal Bank of Scotland, 0.25%
What a depressing list! I’ve already mentioned previously that with inflation at 2.40% (Reduced today from 2.50% previously), you’re losing money no matter what option you choose! Now let’s get you a solution you can appreciate and implement within minutes!
Before I open an account, what are the fees I can expect to pay?
If you would like to learn about investing and want to have a more hands-on approach. You can buy any UK & International shares, investment trusts, exchange-traded-funds, venture capital trusts, gilts and bonds for a fee of 0.45% maxing at £45 a year. So once your account grows to £10,000, you’re paying the max of £3.75 a month even if you grow it to over a million!
For UK shares it’s £11.95 per trade plus Stamp Duty, for everything else it’s just the £11.95. If you’re investing monthly into a company you like, you can avoid the £11.95 trading fee and pay just £1.50.
If you want to be a passive investor and don’t care about the stock market or how to analyze businesses. You just want to save monthly and focus your time on other things, you’ll pay 0.45% on the account up to £250,000 then it gradually reduces from there.
Since you’ll be investing in index funds (the cheapest and have no manager, they track entire markets), there will be no trading charges, you’ll just pay the fee to own the fund you want, which is as little as 0.04%.
Opening Your Stocks and Shares ISA
First, you have to find the right broker to open your account with, you can browse the list of Investment ISAs on the money.co.uk website, or you can go with my recommendation and choose Hargreaves Lansdown. Not only are they the largest in the UK but also have the most products available to investors, they are also among the cheapest when it comes to fees due to being able to undercut their competition.
Luckily they have provided a quick video on how to open an account so I’ll provide that for you below! It’s literally as easy as providing your bank details and home address! Please remember to pick the “paperless” option so you’re not charged for paperwork. You will have 2 passwords, a login password, and a trading password, DO NOT forget them!
Once you’ve opened the account it can take 24-48 hours before you’re able to login so don’t panic! I would recommend you don’t put any money into the account when registering, there will be an option to put money in at a later date.
OK, I’ve opened the account, now what do I do?
After you’ve waited for Hargreaves Lansdown to open your account and you can log in, click on your Stocks and Shares ISA and there will be a tab called Monthly Savings. If you want global diversification it can be done for £125 a month, but you can manage on £25 a month until your financial situation improves, I suggest putting £5 a month in the “Cash to be held” column so it pays for the fee’s taken for handling your account.
You’ll then want to click on “Change” for the month and then click on “add a fund” 5 times, all of these will be funds by Legal & General so select all of them. You’ll then want to scroll down and select the 1s individually so it’s exactly as what you see here.
If you can only afford to buy 2, then I suggest the UK Index and International Index Trust, so save £50 a month and £5 a month “Cash to be held”.
You have a choice to make, if you want all income to be reinvested into the funds, select the Accumulation funds, if you want all income to go into your bank account, select Income funds. You shouldn’t need the income from your investments until you plan to retire, as that’s how the growth works by reinvesting the income. However everyone’s financial situation is different so do what you think is best.
Why have you chosen these funds for me?
That’s a good question since you should be asking where your money is going! If you’re not then I’m slightly worried! I’ve provided the links in the table for you to browse, you can check out the size of the funds, their performance over the years, the top 10 holdings and what countries the money is allocated in. I cant spoon feed you all of the information, so take a look at where your money is going.
|Legal & General||UK Index (Class C)||UK Market||20.00%||0.04%||3.80%||Bi-annually|
|Legal & General||International Index Trust (Class C)||Developed Markets||20.00%||0.08%||2.00%||Bi-annually|
|Legal & General||Global Emerging Markets Index (Class I)||Emerging Markets||20.00%||0.33%||2.20%||Annually|
|Legal & General||Global Real Estate Dividend Index (Class I)||Real Estate||20.00%||0.20%||3.50%||Quarterly|
|Legal & General||Sterling Income Fund (Class I)||Bonds||20.00%||0.42%||3.60%||Monthly|
This is truly a global portfolio, as it represents more than 4200 companies all over the world! I’ve designed it based on Modern Portfolio Theory, the concept of getting the best returns possible with the minimum amount of risk.
You can see the historic performance of the different sectors below.
Image provided by novelinvestor.com
The only asset class missing is commodities such as precious metals or livestock, the performance has been abysmal and since it’s not a business, it’s not something you should be investing. Commodities are important for some businesses, coffee, for example, can definitely impact margins at Starbucks, Costa Coffee or McDonald’s if the price increases. It’s an asset class mainly for traders to speculate on prices and be in and out of a trade within a few days.
The only thing left for you to do is click on the Account Administration tab, Income Instructions, then you can choose to have the income automatically reinvested or paid into your bank account.
Important Reminder & Lesson
This is investing that I’m discussing with you, it’s not trading and you must understand this important difference. This isn’t a get rich quick scheme as you’re not going to be a millionaire overnight, but if you invested every month and ignore the scare tactics portrayed in the news, you will be very wealthy in retirement. Ignore stock market crashes when you see the markets fall by 50-70%, as that is the best time to invest more!
When we have Black Friday or Cyber Monday, you see everyone fighting to get the great deals at the stores! People are so excited to get discounts, the stores sell out their stock quickly and customers can be seen fighting over TVs! The stock market is the only place in the world where amazing companies are trading at a 50-70% discount and everyone panics and sells at a loss! Don’t be this person!
My Request To You
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