In 2023, singer-songwriter and Time Magazine’s Person of the Year Taylor Swift became a billionaire and, while I’m a long way off such a feat, my stocks and shares ISA didn’t perform too badly.
The new year is an opportune time to review your finances. I’ve now held a single fund in my ISA since I opened the account almost five years ago. This is the minimum period that traditional investing wisdom suggests you should hold an investment to ride out inescapable ups and downs of the stock market. There have certainly been some big dips over the past few years, notably the pandemic. You can read about how I invested through that turbulent period here. The question now is: how has performance fared over the full five years, and is it time to make any changes?
My current fund Vanguard LifeStrategy 80% Equity has a solid reputation. It’s a multi-asset, globally diversified tracker endorsed by interactive investor that appears on its Quick-start funds list, designed for anyone who wants to begin investing.
In 2019, when I opened my first stocks and shares ISA, I liked the fund’s easy-to-understand nature and low cost – you can invest in the fund for just 0.22% a year. So, for every £1,000 you invest, it costs £2.20 every year plus your platform charge (wherever you hold your ISA). If you invest your money with a provider such as interactive investor, which charges a flat fee, the cost you pay remains the same as your investments grow. If you are paying a percentage fee, you pay more in fees as your pot gets bigger.
In 2024, I still plan to invest regularly. I like the fact that every month the money leaves my bank account and that’s it, job done. Low maintenance is very much my idea of a good investment. And I’m free to revise the amount up or down according to circumstances.
Regular investing also frees me from the need to stage some delicate manoeuvre and try to time the market with a lump sum. With monthly investing, I know that when markets are in the doldrums, my money buys more units of my chosen fund, and when markets are soaring, my money buys fewer units. This is known as “pound-cost averaging”, to use the jargon, but just means that the level you invest at averages out over time.
Little has changed in terms of aims for my ISA. It’s earmarked for “retirement/moving house”. Both are a way off, so the fund’s risk level feels appropriate, with an 80% weighting to shares (the racy part) and a 20% weighting to bonds (the Steady Eddie bit, usually).
I’ve written before about my long-term time horizon, which means I really don’t spend any time worrying about day-to-day market volatility or checking my balance. Instead, I put my trust in the power of compounding (earning returns on the original investment, but also on the returns themselves). So, staying invested is my long-term strategy.
2023: how was it for you?
In the UK, inflation was still in double digits in the first quarter, and it proved to be a cruel summer, with interest rates peaking in August at 5.25%, their highest since the 2008 financial crisis. Higher rates walloped growth stocks and mortgage holders rolling off low fixed-rate loans. Abroad, the Magnificent Seven tech stocks helped the S&P 500 rally, while other global markets, including India, delivered eye-popping performances despite war raging in Ukraine and the Middle East.
- How I plan to invest my ISA allowance in 2024
- Why you should think twice about making a big move to cash
But the impact on my Vanguard Life Strategy 80% Equity tracker fund, good or bad, is mitigated by its diversity. And if the market really tanks, like it did during the pandemic, it’s only a problem if you need to pull your money out at that very moment. Otherwise, you can leave the investment to recover, and remain fearless in the face of yo-yoing markets.
Investment returns: am I in the red?
This year, (from 1 Jan 2023 to 31 Dec 2023), my fund returned 11.83%, according to FE Analytics. This is a very good return if you compare it to what top savings accounts are offering.
From the day I opened my ISA (1 April 2019) to date (4 January 2024), my fund has returned 35.7%, which is roughly 6.3% annualised. I’m satisfied with this, given this includes the Covid crash. And it beats the return I would have made if my money had been held in cash and not in an ISA tax wrapper, especially given double-digit inflation and low interest rates experienced for much of those five years.
Source: interactive investor. Past performance is not a guide to future performance.
Is there a blank space to fill in my ISA?
I like the simplicity of the Vanguard fund too much to give it up, so I doubt I’ll seek a new investment for 2024. My day job means I’m surrounded by information on different funds and investment trusts, and I can’t pretend I’m never tempted by some of them, but I just prefer Vanguard’s low-cost, low-maintenance offering.
The fund is exposed to thousands of companies in both developed and emerging economies, meaning its diversification is impressive. It even has a 19% interest in UK stocks, just in case we do see a domestic recovery this year. So, in the words of Taylor Swift, I won’t be shaking it off just yet!
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
Please remember, investment value can go up or down and you could get back less than you invest. If you’re in any doubt about the suitability of a stocks & shares ISA, you should seek independent financial advice. The tax treatment of this product depends on your individual circumstances and may change in future. If you are uncertain about the tax treatment of the product you should contact HMRC or seek independent tax advice.