Siv asks: “I plan to invest monthly £1000 for the next 10 years in an S&P 500 ETF. Which wrapper should I use S&S ISA or SIPP? Which platform or broker should I use to invest in?”

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Q&A 86 – Investing In The S&P 500 – Shownotes

Siv asks:

I am interested in Passive Investing. I have a lump sum of £5000 and plan to invest monthly £1000 for the next 10 years in an S&P 500 ETF. I already have exposure to UK markets in other forms.

Which wrapper should I use S&S ISA or SIPP? Which platform or broker should I use to invest in or what criteria should I use to decide to invest efficiently?

Hi Siv, Thanks for your question.

 

S&S ISA vs SIPP

You have literally hundreds of options here, so I’ll tell you fairly briefly what I would go for to achieve the aims you have laid out in your question, and why.

Firstly, S&S ISA vs SIPP. This will depend on your own personal circumstances and the answers to the following questions:

1. How much are you currently investing in your pension? And how much in your ISAs? You may be approaching investing limits as you said you are currently investing elsewhere.
2. What is the likelihood you need this money before you retire? You said in your question that you’ll be investing £1000 per month for the next 10 years. Why 10 years? Do you need the money after that time frame? Is that when you are retiring?
3. What is your current income tax rate? Are you in the basic or higher tax rate band?

The answer to these questions will dictate whether an S&S ISA or a SIPP would be the most appropriate tax wrapper for your investment.

You then ask which platform or broker should you use. For my S&S ISA, I currently use SVS Securities, as they charge a flat rate trade fee of £7.95 per trade.

For the actual investment in the S&P 500 EFT, you need to make the decision of what currency you want to invest in. You can either buy a GBP based ETF or a USD based ETF. Which you buy will depend partly on why you are buying it. Is it because it’s an investment in the US markets, is it as a currency hedge between the pound and dollar, or is it a combination of both?

 

 

Which ETF to choose?

Either way, you shouldn’t be paying fees on your ETF investment of anything over 0.1% in my opinion. As an example, Vanguard’s S&P 500 ETF has an ongoing fee of 0.07% per annum.

As far as how often you top up your investment, remember that each purchase of £1000 will cost £7.95 for the trade, which is equal to 0.8%. The annual average return is slightly under 10% on the S&P 500, equal to a monthly return of around 0.8%. Therefore, if you earn a good return on your cash outside of your investment, it may be slightly better to invest £2000 every other month rather than £1000 every month, but it doesn’t make a huge difference either way.

To conclude, based on your question Siv, I would probably go Vanguard S&P 500 ETF, purchased through SVS in a S&S ISA account. However, the right answer for you will depend on the answers to a lot of questions you’ll need to ask yourself first.

Hope that helps Siv, and speak to you all again next time.

 

 

 

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