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?”
Q&A 86 – Investing In The S&P 500 – Shownotes
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:
- 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.
- 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?
- 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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