The next Banking crash?

[JohnD]

do share divs get a better per centage return than cash savings?

Some do, and British companies more than most.

However this is not necessarily a good thing.

Look at Total Shareholder Return.

For example, you buy 1000 of company X for £1 each.

A year later, you have received 4p each in dividends

And the price is £1.01

I buy 1000 of company Y at £1 each

A year later I have received 2.3% in dividends

And the price is £1.10 each.

Bill bought 1000 shares in company GXO and received 6.5% dividends

And the share price dropped by 31%

Outside UK, it is widely thought that a company making decent profits should invest in itself for future growth.

In some cases, it would be better not to. For example you own one (and only one) coal mine or nuclear power station which is approaching the end of its life, or a Lottery concession which is about to expire.

 

[motorbiking]

Exchange traded funds are basically shares of shares.

Say you want to invest in the FTSE 250. i.e the top U.K. 250 companies. And you have 10k to invest.

You have the option of dividing your 10k in to 250 little pots and buying each stock, asking the nice man at the bank to sell you an expensive managed fund or you buy 10ks worth of LON:MIDD. Which tracks the U.K. FTSE 250.

The last option will be cheaper.

There are plenty of share accounts that allow you to set up a stock ISA. And typically, you will out performs savings ISAs. ETFs tend to be lower risk, lower growth than buying one stock. But all the normal warnings apply.

As an example the FTSE 250 hasn’t performed well in the last 5 years. But long term it’s pretty good.

 

[JohnD]

Some ETFs are Trackers, which hold a number of investments intended to track the rise and fall, of an index.

Not all Trackers are ETFs, and not all ETFs are Trackers.

Tracker funds typically have very low charges, because do not claim (usually falsely) that they can outperform the index, and therefore cannot justify high charges. They are automated and cheap to run.

Investment charges greatly erode the long term performance of actively managed funds. The investment industry likes to claim that a lucky, sorry, successful fund manager can outperform the index, but in any five- or ten-year period you care to name, actively managed funds, as a whole, fail to do that. And you can't forecast which of them will be lucky, you can only point them out afterwards.

For private investors, low-cost trackers are your best bet. Vanguard offers a wide range and good value.

If you have some reason to think that the UK economy will outperform its peers, you can buy a FTSE100 tracker (the largest UK companies, many with an international bent), or a FTSE250 tracker (large, well-known companies); or if you think Europe will do better, you can buy European, or International, or Developing countries, or various others.

Some are Distributing, meaning they pay out the income they receive, and some are Accumulating , meaning they reinvest it. My preference is for Distributing, but instruct them to reinvest it into my account. If I find I need it, I have the option to ask them to send it to me.

 

[motorbiking]

Something we agree on. 100%

The benefit of having it in your ISA is that the dividends are also tax free.

 

[noseall]

Looks like it might be Deutsche Bank next.

Perhaps a good time to call in their loans.

 

[JohnD]

As an illustration, this chart shows some popular indices from a date in 2016 until last Friday. Rebased to zero, the right-hand scale shows percentage change over the period. The green line is an ETF that has done tolerably well, though you would not have known that for sure at the outset.

Performance in future may be different.

If you had bought individual shares, you might have done better or worse than the index. Possibly dramatically. An index tracker can be expected to follow the index very closely.

 

[JohnD]

Here is a comparable chart for the 7 years before that, when the brown line (FTSE250) did much better, thanks to outperformance up to 2014.

The green line is for a different investment.

 

[JohnD]

Something we agree on. 100%

The benefit of having it in your ISA is that the dividends are also tax free.

" ...Each tax year, you get an allowance where you can put money away to protect it from tax or get perks (like a 25% bonus towards a first home). Here are some key ISA need-knows...."

Cash ISAs

https://www.moneysavingexpert.com/news/2023/03/martin-lewis-isa-warning/

Investments ISAs

https://www.moneysavingexpert.com/savings/stocks-shares-isas/