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STOCKS & SHARES ISA

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Nobody likes making mistakes.  It became clear quite quickly that I had made one with my timing and choice of investment but it’s taken me five and half years to act on this realisation…

My feeling is that while I cannot recover the money lost, I can consider this as a ‘purchase’ of experience and insight but only if I reflect and analyse and thus learn/benefit from my ‘investment’.  Writing this post is my attempt at claw-back and catharsis.

Please read the following purely as a cautionary tale NOT advice on investment – I’m certainly not one to follow in that regard.

My reason for writing now, is because I have just sold my meagre holding and belatedly fully awoken to the impact of fees.

My first, and only, foray into the market was inspired by the prospect of getting premium quality shares at ‘once in a lifetime’ bargain prices.  This was made possible by the turmoil in the financial markets that appeared, in 2007 after 15 years of solid growth, to be a blip and, therefore, an opportunity.  This it most certainly was, but not for me.

Luckily, I did not have much money to invest, so my total losses were small in absolute terms but were total as a percentage of investment.  A large factor in this loss are the various fees associated with opening, running and closing a stocks and shares based account/ISA.

The first thing to be aware of is that there are fees that apply to the ISA package itself and seperate fees that apply to the stocks and shares.  The second thing is that the fees levied on the shares are applied to each seperate share holding i.e. BP shares are one holding, Barclays shares another, and so on.  The third is that fees will accrue at every stage in the lifecycle: buying, holding, selling the shares; and opening, transferring, closing the ISA.  The fourth is understanding that fees come in several forms: flat-rate, percentage, fixed, variable, etc.  Also bear in mind that charges tend to increase over time.

So, ignorant of these considerations, on one day back in August 2007, I bought a total of 191 shares with between 1 and 91 shares in 7 different companies, over 3 different market sectors (banking, utilities, and food retailers).  All blue-chip, at a bargain, expecting the markets to rally in a few months time.

Misreading the severity of the market situation is not the mistake that rankles most.  The one that causes me most chagrin is my not understanding what an impact the fees would have on profitability.

I recently decided to close my ISA.  I sold 4 of my 7 share holdings.  Each transaction cost a flat-fee of £12.  The remaining 3 holdings were of values less than this flat-fee meaning if I tried to sell them, I would actually owe the broker!  Luckily, the ‘Share Gift’ scheme allows the free transfer and donation of these (technically worthless) shares to charity.

This illustrates how dangerous a flat-fee is when the volumes or values are small – far better to use a percentage fee in such cases.  Where a flat-fee is of benefit over a percentage based fee, is when the volumes are much higher i.e. £12 fee for buying 1,000 shares is better than a 3% fee on 1,000 x £1 shares (£30 fee).

I don’t recall the exact amount, but each of my 7 purchases will have incurred a buying fee.  If the ‘buying’ fees were the same as the ‘selling’ fees, then each one of these transactions also cost me £12.

Thus, buying my 1 RBS share cost me £12 (d’oh!) and would have cost another £12, when I came to sell it, had I not given it to charity.  But, this is not the end of the woe.  Simply having the investment ISA incurs a fee, whether it holds one, or a million shares.  At Barclays Stockbrokers, this rose over the years to £18 for every six-months.

Therefore, these 7 purchases cost me £84 in buying fees; I paid £198 to hold them (£36 per annum over 5.5 years); and paid £48 to sell 4 of them.  Sub-total £294.  The final indignation was having to pay a further £60 to close the ISA.  Grand total £390 paid to Barclays in fees.

Over this period, I received an average of £9 in dividends every six-months; a total of circa £99. So, in summary, in August 2007 my shares were worth £1,023.  I sold what I could in February 2013 for £261. I incurred total fees of £300.  Therefore, total losses were £1,053 (£762+£390-£99).

A cautionary tale.

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