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Passive Investing
Geraldine
Posted: 21 May 2018 15:24:45(UTC)
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I have my pension invested in funds via a financial adviser. I want to invest in passives to save on charges and manage myself but don't know where to start, i.e. how to break the money into various trackers and how much I should hold in each. Time wise I'm looking at 5 to 10 years and have about 300000 to invest.

Any advice would be most welcome.

Thanks
King Lodos
Posted: 21 May 2018 16:30:25(UTC)
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The simplest, safest, and most cost-effective choice would be to open an account with Vanguard, and put it all in the Lifestrategy fund of appropriate risk level (maybe Lifestrategy 60 or 80).

You'd probably want to open an ISA account to fill with this year's ISA allowance, and then a regular account for the rest.

However .. 5 to 10 years is not a 'safe' period of time to invest in stocks (or possibly bonds at the moment) .. Certainly 5 is too short – markets could be anywhere in 5 years time .. The only safe investments over 5 years would be bonds – and I think the 1.9% you can get on NS&I 3 year bonds at the moment would be about as good as you can do.


Just personally, over 5 years I might go:

£100,000 Vanguard Lifestrategy 100
£180,000 NS&I 3 year Income bonds @ 1.9%
£20,000 NS&I Income bonds @ 1%

And what I'd do is, every year, rebalance those allocations – by either selling stocks and buying NS&I bonds, or vice versa (using income and selling bonds) and buying more Lifestrategy 100 – so you maintain 1/3rd in stocks and 2/3rd in cash-like savings.


Over 10 years I'd do the same, but 50:50:

£150,000 Vanguard Lifestrategy 100
£130,000 3 year bonds
£20,000 Income bonds


That might be too conservative .. It depends how much you're likely to need that capital in 5-10 years time .. A worst case for stocks is that they fall about 70% – whether that's overnight, or over many years .. Rebalancing is a simple way to manage risk and generally do the right thing (buy stocks when they're cheaper, and sell when they're more expensive) .. An IFA might have you mess around with a lot more funds and asset classes, but between stocks and cash you can achieve whatever level of risk you need, sans fees

8 users thanked King Lodos for this post.
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Tim D
Posted: 21 May 2018 17:03:40(UTC)
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King Lodos;62603 wrote:
You'd probably want to open an ISA account to fill with this year's ISA allowance, and then a regular account for the rest.


Er... I think you must have missed the fact her 300K is in a pension (or at least that's how I read it). So transferring to a SIPP more relevant than ISAs and unsheltered holdings. (But then I think you'd need to reconsider the NS&I element... don't think those can be held in a SIPP?)
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Geraldine on 21/05/2018(UTC)
King Lodos
Posted: 21 May 2018 17:28:43(UTC)
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Well spotted.

The NS&I products can be held in a SIPP, but I don't know the formalities:
https://www.nsandi-adviser.com/sipps-and-ssass


What I'd really come back to is that there's basically stocks and cash, and an appropriate level of risk .. Maybe if it were me I'd go for more Lindsell Train and Fundsmith, but you certainly can't go wrong with indexing

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Geraldine on 21/05/2018(UTC)
Geraldine
Posted: 21 May 2018 18:03:58(UTC)
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Thank you very much for responding. I find this whole investing area can be most confusing. I'm looking at trying to reduce my financial fees as there will not be any more money going into the pension. I'm currently paying about 1.76 in charges which include the funds, platform and advice. Thanks again will look at the options.
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King Lodos on 21/05/2018(UTC)
King Lodos
Posted: 21 May 2018 18:22:31(UTC)
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I think if you're happy with where you are, that fee's not extortionate .. Good advice (I think Vanguard themselves calculated) can justify a 2% fee.

If you wanted to go the passive route, John Bogle's The Little Book of Common Sense Investing is regarded a classic for DIY investors
Richorse11
Posted: 22 May 2018 14:57:44(UTC)
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I am a great fan of trackers but like any investment vehicle they have their pros and cons. I would invest 50% in trackers and the remaining 50% in active manage funds. This will reduce your overall fees and cover all bases. If you do not know what you are doing I suggest you buy one off advice to set up the portfolio and then manage it yourself ongoing. . Hargreaves Lansdown will do this for you. I have a SIPP with them and its great. They provide loads of information and discounted fund charges and its easy enough to learn what to do.
Tony Airey
Posted: 22 May 2018 19:50:27(UTC)
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Geraldine

I believe that investing is a lot like dentistry - you can do your own if you're happy to endure the consequences.

I'd suggest you find yourself a stockbroker with whom you feel comfortable, and who has a verifiable track record.

Mine won't starve on what I pay them but neither will I on the over-performance they deliver.
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Geraldine on 25/05/2018(UTC)
Alan Selwood
Posted: 22 May 2018 21:43:08(UTC)
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I've just been watching a video of Leon Soros and John Lee talking about how to select good investments, and given their long-term performance, I can't imagine that they'd ever want to buy trackers instead.

For those who need to lean on a fund manager because they are too daunted to:
"apply common-sense,
buy companies where the directors hold meaningful stakes in actual shares, not options,
buy only profitable companies,
while ignoring those that are sold on a 'good story',
those brought to the UK market by firms in countries with poor corporate governance,
& mining stocks"

These managers got a good write-up:
Terry Smith
Nick Train
Mark Slater
Keith Ashworth-Lord
Those running Liontrust funds.
4 users thanked Alan Selwood for this post.
Stephen Garsed on 23/05/2018(UTC), Mike L on 23/05/2018(UTC), Jeff Liddiard on 23/05/2018(UTC), Geraldine on 25/05/2018(UTC)
raybd
Posted: 23 May 2018 07:55:40(UTC)
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Sounds like you need advice.
Don't rely on us amateurs, helpful though some may try to be.
Don't jump too quickly. Think of your future target and benchmark. Speak to your curent adviser and find what their targets/benchmarks were, and whether they were meeting them. It's not the cost, it's the value-for-money.
Spend the next year improving your knowledge (quality newspapers?) and in a better position to self-advise. Get into a postion to be able to monitor your own or an adviser's performance. Don't find yourself up a creek without a paddle.
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Adastra100 on 23/05/2018(UTC), Geraldine on 25/05/2018(UTC)
Adastra100
Posted: 23 May 2018 10:59:08(UTC)
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I totally agree with Raybd - don't jump too quickly. If at all, as you are talking about Pension Pots and you don't say if you have any other savings.

For what its worth, I went through the 'managed investments' stage in the early 90s because too busy at work to get involved and had an earlier lump sum redundancy payment of £100K. Spent 10 years reading the annual reports and watching the performance unrelated fees regularly debited and net worth meandering but started to get a feel for the Stock Market and the unincentivised activities of my Managing Company; but they did at least start to move my capital into PEPS and then ISAs . Early 2000 moved to HL and completed the transfer into ISAs and used some funds along with some existing equities which I had confidence in from my own earlier experience. Moved out of funds pretty quickly because of charges and share holding similarities with my equity portfolio once I had the confidence - a lot of which was gained from reading the Investors Chronicle since 1998 and business pages inc CityWire. (PS Not an IC employee!).

I now have a £400k portfolio, in two ISAs - mine and my wife's, which cost me £90 per year and earned me 6% tax free last FY. Your IFA would appear to have been charging the equivalent of £7K for that year's management which would have reduced my dividends received by 30%.

I have ridden out two significant market slumps and around five punishing company failures (HBOS, RBS, BP, Lloyds and Provident Financial) but should add my risk tolerance may be higher than yours, in main, due to having a DB pension which I now draw at 73.
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raybd on 24/05/2018(UTC), Geraldine on 25/05/2018(UTC)
Steve U
Posted: 08 June 2018 14:31:34(UTC)
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King Lodos;62603 wrote:
The simplest, safest, and most cost-effective choice would be to open an account with Vanguard, and put it all in the Lifestrategy fund of appropriate risk level (maybe Lifestrategy 60 or 80).

You'd probably want to open an ISA account to fill with this year's ISA allowance, and then a regular account for the rest.

However .. 5 to 10 years is not a 'safe' period of time to invest in stocks (or possibly bonds at the moment) .. Certainly 5 is too short – markets could be anywhere in 5 years time .. The only safe investments over 5 years would be bonds – and I think the 1.9% you can get on NS&I 3 year bonds at the moment would be about as good as you can do.


Just personally, over 5 years I might go:

£100,000 Vanguard Lifestrategy 100
£180,000 NS&I 3 year Income bonds @ 1.9%
£20,000 NS&I Income bonds @ 1%

And what I'd do is, every year, rebalance those allocations – by either selling stocks and buying NS&I bonds, or vice versa (using income and selling bonds) and buying more Lifestrategy 100 – so you maintain 1/3rd in stocks and 2/3rd in cash-like savings.


Over 10 years I'd do the same, but 50:50:

£150,000 Vanguard Lifestrategy 100
£130,000 3 year bonds
£20,000 Income bonds


That might be too conservative .. It depends how much you're likely to need that capital in 5-10 years time .. A worst case for stocks is that they fall about 70% – whether that's overnight, or over many years .. Rebalancing is a simple way to manage risk and generally do the right thing (buy stocks when they're cheaper, and sell when they're more expensive) .. An IFA might have you mess around with a lot more funds and asset classes, but between stocks and cash you can achieve whatever level of risk you need, sans fees



I've been investing in the Vanguard Lifestyle products - I notice their main holdings are other Vanguard trackers - does anyone know whether therefore you end up paying 2 sets of fees ?
Steve U
Posted: 12 June 2018 12:12:48(UTC)
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does anyone know the answer to this ?

I've been investing in the Vanguard Lifestyle products - I notice their main holdings are other Vanguard trackers - does anyone know whether therefore you end up paying 2 sets of fees ?

thanks in advance
Tim D
Posted: 12 June 2018 13:41:48(UTC)
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Steve U;63746 wrote:
I've been investing in the Vanguard Lifestyle products - I notice their main holdings are other Vanguard trackers - does anyone know whether therefore you end up paying 2 sets of fees ?


For Vanguard, the 0.22% OCF number (plus 0.08%-0.13% in transaction costs if you look at the KIID numbers) is "all in"... you're not also paying an additional layer of hidden charges in the component funds.
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Steve U on 12/06/2018(UTC)
King Lodos
Posted: 12 June 2018 14:34:56(UTC)
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It is more expensive than just going for a global index tracker from them .. They're taking quite a bit more for very light, semi-active management.

But with fees that low, it doesn't make much difference .. Fees compound like returns, and 0.2% returns don't compound much at all
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Steve U on 12/06/2018(UTC)
mark spurrier
Posted: 12 June 2018 18:48:52(UTC)
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Guys

If the benchmark return is 7% and the average charges are 1% you get 6% compound. If a fund compounds at 15% why does it matter if the fees are 3%. The only debate is value for money.

You are buying excess performance with managed risk. The absolute quantum of fees is not really the issue
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Jeff Liddiard on 12/06/2018(UTC), Harry Trout on 12/06/2018(UTC)
Peter59
Posted: 12 June 2018 20:06:21(UTC)
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Quote:
If the benchmark return is 7% and the average charges are 1% you get 6% compound. If a fund compounds at 15% why does it matter if the fees are 3%. The only debate is value for money.


Phew, that`s easy then. Perhaps provide us with the funds that will provide compound growth at 15%/year.
King Lodos
Posted: 13 June 2018 02:16:56(UTC)
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That's the thing: if you can pick the fund manager who's going to double the market return over the next 10 years, then you can say whether his/her fees are justified.

The passive argument is based on the idea that we can't estimate future outperformance – because the information that's going to dictate who outperforms and underperforms in the future isn't known yet.

I'm not too dogmatic on it .. I still hold RIT Capital Partners, because as expensive as hedge funds and private equity are, diversification itself has value, and it's not very easy to diversify at the moment .. But my most profitable investments this year have probably been individual stock holdings I'm paying nothing on (with Lindsell Train very close).
Chris Ould
Posted: 13 June 2018 10:00:08(UTC)
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King Lodos;63784 wrote:
I'm not too dogmatic on it .. I still hold RIT Capital Partners, because as expensive as hedge funds and private equity are, diversification itself has value, and it's not very easy to diversify at the moment


KL,

Private Equity trusts have gone off the boil recently, with discounts having lowered (as James Cathew pointed out). I know your a fan of HVPE, but how do you see the sector panning out over the near term?
King Lodos
Posted: 13 June 2018 12:45:23(UTC)
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I've only got about 1.5% in HVPE .. I cut it right down after a strong run a while back to what I'd consider a kind of holding position.

My feeling is the sector's expensive and it's difficult to deploy capital .. I think things could still have room to run, but overall I've been negative on the basis that pressure to deploy capital could lead to overpaying for things

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Chris Ould on 13/06/2018(UTC)
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