Returns from Tracker funds and how to invest in them.
Comments
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ceblackshaw wrote: »I still don't understand how HL can headline a return of 3.5% from an L&G fund that L&G themselves say will be 2.8% after charges. I suspect it is Gross -vs- Net debate but there is no clarity (that i can spot).
It has nothing to do with gross vs net charges. There are different charges even with the same Legal & General fund because there are different classes of the same fund that are available to different investors.
If you are talking about the UK Index 100 Trust then the FTSE 100 has a Yield of 3.60% which is the dividends companies pay out from some of their profits. So if the FTSE 100 index stayed flat throughout the whole year, the fund would still increase in value by 3.60% (with no charges).
When you invest direct with Legal & General, you are investing in the R Class of the fund which has a minimum lump sum amount of £500 or £50 monthly. This R Class of the fund has an ongoing charge of 0.82%, this is taken from the income the fund receives from the company dividends. So from an overall FTSE 100 Yield of 3.60% you are left with growth of 2.80% within the fund.
When you invest with Legal & General via Hargreaves Lansdown or other platform providers, they are able to invest in the C or I Class of the fund which have a minimum lump sum investment of at least £1 million. This C & I Classes of the fund have an ongoing charge of just 0.10%, so again taken from the income you are now left with growth of 3.50% within the fund.
Platform providers are able to access the Classes of the fund with the lowest charges because they pool everyone's money and have much larger sums to invest. So even with the Hargreaves Lansdown 0.45% platform fee it is still cheaper to invest in the UK Index 100 Trust via them.
If you are investing in a managed (non tracker fund) then these have higher ongoing charges anyway and it's normally cheaper to go direct.0 -
Forgot to add that although you are getting lower fund charges and a Yield of 3.50% by investing via Hargreaves Lansdown, with the 0.45% platform fee which you are paying them, the effective Yield to you would be 3.05% after all the fund and platform charges.
There are cheaper platform providers like Charles Stanley Direct who only charge a fee of 0.25%, so you would be left with an effective Yield of 3.25%.0 -
Asghar - are you sure? HL discount the L&G fee from .1 to .06. I thought the rest of the L&G charge (0.72) was not management fee but fund costs (trading etc). In which case HL return would be much less as those costs would also be included before value was sent to HL. I can see how HL get a discount on the management fee from L&G for bringing such large investment. But I cannot see how they get a discount from the fund costs (if they do anyone investing direct is getting a very raw deal). But that was the nub of my question. I think I've had replies saying HL get 3.5-0.06-.45. And replies suggesting they get 2.8+.04-.45. Not sure how to get a definitive answer! Thanks for your time though (Asghar and all who have replied).0
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Go for a Global index tracker...not FTSE 100.
Don't bother looking at the value of FTSE share indices or any other index while you are investing (I assume that is what you mean by "follow")...this will make you think "short term" instead of "long term". What are you going to if the FTSE falls 20%, sell? Don't!If you want to be rich, live like you're poor; if you want to be poor, live like you're rich.0 -
Thanks Bravepants. Good advice. I'm still trying to get a clear picture of charges at the moment. Very opaque. I agree I need a broader portfolio of investments.0
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Normally you'd expect the process for new investments to work something like this:
1. Understand your goals / purpose
2. Look at timescales and risk appetite
3. Figure out an asset allocation that should deliver 1. within the constraints of 2. Possibly revisit 1 and 2 if necessary.
4. Assess which tax wrappers to use
5. Select a set of investments consistent with 3 based on suitability and cost but mostly suitability.
6. Assess which platform(s) offer the best solution for holding 4&5.
You seem to be approaching this in almost the exact reverse order.0 -
Not really AndyT678 - this thread is about 6. I have my answers to 1,2,3,4. I'm working on 5 and when I get to 6 I want to know the costs. I find it VERY hard to find the costs and to compare platforms. I agree the process - but I don't agree that the actions for each step cannot be overlapped. The decision may be made in the 1 to 6 order but the "staff work" to enable the decision depends on the lead time to get clarity.0
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You really need to do some more reading as you don't appear to understand the basics of investment principles.
With respect to investment platforms then the cheapest percentage brokers are around 0,25%, this can be beaten by fixed fee providers if you have sums to invest larger than the low tens of thousands, depending on how much trading you do.0 -
ceblackshaw wrote: »
BUT. HL charge a platform fee of .45% so overall they will be much less than buying direct.
Why not buy an Exchange Traded Fund (ETF) and avoid that?
HSBC, Vanguard, Blackrock, all do FTSE100 ETFs with annual charges below 0.1%
HSBC Euro 50 is only 0.05%“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair0 -
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