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  • FIRST POST
    • Alan_Brown
    • By Alan_Brown 10th Mar 17, 6:46 PM
    • 173Posts
    • 232Thanks
    Alan_Brown
    Cheapest platform for trackers
    • #1
    • 10th Mar 17, 6:46 PM
    Cheapest platform for trackers 10th Mar 17 at 6:46 PM
    Hi,

    I have £170k in a Sipp and after dabbling with a few managed funds and different shares, I now want to put the proceeds in low cost trackers and leave them alone. I'm with Hl at the moment but going forward I don't want to be paying their larger platform fees when all I'm doing is investing in trackers (though I do know that HL negotiate special commission rates on popular trackers, and understand that the overall costs need to be taken into account, not just platform fees).

    For info, I'm 49 later this year and as well as the SIPP I have a small DB Pension (worth £4k a year) and also a DC Pension with my current employer worth £32k (this is the only Pension that I'm contributing money to).

    I'm looking to invest the pension and then leave it while I sort out my other finances (especially my mortgage) with the hope of retirement between 60 and 65.

    Any help would be greatly appreciated.
    Last edited by Alan_Brown; 12-03-2017 at 7:13 PM.
Page 2
    • Triumph13
    • By Triumph13 11th Mar 17, 10:47 AM
    • 986 Posts
    • 1,145 Thanks
    Triumph13
    The Guyton-Klinger rules that I like formalise taking money from equities when high to put into cash to draw on when they are low. Worth a look.
    Originally posted by jamesd
    Thanks James. I'll take a look as I've also played about with that kind of idea, but not come to any conclusions. What I really want is a relatively simple and low stress method that I'll find easy to live with. If the markets are down I'd rather have less to spend that fret about whether they'll recover before my cash runs out, but if there is a good mechanistic process I can 'fire and forget' then I'll be happy.
    • AnotherJoe
    • By AnotherJoe 11th Mar 17, 3:46 PM
    • 6,537 Posts
    • 6,959 Thanks
    AnotherJoe
    Because I'd like to sell a fixed percentage every month and that would be the cheapest way with HL. By selling a fixed percentage I get the equivalent of pound cost averaging rather than try and time the market and guess at which point of the year to sell.
    If I'm on a platform with dealing charges I'll probably end up settling for quarterly, but monthly would be my ideal. A lt of it is psychological that if I try and time the market then see it go up immediately after I sell I know I'll get grumpy.
    Originally posted by Triumph13
    That wasnt really my question.

    As I read your intentions, you would sell ITs, with the money buy funds, and then immediately sell the funds again albeit in a drip fashion. Thats what I don't understand.

    If you accept the fact that it is much better to have a cash buffer of a year or two
    , then whatever your intentions were in doing that, thats unnecessary anyway, since you would either sell down from ITs/ETFs, or from your cash buffer. I dont see any point in going through funds for a few months.

    This is absolutely solid based on numerous studies backtested against 100+ years of market performance. Its really no more difficult to manage than selling direct and its far safer because it avoids you being hugely penalised by a sudden sharp drop.

    Each period* you ask, "did the market rise" - yes, sell some, if necessary, top up cash buffer. No, draw down from cash buffer. Many more possibilities about how much to draw down and when to top up etc and what to sell, which shares (typically the ones that went up the most) but even as simplistically as I put it thats far better than just selling off whether the market is up or down.

    The difference could be huge, I read a study last month, in some scenarios it made the difference between running out of money after 30 years and still having your initial pot even though you took more out !! And if your response was to say " I dont care if I run out after 30 years", then you could draw down more money using this mechanism and retain the same level of risk.

    * a period could be whatever you want, for some it might be a year, others a quarter. Monthly seems to frequent to me as you are making decisions based on "noise".
    Last edited by AnotherJoe; 11-03-2017 at 3:50 PM.
    • Triumph13
    • By Triumph13 11th Mar 17, 6:25 PM
    • 986 Posts
    • 1,145 Thanks
    Triumph13
    I think the point you've missed is that I'm always selling a fixed percentage rather than realising a fixed cash amount each period. The money cannot run out after 30 years and there is no sequence of returns risk.
    I am very happy to agree that what you propose beats anything based on taking an even, indexed income from fund sales, but that isn't what I'm trying to do.
    Doing it as I proposed the shorter the periods the better as you are not reacting to noise, you are ignoring it - mathematically it's pretty well the same as making regular even contributions instead of timing the market during the accumulation phase. You wouldn't want to save up your money and make one annual contribution as it exposes you to more risk.
    I will definitely have a good look at things like James' G-K methods, but at the end of the day it seems they DO add more risk to the mix than my method (the risk that a downturn is so prolonged you exhaust your reserves and have to make bigger sales at the bottom), albeit with a higher overall expected return on average. I think if I was going that route I would feel the need to take a less aggressive asset mix to compensate. I may change my mind after more research, but at the moment I'm looking for a low stress route to maximum long term returns for inheritance purposes and I have plenty of headroom on my predicted income so can afford to play the long game.
    • AnotherJoe
    • By AnotherJoe 12th Mar 17, 7:45 AM
    • 6,537 Posts
    • 6,959 Thanks
    AnotherJoe
    There is still a sequence of returns risk, in that the amounts could end up being very small, which is practically speaking, equivalent to running out of money.

    That is, assuming the purpose of this is to get money to use and not just a theoretical exercise, I'd assume you wish to maximise the money you have available to draw down from and this spend ? E.g. Let's say with your very simple method 3.6% means you remove £1000 a month but with the modified method you can remove £1250 a month using the same %, and still not run out, then it would seem curious not to implement a simple mechanism that gives 25% extra increase. That is the sort of margin GK and similar methods provide.

    Currently you are discussing variations in the minor costs of selling funds in one way or another which amounts to a single % or so, whilist ignoring a 25% boost that's available for very little extra work. You can still use your same fixed % but that should provide more actual money since longer term it's coming from a bigger pot.
    Last edited by AnotherJoe; 12-03-2017 at 7:49 AM.
    • Triumph13
    • By Triumph13 12th Mar 17, 8:49 AM
    • 986 Posts
    • 1,145 Thanks
    Triumph13
    There is still a sequence of returns risk, in that the amounts could end up being very small, which is practically speaking, equivalent to running out of money.
    Originally posted by AnotherJoe
    Exactly the same can be said about GK methods, only more so as GK uses a step function to reduce income through the capital preservation rule rather than a smooth function.

    That is, assuming the purpose of this is to get money to use and not just a theoretical exercise, I'd assume you wish to maximise the money you have available to draw down from and this spend ?
    It's not a theoretical exercise, but nor are your assumptions correct in my case. Like your assumptions, GK is based on maximising the lifetime spending power for a given level of risk and with no weight given to any inheritance motivations. As previously stated inheritance is one of my principle motivations and I am looking for a means of taking a modest income from a portfolio in the meantime.
    E.g. Let's say with your very simple method 3.6% means you remove £1000 a month but with the modified method you can remove £1250 a month using the same %, and still not run out, then it would seem curious not to implement a simple mechanism that gives 25% extra increase. That is the sort of margin GK and similar methods provide.
    GK and co are achieving this extra income by trying to reduce the 'risk' of ending up with loads of money unspent at the end of the sequence. For me that is not a risk, it's a primary target.

    Currently you are discussing variations in the minor costs of selling funds in one way or another which amounts to a single % or so, whilist ignoring a 25% boost that's available for very little extra work. You can still use your same fixed % but that should provide more actual money since longer term it's coming from a bigger pot.
    As above, GK doesn't really provide loads more actual money, it just shifts that money from residue to annual spending. For very many people that would be very valuable indeed. For me it is not. A fixed percentage withdrawal probably better fits my personal aims, although I will experiment with modelling modified versions of the GK capital preservation and prosperity rules based on the excess / shortfall in portfolio value post withdrawal when compared to CPI on the original portfolio value as I think there is probably value to be found here.
    • StellaN
    • By StellaN 12th Mar 17, 9:51 AM
    • 139 Posts
    • 38 Thanks
    StellaN
    Cavendish online have just announced they have cut their SIPP rate to 0.25 and if you have a total of £200K in pension and Isa's it is down to 0.20!
    • AnotherJoe
    • By AnotherJoe 12th Mar 17, 12:16 PM
    • 6,537 Posts
    • 6,959 Thanks
    AnotherJoe
    Even going much less sophisticated than GK, simply having a buffer of a year or two, and drawing from that in down years, will statistically will leave you with more money at the end (which is your aim, correct?)

    Whatever your aims are, be they take more money, leave more money, or balance the two, the only thing that simply taking out a fixed % from equities every year will achieve, if there is no buffer for down periods, is leave you with less to withdraw and less to leave as an inheritance.
    • zagfles
    • By zagfles 12th Mar 17, 2:07 PM
    • 11,857 Posts
    • 9,810 Thanks
    zagfles
    Even going much less sophisticated than GK, simply having a buffer of a year or two, and drawing from that in down years, will statistically will leave you with more money at the end (which is your aim, correct?)

    Whatever your aims are, be they take more money, leave more money, or balance the two, the only thing that simply taking out a fixed % from equities every year will achieve, if there is no buffer for down periods, is leave you with less to withdraw and less to leave as an inheritance.
    Originally posted by AnotherJoe
    I'm sure this would work well for some sequence of returns, eg typical UK/US stockmarket where prices go up gradually with the occasional big dip followed by a quick recovery. There a cash buffer which you draw on in the dips is clearly a winner.

    However if you get a prolonged bear market, eg as we've seen in Japan for quite a lot of the time since 1989, then it'll give a worse outcome, since by delaying selling when the market has gone down, during a 2+ year bear market your cash buffer will run out and you'll be forced to sell at an even lower price than if you just sold annually regardless.
    • Triumph13
    • By Triumph13 12th Mar 17, 3:43 PM
    • 986 Posts
    • 1,145 Thanks
    Triumph13
    If you use a cash buffer then the question during a downturn is how much of it do you spend? If you keep going at your previous rate or using GK to reduce by 10% after a 20% fall then you will have depleted your overall funds by more than just sticking with the fixed percentage - which puts you in more trouble in a Japan situation. You also have to factor in the drag on returns caused by having such a big cash buffer. It is by no means the clear cut situation you seem to think it is Joe.
    • green_man
    • By green_man 12th Mar 17, 4:05 PM
    • 182 Posts
    • 76 Thanks
    green_man
    This thread has got me thinking. I too had dismissed HL as too expensive for my SIPP money, but if I used ETFs instead then I could keeps costs low as it seems to be cheap for providing drawdown etc.

    Currently my pot is with my company pension DC in a very low charge (0.08%) multi asset global fund. But my pension does not support drawdown. My intention was to transfer some (or all) of this fund (approx 550k) to a provider supporting drawdown. And start drawdown from 55 at £1100 per month - to stay tax free.

    I guess I need to research ETFs to see if these can give what I want and at what cost. I may leave about 1/2 in my company scheme if I can just to take advantage of the low charges.

    Bizarrely I contacted Halifax last week with some queries about SIPP costs and got a reply instead from Barclays, so now I'm confused - can anyone enlighten me?
    • Asghar
    • By Asghar 12th Mar 17, 4:39 PM
    • 80 Posts
    • 36 Thanks
    Asghar
    Just wondering, where do Hargreaves Lansdown take their 0.45% platform charge from, do they sell off some units in your invested fund(s)?
    Or do you get billed separately?
    • zagfles
    • By zagfles 12th Mar 17, 5:40 PM
    • 11,857 Posts
    • 9,810 Thanks
    zagfles
    Just wondering, where do Hargreaves Lansdown take their 0.45% platform charge from, do they sell off some units in your invested fund(s)?
    Or do you get billed separately?
    Originally posted by Asghar
    They take it out of the cash in your account which you're likely to have from dividends, tax credits, loyalty bonuses etc. If you don't have enough cash they sell part of your biggest holding IIRC.
  • jamesd
    With an inheritance objective and GK you can have a specified minimum final capital value as well as having whatever extra is left based on meeting income targets. It doesn't have to be a drain everything in the worst historic case approach.

    Guyton's sequence of return risk reduction approach might also interest you, since that was found to reduce risk and would help whether you're taking a percentage or using the GK model.

    You don't have to because purist using GK even after you've followed it's rules and depleted all of your cash and all of your fixed interest investments, which it does before selling equities that have decreased in value. You could switch to percentage or estimated dividends then if you wanted to.

    One thing worth understanding about the various drawdown safe withdrawal strategies is that they are expected to work whenever you start them and you can switch or restart one whenever you like.
    Last edited by jamesd; 12-03-2017 at 6:31 PM.
    • AlanP
    • By AlanP 12th Mar 17, 8:42 PM
    • 773 Posts
    • 530 Thanks
    AlanP
    This thread seems to have gone a long way from the OPs question which related to building a pension pot, not spending it.
    • point5clue
    • By point5clue 13th Mar 17, 8:05 AM
    • 31 Posts
    • 3 Thanks
    point5clue
    Hopefully a little more 'on topic' (only just) - ERNs thoughts on a cash buffer rather than just having a bigger pot an hence a lower withdrawal rate for a given income...

    (if I'm not allowed to post a link search for 'Early Retirement Now' and look for cash management in early retirement...)

    https://earlyretirementnow.com/2016/10/26/cash-management-in-early-retirement/
    • AnotherJoe
    • By AnotherJoe 13th Mar 17, 9:14 AM
    • 6,537 Posts
    • 6,959 Thanks
    AnotherJoe
    Thats the one I recall P5C thanks, which comes to the conclusion that a 2 year buffer was best, much better than no buffer, and that if it was diminished you gradually topped it up (4 months worth at a time) rather than replenishing in one hit.

    That anyway is what i read it to say, unfortunately it doesn't concisely summarise its findings at the end (or beginning)
    • Sally57
    • By Sally57 13th Mar 17, 10:00 AM
    • 66 Posts
    • 15 Thanks
    Sally57
    Cavendish online have just announced they have cut their SIPP rate to 0.25 and if you have a total of £200K in pension and Isa's it is down to 0.20!
    Originally posted by StellaN
    So Cavendish are now a very viable option for people with total investments over £200K for 0.2%!

    They also use the same Fundnetworks platform as Fidelity!
  • jamesd
    That earlyretirementnow post isn't good and should largely be ignored:

    1. It falsely asserts that the 4% rule is doomed because it doesn't use the correct equity-bond mixture which the 4% rule is for. The real 4% rule investment mixture is OK, though definitely stressed.

    2. No bonds, so it's either sell equities or hold cash. Should be some bonds in there both for rebalancing and to draw on when equities are down.

    3. No bonds and US shares reduce the natural yield so the cash runs out faster.

    4. No bonds so it presumably isn't using Guyton's sequence of returns risk taking approach, which further improved performance/success rate.

    The result is a too high two year cash suggestion when one year or GK should be used. One year topped up by the natural yield will last longer than most downturns because the yield is likely to be around 3.5-4% for UK investors. Even using 3% and drawing 6%, one year is a couple of years worth before bonds get touched.
    Last edited by jamesd; 13-03-2017 at 5:39 PM.
    • Cardinal-Red
    • By Cardinal-Red 8th Apr 17, 9:44 AM
    • 583 Posts
    • 114 Thanks
    Cardinal-Red
    Coming back to the OP's point (as fascinating as the rest of the thread was!) am I right that for an investor like me, using Cavendish is a no-brainer in relation to the platform fees?

    My situation is I have a SIPP worth about £40k invested in 8 individual tracker funds (Blackrock and Vanguard only) which I plan a quarterly contribution to which I will spend on rebalancing the portfolio to my planned allocations.

    No shares or ETF's in my current plan. It is held with HL purely for historical reasons, though I do like their platform.

    Aware of the current drawdown restrictions, but I am 38 and so it's not a huge issue right now.

    Most of my pension contributions will go through Salary Sacrifice into my employer scheme, so I can't see my SIPP getting up towards this £200,000 level, though of course plans may vary!

    What other factors have people used in choosing their platforms?

    And if I choose to switch, would it be a case of liquidating my holdings, transferring as cash, and re-buying? Seems to be a £25 charge instead of £200 for transferring in units?
    The above facts belong to everybody; the opinions belong to me; the distinction is yours to draw...
    • bigadaj
    • By bigadaj 8th Apr 17, 7:16 PM
    • 9,157 Posts
    • 5,854 Thanks
    bigadaj
    Have you run the numbers through snowmans spreadsheet, at that sort of level you are getting into fixed fee provider territory. So someone like iWeb or interactive investor, basic provision but much cheaper.
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