£150,000 Investment - Investment Bond maybe?

dunstonh

Oh yes it does. Dealing fees, stamp duty etc are charged to the investor, and shockingly the FSA does not require these implicit charges to be revealed.

If you are going to disclose implicit charges for the running of the fund at that level, you may as well go the whole hog and get implicit charges on savings accounts disclosed as well.

Fact: A contract that charges no switching fees (which is the majority of investment bonds) means you do not get charged a switching fee.... funnily enough. If you switch £100,000 out of a fund then £100,000 will be purchased in the replacement fund and the immediate value will be £100,000. And for the really dim amongst you, the difference is nil.

They add 1% on average to charges on top of the TER.In some cases where there is very high portfolio turnover (churning) - you see it in foreigfn funds more often - the charges add 2 or even 3% to the TER.

Consumer switching accounts for a very small amount of the cost. Clerical Medical disclose TERs in their funds and you can get a decent low risk spread with a 1.2% TER.

EdInvestor

I am not referring to switching charges.The costs I mean are the internal fund costs, the so called "implicit" ( hidden) charges which are not included in the AMC or the RIY.

Good explanation in the pensions commission report See page 14 onwards.

These charges consist of

Dealing charges to the stockbroker (when buying and selling the shares)
Bid offer spread
Price impact
Stamp duty

They add approximately 1.3% in costs to a fund or pension investment annually, so the total reduction in yield on a fund with an AMC of 1.5% is actually 2.8%, almost double the "explicit" - revealed charge.

This is why it's really hard for the public to make money out of investing via the system: more than half of the returns are going into the pockets of the City and the rest of the suits over a period of 25 years or so, when you add together both types of charges, as the report points out.

dunstonh

This is why it's really hard for the public to make money out of investing via the system: more than half of the returns are going into the pockets of the City and the rest of the suits over a period of 25 years or so, when you add together both types of charges, as the report points out.

Why is it then Ed that on this thread you are saying its hard for people to make money on funds but on another thread this morning you told someone that they had made an excellent choice on two funds they had picked?

EdInvestor

Most people are not in those funds, they are in rubbish funds which perform according to the kind of figures put out by the regulator, eg 6%, 7.5%, 9%.As you can see, at this type of growth you will lose at least half the money in implictit and explicit costs.

Those funds you mention have much better returns.Even so, after an investor has seen them in action for a while, I would suggest he consider moving over to direct holdings of shares (such as in a lower risk HYP) so he can stop paying the charges.

It's particularly helpful to do this at retirement, because it enables the investor to get all the dividend income from the investment to pay his living expenses.

In funds, a substantial chunk of this money is usually confiscated by the fund manager to pay all the hidden costs and thus the investor is forced to dig into capital for income, as in the investment bond scenario.

But to beat inflation long term, you want to be able to leave your capital alone if possible, not depend on it for income*. If you are withdrawing it all the time, all you need is a market downturn, or even low growth for a couple of years, and you can find yourself on the slippery slope.It's too risky.

*Or not for very long anyway - there may be an argument for using it for a while if someone is made unexpectedly redundant (say), can;t find a new job but can't access his pension(s) until a few years later.

Chrismaths

Ed seems to believe that the way to invest is to minimize costs AT ALL COST.

Therefore, you should never spend £1 to make a tenner.

Ed doesn't believe in rebalancing your portfolio (as this incurs costs), she believes that fund managers should never sell a stock if they think it is overvalued, or buy one if it is undervalued. She has posted before that she believes that the market will rebalance your portfolio for you - possibly the most stupid thing I have ever seen her post. Therefore according to Ed the only sensible strategy (for anyone investing in equities) is a HYP, and never selling anything in it.

Ed doesn't understand risk, or taxation. She gives financial advice when she has no skills or knowledge to do so. I'm not bothered about her ignorance, I am bothered by the fact that she repeatedly posts incorrect, misleading information on this board - that the pros and even the more savvy lay people constantly feel duty bound to correct, meaning that every thread that is about investment bonds or investing (and many that aren't) degenerate into unhelpful, troll-like threads, that serve no useful purpose.

I think that Ed's heart is in the right place, but she is the perfect demonstration that a little knowledge is a dangerous thing.

whiteflag_3

Chrismaths wrote:

Ed seems to believe that the way to invest is to minimize costs AT ALL COST.

Therefore, you should never spend £1 to make a tenner.

Ed doesn't believe in rebalancing your portfolio (as this incurs costs), she believes that fund managers should never sell a stock if they think it is overvalued, or buy one if it is undervalued. She has posted before that she believes that the market will rebalance your portfolio for you - possibly the most stupid thing I have ever seen her post. Therefore according to Ed the only sensible strategy (for anyone investing in equities) is a HYP, and never selling anything in it.

Ed doesn't understand risk, or taxation. She gives financial advice when she has no skills or knowledge to do so. I'm not bothered about her ignorance, I am bothered by the fact that she repeatedly posts incorrect, misleading information on this board - that the pros and even the more savvy lay people constantly feel duty bound to correct, meaning that every thread that is about investment bonds or investing (and many that aren't) degenerate into unhelpful, troll-like threads, that serve no useful purpose.

I think that Ed's heart is in the right place, but she is the perfect demonstration that a little knowledge is a dangerous thing.

Well said ChrisM!

Back to the thread -looks like everyone assumes that its Scot Eqs onshore bond thats been recommended. If its the offshore version an awful lot of this thread is not relevant!

If the OP wants certainty of income the adviser might have been talking about the Aegon/Scot Eq 5 for life product?

Tiggs_2

EdInvestor wrote:

Most people are not in those funds, they are in rubbish funds

So an investment bond with a good fund is fine and one with a rubbish fund is.....errr...rubbish?

Its almost like saying the bond is simply a wrapper that holds underlying assets and its those assets which dictate the performance far more than the taxation and charges on the wrapper.

Pity no one has mentioned that before :rolleyes:

Cannon_Fodder

How prophetic dunstonh was..."Advance warning: this thread will no doubt turn into chaos....." !!

Whiteflag - never said that I am 40, did I, so I don't think 5 for life will work for me, at the moment...

Which are the two goods funds that you all seem to agree on...?!?

whiteflag_3

Cannon_Fodder wrote:

Whiteflag - never said that I am 40, did I, so I don't think 5 for life will work for me, at the moment...

QUOTE]


Glad to see that you know its for over 60s only!;)

Ps Dh has been round here long enough to know insurance bond = chaos

:rotfl:

Tiggs_2

Cannon_Fodder wrote:

Which are the two goods funds that you all seem to agree on...?!?

as i recall one of them was the Inv Pep High Inc. fund run by Neil Woodford.....which is handy as i have just set up £500k bond for a client using that fund for some of the holdings - nice to know Ed would agree its a great fund to have used!