Want 5% on £300k

Aegis

darkpool wrote: »

65% of 1.8% dealing costs is 1.2%, not a million miles from my guess of 1.5%

So TER is typically 1.5%. So all expenses are near enough 3% a year?

I still suspect that to be the high end of the half decent funds out there. Like I showed above, my own portfolio seems to average much lower. The PTRs average will, after all, include those of fund of funds, multi-manager funds, bank funds, insurance funds, etc, all of which I would expect to be worse managed than the simple ones with good management teams and strong track records of outperforming their benchmarks. Add into that the fact that you usually get annual charge rebates on execution only portfolios and the total annual charges on a portfolio of decent funds is probably still 2% or less.

I will concede that if you picked the funds entirely at random you might end up with some horribly bloated funds charging more than 3%, but again I would assume they are in the minority.

Also don't forget that the top turnover fund I mentioned had a track record of strong outperformance against its index, so again it's the issue of whether you get value for money: I certain have from that fund.

jamesd

darkpool wrote: »

top 10 holdings for perpetual high income. ehhhhmmmmm anyone really think a TER of 1.5% is worth it for holding ftse 100 shares?

Depends. What was not holding BP, RBS, Northern Rock and Lloyds worth? How about avoiding tech stocks a decade ago? The long term performance of the fund proves the point about it doing a good job compared to a FTSE tracker. It's well worth paying more than a tracker to get that extra performance after costs. And all performance is reported after all costs, including dealing costs.

darkpool wrote: »

we can all point at UTs that have a lower or higher PTR. But i think it safe to say that the average PTR is in the 100 to 200% range for actively managed funds.

I think it's not safe to say that given Financial Express reported as saying in 2009 that "The average annual turn-over for UK unit trusts and open-ended funds jumped to 90 per cent in the year to February 2009 from 50 per cent in the preceding 12 months. A year earlier, the figure was just 30 per cent". (90 + 50 + 30) / 3 = 57% but that's clearly higher than usual because of the unusual conditions in 2008.

uk1

Hi confusedsteve,

You said in your original post that you intended to draw 5% per year and you were a cautious to medium invester.

Might I suggest a slightly different approach and philosophy that works for me but may not work for many other people !

Firstly why not think of your £300k pot as a sinking fund rather than capital that must be preserved. In other words build a spreadsheet that shows you increasing the fund by x and decreasing it by your 5% and see when you run out of funds. X may be say 4% average of the life of the pot .... maybe a bit more. Unless you have consciously decided to leave cash for your kids or unless your partner is substantially younger than you - you may be prepared to accept a scenario where you deplete your fund faster than it grows. This is my approach and I'm happy with it.

Secondly, with something as important as my pension pot that I'm currently depleting as I'm a worrier I'm not prepared to risk the whole fund on gambling on equities. It is highly unlikely that you'll lose all your money but it is possible. Could you really cope with that?

I invest only in bank savings bond and accounts. I was able to lock a chunk of my cash into accounts that range from 4.5% to 6.25% and I accept that these rates are not currently available. Until recently I was achieving around 5% because of my gearing to funds I took before the interest crash.

But an option you currently have is to lodge your cash - say 75% - with a range of fund some say 2 years at around 3 - 3.5%. Then as the banks start putting the rates up you can benefit. You will be accepting a fund that is depleting for a year or two but then the rates may increase and go the other way.

In summary the combination of seeing my fund as a sinking fund and the lack of sleep loss with using bank accounts and bonds is the best option for me - and may work for you.

jamesd

uk1, what method of investing in equities do you propose that could lose 100% of the money invested? Do remember to think of the implications of 100% loss in a broad range of funds: you're claiming that just about every company in the country will go bankrupt. That's not a credible claim. A far more likely threat is high inflation that will devastate a pure sinking fund approach, while equities will largely survive that.

Planning for some reduction in pot value over time is a good idea for those who want to maximise the income they have during their lifetime.

Cash doesn't beat or even match inflation over the long term. It's a recipe for being a lot less well off than required to use only savings accounts. A combination of equity funds, corporate bond funds and cash on deposit can do a much better job of maintaining income and coping with a variety of economic possibilities.

For your own very cautious approach you might usefully investigate buying index-linked gilts at issue and holding them until maturity. They will provide a guaranteed inflation-protected income stream if you arrange varying maturity dates. The interest rates are terrible but it's still better than savings accounts for covering high inflation contingency cases. When available, NS&I index-linked certificates can also be a good option for shorter term inflation protection.

You could also perhaps consider some preference share, PIBS or directly held corporate bond funds. Rates available for those today go up to 8% or so and companies like Tesco or major building societies aren't very likely to go bankrupt and completely default on repaying their debts to bond holders.

uk1

Jamesd

I have expressed an alternative view to give the OP a wider range of options. I am not going to argue with you. I'd merely point out that incomplete advice - as your is - and advice that ignores the views of the person you have given it to - me - (without it being requested) and presumes a lack of knowledge or common sense - which you have done - is quite dangerous when so completely incomplete.

Let us be factual.

If a cautious long-term investor - like the op - had invested his £300k in a FTSE 100 tracker in November 1999 - having been bouyed up and encouraged by people like you - then if he had disposed of his fund in February 2009 then he would have seen a FTSE 100 drop from 6711 to 3830. This ignores charges. So even if he hadn't taken a penny out of his fund it would be worth just £171k after 10 years or so. If he'd waited and been patient in the hope of gaining back his paper losses and taken the fund today he would have grown his fund from £300k to £259k having waited for 12 years or so - ignoring charges and any cash he'd taken out. So perhaps my approach hasn't been so bad when the facts are scrutinised.

As it happens I had a real concern about the markets and took all my investments out of equities before the market took a dive and put the bulk into long-term 6.25% cash funds. Some of these expire in November this year. So where has my strategy gone wrong exactly? And I've not lost a moments sleep or risked a penny of my cash.

I think reponsible people give responsible alternatives based on facts and irresponsible people make rash generalisations.

jamesd

uk1, using the FTSE as a straw man argument isn't particularly productive. I didn't suggest it in 1999 and I haven't mentioned using it in this case either.

Use of only the FTSE or only cash savings accounts is inconsistent with the low to medium risk tolerance specified by confusedsteve. What his IFA has suggested is a combination of bond and equity income funds which appears to match his risk tolerance. I mentioned a range of bond, equity income, equity funds and cash that can also be combined with other investments to meet that risk tolerance target.

I'm happy to read that you took your money out before the crash, though sad that you didn't put it in again to gain from the recovery. But the strategy that you suggested wasn't go into cash before a crash. It was go into cash long term and I pointed out some of the main weaknesses in that strategy and how to protect against them.

darkpool

jamesd wrote: »

Depends. What was not holding BP, RBS, Northern Rock and Lloyds worth? How about avoiding tech stocks a decade ago? The long term performance of the fund proves the point about it doing a good job compared to a FTSE tracker. It's well worth paying more than a tracker to get that extra performance after costs. And all performance is reported after all costs, including dealing costs.

I think it's not safe to say that given Financial Express reported as saying in 2009 that "The average annual turn-over for UK unit trusts and open-ended funds jumped to 90 per cent in the year to February 2009 from 50 per cent in the preceding 12 months. A year earlier, the figure was just 30 per cent". (90 + 50 + 30) / 3 = 57% but that's clearly higher than usual because of the unusual conditions in 2008.

if i thought active fund managers avoided clangers like BP & banks i would consider the 3% annual fee worth it. But i've not seen any evidence that UTs etc were dumping BP a week before the oil leak. I've also not seen any evidence that active managers were dumping bank stocks a before the banking crisis. If they had been selling who would they sell to? They'd be playing "pass the share parcel" with other financial institutions.

I looked at the ft site this morning. it shows the free float of each listed company, it also shows the average shares traded in a day. assuming 220 trading days a year Glaxo shares are held on average 1.96 years, Tesco shares are held on average 1.57 years abd Vodafone is held on average 1.83 years.

These shares are typical Buy and Hold shares, yet they get traded on average every two years. A lot of private shareholders will buy these shares and keep them decades. ETFs aren't going to trade often. So it suggests active managers are trading at crazy levels.

be honest, do you think the term Total Expense Ratio is a misleading term? The average member of the public would assume that it included all charges. To me it seems at best misleading and at worst a downright lie.

mike88

There are at least three kinds of investors on here - those who are in thinking they can make a fast buck, equity investors saving for a long term purpose and those who have accumulated wealth and need to hang on to it for whatever reason either near or in retirement.

Each class of investor has specific views and where these cross over into other investor types scope for disagreement occurs.

For the first two categories it is generally fair to say that they are of a mindset to invest in equities. But some of the suggestions for people in retirement who must preserve wealth (simply because their income potential is long gone) are plainly ludicrous. Who in their right mind would invest every last penny they have on the stockmarket when they are in retirement?

The OP started off by seeking recommendations to achieve 5% growth on £300k. What he received was frankly some inappropriate suggestions. The only way forward is a mix of cash, cautiously managed unit trusts and bonds to combat inflation and to generate income. If the opportunity arises other investments might also be appropriate as long as such investments do not distort the investor's risk profile.

It seems to me that the occasional gung ho equity investor fails to appreciate stock markets can fall. Maybe they are new investors and have only seen gains. But markets do fall and those who are in retirement and need to preserve their wealth must as a consequence adopt a cautious and balanced approach. Apportioning their money between individual shares is to my mind a recipe for disaster as even large companies fail. I am perfectly happy to pay management charges - even 3% - if a fund performs well.

Take IP High Income as an example. A £10000 investmernt in 1991 is now worth around £125000 and a similar sum in cash is worth £16500. Are these charges justified? I believe they are.

uk1

jamesd wrote: »

uk1, using the FTSE as a straw man argument isn't particularly productive. I didn't suggest it in 1999 and I haven't mentioned using it in this case either.

You as I have learned always have an answer and are never wrong. I gave a factual example. Being rude doesn't make you clever or your arguments more cogent. You cannot even apparently understand clear English. Even when I had clearly said:

uk1 wrote: »

Hi confusedsteve,

It is highly unlikely that you'll lose all your money but it is possible.

You managed to make that mean

jamesd wrote: »

you're claiming that just about every company in the country will go bankrupt. That's not a credible claim.

You then built your whole argument based on something I hadn't said.

You will clearly do anything to win any argument - however important the repurcussions might be on the lives of those you're attempting to advise. So what is the point of having attempting a rational discussion with someone incapable of it.

jamesd

uk1,

uk1 wrote: »

with something as important as my pension pot that I'm currently depleting as I'm a worrier I'm not prepared to risk the whole fund on gambling on equities. It is highly unlikely that you'll lose all your money but it is possible.

jamesd wrote: »

what method of investing in equities do you propose that could lose 100% of the money invested? Do remember to think of the implications of 100% loss in a broad range of funds: you're claiming that just about every company in the country will go bankrupt. That's not a credible claim.

What other economic situation do you propose that could cause an investor in a broad range of funds, invested in many different countries, to lose all of their money, without also causing an investor in savings accounts to lose theirs?