Investment Trusts (Russia & Japan markets)

Chrismaths

For someone like myself with £4K invested currently (possibly £11K from April this year), and likely to be several years before I get a reasonable portfolio value, isn't re-balancing an expensive exercise?

I mean, at £25 a go (£12.50 each to sell and then the same to buy again with my Selftrade account) you'd need a fairly decent investment size - or to have made significant gains - to make re-balancing worthwhile surely?

That's true - if you are dealing equities. If you use unit trusts or OEICs, you don't have dealing fees so that doesn't apply. If you use equities, then set a minimum threshold before you rebalance - say £2500, so then the dealing charges only represent 1% of the investment. This is almost certainly never going to happen with a £4k portfolio - one of many reasons I would be unlikely to consider equities with small investments.

Dunstonh - it's a Friday afternoon and I hope you won't get too mad if I ask the question: How do I determine my risk profile?

What we mean when we say risk profile, is are you willing to accept short (ie 1 year) or medium (say 1-3yr) losses in order to provide an increased potential long term return. It is one of the unbreakable laws of investing that there is no return (over the risk-free rate - in other words interest on cash) without risk. If you aren't willing to take some risk, you should stick to cash. If you are willing to take some risk, then you have to decide how much you could afford/would be comfortable risking over various periods to achieve better long term growth prospects.

YorkshireBoy

Chrismaths wrote:

That's true - if you are dealing equities. If you use unit trusts or OEICs, you don't have dealing fees so that doesn't apply. If you use equities, then set a minimum threshold before you rebalance - say £2500, so then the dealing charges only represent 1% of the investment. This is almost certainly never going to happen with a £4k portfolio - one of many reasons I would be unlikely to consider equities with small investments.

Thanks for your reply. However, perhaps I should have clarified in my OP that I'm invested in funds (my £4K is split equally into 2 x unit trusts and 2 x OEIC's) - not individual equities. Furthermore, Selftrade would, indeed, charge me £62.50 to re-balance as dunstonh has suggested in his earlier reply.

Time to look at other fund supermarkets I think.

dunstonh

Small correction to my post earlier.

£1000 x 0.25% = £2.50 and not £25. Makes the fund supermarkets look even better.

So, in the case mentioned, Selftrade would cost £62,50 and Fidelity FNW or Cofunds would cost £2.50.

jamesd

dunstonh, just how wide is that offer? You may need an auto-responder and mailing list software if you're not careful!

EdInvestor

If thats the charge for selftrade, then it's expensive if its 12.50 x 4 to sell some of the 4 funds and then another 12.50 to buy in a new one. If its £25 in total then its not too bad. It is often the case that those with cheaper costs on purchase will try and make them up elsewhere with other charges so you do need to check.

Not all are expensive like that. Selestia charge nothing on switches and cofunds & Fidelity FNW charge 0.25%. So £1000 being switched at 0.25% = £2.50

Just because the transaction charges in funds aren't explicit doesn't mean you don't pay them. Implicit costs that you pay in funds in addition to the total expense ratio (TER) include the bid offer spread, stamp duty and the broker's dealing fee. This is in addition to what's included in the TER ( the annual management fee, typically 1.25%, plus custody and legal costs).

The way to work out what transaction costs are being charged is to look in the small print for the "portfolio turnover" of the fund.If this is 100%, ie the whole portfolio is bought and sold once a year, then this will add 1% to the TER (ie you will be paying almost twice as much as you thought).

Some funds have turnover of several hundred per cent, which hugely increases the charges.Tracker funds typically have a 40% turnover, adding 0.4% to their annual fees.Beware of these hidden charges as they can easily eat up your profits.

brasso

jbkhoa wrote:

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:mad:

dunstonh

People complain about UK financial services but that Spam post just shows you how bad others are and that ours is a lot better. Using safe and HYiP in the same sentance is wrong and of course UK financial services are not allowed to market products like that..

Just because the transaction charges in funds aren't explicit doesn't mean you don't pay them. Implicit costs that you pay in funds in addition to the total expense ratio (TER) include the bid offer spread, stamp duty and the broker's dealing fee. This is in addition to what's included in the TER ( the annual management fee, typically 1.25%, plus custody and legal costs).

TER has no impact on whether you are in fund A or fund B. If you switch from fund A with a TER of 1.79% into fund B with a TER of 1.65% then you are saving charges. With the fund supermarkets you will find most of the funds have no bid/offer spread on switches or transfers in. Some do but the funds lists of the fund supermarkets is quite clear on which funds do and do not.

The way to work out what transaction costs are being charged is to look in the small print for the "portfolio turnover" of the fund.If this is 100%, ie the whole portfolio is bought and sold once a year, then this will add 1% to the TER (ie you will be paying almost twice as much as you thought).

Has nothing to do with you personally switching your investments. A switch you make from fund A to B is a transaction at your end. You cannot influence what the fund manager does and of course he/she alters the fund depending on the amount held and the performance of the assets within it and their ongoing potential. You make turnover sound like a bad thing but some turnover is required to ensure the fund is still invested within it's fund aims and it's chosen risk profile. Without the fund manager managing the portfolio, the risk would go out of sync and the fund would break it's aims and objectives.

dunstonh, just how wide is that offer? You may need an auto-responder and mailing list software if you're not careful!

I have had quite a few requests for it. No problem though. One of the biggest mistakes DIY investors make is to invest above their risk profile and if it helps them undertstand where they are on the scale, thats a good thing.

Liz_the_Whizz

Risk profile - balanced.

Always thought I was

EdInvestor

You cannot influence what the fund manager does and of course he/she alters the fund depending on the amount held and the performance of the assets within it and their ongoing potential.

Indeed you can't.However charges have a very big effect on returns and if the hidden charges are high, you can find that half the projected returns will have disappeared.

My point is not that fund managers are not entitled to incur these charges if they deem them necessary to produce high returns, but that they should be required to disclose the portfolio turnover to investors alongside other fees and charges.

At the moment these charges are hidden.It is IMHO wrong that people can be charged double without their knowledge.
:mad:

Paul_Herring

Liz_the_Whizz wrote:

Risk profile - balanced.

Always thought I was

'Speculative' here - thought I would have come out 'Adventurous' - quite surprised with that.