A very large sum - where do I start?

prudryden

I know it isn't the same. I used the word variation because they both use the dividend as a buffer.

Chrismaths

I've been trying not to feed the trolls, but

This is not a problem.It's meant to be like that.

:rotfl: :rotfl: :rotfl: :rotfl:

For any non-regulars, do a search of these forums for HYP or High Yield Portfolio and see how many times Ed's name comes up. [yawn]

Chrismaths

Flynn mentioned earlier that a bit more about performance fees would be useful.

First I need to define a couple of terms:

benchmark - When you charge a performance fee, you have to define what is performance - is it absolute returns (ie a benchmark of zero)? Is it outperformance of cash? Is it relative returns (ie beating the all-share for instance)?

high water mark - If produce performance in year 1 (and charge a performance fee), but then underperform in year two, but then outperform in year 3 - but you haven't recovered the underperformance of year 2, can you charge a performance fee? If you can't, that's a high water mark, you must recover any underperformance before you can charge a performance fee.

A high water mark is really a no brainer in fairness terms, but the law of unintended consequences can come into play. If you have a fund that underperforms (and is "under water" so to speak), the manager of the fund may look at the mountain he has to climb, and leave. You'd be perfectly entitled to say that that is a good thing, but then the next manager that comes in faces the same problem, so doesn't join - so the fund dies. On balance though, having a high water mark is still a no-brainer (for the investor) because you can always sell the fund.

Selecting an appropriate benchmark is probably the hardest thing to do. Unless the way you manage money happens to be based on an index such as the FTSE 100, 250 or some such, it's not really fair to base your fee on that index. From 1996-99, value investors would have been miles under water - but they were doing what they said on the tin, but they wouldn't have made a penny. In the following market, they would still have lost money, but in relative terms would have been well in front of the market and charging chunky performance fees. So do we need to select a benchmark of the greater of benchmark returns and zero? That would be nice, but no manager would agree to that, because it's damn near impossible to achieve. So do we select cash? The answer is only if it is appropriate. If the manager is investing in the stock market, cash is an inappropriate benchmark - it'll be a licence to print money in rising markets, and straight to the poor house in the lean periods - manager skill or no. Some funds do it on the basis of their position in their peer group - but this is basically the same as a less demanding index.

Often you find that when there is a perfomance fee on the fund, people will see they are being charged 3%, when they could have got the same performance from a fund that charges 1.5%, but forget that is because the manager has performed, and so they are unhappy. Then when the fund manager underperforms and so the investor doesn't pay (or pays a reduced charge) they are unhappy because the fund manager underperformed.

If the fund charges a percentage of funds under management - then if they perform, the assets increase and they make more money. This performance also attracts new money, so the manager also makes more money. If they underperform, they lose assets, and make less money.

In summary, you are paying your assets based fee in order that the fund manager does his job - which is to make money. I often find that the best alternative to a performance fee is to ask the manager if they have their own money (and more pertinently, usually the wife's and/or childrens' money) invested in the fund. That tends to focus the mind adequately.

prudryden

Chris-
Did you know its Sunday night? Have a glass of wine and relax!!:beer:

Chrismaths

I would do, but the wife's just had her wisdom teeth out and I'm trying to avoid her...

prudryden

Chrismaths wrote:

I would do, but the wife's just had her wisdom teeth out and I'm trying to avoid her...

Ahhhhhh! :eek: The forum is a good place to be then!!

Flynn_2

EdInvestor wrote:

First, maybe you should take a look at the High Yield Portfolio.

I'd say it's ideal for someone with a big dollop of money who finds investing really boring Just buy and forget. Much the same income return as in the bank, but lower tax (if any) and a very good long-term capital growth record. No effort required after setup, and virtually no charges.

Enjoy. .

Thanks Ed, listened to it and very interesting. I especially liked the bit about "strategic ignorance". There's obviously more sense to it than it sounds and even better that I can pretend my ignorance is intentional.

Flynn_2

Chrismaths wrote:

Flynn mentioned earlier that a bit more about performance fees would be useful.

Thanks Chris. Obviously hugely difficult to construct a structure that would be effective and more importantly that the investor understands. Hard enough for businesses to devise effective performance incentives and targets for staff - so a big ask.

I would like to see successful advisors giving figures showing their past performance but the impracticality may be a marketing one due to unrealistic expectations in potential clients.

expatsaver_3

I found that many websites couldn't help with sums like that - the best one I came across was interest-rates.org.uk which covers savings in both UK and offshore accounts on amounts going well over a million.

John_Pierpoint

Flynn wrote: »

To keep it very simple my/our savings are in a horrible mess.

We've got funds of around £600,000, not including pension fund, jointly owned with my wife and over the last 7 years or so just it hasn't been managed because we've had other priorities. A huge chunk is in cash and I'm also totally out of touch.

What should be our first step?

I stumbled upon this thread when trying to understand the differences between bonds, unit trusts, investment trusts oics, ICVS and all the other alphabet spaghetti in the financial services industry.

Would any of the posters originally involved in this thread like to comment or revise their opinions, knowing now what they did not know then?

I would be particularly interested in how Flynn got on with the 600 K investment.

John