Independent Financial Advisers fees vs Novice Investor!

Janeybo

saveonarola wrote: »

@Janeybo

If you want to see how initial charges and annual commissions affect your investments over time, there is a very useful Fund Charges Impact Calculator here:

http://www.candidmoney.com/intro/calculators.aspx

(Look under 'Investment Calculators'.)

As jem16 said, going DIY will often mean that you pay no initial charge and get back some of the 0.5% annual trail commission that goes to your IFA. How much of the trail commission you get back depends on the precise charges for that fund on the platform or broker you use. So, for example, if you buy Aberdeen Emerging Markets through Hargreaves Lansdown (a popular discount broker, though not as popular as it used to be, but that's another story), the initial charge is fully rebated and you also get back 0.25% of the 1.89% TER (in other words, half of the 0.5% trail commission). So, you pay no initial charge and a TER of 1.64%:

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/a/aberdeen-emerging-markets-accumulation

Using the fund charges calculator, you can see how these charges impact over time.

Don't forget that the initial charge is a one-off on each pound invested, but the TER is taken every year from the whole amount invested. This means that small differences in TER can be as important as larger differences in the initial charge, because the effect of the TER is compounded over time (you don't only lose the money, you also lose the money that that money might have made in the future).

Edit: That last sentence could do with a little edit. What I should have said was that small differences in TER can be as important as larger differences in the initial charge, because the TER is charged on every pound invested every year. It's true that the effect of the TER is compounded over time, but this is equally true of the initial charge.

Thank you. I can see that 13 funds makes it more difficult as I'd be needing to track each fund. However as an example I could just try the Aberdeen one.

I've just checked and the amount invested in Aberdeen and it's just under £1K (re. Jem16's post and HL - just received their Investors guide - a bit of bed time reading!)

The idea of 13 funds was to spread the risk. I was at risk 5.

How much can we know what is going to happen in the future, isn't this really about gambling, as another poster says. It's just a case of whether we enjoy investigating what we think might happening in the future and want to gamble?

jem16

saveonarola wrote: »

There is also a monthly savings option - minimum £50 per month - as there is on most funds. Does this qualify for the discount, or do you have to have £1,000 in the fund?

From what I read on the original thread about the removal of the loyalty discount, it's for all funds that are less than £1000 regardless of how the money was deposited.

jem16

Janeybo wrote: »

Thank you. I can see that 13 funds makes it more difficult as I'd be needing to track each fund. However as an example I could just try the Aberdeen one.

If you are thinking of putting the whole £10,680 into Aberdeen Emerging Markets, that would be a BIG mistake. It's a high risk fund.

The idea of 13 funds was to spread the risk. I was at risk 5.

You would be a risk 9/10 if you put the whole lot into the Aberdeen fund.

How much can we know what is going to happen in the future, isn't this really about gambling, as another poster says. It's just a case of whether we enjoy investigating what we think might happening in the future and want to gamble?

Doing what you just said above would be gambling. Investing requires research and keeping an eye on things and shouldn't end up as a gamble.

Janeybo

jem16 wrote: »

If you are thinking of putting the whole £10,680 into Aberdeen Emerging Markets, that would be a BIG mistake. It's a high risk fund.



You would be a risk 9/10 if you put the whole lot into the Aberdeen fund.



Doing what you just said above would be gambling. Investing requires research and keeping an eye on things and shouldn't end up as a gamble.

Sorry I meant use the Fund Charges Impact Calculator to see how charges impact, not actually invest all in Aberdeen.

Having said that it's very useful to hear it's a high risk one. Would you like to tell me about the other 12?! :j

Linton

Janeybo wrote: »

..
How much can we know what is going to happen in the future, isn't this really about gambling, as another poster says. It's just a case of whether we enjoy investigating what we think might happening in the future and want to gamble?

You could take the view that any future planning is gambling. After all, by putting your money in a fixed rate deposit account you are gambling that inflation isnt going to decrease the value of your savings. By paying now for a holiday to be taken in 6 months time you are gambling you arent going to pop off in the meantime.

The normal use of the term gambling is an all-or-nothing bet on a one-off event, a horse race, lottery draw or whatever. In addition I would say that gambling implies that there is minimal links between different bets.

With investing you are interested in long term trends. If you can identify them correctly based on a good understanding of how the world works you gain continuously over the long term. There is normally no point when the investment has irretrievably failed. You nearly always have the opportunity to wait for conditions to improve.

jem16

Janeybo wrote: »

Sorry I meant use the Fund Charges Impact Calculator to see how charges impact, not actually invest all in Aberdeen.

Ah right - glad to hear that! I had visions of you jumping in at the deep end.

Having said that it's very useful to hear it's a high risk one. Would you like to tell me about the other 12?! :j

I doubt I could but somebody might if you listed them all. I am sure that they will average out to a risk 5 as your IFA says though.

However main point is how do you choose from thousands of funds yourself if you go DIY. To begin with you could just use the same funds as your IFA has chosen last year but that's not going to be right going forward.

Janeybo

jem16 wrote: »

Ah right - glad to hear that! I had visions of you jumping in at the deep end.



I doubt I could but somebody might if you listed them all. I am sure that they will average out to a risk 5 as your IFA says though.

However main point is how do you choose from thousands of funds yourself if you go DIY. To begin with you could just use the same funds as your IFA has chosen last year but that's not going to be right going forward.

Jump! me? I'm sitting here with a lemsip, no jumping in anywhere!

Yes I think it will average out at 5, that's why she's chosen 13, I've just e.mailed to ask her which ones are high/medium/low.

Another thing is I don't ask her enough really, that's another thing that's occurred to me since posting.

And that is the other thing re. thousands of funds, just from looking at HL site I can see loads of funds, and I think that's why people chose to see an IFA.

saveonarola

Janeybo wrote: »

Thank you. I can see that 13 funds makes it more difficult as I'd be needing to track each fund. However as an example I could just try the Aberdeen one.

Have you looked at the calculator? I think you may have misunderstood its purpose. It's not a tool to 'track' the performance of your funds over time; it's a tool to see how (hypothetical) charges impact on investment returns.

So, taking that Aberdeen Emerging Markets fund as an example, if you go to the calculator and input the figures for investing your funds through your IFA and investing them yourself, you can see the difference.

IFA: Initial charge 3% (or is it 4.25%, I'm not clear - the IFA commission is 3% but do you pay the full 4.25% initial charge for the fund?- anyway, whichever it is, use that figure); annual charge 1.89%; initial investment £1,000 (to keep things simple); regular contribution £0 (use this box for a monthly direct debit); period 10 years; annual return 5%. (It doesn't matter what figures you use for the investment period and the annual return, as long as you use the same figures for the two examples, so that you can compare them directly. So, for sake of argument, use 10 years, a typical medium/long-term investment, and 5%, a figure often quoted for annual returns from stocks after inflation.)

DIY: Initial charge 0%; annual charge 1.64%; initial investment £1,000; regular contribution £0; period 10 years; annual return 5%.

Input these figures and the calculator will tell you how much you'll get back after 10 years in each case, and how much you'll have paid in charges.

Janeybo wrote: »

And that is the other thing re. thousands of funds, just from looking at HL site I can see loads of funds, and I think that's why people chose to see an IFA.

As I said in my earlier long post, picking funds is a small part of the investment process. In fact, it's quite a simple, mechanical thing, once you've decided how to invest your money. Trying to build or understand a portfolio without first understanding asset allocation and the other basics of investing is like trying to build a house without first laying the foundations.

gadgetmind

saveonarola wrote: »

Trying to build or understand a portfolio without first understanding asset allocation and the other basics of investing is like trying to build a house without first laying the foundations.

Agreed 100%.

Janeybo

saveonarola wrote: »

Have you looked at the calculator? I think you may have misunderstood its purpose. It's not a tool to 'track' the performance of your funds over time; it's a tool to see how (hypothetical) charges impact on investment returns.

Quick reply, Yes thanks I did understand, sorry it's language again, I realise that to say 'track' means something else here.