How to invest on a (weeny) budget

fieldofdreams

gadgetmind wrote: »

Something like a Vanguard LifeStrategy tracker would be ideal, but there doesn't seem to be a good way to drop feed into those.

Gadgetmind, could you just explain why you think this is the case? Only reason I ask is that Im drip feeding into a Vanguard lifestrategy tracker through HL - I know there is the £24 a year platform fee. Ive reluctantly accepted this as its much better than paying the £96 a year had I held onto my 4 HSBC trackers, but means I dont have to go through the hassle of moving my investments

gadgetmind

fieldofdreams wrote: »

I know there is the £24 a year platform fee.

Because of that fee! If you only put in £50pcm, that's a 4% of what you put in each year being taken back out again.

On the positive side, the low annual fee will give better long term performance compared to investing into high-TER funds, and LifeStrategy is great for hands-off investing, but I'd still find that 4% a bit rich.

Don't get me wrong, there's nothing wrong with what you're doing: it's simply very hard to invest small sums as the system is weighted against it.

fieldofdreams

gadgetmind wrote: »

Because of that fee! If you only put in £50pcm, that's a 4% of what you put in each year being taken back out again.

On the positive side, the low annual fee will give better long term performance compared to investing into high-TER funds, and LifeStrategy is great for hands-off investing, but I'd still find that 4% a bit rich.

Don't get me wrong, there's nothing wrong with what you're doing: it's simply very hard to invest small sums as the system is weighted against it.

Cheers, I was hoping you'd say that! Im actually putting a lot more then £50 a month in so the percentage is lower in my case. Its a long term option so as the fund grows that £24 a year will be less significant. There probably are cheaper ways of doing it but decided cant be doing with the hassle of moving and I do really like the HL platform

Ark_Welder

gadgetmind wrote: »

On the positive side, the low annual fee will give better long term performance compared to investing into high-TER funds, and LifeStrategy is great for hands-off investing, but I'd still find that 4% a bit rich.

Not will, but might*: will implies a guaranteed outcome, and it isn't.

Regarding the 4%. Whilst this will remain the case as a percentage of the contributions (if maintained at the same rate), as a percentage of total holding it should diminish over the years, e.g. (assuming no changes in unit price) 2% after 2 years, 1.333 after 3 years, etc. - also assumes no change in the fixed fee either!

[Edit]

* or something similar

gadgetmind

Ark_Welder wrote: »

Not will, but might: will implies a guaranteed outcome, and it isn't.

OK, the full version is "many peer-reviewed studies have done rigorous back-testing that has shown that over a multi-decade period, low-fee passive investments will tend to out-perform high- fee active investments by roughly the difference in their fees, but over the short term, all bets are off."

Yes, there might be hot-hands super-star managers, but these can only be identified using a rear-view mirror and studies have shown that 175 years of monitoring would be required to determine if out-performance was due to skill or chance.

I don't have 175 years to wait, and I've read a fair few books by Hale, Bernstein and Graham (have you?) so I'm happy both using a preponderance passive myself and recommending this approach to others.

I would not have a clue how to advise someone on how to select a good fund without suggesting they use recentism and/or a magic dart.

Lokolo

gadgetmind wrote: »

I don't have 175 years to wait, and I've read a fair few books by Hale, Bernstein and Graham (have you?) so I'm happy both using a preponderance passive myself and recommending this approach to others.

Funny you should mention that. I had a presentation at work from a co-fund manager (who runs an active value based fund) who said that he loves the Intelligent Investor book and recommends it to anyone and that he's found it very useful.

And during the presentation I (sadly) thought of you. The graphs they were showing of performance was gross of fees. I couldn't pluck up the courage of asking him why the graphs show gross of fees given that a lot of investors will be paying some sort of fee which would effect performance greatly over a long period.

Ark_Welder

gadgetmind wrote: »

OK, the full version is "many peer-reviewed studies have done rigorous back-testing that has shown that over a multi-decade period, low-fee passive investments will tend to out-perform high- fee active investments by roughly the difference in their fees, but over the short term, all bets are off."

Yes, there might be hot-hands super-star managers, but these can only be identified using a rear-view mirror and studies have shown that 175 years of monitoring would be required to determine if out-performance was due to skill or chance.

I don't have 175 years to wait, and I've read a fair few books by Hale, Bernstein and Graham (have you?) so I'm happy both using a preponderance passive myself and recommending this approach to others.

I would not have a clue how to advise someone on how to select a good fund without suggesting they use recentism and/or a magic dart.

I am quite comfortable with how I invest, and to such an extent that I am able to respect the fact that others might choose to do things differently.

Derivative

Lokolo wrote: »

I buy through HL and the stock is TSLA. Good luck finding out why though!

Well - that's opened my eyes somewhat.

WRT Tesla Motors - I'd love to get my hands on a Model S. Those cars and the possibility of driverless within a few decades are extremely exciting. I'd probably be in there too, if I believed in the rationality of markets.

jamesd

gadgetmind wrote: »

OK, the full version is "many peer-reviewed studies have done rigorous back-testing that has shown that over a multi-decade period, low-fee passive investments will tend to out-perform high- fee active investments by roughly the difference in their fees, but over the short term, all bets are off."

It's impossible for any study to have done that. Very few active managed funds have had the same manager for decades. Any study making that claim is misleading unless it's confined to the universe of active and passive funds that have had the same manager - not just same management company - for the whole period.

Also missing is usual wording that it's comparing passive and active funds on average, not doing things like eliminating the worst of each with persistent underperformance then looking at how the rest do.

Note also that the many studies will tend to have been US studies and the US has a tax regime that charges higher tax for holdings of less than a year, which penalises active funds and favours passive. The UK has no such higher tax for shorter term holdings. This is why you find the study in the US that found that active funds beat passive before tax, but that US tax then eliminated the advantage. Knowing that is important in the UK environment without that tax.

The US also taxes the customer in the year of the trade, while the UK only does it when the holder sells the actual fund, not when the fund trades.

It's a tough problem to properly measure active funds without tripping up on manager changes, taxes and such. Much easier for passive, particularly passive with a buy and hold strategy.

gadgetmind

jamesd wrote: »

It's impossible for any study to have done that.

I look forward to your links to peer reviewed studies that back up this POV as it seems to rely on "hot hands".

Very few active managed funds have had the same manager for decades.

That's because they get the boot when the winds of chance inevitably start to blow against them. Having tossed heads ten times in a row counts for little if you've then gone on to toss tails five times.

It's a tough problem to properly measure active funds without tripping up on manager changes, taxes and such. Much easier for passive, particularly passive with a buy and hold strategy.

Yes, how do you pick an active fund that will perform above average in future, and it's even harder to pick one that will out perform after fees. You might get lucky, but you probably won't, so what do you do? Buy a few active funds to balance things, or trust your ninja skills to foretell which will be worthwhile? Active funds investors really don't have it easy, which is why I don't really think they are for beginners.