Vanguard Life Strategy and Hargreaves

dllive

Hi all,
Im about to invest my 11/12 S&S ISA allocation - £5,340. Ive decided on Vanguard Life Strategy 20% Equity Fund using Hargreaves Lansdown.

I have a couple of questions about how best to do this. Im aware that HL charges for holding this fund, but not sure how much (Ive just emailed them to enquire).

- Is it worth drip feeding this in at say £250pm (the least I think HL lets you) to pound average?
- Im interested to hear your views on this fund and how best to manage it (do you transfer between the 20% Equity Fund, 40% Equity Fund, 60% Equity Fund etc... or just leave it in one fund and forget about it?)

I like the sound of this fund because it does seem to take care of itself. I dont have time to read company's balance sheets and research and Im fed up with the confusion and opaqueness (if thats a word!) of active fund's charges. Im never quite sure what Im being charged, and most of these funds fail to do better than passive funds anyway.

Thanks

dllive

OK, Ive just worked out the fees. Based on £5,340, it will cost me:

£17.08 initial fee (0.32% of £5,340)
£39.48 annual fee (£15.48 which is 0.29% of £5,340 + flat fee of £2pm)

Hopefully the above will help someone in a similar position.

I dont know if the above figures are affected if I put in a phased instruction with HL. Also I dont know if the fund increases by - say 5% - whether the annual fee of 0.29% will be charge don that too - or is it just levied on the initial deposit?

Porcupine

Just so you know, the fund annual charges are taken out of the growth of the units, not as a lump. It just means that it grows slightly less quickly - you don't see a debit for that amount anywhere on your statement. Usually they're calculated daily (interest rate of the 365th root of 0.29%), so if the fund rises by 5% it'll take a slightly larger daily chunk of fee to match it.

If you put in phased funding, the initial and annual charges will scale proportionately, but you'll still pay the £2 per month to HL even if you only hold £50 worth of the fund (ie holding it for small amounts will be quite expensive).

In HL the £2 fee is per fund, so there's an incentive to hold as few Vantage funds as possible. So, until you have more cash, I'd be tempted to pick one fund (20/40/60, whatever) and stick with it, or switch your entire holding between one and another. If it's cost effective to have two Vantage funds, you can balance between them - eg equal portions of 20% and 80% give you 50% on average, and you can switch amounts one way or another to change the balance. Note that the investments are slightly different between the funds - it isn't merely an issue of proportions only.

bigadaj

Annual fees are on the value of the fund at that point in time, think of it as an element of incentive to the fund manager.

Fee costs look ok, not great not terrible and you get the benefit of a tracker that is allocated away from a single Market.

You need to keep an eye on the fund and allocations, If you don't want this then a managed fund may be better for you despite the fees.

Diversification is normally considered Important, and I have tended to do this by placing into different funds rather than choosing a single diversified fund.

dllive

Thanks guys.

Porcupine: I presume the initial charge is levied whether you have an existing Vanguard fund or not. In other words, you cant swap between 20/40/60 without incurring the initial charge each time? (I suppose in that sense the initial charge is like a dealing fee). Ill ask HL this.

Porcupine

I would ask. Normally initial fees are commission paid to advisers, which is why the likes of HL often rebate all of them, and so switching often doesn't incur the initial charge again. However Vantage's is a 'dilution levy', which is a fee to cover creating more units (ie dealing fees). Other funds have this wrapped up in the annual charges - ie you pay anyway. There's no commission being paid here but there's still a need to create more units. So I would guess the fee still applies, but I don't know for sure.

Jake'sGran

I too am about to invest S&S for this tax year. One site I always read is Trustnet who list the top performing funds and today there was an article in The Sunday Times about a company called Cavendish online According to them you can more or less reduce the fees to a one off £25. I use HLansdown and will probably not go elsewhere as it would mean extra work for my daughter when the time comes.

One of the best ones I bought last year was First State Asia Pacific
Leaders. Also, I noticed a lot of people were buying Fidelity UK Smaller Companies.

Jake'sGran

dllive wrote: »

Thanks guys.

Porcupine: I presume the initial charge is levied whether you have an existing Vanguard fund or not. In other words, you cant swap between 20/40/60 without incurring the initial charge each time? (I suppose in that sense the initial charge is like a dealing fee). Ill ask HL this.

There are no initial fees if you go through HL and possibly Chelsea Financial and definitely Cavendish online. Ask each of these what you would pay per annum.

jem16

Jake'sGran wrote: »

There are no initial fees if you go through HL and possibly Chelsea Financial and definitely Cavendish online. Ask each of these what you would pay per annum.

Vanguard funds all carry an initial fee through HL as it's a dilution levy.

Jake'sGran

jem16 wrote: »

Vanguard funds all carry an in, itial fee through HL as it's a dilution levy.

Sorry, I knew I should have looked at Vanguard before commenting. I have never heard of them and have a tendency to go with the better known Unit Trust/OEIC companies.

MrMalkin

dllive wrote: »

In other words, you cant swap between 20/40/60 without incurring the initial charge each time? (I suppose in that sense the initial charge is like a dealing fee). Ill ask HL this.

You'll be charged every time you switch funds, the dilution levy is applied every time you buy units. The rationale is that this discourages people who jump in and out of the market attempting to time it.

The LifeStrategy funds are intended to be long term buy and hold investments, the idea is to pick one which matches your risk tolerance and stick with it until your risk tolerance changes (not until the market changes!). A typical strategy is to 'hold your age in bonds', so if you are 20 years old you buy the 80% equity version, around your 40th birthday you switch to the 60% equity, then heading into retirement you go for the 40% or 20% equity version.

In the US they have Target Retirement funds which automatically adjust the bond/equity split so you could buy, say Target Retirement 2055 and just hold it until you need the money. They haven't made it over here yet as far as I know.