Fees

gadgetmind

Glen_Clark wrote: »

You can avoid that by just buying shares and keeping them in certificated form.

You can't hold certificated shares in any pension that I know of, but you can hold equities in a SIPP, and I hold a fair few.

And if you buy in £2k chunks, 25 different shares or good quality bonds, that must be as safe as anything?

You get better performance with lower volatility if you also hold uncorrelated assets. I'm mainly in equities, but also hold some property REITs, infrastructure companies, bonds and cash. I also use some active management, mainly via very focused Investment Trusts. My overall TER is just over 0.4%, which includes all platform and trading fees.

Regards choosing at random, you need a spread of sectors, and I'd also argue that you need global exposure.

dunstonh

plus entry and exit charges, administration charges, etc etc.

What charges are they if you are using a 1% AMC?

With most people paying monthly and not paying enough into a pension, how do you think the dealing costs would hit the returns?

doubleJackD

dunstonh wrote: »

With most people paying monthly and not paying enough into a pension, how do you think the dealing costs would hit the returns?

sorry, but what difference does it make if people contribute monthly or annually?

i would imagine dealing costs would have a negative effect on returns - was that a trick question?

Glen_Clark

dunstonh wrote: »

What charges are they if you are using a 1% AMC?

With most people paying monthly and not paying enough into a pension, how do you think the dealing costs would hit the returns?

I saved a newspaper article that showed the AMC was only the beginning of the fund charges made. There are far more hidden charges. (But lost the link when I had to format my PC after picking up the 'Smart Fortress 2012 virus from following a weblink from a post on this website to Red Ribbon Asset Management - weblink now deleted at my request.).

As to dealing costs thats why I suggested investing in £2k chunks, rather than paying in monthly.

dunstonh

sorry, but what difference does it make if people contribute monthly or annually?

Lets say a typical £12.50 per trade, then on a £100pm contribution, that would be a big hit.

I saved a newspaper article that showed the AMC was only the beginning of the fund charges made.

Pension funds use the TER as the AMC. Unit trust/OEICs have both listed.

gadgetmind

dunstonh wrote: »

Lets say a typical £12.50 per trade, then on a £100pm contribution, that would be a big hit.

Those who do drip-feed into equities usually use a platform with a regular trading feature, and these typically cost £1.50 per trade.

It's still too much for me on £100, way too much. We make a monthly payment into an unwrapped share account and I usually wait until drpps+dividends have reached £2k-£3k before I'll make a purchase. If there's nothing I fancy buying it can build up even higher.

Perelandra

dunstonh wrote: »

Lets say a typical £12.50 per trade, then on a £100pm contribution, that would be a big hit.



Pension funds use the TER as the AMC. Unit trust/OEICs have both listed.

And aren't the fund's own trading costs on top of the TER as well?

gadgetmind

Perelandra wrote: »

And aren't the fund's own trading costs on top of the TER as well?

Yup, the TER doesn't cover all costs. There is currently a *lot* of debate on how this should change both for funds and ITs.

Trackers have similar issues. Some costs don't appear in the TER and instead manifest as tracking error. This is higher for trackers that don't charge up-front fees to cover stamp duty etc., so those who intend to be long-term holders are better buying trackers with up-front fees, e.g. Vanguard.

Note that Vanguard also do some cautious securities lending, which reduces tracking error, but is an additional risk that people need to understand.

SnowMan

gadgetmind wrote: »

Trackers have similar issues. Some costs don't appear in the TER and instead manifest as tracking error. This is higher for trackers that don't charge up-front fees to cover stamp duty etc., so those who intend to be long-term holders are better buying trackers with up-front fees, e.g. Vanguard.

That is quite a subtle and interesting point which I doubt many understand.

The typical 0.5% initial charge that you pay with Vanguard as I understand it doesn't actually go the managers but goes into the fund itself.

So for those holding for an 'average' period you are effectively paying no initial charge at all.

With the single priced funds where there is no such charge there is always the danger that smart investors will attempt to anticipate when the fund is being priced on a bid basis and buy into the fund then and when it is later priced on an offer basis sell then making a profit. That can have the effect of increasing the amount of stamp duty that the fund pays and so cause a lag on performance to those who don't employ those tactics.

Perelandra

gadgetmind wrote: »

Trackers have similar issues. Some costs don't appear in the TER and instead manifest as tracking error. This is higher for trackers that don't charge up-front fees to cover stamp duty etc., so those who intend to be long-term holders are better buying trackers with up-front fees, e.g. Vanguard..

Ok... so for Trackers, if I compare the return from the tracker over a (reasonable) period of time, and compare that with the return of the index, and (if needed) adjust for the initial dilution levy, would this give me an indication of the total costs of running that tracker- TER, tradings costs, 'normal' tracking error etc? I don't suppose there a nice handy comparison table anywhere is there?

Would need to adjust for platform charges as well, if applicable...

Presumably this isn't so easy to do for managed funds, to understand what the real cost of running the fund is.