Fees

dunstonh

The point is that the fund manager would take more out of it than the punter who put all the money in.

Not if you look at it in real terms. It you mix and match real terms and future terms then you get a flawed assumption.

As for the suggestion that we need a fund manager as much as we need food from a supermarket... words fail me

Who said that? Perhaps it is your eyes that are failing you.

Glen_Clark

dunstonh wrote: »

Not if you look at it in real terms. It you mix and match real terms and future terms then you get a flawed assumption.



Who said that? Perhaps it is your eyes that are failing you.

Your customers must be pretty thick if you can get away with flannel like that.
The fund manager would be taking more money than the punter who put all the money in. Whatever the spending power of each pound it would be the same for both of them. So the fund manager would still be taking more than the punter whichever way you look at it.

You compared saving money by not employing a fund manager, with saving money by not buying food!

jamesd

Glen_Clark wrote: »

Your customers must be pretty thick if you can get away with flannel like that.

Part of the problem you have is that people who read your posts here aren't thick. We know that 7% is an unusually low investment return (7% plus inflation is more like it) and that 2.25% is an artificially high fund manager charge. So we know that the result you're suggesting is bogus.

I do have a new threat for you to worry about. Put £1000 a month into their savings calculator for 45 years and they tell you that you end up with £3,792,594. Do the same with their fund charges calculator and zero charges and all you get is £3,557,663. They've taken 8% of your money and they aren't doing any money management at all for you!

What that really shows is that their calculators aren't very reliable.

There's another threat. Stamp Duty. Put in a 0.5% initial charge, assuming UK investments and that you buy with no costs at all and never change investments and you can see the calculated effect of Stamp Duty.

gadgetmind

jamesd wrote: »

We know that 7% is an unusually low investment return (7% plus inflation is more like it)

A real return of 5% is typical long term, and 4% for the last decade, so 2+5=7 isn't far off.

2.25% is an artificially high fund manager charge. So we know that the result you're suggesting is bogus.

Not if you include platform and trail it isn't.

Put £1000 a month into their savings calculator for 45 years and they tell you that you end up with £3,792,594. Do the same with their fund charges calculator and zero charges and all you get is £3,557,663. They've taken 8% of your money and they aren't doing any money management at all for you!

I'll try with the HL calculator some time today. This was *very* sensitive to fees when I played with it. The default fees were also lower than HL's typical fund charge!

There's another threat. Stamp Duty. Put in a 0.5% initial charge, assuming UK investments and that you buy with no costs at all and never change investments and you can see the calculated effect of Stamp Duty.

Agreed. I'd much rather pay for such things up front than suffer from a long-term drag due to "hot money" getting a free ride.

srcandas

I personally consider taxes to the government for the good of the nation quite differently from expenses going to organisations and individuals

But great thread guys, I'm learning a lot :beer:

dunstonh

Your customers must be pretty thick if you can get away with flannel like that.

Says the person who cant tell the difference between future money terms and todays money terms.

You compared saving money by not employing a fund manager, with saving money by not buying food!

No I didnt.

gadgetmind

jamesd wrote: »

Put £1000 a month into their savings calculator for 45 years and they tell you that you end up with £3,792,594. Do the same with their fund charges calculator and zero charges and all you get is £3,557,663. They've taken 8% of your money and they aren't doing any money management at all for you!

OK, I used HL's calculator for a 20yo saving £1000pcm until age 65. HL use 2.5% for inflation and contribution increases. I left it set to the default 7% annual fund gain.

At 1.5% fees, the final pot in today's terms is just over 1 million. If you drop the fees to 1%, the pot increases by 20%. At 0.5% fees this increase is 37.5%.

MrMalkin

dunstonh wrote: »

No I didnt.

To be fair it was totally irrelevant what you said about supermarket shopping. After all, we still have to buy groceries whether we invest in expensive funds or cheap ones, so why bring it up?

The whole point of that calculator was to show the comparison between a low-fee investment and a high-fee one, so things like inflation and how much is spent on tins of beans are the same for both options and thus cancel out - the only thing that remains is the effect of the fees.

Now whether high fees are worth paying to obtain higher returns that cancel out the fees is a different discussion, but highlighting the corrosive effect of fees should make clear the risk of making a bad choice of expensive funds, in which case you suffer a double-whammy of poor performance and high charges. I personally don't think that's a risk I want to take, nor do I think I have the skill to avoid the duffers.

Nobody can afford to have a blase attitude towards fees, that's the point.

dunstonh

To be fair it was totally irrelevant what you said about supermarket shopping. After all, we still have to buy groceries whether we invest in expensive funds or cheap ones, so why bring it up?

It is relevant as every retail product includes a cost of distribution and retail. It doesnt matter if it is washing machines, food or investment funds. If you start calculating the cost of distribution and retail over 45 years on all options and then add 7%p.a. to that amount then you will get ridiculous figures.

Also, the post said "The fund manager will be getting more out of it than you are, without putting any money in". The incorrect assumption there is that the fund manger is not only getting the charges but also the assumed 7% p.a. on those charges and looking at a value in the future but presenting it as a value today. Obviously this years charge will be in todays terms but a charge of £x in 45 years time will appear much higher if you look at it in todays money but you need to look at it in future money terms.

Nobody can afford to have a blase attitude towards fees, that's the point.

I have no issue with that at all. However, there is a need to present the information with balance. A clean class share on a managed fund is typically around 0.7% to 1.2% TER. (single sector funds being around 0.8%). A clean class tracker is around 0.25%. So, the calculation made should be the difference not some hypothetically enlarged figure of over 2%.

jamesd

gadgetmind wrote: »

A real return of 5% is typical long term, and 4% for the last decade, so 2+5=7 isn't far off.

That also depends on where you're investing. According to the Equity Gilt Study 2011, emerging markets had a return of 9.3% plus inflation over the last ten years and their forecasts for the future are 10.5% plus inflation for EM and 11.3% for Asia.

The US (something over 50% of the world market) was 6.7% plus inflation over 85 years and the UK 5.1% (UK cash was 1%).

For the UK the inflation index value in December 2010 was 7032.8 with December 1899 being 100. For the 111 years that's an average compounded inflation rate of 3.9%.

Combining the UK real return over 111 years and the inflation over that periods gets a 9% return. That's a good deal more than 7%, like about as much more as the charges being used.

Put that into the savings calculator and the result is 7,404,878. Reduce it in various ways and you get:

(no growth) 540,000
No charges 7,404,878 - 13.7 times your payments
UK tracker 0.3%+SDRT 6,648,763 - 12.3 times your payments
Pension 1% 5,274,539 - 9.8 times your payments
Standard 1.5% 4,467,030 - 8.3 times your payments
2.25% 3,498,011 - 6.5 times your payments

Of course no charges is impossible, even with no manager you'll pay assorted costs.

These calculations are still largely bogus even with those adjustments.

gadgetmind wrote: »

Not if you include platform and trail it isn't.

Try finding retail funds with a fund manager charge including trail and platform fee of 2.25%. There probably are a few but the normal maximum is 1.75% including around 0.5% trail and 0.3% platform charge. There are other costs like stamp duty, exchange rate and other trading costs though.

gadgetmind wrote: »

I'll try with the HL calculator some time today. This was *very* sensitive to fees when I played with it. The default fees were also lower than HL's typical fund charge!]

Mine there may be lower than their default, at least at the moment.

gadgetmind wrote: »

Agreed. I'd much rather pay for such things up front than suffer from a long-term drag due to "hot money" getting a free ride.

For me it depends. I do move money around based on economic situation and sometimes shorter term things.

You might think more on how Vanguard discloses things, though. Their descriptions imply a 0.5% SDRT on the full amount of all purchases. If half of transactions are purchases and half sales there'd be no SDRT to pay because all of the purchases would be matched by sales and no underlying share purchases would be needed. I've asked Vanguard how they really do this, since I don't understand it. I presume that they don't really charge it all but I'd like to be sure of this.