Fees

gadgetmind

jamesd wrote: »

That's a good deal more than 7%, like about as much more as the charges being used.

As with everything, it depends on your exact timescales, territories, and much more. I'm far happier making projections based on a real 5% rather than 7%, and regards anything greater than 7% as getting rather giddy.

Try finding retail funds with a fund manager charge including trail and platform fee of 2.25%.

Here you go.
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/t/templeton-global-emerging-markets-accumulation

1.95%, not refund of trail in a HL SIPP, and that leaves only another 0.3% to be lost in SDRT and other trading costs.

I don't think it's a coincidence that this fund has also underperformed.

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

I find that having visible trading costs discourages me from thrashing around like that. Each to their own.

You might think more on how Vanguard discloses things, though. Their descriptions imply a 0.5% SDRT on the full amount of all purchases.

For 100% UK trackers, that's exactly what they do. As the charge goes into the fund, it's short-term thrashers subsidising long-term holders, which I like.

Here are a couple of documents on the subject.

https://www.vanguard.co.uk/documents/portal/company/costs-charges-the-vanguard-way.pdf

https://www.vanguard.co.uk/documents/inst/literature/approach-to-charging-sdrt.pdf

After reading those, what do *you* think about how Vanguard discloses things? Personally, I like their very open approach.

Rollinghome

jamesd wrote: »

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

Really?

Have you calculated what the real return would have been on the PF you repeatedly recommended to other users on these forums a few years ago - again and again in over 20 separate threads in fact?

To remind you, the portfolio you repeatedly recommended was:
30% BlackRock UK Absolute Alpha
20% Arch Cru Investment Portfolio
20% Invesco Perpetual Monthly Income Plus
20% Invesco Perpetual Income
10% Neptune Global Equity

One of your 20+ posts recommending them: http://forums.moneysavingexpert.com/showpost.php?p=11678597&postcount=19

(In that case to someone who specifically wanted minimum risk because he intended to move home in 3 years and as a possible alternative to the 5.6% then available from bank accounts).

Now admittedly anyone would have needed to have been astonishingly naive to put money into Arch Cru before the FSA stepped in to close it (unless they were after the exceptional rate of commission it paid) but it seems many people did, including yourself presumably.

I also noticed that following dire performance, Blackrock are sending Mark Littleton, the manager the Abs Alpha fund, on 3 months "gardening leave" and I'd be a tad surprised if he comes back.

The bottom line is that people are going to have to be more sensible about the likely rate of return. The FSA recently revised down the projections that they would allow but many think they are still too high:

"Expert warns FSA projection rates tantamount to mis-selling
Odds of attaining even the lowest bracket of return are statistically zero, Cass Business School director argues....

According to Professor David Blake, director of the Pensions Institute at Cass Business School, the probability of achieving even the new projected rates of return over the long-term are almost zero because of the unrealistic consistency of performance that would be required." http://www.ftadviser.com/2012/04/18/regulation/regulators/expert-warns-fsa-projection-rates-tantamount-to-mis-selling-IT6mev3rMi4qb3hSrfVUOI/article.html?refresh=true

And:
"Money Management’s survey showed that the average with-profits pension had delivered a return of just 3.3 per cent a year over this (15 year) period.

It gets worse. The average balanced managed fund actually delivered negative returns, falling by 1.5 per cent a year over the 15-year period.

The worry is that millions of people still have their retirement funds tied up in these pensions. But annual statements they receive are still using growth rates of 5 per cent, 7 per cent and 9 per cent to estimate what their future pension will be." http://www.moneymarketing.co.uk/regulation/fsa-has-lost-touch-on-projection-rates/1049979.article

Perhaps most relevant is what might be expected from a "balanced" portfolio. The total return for the old Balance Managed unit trust sector for the last 5 years been just 4.14%, considerably less than, 1% per annum - and that's before inflation. Of course around half of the funds did even worse than that.

So will the next 5 years be much better for investment?

I really don't know but it would be brave, or just very stupid, (unless of course it's someone else's money) to be totally confident that it will and still more rash to put a figure on it.

jamesd

gadgetmind wrote: »

Here you go.
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/t/templeton-global-emerging-markets-accumulation

1.95%, not refund of trail in a HL SIPP, and that leaves only another 0.3% to be lost in SDRT and other trading costs.

That's 1.75% to the fund manager. It holds around 2% in the UK so SDRT isn't a significant factor.

gadgetmind wrote: »

I find that having visible trading costs discourages me from thrashing around like that. Each to their own.

I also find that it discourages me from trading when I should.

gadgetmind wrote: »

For 100% UK trackers, that's exactly what they do. As the charge goes into the fund, it's short-term thrashers subsidising long-term holders, which I like... After reading those, what do *you* think about how Vanguard discloses things? Personally, I like their very open approach.

I'd already read those documents before I asked Vanguard.

Consider the case where there is as much selling as buying. How much SDRT does Vanguard have to pay? If there is 75% buy value and 25% sell value how much SDRT does Vanguard have to pay? Is it fair to charge the buyers 0.5% and describe that 0.5% as all SDRT?

MrMalkin

dunstonh wrote: »

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.

But the retail costs of those things aren't the same as ongoing charges for funds though, are they? You don't pay 1% of the cost of a washing machine to the manufacturer or retailer for the lifetime of the product, nor does the value of a washing machine increase over time.

Also your analogy of growing your own food rather than going to a supermarket is equally daft, since you're ignoring the large startup costs of the DIY route. There's no analogous situation in investing, you aren't required to stump up huge initial costs just to get lower ongoing costs.

I usually like your posting but this whole strand of argument is bizarre to say the least.

gadgetmind

jamesd wrote: »

That's 1.75% to the fund manager. It holds around 2% in the UK so SDRT isn't a significant factor.

I don't care how they slice the bit of the cake that they take from me.

Is it fair to charge the buyers 0.5% and describe that 0.5% as all SDRT?

ISTR they usually call it a dilution levy, and I'm more than happy to be charged it. I then get to benefit from all the levies from people who dart from fund to fund as they go into the fund where I'm LTBH.

How would you handle SDRT if you ran a tracker?

dunstonh

But the retail costs of those things aren't the same as ongoing charges for funds though, are they?

Yes they are. Part of the charge covers ongoing administration. If you use clean share classes then there is normally an explicit charge for ongoing administration. If you use retail share classes then the cost will be factored into the annual charge.

Vanguard, for example, don't include the cost of retail or ongoing administration in their charges and you pay it explicitly to the retailer/distributor (unless you have enough to go direct). I cant remember what the figure is but its 6 digits per fund. The blackrock class D trackers require £1 million per fund if you buy direct. They can be retailed via platform/providers without the £1 mill minimum but you pay the retail/distribution charges on top or you can buy the retail class A version at 0.3% p.a more than the clean class D version.

Funds are retail products. the fund house is the manufacturer and you have retailers to sell and distribute them.

also your analogy of growing your own food rather than going to a supermarket is equally daft, since you're ignoring the large startup costs of the DIY route.

All DIY options have other costs which need to be factored. Some DIY options may be infeasible. Others not. If you mow your own lawn, you have to buy the lawnmower. If you get someone else to do it then you dont have to buy the mower but you pay them each month they do it. If you took the money you saved from not paying someone to mow your lawn (and doubled it for fun as the case was earlier on this thread with the fund charge) and then added 7% a year to it and then compounded that over 45 years then it too would add up to a ridiculous amount.

grey_gym_sock

well, if you cut any of your livings expenses by a modest amount, and add the money saved to your long-term investments over the next 45 years, then you'll have a surprisingly large extra pot of money at the end. so that is realistic, no? granted that it doesn't work if you cut one expense but incur an equally large different expense as a result.

jamesd

gadgetmind wrote: »

ISTR they usually call it a dilution levy

Who's being diluted if there are no underlying investment buys or sells?

gadgetmind wrote: »

and I'm more than happy to be charged it. I then get to benefit from all the levies from people who dart from fund to fund as they go into the fund where I'm LTBH.

But that's having new buyers pay a premium to existing holders and isn't fair to the new buyers.

gadgetmind wrote: »

How would you handle SDRT if you ran a tracker?

The same way it's usually done: price shifts a little based on the balance between buying and selling volume if it's an OEIC or switches from offer to bid basis* for a unit trust. On bid basis the pricing is allowing for more of the unit creation - underlying investment purchasing - costs. On offer basis it's more evenly balanced between buys and sells or there are more sells than buys.

*Note that bid and offer basis for the bid price is a different thing from bid and offer price.

MrMalkin

dunstonh wrote: »

Stuff

Yes I understand all that. But it's still not an analogous situation, and I don't know why you're putting so much stress on other retail costs. It's not like I have to choose between buying my own lawn mower and buying cheap funds instead of expensive ones, amazingly I can do both.

dunstonh

I don't know why you're putting so much stress on other retail costs.

Because one option includes them and the other doesnt. How is that a fair comparison?