Investing in trackers

guitarman001

I'd like to start putting about £50-100 per month into one or two tracker-type funds/ETFs (I don't know the difference - ETFs are cheaper, not managed as much?). There seem to be SO many, it's hard to choose. HSBC and Vanguard seem to be popular from what I've read.

Basically I put money into AIM stocks (stupid me) the last 3 years and suffered colossal losses. I want to get back on track and do things properly. I should have gone into trackers years ago after having read about them in several books that I read. And rather than putting 50% into this sort of vehicle (damn I regret it), I'll stick to the £100 a month max and put the rest in savings accounts for now.

So... how do you choose from the multitude of trackers there are, and how do you go about investing in them? Do you have to pay a trading fee to buy (in which case that would be a large proportion of £50!), do you set up monthly automatic buys for cheap? I see Hargreaves Lansdown do not charge for buying tracker funds. I've yet to change broker from iii...

Is TER the most important thing? How about dividends? I know I want to go accumulation (re-invest dividends) rather than 'income' (get the dividend paid to you in cash).

I now know that I'm not one for individual stock picking. Nor am I wanting to do actively managed funds which incur fees. Is there anything similar to index trackers I should be looking at?

Would I be better getting tracker ETFs or funds? Can I hold both in an ISA? I read on morningstar that you MUST make sure the ETF has 'distributor' or 'reporting' status for less tax..?

Thanks for all your help, I'm sure there are plenty of you here doing this very thing!

EDIT - on further reading it seems investing in tracker FUNDS, there can be next to no dealing fees, whereas buying tracker ETFs usually carry trading charges since it's just like buying shares? Thus with ETFs there is a spread that isn't there for the funds? Though funds usually have higher TER?

Considering these new charges due to RDR.... if you put £50 a month for a year, that's £600. A £50 admin fee (not far off many) is >8% of your holding!!! No way is any return going to beat that. Is the small passive investor finally out of luck?

dunstonh

(I don't know the difference - ETFs are cheaper, not managed as much?

Actually unit trust/OEICs are nowadays cheaper than most ETFs.

There seem to be SO many, it's hard to choose. HSBC and Vanguard seem to be popular from what I've read.

Vanguard, Blackrock class D, L&G institutional, HSBC and others. They are all OEIC/UT funds. Not ETFs.

So... how do you choose from the multitude of trackers there are, and how do you go about investing in them?

Fairly easy. Decide on the sector allocation for your portfolio and pick the trackers that fit that sector. In your case that is not possible. So, a portfolio fund containing trackers would make sense. Architas MAP funds (if you can get the clean priced version) or the Vanguard Lifestyle funds are the sort.

I see Hargreaves Lansdown do not charge for buying tracker funds. I've yet to change broker from iii...

HL have other charges instead.

Is TER the most important thing?

Its important but so is tracking error.

How about dividends? I know I want to go accumulation (re-invest dividends) rather than 'income' (get the dividend paid to you in cash).

Income from inc units can also be used to buy more units. Or help rebalance a portfolio without the need to sell units.

Would I be better getting tracker ETFs or funds?

Probably funds but it will depend on the area in question you want to invest.

Can I hold both in an ISA?

mostly yes. With some exceptions. ETF require more knowledge and understanding than OEIC/UT funds as the risks can be higher.

guitarman001

Thanks, dunstonh.

It sounds like I should go for the tracker FUNDS.

Need to choose a low cost but reliable broker now (see my last comment in my first post). Then I need to check exactly what it is I want to buy.

I see HL have added a £1-2 per month cost to their popular trackers (Vanguard Life Strategy looks good) ON TOP of their annual fee for holding an account. That adds up quickly when contributions aren't massive

I have read that some prefer INVESTMENT TRUSTS (as opposed to unit trusts - I vaguely (!!!) get the difference) to trackers as they are more actively managed so you wouldn't have bought the index during the tech or property booms/busts, for example.

Basically, I want the a simple index-tracking type fund or three to invest regular small sums in. Nothing complicated. And a low-cost broker to help me do this.

grey_gym_sock

the HL charges of £1-2 per month apply to various OEICs & UTs.

HL's annual charge (0.5%, with caps) doesn't apply to OEICs & UTs, only to shares, ETFs, ITs, corporate bonds & gilts.

i.e. you don't pay both unless you hold investments with HL in both categories.

£2 per month on most of the cheapest trackers is significant on a small holding. however, some ppl have gone for holding just 1 vanguard lifestrategy fund with HL. a lifestrategy fund can be a portfolio in a single fund - if it fits your aims.

vanguard funds don't pay kick-backs to platforms in which you hold their funds, so platforms will always charge you to hold them. you can only go direct to vanguard with very large investment (£100k+).

HSBC trackers pay tiny kick-backs to platforms, but it's getting harder to find platforms who won't charge you extra to hold them. you can go direct to HSBC with more modest sums (£500), but not for regular dealing.

guitarman001

Good post, thanks.

So I wont be paying an annual admin fee for buying a Vantage fund. That's really only if I get an ISA with them, for example.

Buying the one, maybe two, funds sounds a decent idea. It'll reduce those £2 outgoings. I see there's now a very cheap SWIP tracker at just 0.1%!

Hargreaves Lansdown looks to be winning from a fund buying point of view for me. It looks like I don't need a shares ISA at all. I just need a normal trading account for the one share I already own.. and then I will probably open up a HL account to buy something akin to the VanguardLifeStrategy fund.

guitarman001

Aha, HL do a fund & share account... so I can use that ONE account for ALL my needs!! No admin charges as such!! EXCELLENT! Best piece of news all day.

I guess the only downside is that if I keep the fund buying going for >10 years and start to make significant gains, those will be taxed above the CGT threshold...

pqrdef

guitarman001 wrote: »

I have read that some prefer INVESTMENT TRUSTS (as opposed to unit trusts - I vaguely (!!!) get the difference) to trackers as they are more actively managed so you wouldn't have bought the index during the tech or property booms/busts, for example.

Well do you want to buy the index, or not? To me it seems an odd thing to do, except as a short-term punt, aiming to time the swings.

The argument has been somewhat artificial, because the "high costs" of managed funds include trail commission. The client should get this back, either directly as a rebate or indirectly through reduced fees, but this is never factored in.

The so-called low-cost trackers have prospered by opting out of trail commission and generally getting away with it, though not at H-L. But this edge will disappear as trail commissions are abolished.

guitarman001 wrote: »

Basically, I want the a simple index-tracking type fund or three to invest regular small sums in. Nothing complicated. And a low-cost broker to help me do this.

Well the broker has to make some money somewhere. Hidden charges allow large investors to subsidise small investors relatively painlessly, but this is going out of fashion.

guitarman001

I've said in another thread that my plan now... I think (!) is to get an HL fund & share dealing account. I then plan to buy a Vanguard Life Strategy fund, £100 per month. Charges are TER=0.33% and £2 each month to buy. The £2 alone is 2% of what I put in (!) but I'll view that as one less pint down the pub...

That's it. That's my entire investing strategy. £100 per month to Vanguard... and then the rest into savings.

Newbie2saving

I am also looking at my investment strategy at present and splitting my ISA allowance between a Vanguard Lifestrategy and IT's. Remember with HL there are 3 charges for Vanguard LS; 1. Fund managers initial charge(~0.24%), 2. annual charge (~0.32%), 3.monthly platform fee (£2), this is all from HL's website, charges soon add up. Have you read the following? http://monevator.com/bestinvest-vanguard/

Good luck.

gadgetmind

My wife has a SIPP with HL in which we buy Vanguard LifeStrategy every month. Cost is £24 pa, which we can live with as there are no other costs. (We also have some strategic bond funds in this account as fixed interest scares me a bit right now!)

On BestInvest, I have a SIPP and she has an ISA. On here, we use a spread of Vanguard trackers and other holdings as BestInvest's custody fee is an "all you can eat" deal that covers all trackers, equities, ETFs, etc. This fee is £60pa for an ISA and £120pa for a SIPP, but our pots are now large enough for this to not be an issue. There are dealing fees for equities but not for trackers and funds.

Note that BestInvest don't charge a custody fee for other trackers, which includes HSBC and many others.

https://select.bestinvest.co.uk/investment-guidance/investor-insights/2011/wide-investment-choice

gadgetmind

guitarman001 wrote: »

I guess the only downside is that if I keep the fund buying going for >10 years and start to make significant gains, those will be taxed above the CGT threshold...

Only when you sell.

Do note that all dividend income within the fund needs to be declared, and you'll need to keep track of purchase cost for when you finally do sell so that you can calculate CGT. In many ways, it's easier to hold the income version of the funds as it's all then pretty clear.

Once your pot is large enough for ISA fees to be a non-issue, you can "Bed and ISA" them which will make life easier.