Changing my investment strategy -this a good idea?

^opm^

robtgossard wrote: »

Do you have some tangible assets in your portfolio, like real estate, physical gold bullion or other commodity? Supplementing your portfolio with investments other than stock and bond holdings can help guard your overall investments from a sudden plummet in the stock market.

Nope, nearest is that the fund currently has 5% in cash at mo.

^opm^

atush wrote: »

I have to say, with more than 10 years to a very early retirement at 55 (and when you might use DD over annuities?) that the 60/40 fund is a bit conservative. I would have thought 80/20.

but then again, you haven't said/don't know what your other 75% will be in and if there are no bonds in that, it isn't too conservative.

Yep i do intend to retire early but with a house long since paid off, a good pension and my savings plus my frugal lifestyle I think i could easily retire younger then 55, only really said 55 as its youngest i can get to my company pension.What DD mean? and yes maybe the 60/40 is a bit to conservative a fund and the 80/20 maybe better.

To see where my money is currently invested, look at one of my posts above,it says what the current breakdown of the multi asset fund im currently invested is in.

Glen_Clark wrote: »

Vanguard funds are already very well diversified, so why not invest 60% plus - with over £100k you can invest with Vanguard direct - no middlemen

True yes but its £60 a year with bestinvest and is 100K plus to much to put all in a vanguard?

gadgetmind wrote: »

2% is a massively ridiculous level of fees that is going to seriously impact your long term returns. You need to either DIY and get the fees right down or pay an IFA to get them at least a big lower than they are now.

The latter is easier post RDR but the former is still mired in doubt and complexity, which I personally find rather frustrating.

If i DIY yes the TER would be cheaper but i may not be as good as the pro's which is why they charge 2% as they are doing the research for you etc.I know it will impact my long term returns which is why i have began to think about a vanguard lifestyle fund.
Just dont know what % of my total funds i should swap from its current multi asset fund with bestinvest to a vanguard fund.

Welcome all replies tho

bigadaj

DD refers to drawdown, ie staying invested rather than buying an annuity due to the poor annuity rates on offer.

Vanguard is very well diversified, assuming lifestyle funds, they do have others! Doesn't cover everything so worth putting a lump in there and smaller amounts in areas not covered such as emerging markets and smaller companies.

Interesting point you make in terms of fees for professionals, what evidence is there that they are outperforming? I'd be happy if they provided some sort of guarantee, either out performing inflation, cash, index etc but even at those fee levels you ain't getting that so how is the extra fee justified?

atush

What DD mean? and yes maybe the 60/40 is a bit to conservative a fund and the 80/20 maybe better.

To see where my money is currently invested, look at one of my posts above,it says what the current breakdown of the multi asset fund im currently invested is in.

DD= Drawdown.

Your current funds are unimportant as you said you were going to get the 75% managed when I wrote my post. So only the managers you choose would know where your money would be?

If they are conservative then 80/20. If they go aggressive, the 60/40. I I dont know, do you?

Bonds may or may not be in a bubble. Bubbles can be survived with time, but we don't know your total bond % exposure. Bubble or not, I'd have some as the income they provide is key just now..

^opm^

bigadaj wrote: »

DD refers to drawdown, ie staying invested rather than buying an annuity due to the poor annuity rates on offer.


Vanguard is very well diversified, assuming lifestyle funds, they do have others! Doesn't cover everything so worth putting a lump in there and smaller amounts in areas not covered such as emerging markets and smaller companies.

Interesting point you make in terms of fees for professionals, what evidence is there that they are outperforming? I'd be happy if they provided some sort of guarantee, either out performing inflation, cash, index etc but even at those fee levels you ain't getting that so how is the extra fee justified?

Yes DD is the route i would most likely take.

As to do they outperform they have a benchmark called ARC sterling steady growth PCI, but I am unsure what funds etc are in that benchmark-they told me it was a benchmark against other IFA's.

atush wrote: »

DD= Drawdown.

Your current funds are unimportant as you said you were going to get the 75% managed when I wrote my post. So only the managers you choose would know where your money would be?

If they are conservative then 80/20. If they go aggressive, the 60/40. I I dont know, do you?

Bonds may or may not be in a bubble. Bubbles can be survived with time, but we don't know your total bond % exposure. Bubble or not, I'd have some as the income they provide is key just now..

My current funds are important as its them funds i am considering reallocating into new funds.At moment they are in a growth fund. I have at moment 15% of money in bonds

I am happy with my current diversifications of my funds , that is not the problem. Th problem is the fees i pay-I am thinking can i get just the same returns but by investing it via a vanguard lifestyle fund and saving myself a few thousand a year in fees instead, and ultimately get better returns as more of my money is staying in my funds.

Totton

The 60% Vanguard LifeStrategy fund isn't necessarily too conservative, you need to consider the whole portfolio. Hence if you have 25% in a VLS 60, then 25% of your portfolio has 40% bonds. Once you add other funds the bond percentage will likely fall.

You can never know exactly which VLS fund will perform best, for example the 40% has done very well due to the large falls when VLS was launched, it hasn't done so well of late though.

I would personally back away from such high charges as you are currently incurring, if I were to go managed route then I would be looking for a max of 1.5% but in truth even those services usually just put you into one of their master portfolios rather than tailoring anything to your specific needs.

If you can stomach the ability of trackers to follow the market down then why not drop 65% into a Vanguard LifeStrategy fund and 35% into a mixture of others that you like. This is known as core & satellite investing if you have time to look it up further on the 'net.

Going back to your original question as to where to invest in the Vanguard fund, then I'd drop it into Hargreaves Lansdown which is currently £2 a month. Their fees are going to change by January but you can transfer the money for nothing simply by selling and moving as cash. Out of the market for a few days but not likely to materially affect your investment over 15 years.

Best of luck,
Mickey
ps. With the ability to retire at 55 you are probably very capable of dyor and investing a lot cheaper than a managed service.

bowlhead99

^opm^ wrote: »

I am happy with my current diversifications of my funds , that is not the problem. Th problem is the fees i pay-I am thinking can i get just the same returns but by investing it via a vanguard lifestyle fund and saving myself a few thousand a year in fees instead, and ultimately get better returns as more of my money is staying in my funds.

Vanguard is very cheap to hold per pound invested. You can guarantee you won't get the same returns as the investments are different. You can't guarantee you will get a better result, before or after fees.

There are some decent arguments for using indexes to access a basic developed markets return at low cost. For a given market sector or geography, trusting your returns to the mix of stocks held by an index rather than paying someone to construct a portfolio of holdings in that region is something that may or may not work out for the best. It is less likely to work for smaller companies, less developed markets etc.

One level up in the process, the selection of how to split your portfolio between asset classes (gilts, investment-grade debt, high yield debt, real estate, commodities, alternatives, shares with different attributes - such as size, or growth vs value outlook) and regions is a high level management decision which results in a significant change in total portfolio return (potentially several tens of percent in some years).

So in that context, paying lower fees so 'more of my money is staying in my funds' becomes a less significant issue than what those funds are actually doing. Looking at your current breakdown, you have 17% of your assets in property, commodity, absolute return funds and cash. You don't get any of that in Vanguard LS. You also have 31% of the equities in medium sized or smaller companies. That will be much lower in an index-driven portfolio (FTSE 250 is only 15% of UK market, FTSE small cap is only 2% of UK market).

By using indexes you automatically weight your portfolio to larger companies so for example you have over 100x as much in British American Tobacco as in either Halfords or Dairy Crest. The British American Tobacco exposure is only half what you have in Shell or HSBC. You have twice as much in Tesco as in M&S and Morrisons combined.

Those specific decisions are perhaps sensible as (generalising) the larger companies have better stability and international exposure and an HSBC is less likely to go bust than a Halfords. And the argument goes, if you pay a manager to decide to invest in one company or avoid one company, you need to be lucky to pick the right manager and you might be safer to pick all of them and get the average return, in which case why not buy an index and save most of the 0.75% fee. Fans of a more active approach will note that the index solution puts you overweight in financials in 2007/8 and in tech firms in 2000 but plenty of active managers fell into the same trap.

But whether you buy the arguments for using indexes to access certain markets, that is a different question from whether you trust yourself or Vanguard to build the best portfolio out of these individual funds, rather than paying the 1% + VAT to the guy constructing and maintaining your portfolio. Ultimately whether you choose to pay the percent and it turns out to be a bad call, or you pick funds yourself and it turns out to be a bad call, it's still you that's losing the money (or failing to gain the money).

So paying the percent is not an insurance policy, but it means at least you have a portfolio with a sensible structure to it, which you might not have been able to create yourself, and they may take active decisions periodically to capitalise on opportunities or avoid bubbles which you might not have understood.

The one certainty is that if you pay money for the managed service, you will end up with a different return before fees than if you invest in Vanguard - because the asset classes and the mix will be different. Alternatively you could pay an IFA for a tailored solution and ongoing servicing. Neither the manager nor the IFA could say they would definitely outperform Vanguard over a particular cycle, but at least they would be using a wider variety of building blocks which to my mind is a good thing. You could assemble the building blocks yourself and save the fee, but it would cost much more than 1% +VAT if you did it incompetently.

Personally, I have a LS 100% fund as part of my portfolio for some general cheap developed market equities exposure (not so much for the EM element of it) and also a Vanguard global smaller companies fund, but these are just a portion of my portfolio which includes various other funds or ITs which give me coverage of other asset classes and weightings and match my particular convictions. If you don't have any particular convictions and just want to invest and forget, you could do it with vanguard but you are gambling whether your return will be as good or bad as if you had added in the other asset classes and paid the fees here and there.

On the face of it the manager is not necessarily going to outperform to the extent of his 1% plus vat but if you need advice or hand-holding rather than investing the time yourself, it's a valid choice. I work with a guy who just lets St James's Place do everything for him; he is a pretty smart guy but would rather spend his spare time creating wealth in his business or with his kids, and outsource the thinking to someone else even if they charge him over the odds.

^opm^

Hi,

I may have the ability to retire at 55 that doesn't mean i can DIY it just means i live cheaply and can save a lot so by then i can afford to retire, doesn't mean i know in mean time where to put my money or have time to research individual funds etc.

Thank you also to bowlhead for very long detailed reply-what i was thinking maybe to lower my overall TER i should swap 50% of my holdings into a vanguard fund say vanguard 80/20 as i still take quite a bit of risk then leave the other 50% in a managed fund paying around the 2% TER but both added together it averages out at around 1% TER.

If i look at performance graphs for my fund and compare it to various indexes it may sometimes lag it by a couple of % and sometimes beats it by a couple of % so overall i aint gaining much by paying for a managed fund am I?

bowlhead99

^opm^ wrote: »

Thank you also to bowlhead for very long detailed reply-what i was thinking maybe to lower my overall TER i should swap 50% of my holdings into a vanguard fund say vanguard 80/20 as i still take quite a bit of risk then leave the other 50% in a managed fund paying around the 2% TER but both added together it averages out at around 1% TER.

Well yes if the fund manager for the managed solution is charging you a percentage fee rather than a flat fee, there are no 'economies of scale' and so you could take some away and DIY or use a tracking fund or whatever. The point still stands that the results of the cheap tracker element using a restricted set of asset classes will differ from the net result of the managed fund and there is no way of knowing whether that difference is net negative or net positive. Arguably using a wider variety of asset classes via the managed solution will give a less volatile return and potentially an outperforming one given its use of more smaller companies etc, but this is unknown.

If i look at performance graphs for my fund and compare it to various indexes it may sometimes lag it by a couple of % and sometimes beats it by a couple of % so overall i aint gaining much by paying for a managed fund am I?

You are paying 2% p.a. on your multiasset fund. And yet the net result after those charges is broadly in line with the core indexes against which you are benchmarking it. Therefore in your recent experience those charges are costing you nothing, and are nothing to be afraid of or run from.

I'm not suggesting cheaper funds don't exist but it is the net return after fees which is important. The first element is the fees on the underlying fund. This can be 'beaten' in terms of percentage charge by using an index but the net result will not necessarily be better. The second element is the fees from the multimanager or IFA or advisory service. These can be beaten by using no manager or advisor - i.e. by DIYing or having Vanguard dictate some fixed ratios for you to invest in - but the net result will not necessarily be better.

Have you looked at how your fund performed through severely negative markets such as we get once or twice in a decade? You haven't done this with Vanguard as the funds have only existed a couple of years. You could back-test this against available historic indexes to get an idea of how the Vanguard 80/20 mix of indexes, less TER, would have performed in those periods versus your existing multi-asset fund. Again once you have done the maths you might find that it is 'sometimes a bit ahead, sometimes a bit behind' in which case it is not materially any better or worse.

These days when everything is online and DIY investing is easy for novices to do through fund supermarkets, there is an increasing focus on fees. You don't always get what you pay for so it is important to understand what you are getting for your money and how the results could differ using different products. However if you are happy that the net returns after fees taken from the fund assets are broadly in line with various benchmarks, you are not presenting a particularly compelling reason to move to 'save' a fee.

grey_gym_sock

^opm^ wrote: »

what i was thinking maybe to lower my overall TER i should swap 50% of my holdings into a vanguard fund say vanguard 80/20 as i still take quite a bit of risk then leave the other 50% in a managed fund paying around the 2% TER but both added together it averages out at around 1% TER.

1 issue with that approach is that nobody is looking at the overall portfolio. the vanguard half is covering big companies and bonds, but has little in medium/small companies, or property, and so on. the managed half may be covering those areas, but it's probably also covering big companies and bonds again, so they may be over-represented.

the general idea of putting a big chunk in cheap trackers, with more expensive managed funds on the side, is fine. but ideally somebody should be looking at how it all fits together. either you, or perhaps an IFA, who would typically charge 0.5% ongoing + something upfront (2%? i'm not sure).