First time funds investor: Vanguard or separate funds (etc)?

El_Selb

After asking some fairly naïve questions previously on this forum, I have been away and read Hale’s Smarter Investing and also had a review of what Monevator has to say. I’m now itching to get started but just have a few questions where I’m still a bit unsure.

Is a Vanguard / Lifestyle fund the way to go?

During my research I’ve been seduced by various fund types at different times – Emerging Market, Global Small Cap, Value, FTSE All Shs, but is a lifestyle fund the way to go, rather than buying the separate funds? Is it a lot easier (no rebalabcing necessary) and the rewards pretty much the same?

If I was to buy the separate stocks, in say a 10/60/30 (bonds/global/emerging) split (for example purposes), how many funds is it possible/feasible/sensible to get with 4k? For example, 20 stocks there’d be no point due to fees, I’m guessing. With 4K could I buy, say, 8 funds in £500 blocks? I like the idea of investigating and selecting a few distinct funds…. But if Vanguard’s that much easier, is there a point.

I’m also unsure re the right broker, but I guess I’ll need to work out the funds I’m getting (ie a variety or 1 x Vanguard) before I decide. I’m figuring/hoping when I sign up to my chosen site it will be apparent how I can buy funds and in the process wrap them in a stock ISA at the same time.

Re bonds (or the ‘defensive’ element), I’m comfortable with risk. For a while, using Smarter Investing as my reference point, I was thinking about a 10-15% portion, but thinking & reading further, since Index are comparatively safe in themselves (barring a crash) I think I could do without them and stick to equities. If this is a major error, please let me know!

Many thanks

Marazan

El_Selb wrote: »

Re bonds (or the ‘defensive’ element), I’m comfortable with risk. For a while, using Smarter Investing as my reference point, I was thinking about a 10-15% portion, but thinking & reading further, since Index are comparatively safe in themselves (barring a crash) I think I could do without them and stick to equities. If this is a major error, please let me know!

Many thanks

I don't understand what you are saying here. The whole point of bonds is the (barring a crash) part of your paragraph. You're not buying bonds because you think your index fund will disappear with your money to the cayman islands, you're buying bonds to protect against capital loss.

Are you really sure you'd be able to watch 50% of your wealth disappear over a year?

EnglishMohican

I am asking the same questions myself so this is not really an answer - just further thoughts.
You seem to be heading towards passive funds. Holding passive funds is getting more expensive at present (HL price rise for example) and I think ETFs may be the way to go. If you agree, then LifeStrategy is out as it is not available and you would have to buy a few ETFs to give yourself the same cover. However, a world etf might not be too dissimilar to LifeStrategy (100% equity). You can also get bond etfs but I tend to agree with you that bonds are poor value at the moment. You could make it a target to buy some when they are better value - just try not to leave it too long.
With ETFs you do have trading costs (£6 or £7 pounds per purchase with no ongoing platform charge until you sell it if careful) and that makes 4k rather thin to buy too many etfs. You might consider just buying one very wide spread etf (one of the world trackers for instance) for now rather than spreading you money thinly and suffering high initial expenses.
An alternative would be a more localised UK ETF such as an FTSE all share or FTSE 250. They have the advantange of reflecting your home currency and they are doing better than the world is just at the moment.
I am interested to hear your thoughts on my thoughts:)

vickssinex

There's nothing to stop you buying into a Lifestrategy type fund and a separate fund at the same time, eg in small companies. A lot of people do that, including me, to diversify further.

El_Selb

Mohican, why do you think ETFs might be the way to go? Purely due to the costs of funds rising, or other reasons also? I don't really know enough about them (apart from the basics), or at least I don't know their merits over funds. I read that some ETFs are derivative backed, and with derivatives I have a bit of a fear of the unknown!

It's tricky, I guess there's no definitive answer as to what is best; Funds, ITs, ETFs, Lifestyle/Vanguard.... I guess I just need to pick one and go with it. They all have points that appeal.

What I still don't quite understand is if you can buy exposure to a few different markets that appeal - ie emerging/global developed/value + some bonds - in one Vanguard asset - isn't it a no-brainer to do that? Less hassle + costs and still get what you want? I don't get the catch....

Marazan, I wrote that wrong, I'm aware bonds are to offer protection in case of a crash. I think as optimist/risk-taker I'm going to take the view that the market won't crash and probably not get any. But, it is still a possibility, a reason why Vanguard could be a good option.

If I was to go with funds (or ETFS & ITs for that matter) would it be unreasonable to buy 4, 1K in each?

Totton

Vanguard LifeStrategy is a decent way to go if you are happy with those returns. If you have the time then you can do better but is the time spent worth it? That's debatable although personally I have sold my VLS funds and am doing much better with actives, not sure that will last though :-)

lentrix92

'Horses for courses' ... A vanguard lifestyle 80/20 (equity/bond) - then have a few spec funds (subject to risk) say mid cap / smaller companies/ bio tech / emerging etc ... the question is whether you would be better bying the spec areas in ETF format v funds ... costs are lower on ETF's atm ........

mf78

The big advantage of using a VLS fund when you only have a smallish starting amount to invest is the saving in dealing charges. You pay one dealing charge to put 4k into a VLS fund, or 8x that to pay into 8 separate funds. Plus the VLs is automatically rebalanced for you, saving yet more dealing charges in the future.

I have the VLS 80% in my ISA as its still a small amount, and separate funds in my SIPP as its a bit larger and I like to hold a couple of managed funds alongside trackers. I intend to hold the VLS in my ISA until its grown to atleast £10k, then I may change to separate funds - or not if the VLS seems to be doing just as well after costs.

Eponym

mf78 wrote: »

The big advantage of using a VLS fund when you only have a smallish starting amount to invest is the saving in dealing charges. You pay one dealing charge to put 4k into a VLS fund, or 8x that to pay into 8 separate funds. Plus the VLs is automatically rebalanced for you, saving yet more dealing charges in the future.

Only if your broker charges dealing fees! I'm with Hargreaves Lansdown and they don't charge them for funds.

I'm currently in Blackrock Consensus 100 - I went for that because as I am only investing a small amount each month, the £2 pm platform fee was proportionally very expensive, but the Blackrock doesn't have a platform fee.

I intend to switch to VLS from March when HL remove the platform fee.Then I need to look at whether I should leave HL because of the new charges!

El_Selb

mf78 wrote: »

The big advantage of using a VLS fund when you only have a smallish starting amount to invest is the saving in dealing charges. You pay one dealing charge to put 4k into a VLS fund, or 8x that to pay into 8 separate funds. Plus the VLs is automatically rebalanced for you, saving yet more dealing charges in the future.

I have the VLS 80% in my ISA as its still a small amount, and separate funds in my SIPP as its a bit larger and I like to hold a couple of managed funds alongside trackers. I intend to hold the VLS in my ISA until its grown to atleast £10k, then I may change to separate funds - or not if the VLS seems to be doing just as well after costs.

Totally see your logic there mf78, this is a reason that makes VLS very attractive.

I think I need to sit down at the weekend and work out hypothetically what ETFs I'd buy (say 4), chose a broker I'd go with, then calculate/estimate the estimated returns less dealing fees of the Vanguard Vs the ETF route.

The broker question is another challenege I need to address!

El_Selb

My thinking is:

- 2K in Vanguard LS 80
- 1K in Schroder UK Growth IT
- 1K in MSCI World Index ETF

with Charles Stanley Direct

If anyone thinks this is fatally flawed, please let me know!

Could I do better re my world exposure portion?