Vanguard Life Strategy

mgarl10024

Hi,

I am trying to choose which Vanguard funds to invest in (my real first tentative step into investing).

One quick question: With the Life Strategy funds, do you effectively pay two lots of costs? One to own the Life Strategy fund, and then costs from each of the component funds being charged to the Life Strategy fund?
i.e. would it be cheaper for me to just own the component funds and do the rebalancing myself?

Thanks,

Mistermeaner

we are indeed on the same path (you replied to my post the other day); Im thinking of having the vanguard 60 as a portion of my portfolio.

As far as I can tell you only 'directly' pay the vanguard charge, any other charges are buried within the unit cost (as with any such bundled packages)

But I am also here to learn so will stand to be corrected

Mistermeaner

oh and if you invest via a platform (e.g in my case charles stanley), you also pay their charge

Your_Hero

You pay the OCF/TER (which covers most fees incurred within the fund), plus platform charge, and any other fees (some charge for ISA/SIPP accounts etc.).

In_For_A_Penny_2

Theres a huge thread on VLS (currently half way down this page).

http://forums.moneysavingexpert.com/showthread.php?t=4392271&page=66

It has lots of information in it though it seems your original question has probably been answered.

mgarl10024

Hi,

Thanks for the replies. I am still slightly confused however (sorry).

I'll understand that the broker will charge their platform fees, so I'll ignore them from below.

Vanguard has a Vanguard FTSE U.K. Equity Index - https://www.vanguard.co.uk/uk/mvc/loadPDF?docId=2034 - which charges a 0.15% TER.

Let's assume that the Life Strategy 100% Equity fund - https://www.vanguard.co.uk/uk/mvc/loadPDF?docId=2043 - only invested in that one Vanguard FTSE U.K. Equity Index fund. It has a TER of 0.29%.

Are you saying that the 0.15% charge for the Vanguard FTSE U.K. Equity Index is classed as a cost of the Life Strategy 100% Equity fund and so is contained within the 0.29%?
Therefore the cost to me the investor of the features of the Life Strategy fund are 0.14% (0.29%-0.15%).

Or, will an investor investing in the Life Strategy 100% Equity fund be hit twice, (totaling 0.44%) as they pay once (0.15%) in the Vanguard FTSE U.K. Equity Index fund and then again (0.29%) in the Life Strategy 100% Equity fund?

Hope that makes sense!

I'm quite happy to do all the rebalancing etc. - I'm just trying to work out whether the Life Strategy funds are a great deal (better than investing in the individual component funds) or are a poor deal taking a premium and are designed for the lazier investor.

bowlhead99

mgarl10024 wrote: »

One quick question: With the Life Strategy funds, do you effectively pay two lots of costs? One to own the Life Strategy fund, and then costs from each of the component funds being charged to the Life Strategy fund?
i.e. would it be cheaper for me to just own the component funds and do the rebalancing myself?

From the horse's mouth - i.e. how Vanguard themselves describe it:

The Annual Management Charges (AMC) for these funds represent a weighted composite average of the underlying funds, plus a small amount to cover the cost of administering the individual Vanguard LifeStrategy™ Fund.

So, yes there are two lots of cost. But overall, it is not too high. For simplicity they have set the AMC at 0.29% across all the VLS funds at the moment (i.e. VLS 100 down to VLS 20) and if you built them yourself you might see a different real cost as different underlying funds have different AMCs and so the extra fee for the VLS element differs. In theory, yes, you can just build your own - but there is not too much to save and you should build something in as a notional cost to you for the hassle factor.

Are you saying that the 0.15% charge for the Vanguard FTSE U.K. Equity Index is classed as a cost of the Life Strategy 100% Equity fund and so is contained within the 0.29%?

In a nutshell, yes.

The reason to build your own would be that the weightings to different markets were not what you were looking for, rather than a difference in nominal cost. If you are constantly buying and selling to rebalance, remember there is a dilution levy at the time of purchase (0.1% at VLS level, but up to 0.4% on individual funds). Depending on the fee structure with your platform provider, you may also have transaction fees from your platform which may conspire to dissuade you from rebalancing when you should have done so in your long term best interests.

I invested in VLS when the dilution levies were higher and the overall AMC was a bit higher (I use VLS 100) but was satisfied with the overall result. Although I have trimmed VLS back a bit as a proportion of my portfolio, I still have nearly as much actual cash invested in VLS as I did a couple of years ago, as it has grown quite well along with everything else; I am simply putting a greater proportion of new money into more specialist areas rather than generalist at the moment.

mgarl10024

In_For_A_Penny wrote: »

Theres a huge thread on VLS (currently half way down this page).

http://forums.moneysavingexpert.com/showthread.php?t=4392271&page=66

It has lots of information in it though it seems your original question has probably been answered.

I did skim that thread but must have missed the answer due to its size. I'll have another look through.

Linton

I think you are making a mistake in assuming the OCF/TER of the individual retail funds is the same as would be charged as a constituent of a VLS fund. Supplying funds in bulk to an internal customer must be significantly cheaper than looking after a small retail customer. The per customer costs need only be levied once.

Glen_Clark

Have you considered Vanguard ETF's?
Annual charges as low as 0.09% (VUSA)
Most platforms don't charge to hold them, but they do charge to convert your dividends to Sterling.

mgarl10024

bowlhead99 wrote: »

For simplicity they have set the AMC at 0.29% across all the VLS funds at the moment (i.e. VLS 100 down to VLS 20) and if you built them yourself you might see a different real cost as different underlying funds have different AMCs and so the extra fee for the VLS element differs.

Yes - I worked out that the AMC/TER on VLS100 should be around 0.22%, but then you also get the 0.1% dilution levy, but then you avoid the 0.4% stamp duty on UK purchases.
I (without much knowledge) concluded that these probably roughly balanced.

bowlhead99 wrote: »

The reason to build your own would be that the weightings to different markets were not what you were looking for, rather than a difference in nominal cost.

I certainly don't know enough to be doing that right now.

Glen_Clark wrote: »

Have you considered Vanguard ETF's?

Thank you for the thought, but right now this is about my first tentative step into investing - and so I want to keep things as simple as possible! Maybe next time...


Thanks to everyone who has helped in this thread - I now have a better understanding of how the costs work (and that they are not duplicated in a VLS fund).