Virgin fund increased but valuation decrease

Andrew2010

I've invested £250 regularly into a Virgin index-tracking UT but the valuation over the past 6 months on my statement doesn't reflect this. It says that the fund increased between two dates but the valuation has decreased between the same two dates. How can this be? Isn't this misleading?

bowlhead99

Your share in the fund (number of units held) will have increased over time because you keep buying more units with your payments each month. Therefore your investment may have gone up because you added to it. However the price today (valuation of each unit of the fund) might be higher or lower than it was six months ago.

For example you had £1000 in the fund when its price was £10 a unit. Then you invested another £250 when the price was £10 (buying 25 units), £250 when it was £12.50 a unit (20 units), £250 when it was £11 a unit(buying 23 units), £500 when it was £9 a unit (55.5 units) and £250 when it was £8 a unit (buying 31 units).

Altogether in that example, you have bought 254.5 units and if the price is now £9.90, your investment is worth £2520.

In that case it would be true to say that your fund has increased from £1000 to £2520 and it would be true to say that you are in profit (because £2520 is more than the £1000 start figure plus the £1500 you added), but it is also true that the valuation has decreased from £10 to £9.90 because the fund has been losing money.

If with those same purchase prices, the fund was today priced at £9.80 a unit, you would have total value of £2494. In that case, the fund would still have way more in it than it had six months ago (£2494 vs £1000), but it would have less than what you paid (£2494 vs £2500) and would have a lower valuation per share than six months ago (£9.80 vs £10) because the fund lost 2% of its value by following the market downwards.

Any combination of price movement and overall value and profit or loss is possible depending on what you paid in and when and at what price. It shouldn't be misleading if you realise that all combinations are possible and presumably a statement tells you the components.

Andrew2010

So the best thing with regards to withdrawing is to wait until the price per unit has increased such that the total valuation is greater than the total paid in.

le_loup

It may never do so.
Unlikely, but you cannot know.
Why do you want to withdraw the cash now?

bowlhead99

Andrew2010 wrote: »

So the best thing with regards to withdrawing is to wait until the price per unit has increased such that the total valuation is greater than the total paid in.

Absolutely not.

The Virgin fund, and its manager, and the market index made up of share prices of tens or hundreds of individual large companies, do not really know what you as an individual chose to pay or when. The individual company CEOs running the companies like HSBC or Shell or Tesco on which the index is based, certainly do not care about what point you chose to come in. So, absolutely nobody in the market is targeting that specific value as any kind of goal, and you should have no expectation that the price per unit will definitely get to that valuation within the next week, month, year or decade.

As such, the best thing "with regards to withdrawing" is not to wait until the unit price reaches some completely arbitrary level based on your personal history of purchase timing. That might cause you to wait five years or might make you feel you should sell up tomorrow, depending on events completely beyond your control. Instead, the best time to withdraw is when you actually need the money for living or for a better investment opportunity (e.g. cheaper, safer or potentially more lucrative).

Standard advice is to take a very long term view so that you are not going to be forced to sell the fund to cover your living costs or other emergencies at a time when markets are low and be forced into taking a loss that you don't want. But it is definitely not the case that you should always try to withdraw when it's worth more than you paid for it. That might cause you to blindly hold a poor performing and high-management-fee-charging fund (like the Virgin trackers) for a lot longer than you should, just "to avoid a loss" when the correct thing to do is to sell up today and move the money into the better run fund.

grey_gym_sock

in general with shares, you should buy as soon as you can, and sell as late as you can, so that you can ride out the short-term ups and downs of the market, and benefit from the expected (but not guaranteed) long-term upward trend.

however, if there is a better way to invest in shares, you should generally switch to it right away, regardless of whether we're currently in an up or a down, because more often than not, the better and less good ways of investing are both in an up or both in a down at the same time.

for instance, there are much cheaper FTSE all share trackers available (vanguard's costs 0.08%, compared to 1.00% for virgin's).

also, if that's your only investment in shares, the UK is less than 10% of the world market in shares, so it's a good idea to go for something broader.

MEM62

Andrew2010 wrote: »

I've invested £250 regularly into a Virgin index-tracking UT but the valuation over the past 6 months


So the best thing with regards to withdrawing is to wait until the price per unit has increased such that the total valuation is greater than the total paid in.

Investing in S&S is not suitable if you are only looking at a six month period. This is a long-term strategy - in my view 5 years plus. Historically, this type of investment has beaten cash savings but, again, it's long-term.

If you only want to save for the short term you need cash based savings.

jimjames

Andrew2010 wrote: »

So the best thing with regards to withdrawing is to wait until the price per unit has increased such that the total valuation is greater than the total paid in.

Yes as you generally want to make a profit on investments rather than selling below cost. However it's normally best to wait until you need the money before withdrawing it rather than just randomly closing on a date when the price goes above purchase costs. The reason investments are seen as long term is that you then are less worried about short term price fluctuations.

However are you aware than Virgin charge around 10x the fees of the best providers and are about the most expensive index tracker out there? Paying massively inflated costs will certainly not help you make money.