Reducing platform cost - Stocks & Shares ISA with Hargreaves Lansdown

ColdIron

NickHStamford wrote: »

It's L&G UK All-share Index Tracker.

Ouch
You need to sort that out

bowlhead99

The UK all share has (broadly) underperformed other global indexes for the last couple of decades. Not as bad as the FTSE100 but much worse than the FTSE250 and much worse than the FTSE World. It has quite a concentration in some industries and lacking others.

So, by ignoring global markets and the full range of industry sectors, by picking a single market on which to focus: even though your poor return is only 'paper losses' compared to the theoretical better result that you could have had by investing more broadly, you have permanently destroyed your potential wealth.

Sorry if that sounds harsh- as you probably think it is better than having not saved at all, which is of course true.

But steadfastly sticking to one index is why you are thinking you would only save 0.45% on £100k by moving from HL when instead you might have been in a position to be moaning that you could save 0.45% on £150k instead. Which would have been a nicer problem to have. So, I'm glad you're now going to look at it properly rather than just gradually drip in to other funds to get some semblance of a proper balanced portfolio over the next 20 years

Basically what you have in the ISA is way more important than how much a year it costs, so now's a good time to look at it.

If you're looking towards the future, for retirement, both ISAs and pensions give tax-protected growth. However, in exchange for locking up your capital 'til your late 50s, pension gives you a saving on your current year tax bill. So if you're looking at what's accumulated in the ISA so far, you could take (for example) £8k out of the ISA and stick it in a pension and the pension company will gross it up to £10k thanks to HMRC, for basic rate tax. If you're a higher rate taxpayer you can go and claim even more off the taxman.

Then in retirement you can take out the £10k plus growth (call it £40k if you get ~7% compound growth for two decades and it quadruples). A quarter is tax free as a pension commencement lump sum, and the rest of it is only charged at your marginal tax rate. Which might be zero percent if you draw it out over a year or two when you've stopped working and haven't started drawing other pensions.

So in that example you would get £40k tax free at retirement. By contrast if you leave the £8k in the ISA to grow (assuming same underlying investment, ~7% for two decades quadruples the amount), you only have £36k.

So, if you are not already using pensions, if you don't want the money for a long time it would make sense to put a chunk of your ISA into one (whether at HL or your new destination of choice).

And if you have been ignoring a workplace pension scheme to help pay down your mortgage and build up the ISA, make sure you revisit that as there is probably free money from your employer if you participate.

socrates

Interesting thread

NickHStamford

With regards to diversification, I would probably convert 75-80% of my current single holding into other funds/ETFs/trusts. Leaving some of the original tracker intact to give me continued UK exposure as part of the diversified portfolio.

Is there any reason why I shouldn't just do this immediately, in one parallel transaction? It will take a week or so as I understand it, to complete. I know you can't time the market but as I built this investment through monthly drip-feeding, something feels "off" about making such a large transaction in one hit. Things seem volatile at the moment to boot, am I at risk of a market nosedive mid transaction?

bowlhead99

If you are switching funds on a platform you are probably only, in practice, going to be out of the market a couple of days at most and that time out of the market is not going to change much by doing it later rather than sooner. A market nosedive mid transaction could always happen at any time, whether or not the market currently "looks a bit choppy". Wouldn't worry about it.

If you are going to sell your fund, get cash, move it to a new platform and *then* rebuy you could be out for a couple of weeks. So I wouldn't really suggest that if it can be avoided.

NickHStamford

I am planning to stick with Hargreaves Lansdown for the time being.

I'm looking at a four or maybe five way split, which would contain two funds, an ETF and one or two Investment Trusts.

The costs on ETFs and Trusts with HL seem to be transactional (trading fees) so would only apply when I rebalance.

Then the 0.45% fee applying to the two funds would be more acceptable than the current arrangement as will be 40-50% of the current total amount. I like the HL site and service thus far.

This is my current thinking.

bowlhead99

They do charge you the 0.45% on ETFs and ITs too if you're holding in an ISA wrapper, but they cap it at £45 a year (ie on just the first £10k of the IT/ETF half of your portfolio) so you will save a decent amount of platform fees by using those instruments. Obviously, only use them if you actually like the underlying assets, rather than purely to save costs - or it'll be a false economy.

NickHStamford

Ah yes I didn't register the % fee with cap. Still a good saving though as you say.

The ETF is Vanguard UK Government Bond ETF as it seems to be broadly advised to have some exposure to bonds (although I am not totally sold with a current 20 year plus investment horizon) Then Aberforth Smaller Companies in it's Investment Trust guise, Vanguard FTSE Dev World ex-UK Equity Index as the second fund in the portfolio to balance the UK All-Share tracker.

Then although really that should be it, I'm attracted by Scottish Mortgage Investment Trust as I like the sentiment of the fund manager and think it holds some interesting companies (this is though a high-conviction play as opposed helping my diversification effort?)