HL Vanguard Target Retirement Fund

Just_30

Hi all,

I have been gradually increasing monthly contributions over the last two years into the Vanguard LifeStrategy 80% Equity (Acc) fund. The intention is that this will be drawn down as cash to provide an early retirement in 25 years time, before a defined benefit pension is payable 32 years from now. So, effectively I'll be living off savings for 8 years.

I chose this fund as an easy "fire and forget" option and given the timescales I was happy with the risk profile.

However, I have noticed that Hargreaves Landsdown (my current platform provider) now offer the Vanguard Target Retirement 2040 fund, which seems like a better fit for what I am trying to achieve, as rebalancing risk is all taken care of as time goes on.

Based on the above, my questions are:

1. Is it worth the switch to the new fund? This seems like an obvious answer given my circumstances but I'm happy to be corrected.

2. Do I transfer my current holdings in VLS80 to the Target Retirement fund? This amount is relatively low at the moment (approx. £1,000), so I am tempted just to leave it as is put all future contributions to the Retirement fund. But this may have cost implications by holding 2 funds... which leads on to my next question...

3. The charges still confuse me. My understanding is HL charge 0.45% as a platform fee, which is easy to understand. e.g Two funds worth a total of £2,000 would incur an annual fee of £9.00? The part that is unclear is the 0.24% Ongoing charge (OCF/TER) for each of the Vanguard funds. Is this based on the total amount I hold in each fund, or taken from the monthly contributions? e.g 0.24% of £1,000 total held, or 0.24% of each £200 monthly contribution.

4. In relation to the charges; I realise Hargreaves Lansdown are not the cheapest provider, but as alluded to above I'm no investment expert and I just want an easy "fire and forget" option. So, I was wondering if the marginal additional charges by staying with HL will make THAT much of a difference? As an example, I'm looking to contribute a minimum of £200 / maximum £400 per month over the next 25 years. So, is it worth the switch to another platform provider?

Any thoughts and opinions on any of the above is gratefully received.

masonic

Just_30 wrote: »

1. Is it worth the switch to the new fund? This seems like an obvious answer given my circumstances but I'm happy to be corrected.

What are your long term objectives? A "target retirement fund" will typically move you out of riskier investments and into safer ones in time for your retirement date, but this may not be appropriate if you plan to stay invested beyond retirement.

2. Do I transfer my current holdings in VLS80 to the Target Retirement fund? This amount is relatively low at the moment (approx. £1,000), so I am tempted just to leave it as is put all future contributions to the Retirement fund. But this may have cost implications by holding 2 funds... which leads on to my next question...

It wont at HL.

3. The charges still confuse me. My understanding is HL charge 0.45% as a platform fee, which is easy to understand. e.g Two funds worth a total of £2,000 would incur an annual fee of £9.00? The part that is unclear is the 0.24% Ongoing charge (OCF/TER) for each of the Vanguard funds. Is this based on the total amount I hold in each fund, or taken from the monthly contributions? e.g 0.24% of £1,000 total held, or 0.24% of each £200 monthly contribution.

Both percentages are based on the amount held, not monthly contributions.

4. In relation to the charges; I realise Hargreaves Lansdown are not the cheapest provider, but as alluded to above I'm no investment expert and I just want an easy "fire and forget" option. So, I was wondering if the marginal additional charges by staying with HL will make THAT much of a difference? As an example, I'm looking to contribute a minimum of £200 / maximum £400 per month over the next 25 years. So, is it worth the switch to another platform provider?

HL is not that much more expensive for a small portfolio. You would probably want to move somewhere else by the time your portfolio approaches 6 figures (or a little earlier), but you might as well make that jump nearer the time when you can assess who is the best option at that time.

bigadaj

There are obviously cheaper percentage based platforms out there, I use Charles Stanley direct and they are fine and charge 0.25%. The crossover point at which a fixed fee broker might be better value depends on a few factors but might typically be £30-40k.

I wasn't quite sure what was meant by rebalancing risk, lifestrategy funds obviously rebalance automatically but I assume that you mean a form of life styling, ie moving into lower risk assets with increasing age. This can obviously be done by you as you get older, potentially just by moving or investing future sums into another fund, like the 60 or 40 version.

The tendency to lifestyle is reducing as people are living longer, and being more active in retirement, and the penalty for moving into lower risk assets, in terms of lower growth has become more marked over the recent past.

smallfry27

I have also been considering changing some of my funds to this one. I last looked a few months ago - there seemed to be more variety in the underlying funds held within the Retirement Fund. I'm older than you, so was comparing Lifestrategy 60% with Retirement 2025. On Trustnet, the performance since January is much the same, so maybe that variety doesn't make much difference. Yet even 1% difference a year will add up over time, like compound interest.

The Retirement Funds are now also offered by Fidelity and Bestinvest. My understanding is there is no overhead for the number of funds held - could be 1 or 20+.

As well as having funds in Lifestrategy, I have some separate passive funds in stocks or bonds. The intention was to do my own rebalancing on those, but with my small holding, the amounts involved never seem worth the effort of switching. So I'll probably move those to a Retirement fund, but keep the Life Strategy fund as it is.

Just_30

masonic wrote: »

What are your long term objectives? A "target retirement fund" will typically move you out of riskier investments and into safer ones in time for your retirement date, but this may not be appropriate if you plan to stay invested beyond retirement.

No plan at the moment to stay invested. The intention is to take this pot and make it close to zero risk (transfer to cash?) as this will be savings to live on (which will be my only source of income) for approx. 8 years before my pension is payable in full.

masonic

Just_30 wrote: »

No plan at the moment to stay invested. The intention is to take this pot and make it close to zero risk (transfer to cash?) as this will be savings to live on (which will be my only source of income) for approx. 8 years before my pension is payable in full.

If the plan is to spend most or all of it over those 8 years, then the Target Retirement fund seems appropriate. It doesn't seem worth changing what you have. I'd just start putting new money towards this new fund, but if you want to switch out of Lifestrategy at any point you can do so with no cost implication.

Just_30

masonic wrote: »

If the plan is to spend most or all of it over those 8 years, then the Target Retirement fund seems appropriate. It doesn't seem worth changing what you have. I'd just start putting new money towards this new fund, but if you want to switch out of Lifestrategy at any point you can do so with no cost implication.

Excellent, just the advice I needed and thanks everyone else for your input.

I assume I now just divert my direct debit towards the Target Retirement fund and reduce my VLS80 payment to zero and leave as is?

I'll then look into switching platforms when the sums start getting significant enough to do so.

hutman

the 0.24% is priced in when you execute