Query about Halifax Share Dealing platform's trading costs

Audaxer

I am looking for the best platform to meet my needs but getting confused by some costs. I am interested in Halifax Share Dealing due to a low fixed admin/platform cost of £12.50 annually, but then I noticed that online trades for all investment options are £12.50 per trade. Does that mean that for every investment, even monthly payments, to any fund costs £12.50?

I am considering investing a lump sum in an ISA for this year's allocation creating a portfolio of 5 index trackers, and from April investing next year's allocation monthly. Does that mean for I would pay a charge of £62.50 for the initial lump and then be charged £62.50 for each subsequent monthly instalment split between the 5 funds?

I am not sure if I have misunderstood as it seems very expensive.

coyrls

With a regular investment plan you can purchase shares for the reduced dealing commission of just £2.00 per trade and invest from as little as £20 per month (minimum investment of £5 per stock). Simply set-up an investment plan on one of four set dates each month and we'll do the rest. There’s no tie-in period either so you can stop investing whenever you want. When you're ready to sell you can trade real-time online for just £12.50 dealing commission per trade.

https://www.halifax.co.uk/sharedealing/charges/Default.asp

masonic

Audaxer wrote: »

I am considering investing a lump sum in an ISA for this year's allocation creating a portfolio of 5 index trackers, and from April investing next year's allocation monthly.

Just out of interest, how does the portfolio you've created from 5 index trackers differ from ready made portfolios of trackers that can be bought as a single fund?

EdSwippet

Take a look at Lloyds Bank Share Dealing. It is a re-badge of Halifax Sharedealing, so the same level of service.

Lloyds charge £40 annual ISA charge, £1.50 for a web funds trade, and £1.50 per trade for 'regular' investments. Dealing shares and ETFs is pricier, £11, but it sounds like you're not going to be bothered by that. So for what you plan, this seems to be a lot cheaper than going to Halifax Sharedealing directly.

And as suggested by masonic, if you can find a single fund that encompasses all of what you want, you can cut charges further still. iWeb (also a re-badged Halifax) has a £25 one-off opening fee, and charges £5 for a trade but has no other annual fees.

Finally, the 'BrokerCompare' site might help you find the best way forwards, if none of the above suit.

AnotherJoe

What are your 5 index trackers?

Audaxer

Thanks all, the 5 index trackers and percentage splits I was thinking of are:
Vanguard FTSE UK All Share Index - 30%
Vanguard FTSE Developed World Ex-UK Equity Index - 25%
Vanguard Emerging Markets Stock Index - 5%
Vanguard Global Bond Index - 20%
Vanguard U.K. Government Bond Index - 20%

They are all included in the Vanguard Life Strategy 60% Equity Income fund which has 17 funds, and I have been undecided of whether just to go for that fund or the 5 separately. I assume that the VLS 60 gives greater diversification but not sure if that is necessary as the asset classes covered seems to be the same?

The historic yield on the VLS 60 is only 1.22% which put me off a bit, whereas I worked out the combined yield of the 5 funds was 2.14%. While the ongoing costs are only 0.22% on the VLS 60%, they are only 0.14% overall for the 5 funds. I was also thinking with separate funds I could invest more money directly into any one fund, or move funds from one to the other if I wanted to change the 60/40 split.

But I'm still unsure which way to go. Is it better to go for the VLS 60 with the greater number of funds? Does the VLS 60 automatically rebalance when percentages of equities to bonds gets out of line?

bowlhead99

Audaxer wrote: »

Thanks all, the 5 index trackers and percentage splits I was thinking of are:
....

They are all included in the Vanguard Life Strategy 60% Equity Income fund which has 17 funds, and I have been undecided of whether just to go for that fund or the 5 separately. I assume that the VLS 60 gives greater diversification but not sure if that is necessary as the asset classes covered seems to be the same?

When you say the asset classes covered seems to be the same, you mean both portfolios contain shares and bonds. Apart from that though, the results will be quite different because of the proportions used. For example, your portfolio has half its equities in the UK while Vanguard's has a quarter. Your portfolio has next to no UK investment grade (non government) bonds for some reason, while they have a dedicated holding, and a greater proportion of their UK government bonds are index linked gilts. It is a different mix and you'll get a different result.

Audaxer wrote: »

The historic yield on the VLS 60 is only 1.22% which put me off a bit, whereas I worked out the combined yield of the 5 funds was 2.14%.

Probably most of this is because you have twice as much in UK equities as they do and the UK market yields higher dividends than the rest of the world where dividends are less favoured, either due to cultural or tax factors or due to mix of company types.

The all-world all-cap index has less than 6% of its equities in the UK because the market capitalisation of all shares listed in London is under 6% of the free-float market capitalisation of all shares listed everywhere. The Lifestrategy products have 25% of their equities in the UK to give more 'home bias' because they think their customers would like that. You have 50% of yours in the UK because you love UK-listed stocks more than Vanguard's typical target customers, correct?

While the ongoing costs are only 0.22% on the VLS 60%, they are only 0.14% overall for the 5 funds.

So, a cost difference of under a tenth of a percent per year, while the difference in returns could be over ten percent a year. Not worth worrying about IMHO.

I was also thinking with separate funds I could invest more money directly into any one fund

Is there a particular reason you would want to do that? Other than realising you had got the allocations wrong in the first place because you are not an investment professional but are trying to take on that role?

or move funds from one to the other if I wanted to change the 60/40 split.

If you were happy with the broad proportions within equities and bonds but wanted to change the equity/bond split you could just buy one more fund on the side which had a different split e.g. 80/20 or 100/0, which would give near infinite variation between 60% equities and 100%. Or the same the other way if you wanted less equities. So, 1 fund now and 1 additional one later if needed. Rather than 5 now and constantly juggling and rebalancing and reallocating.

But I'm still unsure which way to go. Is it better to go for the VLS 60 with the greater number of funds?

I would trust their professional judgement over yours. For example, you have 20% in their global bond tracker fund which has a mixture of treasury, government related, and corporate debt all around the world; they have 19.2% in that fund. Pretty similar result.

You could say that both they and you are using the 'global bond index' for the first 20-ish percent of the allocations which is a cheap way to get exposure even though its allocations are driven by what all fixed income investors on the planet want, rather than what's suitable for you as a UK individual. But fine, it's one way of doing it.

But then for the other 20% of your bonds (21% of their bonds) it's:
You:
Vanguard U.K. Government Bond Index Fund 20%
They:
U.K. Government Bond Index Fund 6.10%
U.K. Inflation-Linked Gilt Index Fund 3.70%
U.K. Investment Grade Bond Index Fund 3.50%
U.S. Investment Grade Credit Index Fund 1.90%
U.S. Government Bond Index Fund 1.80%
Euro Government Bond Index Fund 1.80%
Euro Investment Grade Bond Index Fund 0.90%
Japan Government Bond Index Fund 1.20%
U.K. Government Bond UCITS ETF 0.10%

By going your way you are piling all your money into UK gilts. Their way you are using a lot of other countries' equivalents of gilts (some will be more attractive than UK's) and also into UK corporate bonds for example which are lacking in your own portfolio.

Personally I would use strategic bond funds and other non-equity holdings rather than a bonds tracker to get my 20-40% non-equities, but each to their own.

You can see that they have at least thought about their allocations though - rather than yours which is basically, "I don't need UK corporate bonds I will just slap my last 20% into the 62 different gilt instruments issued by UK treasury in the proportions that they exist, giving me an average maturity of 17 years (duration 11 years) and yield of 1.3%. I won't look at the mix between index linked and non-linked, or at any other sort of fixed interest returns from any other issuers".

So, your plan is less detailed. You never know, it might be a better result, depending on pure luck - but to me it implies you haven't thought about what result you want or how bond funds work, if you are seeing each of these components as 'basically all the same, it's all just bonds'.

Personally I wouldn't use a less detailed plan just to save 0.08% a year of ongoing costs within the funds, especially if that caused me to quintuple my platform fees because I'd gone with a provider that charged per transaction and now I was contributing to five times as many funds and doing annual juggling between them.

Does the VLS 60 automatically rebalance when percentages of equities to bonds gets out of line?

Yes. When you look at the month end factsheet and add up the components it's pretty much always somewhere between 39.8 and 40.2% bonds against the 40% target. They continually rebalance as investors subscribe and redeem, and might be off by a few fractions of a percent at the end of the month depending on what happens in the markets in the time between their subscriptions / redemptions being booked into the underlying funds and the market values actually closing with whatever happens on the last business day.

AnotherJoe

Great post by Bowlhead (as usual). Just buy VLS60, any perceived benefits of your fund will be elclipsed by the extra costs of frequent dealing.

One quibbble with BH you say OPs allocation has 50% of its equities in the U.K, I make it 30%.
50% of its allocation yes, but that's equities (30) and bonds (20). Which makes it even more like VLS60 in terms of UK equities and so even more pointless with the DIY aspect.

bowlhead99

AnotherJoe wrote: »

One quibbble with BH you say OPs allocation has 50% of its equities in the U.K, I make it 30%.
50% of its allocation yes, but that's equities (30) and bonds (20).

What I'm commenting on Joe is specifically the equity allocation.

Both OP and Vanguard60 are putting 60% of their total allocation into equities around the world. £6k for every £10k.

As equities are the largest and most volatile component of the portfolio it is important how you choose to allocate them.

Vanguard lifestrategy has a policy of putting 25% of all the equities money into UK and 75% overseas, which is true whether you select Lifestrategy 60, 80, 100 etc.

By contrast, OP has 30% of the portfolio or 50% of its equities in the UK, doubling the proportion of equities which are invested in the UK vs overseas, compared to Vanguard. He has £3k instead of £1.5k, out of the £6k equities, devoted to the UK index.

The UK's share of world listed equity market cap in free float is under 7% at the moment. Vanguard's 25% is four times that, which is fine for some home bias, and maybe even more would be fine too; very few investors would have such a risk appetite that they would go 93% overseas with their equities, and 75% probably makes more sense. However, OP has gone for 50% of his equities in UK index and 50% overseas.

Which is a lot more "home" and a lot less "away" than you would get with vanguard, so it will give quite a different result, which may or may not be his intention when he talks about being less diversified than vanguard.

The bond allocation, which is smaller and lower growth - so it will be a smaller component of total return over the long term, but help the returns in negative periods - I commented on separately.

AnotherJoe wrote:

Which makes it even more like VLS60 in terms of UK equities and so even more pointless with the DIY aspect.

No, it makes it less like VLS60 as the proportions are wildly different as described above.

Whether that difference is intentional, who knows.

ColdIron

OP allow me to lob a potential spanner into your works, or at least give you pause for thought. A consistent theme of your posts has been a desire for income

I'd like a steady income with a bit of capital growth

The VLS (or your mix) isn't likely to achieve this as it has not been designed with income as a focus. You could try and take a regular income from it by selling units periodically but run the risk of having to sell at poor valuations. It could still be done if you have a large cash buffer to sit out the months, even years, of reduced or negative performance but I don't think that sits well with what would appear to me to be your principle objective

If you had said I'd like a diversified, fire and forget fund with a bit of income then the VLS would match that quite well but you didn't. Have you worked out what monthly income you require and whether this will provide it?

Just an observation for you to mull over

BLB53

But I'm still unsure which way to go. Is it better to go for the VLS 60 with the greater number of funds? Does the VLS 60 automatically rebalance when percentages of equities to bonds gets out of line?

Yes, keep things very simple and select the VLS 60 fund. The auto-rebalance bonus is worth ~0.5% each year and saves you all the hassle plus the platform costs will be cheaper. Halifax offer the regular investment option for your monthly investments at £2 per trade (but sales are still £12.50)