Cheapest platform for trackers

AnotherJoe

Triumph13 wrote: »

Because I'd like to sell a fixed percentage every month and that would be the cheapest way with HL. By selling a fixed percentage I get the equivalent of pound cost averaging rather than try and time the market and guess at which point of the year to sell.
If I'm on a platform with dealing charges I'll probably end up settling for quarterly, but monthly would be my ideal. A lt of it is psychological that if I try and time the market then see it go up immediately after I sell I know I'll get grumpy.

That wasnt really my question.

As I read your intentions, you would sell ITs, with the money buy funds, and then immediately sell the funds again albeit in a drip fashion. Thats what I don't understand.

If you accept the fact that it is much better to have a cash buffer of a year or two, then whatever your intentions were in doing that, thats unnecessary anyway, since you would either sell down from ITs/ETFs, or from your cash buffer. I dont see any point in going through funds for a few months.

This is absolutely solid based on numerous studies backtested against 100+ years of market performance. Its really no more difficult to manage than selling direct and its far safer because it avoids you being hugely penalised by a sudden sharp drop.

Each period* you ask, "did the market rise" - yes, sell some, if necessary, top up cash buffer. No, draw down from cash buffer. Many more possibilities about how much to draw down and when to top up etc and what to sell, which shares (typically the ones that went up the most) but even as simplistically as I put it thats far better than just selling off whether the market is up or down.

The difference could be huge, I read a study last month, in some scenarios it made the difference between running out of money after 30 years and still having your initial pot even though you took more out !! And if your response was to say " I dont care if I run out after 30 years", then you could draw down more money using this mechanism and retain the same level of risk.

* a period could be whatever you want, for some it might be a year, others a quarter. Monthly seems to frequent to me as you are making decisions based on "noise".

Triumph13

I think the point you've missed is that I'm always selling a fixed percentage rather than realising a fixed cash amount each period. The money cannot run out after 30 years and there is no sequence of returns risk.
I am very happy to agree that what you propose beats anything based on taking an even, indexed income from fund sales, but that isn't what I'm trying to do.
Doing it as I proposed the shorter the periods the better as you are not reacting to noise, you are ignoring it - mathematically it's pretty well the same as making regular even contributions instead of timing the market during the accumulation phase. You wouldn't want to save up your money and make one annual contribution as it exposes you to more risk.
I will definitely have a good look at things like James' G-K methods, but at the end of the day it seems they DO add more risk to the mix than my method (the risk that a downturn is so prolonged you exhaust your reserves and have to make bigger sales at the bottom), albeit with a higher overall expected return on average. I think if I was going that route I would feel the need to take a less aggressive asset mix to compensate. I may change my mind after more research, but at the moment I'm looking for a low stress route to maximum long term returns for inheritance purposes and I have plenty of headroom on my predicted income so can afford to play the long game.

AnotherJoe

There is still a sequence of returns risk, in that the amounts could end up being very small, which is practically speaking, equivalent to running out of money.

That is, assuming the purpose of this is to get money to use and not just a theoretical exercise, I'd assume you wish to maximise the money you have available to draw down from and this spend ? E.g. Let's say with your very simple method 3.6% means you remove £1000 a month but with the modified method you can remove £1250 a month using the same %, and still not run out, then it would seem curious not to implement a simple mechanism that gives 25% extra increase. That is the sort of margin GK and similar methods provide.

Currently you are discussing variations in the minor costs of selling funds in one way or another which amounts to a single % or so, whilist ignoring a 25% boost that's available for very little extra work. You can still use your same fixed % but that should provide more actual money since longer term it's coming from a bigger pot.

Triumph13

AnotherJoe wrote: »

There is still a sequence of returns risk, in that the amounts could end up being very small, which is practically speaking, equivalent to running out of money.

Exactly the same can be said about GK methods, only more so as GK uses a step function to reduce income through the capital preservation rule rather than a smooth function.

That is, assuming the purpose of this is to get money to use and not just a theoretical exercise, I'd assume you wish to maximise the money you have available to draw down from and this spend ?

It's not a theoretical exercise, but nor are your assumptions correct in my case. Like your assumptions, GK is based on maximising the lifetime spending power for a given level of risk and with no weight given to any inheritance motivations. As previously stated inheritance is one of my principle motivations and I am looking for a means of taking a modest income from a portfolio in the meantime.

E.g. Let's say with your very simple method 3.6% means you remove £1000 a month but with the modified method you can remove £1250 a month using the same %, and still not run out, then it would seem curious not to implement a simple mechanism that gives 25% extra increase. That is the sort of margin GK and similar methods provide.

GK and co are achieving this extra income by trying to reduce the 'risk' of ending up with loads of money unspent at the end of the sequence. For me that is not a risk, it's a primary target.

Currently you are discussing variations in the minor costs of selling funds in one way or another which amounts to a single % or so, whilist ignoring a 25% boost that's available for very little extra work. You can still use your same fixed % but that should provide more actual money since longer term it's coming from a bigger pot.

As above, GK doesn't really provide loads more actual money, it just shifts that money from residue to annual spending. For very many people that would be very valuable indeed. For me it is not. A fixed percentage withdrawal probably better fits my personal aims, although I will experiment with modelling modified versions of the GK capital preservation and prosperity rules based on the excess / shortfall in portfolio value post withdrawal when compared to CPI on the original portfolio value as I think there is probably value to be found here.

StellaN

Cavendish online have just announced they have cut their SIPP rate to 0.25 and if you have a total of £200K in pension and Isa's it is down to 0.20!

AnotherJoe

Even going much less sophisticated than GK, simply having a buffer of a year or two, and drawing from that in down years, will statistically will leave you with more money at the end (which is your aim, correct?)

Whatever your aims are, be they take more money, leave more money, or balance the two, the only thing that simply taking out a fixed % from equities every year will achieve, if there is no buffer for down periods, is leave you with less to withdraw and less to leave as an inheritance.

zagfles

AnotherJoe wrote: »

Even going much less sophisticated than GK, simply having a buffer of a year or two, and drawing from that in down years, will statistically will leave you with more money at the end (which is your aim, correct?)

Whatever your aims are, be they take more money, leave more money, or balance the two, the only thing that simply taking out a fixed % from equities every year will achieve, if there is no buffer for down periods, is leave you with less to withdraw and less to leave as an inheritance.

I'm sure this would work well for some sequence of returns, eg typical UK/US stockmarket where prices go up gradually with the occasional big dip followed by a quick recovery. There a cash buffer which you draw on in the dips is clearly a winner.

However if you get a prolonged bear market, eg as we've seen in Japan for quite a lot of the time since 1989, then it'll give a worse outcome, since by delaying selling when the market has gone down, during a 2+ year bear market your cash buffer will run out and you'll be forced to sell at an even lower price than if you just sold annually regardless.

Triumph13

If you use a cash buffer then the question during a downturn is how much of it do you spend? If you keep going at your previous rate or using GK to reduce by 10% after a 20% fall then you will have depleted your overall funds by more than just sticking with the fixed percentage - which puts you in more trouble in a Japan situation. You also have to factor in the drag on returns caused by having such a big cash buffer. It is by no means the clear cut situation you seem to think it is Joe.

green_man

This thread has got me thinking. I too had dismissed HL as too expensive for my SIPP money, but if I used ETFs instead then I could keeps costs low as it seems to be cheap for providing drawdown etc.

Currently my pot is with my company pension DC in a very low charge (0.08%) multi asset global fund. But my pension does not support drawdown. My intention was to transfer some (or all) of this fund (approx 550k) to a provider supporting drawdown. And start drawdown from 55 at £1100 per month - to stay tax free.

I guess I need to research ETFs to see if these can give what I want and at what cost. I may leave about 1/2 in my company scheme if I can just to take advantage of the low charges.

Bizarrely I contacted Halifax last week with some queries about SIPP costs and got a reply instead from Barclays, so now I'm confused - can anyone enlighten me?

Asghar

Just wondering, where do Hargreaves Lansdown take their 0.45% platform charge from, do they sell off some units in your invested fund(s)?
Or do you get billed separately?