Share dealing platforms - totally confused

ValiantSon

Cathcoo wrote: »

It's true though that you do have to be careful, especially considering all the fees for this and that being charged by the dealing platforms. If I do join Hargreaves or AJ Bell and then have problems with them, I'd have to spend a whacking great £25 per holding to transfer out. That tells me that the likes of HL are not interested in financial 'minnows' like me.

Depending on what you ultimately choose to invest in there are cheaper platforms, and not all of them charge exit fees, e.g. both Cavendish and Close Brothers charge 0.25% and have no exit fees; Charles Stanley charge 0.25% and £10 exit per holding; or if only investing in Vanguard funds they only charge 0.15% and no exit fees.

Cathcoo

That's right Superscrooge. I'm feeling the percentage platforms would be better. I also need a good app as I'd be doing it on my phone.

ValiantSon

Cathcoo wrote: »

Thanks guys, I don't have to be too anal about diversifying as the vast majority of my inheritance is elsewhere and this would just be a chance to put a small proportion of it into shares etc as well as give me some experience. I thought it might be fun. Oh dear.

Diversification is still important, whether you have significant sums of cash and/or property; not considering it increases the risk of you making big losses.

ValiantSon

Cathcoo wrote: »

That's right Superscrooge. I'm feeling the percentage platforms would be better. I also need a good app as I'd be doing it on my phone.

Do you have no access to a computer?

You can still use web based platforms on your phone. Some render perfectly well.

A_T

Using platforms like Fidelity, Hargreaves Lansdown, Close Brothers or Charles Stanley £6000 is more than enough to create a diversified portfolio without resorting to a multi-asset fund.

With some funds charging only 0.06% or 0.07% (US, Europe and UK index trackers) and a little more for Asian/Emerging markets you can more than halve the costs of a Vanguard, HSBC, Blackrock or L&G multi-asset fund. In the case of Vanguard, Blackrock and L&G you can also avoid their bias to the FTSE All Shares and should you wish more closely reflect the global stock markets.

ValiantSon

A_T wrote: »

Using platforms like Fidelity, Hargreaves Lansdown, Close Brothers or Charles Stanley £6000 is more than enough to create a diversified portfolio without resorting to a multi-asset fund.

With some funds charging only 0.06% or 0.07% (US, Europe and UK index trackers) and a little more for Asian/Emerging markets you can more than halve the costs of a Vanguard, HSBC, Blackrock or L&G multi-asset fund. In the case of Vanguard, Blackrock and L&G you can also avoid their bias to the FTSE All Shares and should you wish more closely reflect the global stock markets.

Whatever.

Good luck with your wonderful investment strategy.

bowlhead99

ValiantSon wrote: »

I've explained it. What don't you understand?

I understand that building a bespoke portfolio on a relatively small amount of money is inherently inefficient because you are duplicating all the work that a fund manager of a diversified fund could do on a collective basis.

So from a time perspective it is not very efficient to do the portfolio research and construction work yourself; and from a cost perspective it is not very efficient to pay the platform transaction fees yourself on building something from multiple individual components where each component has a fee for your platform to process it; though this will disappear if you are paying an annual percentage on value invested in exchange for making as many transactions as you like.

I hope you are not going to tell me that my inability to follow your train of thought is my problem and not yours, but you have piqued my interest by saying:

ValiantSon wrote:

A_T wrote:

Many platforms allow buying/selling of funds without charge with investments as little as 100 quid or less.

There are additional costs because each fund has an OCF, therefore each fund that you buy adds to your costs. Not all costs are to do with trading.

So, if we are disregarding trading costs, how does the fact that 'each fund has an OCF' mean you are necessarily increasing your costs over and above what you would have paid as an OCF if you had put all your money into one fund?

Taking one of those Vanguard LifeStrategy all-in-one funds as an example. They split their investors' money across ten to fifteen funds operated by Vanguard. If I buy £6000-worth of that fund on the Vanguard platform, my running costs will be £6000 times the OCF of 0.22%, which shakes out to about £13.

If instead I use the same platform (e.g. Vanguard's own, 0.15% a year so £9 a year on £6000 invested, for as many trades as you like), to build a bespoke portfolio of ten underlying Vanguard funds, I will end up holding ten funds and paying ten separate rates of OCF on different parts of my portfolio. So for example £2000 in U.S. Equity Fund might be costing me 0.10% (just on that £2000, so £2) while £400 in an emerging markets fund might be costing me 0.27% (just on that £400, so £1.08) and £1000 in the global bond index fund might be costing me 0.15% (just on that £1000, so £1.50) and so on.

When you add it all up, if my portfolio components have low ongoing charge figures like those mentioned, the blended average overall ongoing charge on the whole £6000 that I split across twelve funds, may be lower than the ongoing charge of 0.22% of £6000 which I would have been charged in the VLS product (£13). For example in the example above I would be adding OCF of £2 on the US stuff and £1.50 on the bonds and £1.08 on the emerging markets component etc, and so on through other regions and bond types and the whole lot might well come to less than the £13 by the time I have deployed £6000.

Costs will be higher and gains, unlikely to be better, especially given the drag caused by the costs

This is where I am stuck on what you are saying. Basically you said that 'not all costs are to do with trading'. Fine, we have controlled for 'trading costs' because we are using (e.g.) the Vanguard platform which charges 0.15% platform fee for unlimited buying and selling of vanguard products, so whether you stick it all in Lifestrategy or stick it in ten different funds that Lifestrategy might stick it all into, your platform fee is still £9 on £6000.

But your comment is that "There are additional costs because each fund has an OCF, therefore each fund that you buy adds to your costs". Surely you are not thinking that if I pay 0.15% on my bond index and 0.10% on my US index and 0.27% on my emerging markets index I will 'add to my cost' each time and end up with a bill for 0.52% of my £6000 because I used those three components? I wouldn't. I would be getting the blended average of the three of them which would be substantially under 0.2% and would not necessarily go over a charge of 0.2% on the £6000 (£12 a year) even by the time I had finished adding ten other funds to it.

As you seem to think that you are right and others are rude and aggressive individuals for saying what they think, I'd be grateful if you could clarify what you mean about building your own portfolio costing more and its performance being 'dragged back due to costs', once we disregard trading costs (because incremental trading costs may be zero) and disregard the time someone devoted to the task (because presumably they enjoy it).

A_T

ValiantSon wrote: »

Whatever.

Good luck with your wonderful investment strategy.

It's not an investment strategy - it's a demonstration of how one can build a diversified portfolio with lower costs than a single multi-asset fund.

ValiantSon

bowlhead99 wrote: »

I understand that building a bespoke portfolio on a relatively small amount of money is inherently inefficient because you are duplicating all the work that a fund manager of a diversified fund could do on a collective basis.

So from a time perspective it is not very efficient to do the portfolio research and construction work yourself; and from a cost perspective it is not very efficient to pay the platform transaction fees yourself on building something from multiple individual components where each component has a fee for your platform to process it; though this will disappear if you are paying an annual percentage on value invested in exchange for making as many transactions as you like.

I hope you are not going to tell me that my inability to follow your train of thought is my problem and not yours, but you have piqued my interest by saying:

So, if we are disregarding trading costs, how does the fact that 'each fund has an OCF' mean you are necessarily increasing your costs over and above what you would have paid as an OCF if you had put all your money into one fund?

Taking one of those Vanguard LifeStrategy all-in-one funds as an example. They split their investors' money across ten to fifteen funds operated by Vanguard. If I buy £6000-worth of that fund on the Vanguard platform, my running costs will be £6000 times the OCF of 0.22%, which shakes out to about £13.

If instead I use the same platform (e.g. Vanguard's own, 0.15% a year so £9 a year on £6000 invested, for as many trades as you like), to build a bespoke portfolio of ten underlying Vanguard funds, I will end up holding ten funds and paying ten separate rates of OCF on different parts of my portfolio. So for example £2000 in U.S. Equity Fund might be costing me 0.10% (just on that £2000, so £2) while £400 in an emerging markets fund might be costing me 0.27% (just on that £400, so £1.08) and £1000 in the global bond index fund might be costing me 0.15% (just on that £1000, so £1.50) and so on.

When you add it all up, if my portfolio components have low ongoing charge figures like those mentioned, the blended average overall ongoing charge on the whole £6000 that I split across twelve funds, may be lower than the ongoing charge of 0.22% of £6000 which I would have been charged in the VLS product (£13). For example in the example above I would be adding OCF of £2 on the US stuff and £1.50 on the bonds and £1.08 on the emerging markets component etc, and so on through other regions and bond types and the whole lot might well come to less than the £13 by the time I have deployed £6000.


This is where I am stuck on what you are saying. Basically you said that 'not all costs are to do with trading'. Fine, we have controlled for 'trading costs' because we are using (e.g.) the Vanguard platform which charges 0.15% platform fee for unlimited buying and selling of vanguard products, so whether you stick it all in Lifestrategy or stick it in ten different funds that Lifestrategy might stick it all into, your platform fee is still £9 on £6000.

But your comment is that "There are additional costs because each fund has an OCF, therefore each fund that you buy adds to your costs". Surely you are not thinking that if I pay 0.15% on my bond index and 0.10% on my US index and 0.27% on my emerging markets index I will 'add to my cost' each time and end up with a bill for 0.52% of my £6000 because I used those three components? I wouldn't. I would be getting the blended average of the three of them which would be substantially under 0.2% and would not necessarily go over a charge of 0.2% on the £6000 (£12 a year) even by the time I had finished adding ten other funds to it.

As you seem to think that you are right and others are rude and aggressive individuals for saying what they think, I'd be grateful if you could clarify what you mean about building your own portfolio costing more and its performance being 'dragged back due to costs', once we disregard trading costs (because incremental trading costs may be zero) and disregard the time someone devoted to the task (because presumably they enjoy it).

You have misrepresented some of what I wrote. I never said that paying individual OCFs on each fund resulted in a cumulative cost. I suggested that it could end up costing more depending on the OCFs of the funds chosen.

I don't need to build an alternative fund as I am advocating using a multi-asset fund, it is not for me to prove that creating a bespoke portfolio using a wide variety of funds would cost more

My greatest point was actually about diversification.

ValiantSon

A_T wrote: »

It's not an investment strategy - it's a demonstration of how one can build a diversified portfolio with lower costs than a single multi-asset fund.

But as I have shown you, it isn't as diversified as a multi-asset fund. I didn't say that it wasn't diversified, but rather that it wasn't as diversified.