Costs for Lump Sum vs Monthly Vanguard

FreakShow!

Having got the debt done away with, got a mortgage that is being overpaid nicely (for peace of mind, not for best use of money), I am not deciding what to do with my spare savings. For a while I've been using high interest current accounts and regular savers, but feel that it's time I look at a more serious long-term plan.

Having read around, I've decided to invest in the Vanguard 100% Equities fund through the Vanguard S&S ISA. Having read the key information here, could someone confirm that I would not have any extra costs on me if I were to dripfeed the investment as a £200-300 monthly, rather than a lump-sum?

The cost is 0.15% for the platform + 0.22% for the fund itself. So if i were to lumpsum £2400 I would have a first year charge of £8.88. If I were to drip feed over 12 months then my fee would only be £4.81 (I think), but obviously less money invested means less returns (or loss)

Am I correct in this?

This isn't a question about timing the market as to whether drip-feeding vs lumpsum. My question solely centers around the costs of actually putting the money in. I have the funds available to do both.

Thanks for any help!

bowlhead99

Some investment platforms charge per transaction and therefore there's an additional cost implication from paying in multiple amounts over the course of the year instead of just the once. But Vanguard's own platform is just an annual fee, periodically in arrears, based on the account balance on a percentage basis.

So, you're right that you will pay more if your put the cash in up front and have it invested for longer, because your average balance over the course of the year would be higher.

I probably don't need to state the obvious but just in case... the cost of investment on £2400 won't necessarily be exactly £8.88 per your example; although your fund is worth £2400 on day one, it might be £2000 or £2800 later in the year (due to investment performance) and the charges are based on the value of your balance from time to time rather than on the initial amount you put in. But I expect you realise this

FreakShow!

Thank you for the detailed answer. I'll get it all set up now!

Audaxer

The only charge you would see debited to you is the platform charge of 0.15% which on £2,400 would only be £3.60 per year. The 0.22% ongoing fund charge reduces the value of your fund but this charge wouldn't be visible to you.

pinkllama

Lifestrategy 100 also has trading costs of 0.08% per year.
Search for Vanguard MIFID II PDF to see the costs for all vanguard funds/ETF!!!8217;s
If you don!!!8217;t want a UK bias, Vanguard!!!8217;s FTSE Global All-Cap fund at 0.24% with no trading costs would be cheaper.

bowlhead99

pinkllama wrote: »

Lifestrategy 100 also has trading costs of 0.08% per year.
Search for Vanguard MIFID II PDF to see the costs for all vanguard funds/ETFs
If you don't want a UK bias, Vanguard's FTSE Global All-Cap fund at 0.24% with no trading costs would be cheaper.

The way firms calculate the trading costs under the regulations is just an estimate and somewhat flawed though. Extrapolating what the true costs will be over the year to come is a bit of a guess anyway.

In principle, you'd expect a simple index to have lower trading costs than a fund from the VLS range which rebalances exposure between the underlying funds it holds. Money being shuffled around costs money. Joiners and leavers (the fund growing or shrinking) can also create extra costs regardless of fund style. But at the end of the day, a figure under 0.1% is pretty imperceptible, if it's even the right number.

Really, the key bit in what you wrote is the "if you want a UK bias" rather than the transaction fees point, as the asset mix used will have a much greater impact on total returns than the drag from those fees. Not saying you should ignore the data available but to an extent, fees will just be what they will be, while being happy in what you're invested is the key point as it could easily change the gross return by 10-20x the fee differential...