New to funds, got some questions

Rawhy

Hello,


I got an okay paying job and I can invest about 20k a year (my salary will only increase from here), and I have 25-30 years of work before I reach retirement. I have never invested in funds before (I have owned individual shares though). After a lot of research, I have decided to go for passive funds, in particular, Vanguard's "LifeStrategy® 100% Equity Fund".

I have some questions:
1) Do I get dividends and are they automatically reinvested?
2) Do I actually own the underlying shares?
3) When companies issue more shares, sometimes I get letters with offers, which my holding company sends me a copy and an option to buy more shares, how is this handled in such a large fund which invests in other funds? It's mind-boggling to keep track of even a few shares!
4) Can I "switch" to a different fund if I find that I want lower risk later on in life? Or is the only way to do it by selling everything in the 100% equity fund and buying into the other funds? (I have considered the retirement funds, but they are not aggressive enough for me,)
5) With the retirement fund, can I sell it before the target date?
6) Is there any other fund worth looking at? I see that they have ETFs, but there's so much choice there, is there one which just invests in the world equity indexes proportionally?
7) I see other posts where people invest in Vanguard funds through a third party company (e.g. Hargreaves Lansdown, or their bank), should I go direct with Vanguard, or do it via a third party company?
8) Any other hints and tips would be greatly appreciated.



Thank you.

dunstonh

1) Do I get dividends and are they automatically reinvested?

if you chose inc units then yes you get them. Depending on what you chose to do with them will decide what happens. Some people draw the dividends, some people pay them into their cash account on the platform. Some people reinvest to buy more units.

if you chose acc units, then the are not distributed to you but retained i the fund and the unit price increased accordingly.

2) Do I actually own the underlying shares?

no

3) When companies issue more shares, sometimes I get letters with offers, which my holding company sends me a copy and an option to buy more shares, how is this handled in such a large fund which invests in other funds? It's mind-boggling to keep track of even a few shares!

you dont. The fund manager handles those things

4) Can I "switch" to a different fund if I find that I want lower risk later on in life? Or is the only way to do it by selling everything in the 100% equity fund and buying into the other funds? (I have considered the retirement funds, but they are not aggressive enough for me,)

A switch is a sell and a buy in a joined up process.

5) With the retirement fund, can I sell it before the target date?

Yes. its a badly named fund and not a good fund for most people. It serves a very niche target market. Although too many DIY investors seem to end up picking it as they know no different.

6) Is there any other fund worth looking at?

yes. Plenty.

I see that they have ETFs, but there's so much choice there, is there one which just invests in the world equity indexes proportionally?

There are ETFs like that but ETFs and ITs require greater knowledge and understanding. OEIC/UTs are easier to understand. Is your knowledge of a level yet to move to more advanced options?

7) I see other posts where people invest in Vanguard funds through a third party company (e.g. Hargreaves Lansdown, or their bank), should I go direct with Vanguard, or do it via a third party company?

Personally, I would not use Vanguard, even though they price to low. It means you are tied to one fund house and Vanguard are no longer the best fund house for all index tracking funds or multi-asset funds. It is just a natural cycle where the best in one period will be different in the next period. (by best I am not talking return but suitability and quality).

HL is an expensive platform (most others are in the 0.2x to 0.3x% range whereas HL is 0.45%). However, it has good software. You need to be wary of their marketing as well (none of their "research" is unbiased. Consider it marketing).

8) Any other hints and tips would be greatly appreciated.

Vanguard is good. However, there is more to life than Vanguard. It does have an almost religious following. So much so that it is often referred to as the church of Vanguard. Only one other financial company has that sort of following and that is St James Place. Who ironically are at the opposite end of the cost scale. They are equally good at brainwashing their clients.

Rawhy

Thank you for the prompt reply! It really has cleared up a lot for me.

dunstonh wrote: »

if you chose inc units then yes you get them. Depending on what you chose to do with them will decide what happens. Some people draw the dividends, some people pay them into their cash account on the platform. Some people reinvest to buy more units.

if you chose acc units, then the are not distributed to you but retained i the fund and the unit price increased accordingly.

Can I switch between the two? Later on in life, I would like to live off my dividends if possible. So initially, I would want it to be reinvested, then later be sent to a nominated account.

dunstonh wrote: »

There are ETFs like that but ETFs and ITs require greater knowledge and understanding. OEIC/UTs are easier to understand. Is your knowledge of a level yet to move to more advanced options?

Depends on what you mean by more advance options. I have done a bit of financial mathematics, but personal finance seems a bit foreign to me. I need to read more into it, I find it really interesting.

dunstonh wrote: »

Personally, I would not use Vanguard, even though they price to low. It means you are tied to one fund house and Vanguard are no longer the best fund house for all index tracking funds or multi-asset funds. It is just a natural cycle where the best in one period will be different in the next period. (by best I am not talking return but suitability and quality).

HL is an expensive platform (most others are in the 0.2x to 0.3x% range whereas HL is 0.45%). However, it has good software. You need to be wary of their marketing as well (none of their "research" is unbiased. Consider it marketing).

Vanguard is good. However, there is more to life than Vanguard. It does have an almost religious following. So much so that it is often referred to as the church of Vanguard. Only one other financial company has that sort of following and that is St James Place. Who ironically are at the opposite end of the cost scale. They are equally good at brainwashing their clients.

I am not quite sure what makes a fund house better than another. I just want cheap and low maintenance (the just put money in and forget kind of deal). What makes you say Vanguard is no longer the "best" for all index tracking funds or multi-asset funds (I have noticed that their lifestyle funds have a heavy UK bias, which might be bad if you don't want that, is this what you mean by "quality"?), and which one do you recommend?

I heard that Vangaurd fees are lower if you go with them directly rather than through another company, need to look that up.

Last question, possibly the most important one, what do you recommend I read? I want to learn more, if there a book you would recommend?

Thanks again.

bostonerimus

As a beginner you've made a good decision to buy a multi-asset fund. The Vanguard range of VLS funds are good, but there are also hundreds of other good funds from different fund houses. Once you've decided on an asset allocation, 100% equity in your case, then don't worry about other 100% equity index funds as they will mostly be no better or no worse in the long run, they have similar ingredients just under a different label. Having said that I see you've noticed VLS100's UK bias and you might also buy some Vanguard Global Equity to beat down your UK allocation... that's the next step, but who know's some UK bias might be good. The important thing is to invest regularly, keep doing it, be sensible, and VLS100 is sensible for the long term investor, and don't panic in the downturns you will see.

I've used Vanguard in the US for 20 years and mostly own just Vanguard funds, there is plenty of choice on the Vanguard UK platform and I don't see much need to own anything else. I'd say the same if you just wanted to buy L&G, HSBC, Blackrock etc etc

A_T

If you're going to use Vanguard I'd go with their FTSE Global All Cap Index fund - total cost (including transactions) is 0.39% compared to VLS100 at 0.45% - and also no UK-listed bias.

webjaved

A_T wrote: »

If you're going to use Vanguard I'd go with their FTSE Global All Cap Index fund - total cost (including transactions) is 0.39% compared to VLS100 at 0.45% - and also no UK-listed bias.

I'm tempted to invest into this fund.

Rawhy

A_T wrote: »

If you're going to use Vanguard I'd go with their FTSE Global All Cap Index fund - total cost (including transactions) is 0.39% compared to VLS100 at 0.45% - and also no UK-listed bias.

How did you work out the 0.39% and 0.45%?
Looking at the "cost and minimums" tabs, all I see is 0.22% OCF for LS100 and 0.24% for the FTSE Global All Cap Index Fund (can't post links to it since I am a new user)

AlanP_2

Is this investment going to be in a Pension or an ISA wrapper?

Just wondering as you mentioned time until retirement.

HSBC Global Strategy, Blackrock Consensus and the L&G Multi Asset ranges are possible alternatives to VLS if you want a choice of asset types within your "one stop shop".

Alexland

Rawhy wrote: »

How did you work out the 0.39% and 0.45%?
Looking at the "cost and minimums" tabs, all I see is 0.22% OCF for LS100 and 0.24% for the FTSE Global All Cap Index Fund (can't post links to it since I am a new user)

It's the 0.15% platform fee plus the fund OCF plus the fund declared transaction costs. Vanguard publish a PDF summary with a total column on their website. It would be clearer if they put the declared transaction costs on the individual fund webpages.

https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges-2018.pdf

Alex

dunstonh

Looking at the "cost and minimums" tabs, all I see is 0.22% OCF for LS100 and 0.24% for the FTSE Global All Cap Index Fund (can't post links to it since I am a new user)

Don't forget the transaction charges. TC on VLS funds is between 0.11 and 0.14%.

Of course, you may have dim view of the quality of TC reporting. You may feel that the EU was bonkers when it came up with TC reporting.

Rawhy

AlanP wrote: »

Is this investment going to be in a Pension or an ISA wrapper?

Just wondering as you mentioned time until retirement.

It's definitely going to be wrapped up in a pension or an ISA, which, I'm not sure yet. That's something else I have to read up about.

I'm currently contributing the maximum amount (10%) in my company work place pension (so that's 10% matched by my company). Now witht the rest of my money, I'm not sure if an ISA or a personal pension is the way to go.

AlanP wrote: »

HSBC Global Strategy, Blackrock Consensus and the L&G Multi Asset ranges are possible alternatives to VLS if you want a choice of asset types within your "one stop shop".

Thanks, I'll look into that :beer: