Investment Conundrum

bowlhead99

Alz1986 wrote: »

Sorry, it wouldnt apply to funds. But the point is with Vanguard, many of their shares prices whether ETF or Trust are running high.

Well, you said it was a point that caused you to avoid Vanguard because it made them unsuitable for regular investments or drip fed plans.

- If it's an open ended fund like an OEIC or Unit Trust, the comment can't apply.

- If it's an ETF, the comment could apply if all Vanguard's prices were much higher than their rivals (notwithstanding ETFs are often less suited for dripfeeds than lump sums, as they don't allow fractional units and generally involve a transaction fee to buy them on the stock exchange). However 'running high' compared to rivals does not really apply or cause a problem: iShares MSCI Europe ETF is £21.20, Vanguard FTSE Developed Europe ETF is £26.65 ; if you had £60 to spend you would get two shares with either firm, but actually a greater proportion would be invested in the market with Vanguard whereas the rival from iShares leaves you over £18 of idle cash

On the bit about research, UBS' S&P 500 tracker appears to have returned more than Vanguard's, though it probably should be same.

There are a number of reasons why you might come up with different figures for two 'rival' fund options.

For example, Vanguard's S&P 500 ETF appears to have done 66.1% in the 3 years to end of day yesterday while UBS's S&P 500 index OEIC (Class C Acc) was showing at 64.7%. However, this will largely be a timing difference, as the ETF has live pricing throughout the London market opening hours, whereas the UBS fund is priced once a day after the US markets are closed, and that price is not published until the next day. So a chart of year-to-date or three years to date figures for a period ending today, the two funds' published data are half a day to a day out of sync and so in one period one fund 'wins' and the next, the other.

Alternatively, perhaps the difference is because you were comparing UBS's S&P 500 OEIC with Vanguard's popular US Equity Index OEIC for the same date range but hadn't noticed that one is just the '500' index and the other is a broader US index containing more companies.

Alternatively, perhaps you were looking at the Vanguard 500 OEIC and the UBS 500 OEIC for the exact same date range (e.g. factsheet for the 3 years to 31 March) but the Vanguard factsheet says the fund achieved 43.2% against a 43.6% benchmark, while the UBS one is more like 65% which sounds much better. But that's because the Vanguard factsheet is in USD and the UBS one is in GBP; the Vanguard one would also be more like 65% if we do it in GBP.

So, there are a few things to watch out for when doing the research. If one fund has lower ongoing charges and the exact same tracking error, you would expect it to do a little better than the other, but the difference between a 0.09% running cost from UBS and 0.10% running cost from Vanguard will not show as a material difference on your returns; UBS say they are targeting a +/- 0.5% tracking error, which dwarfs the fees anyhow. With that sort of thing combined with timing difference on valuation points (midday, UK market close, US market close etc) you may jump to the wrong conclusions about which fund is doing a better job unless you are looking at very long comparison periods - which isn't always possible when (e.g.) that class of the UBS fund hasn't even been going a full 5 years yet.

Reed_Richards

lindabea wrote: »

does it follow therefore that as the unit price of a fund goes up, the potential scope for growth goes down. Does any of my reasoning make any sense?

No this does not follow.

I think most of the responses here miss the point. Any fund will hold a basket of shares (and possibly other investments). As the value of the shares in this basket increases the fund manager may decide to sell some and buy others. So by the time the value of the fund has increased by some large amount it may well be holding completely different shares to the ones it held when you bought originally.

The same will hold true for a passively managed fund. The FTSE 100 index began on 3 January 1984 at the base level of 1000. It now stands at 7500 so has increased by 7.5 times in about 35 years. But if you compare the constituent shares that formed the FTSE 100 when it began and today you will see there have been big changes. That's why people don't say "I'm not investing in a FTSE 100 tracker fund because it has already increased by 7.5 times in value".

AnotherJoe

lindabea wrote: »

Not really, because you're only taking one side of the argument. The answer to your question is obvious - you will make more profit if you buy at at a lower price. But that's exactly the point. As the price goes up, the less units you're able to buy, so therefore the less scope for profit in future years.

Wrong. Wrong wrong wrong wrong.

Just to add to everyone else, you've confused price or cost of units with value. There are really two "prices".
One price is the headline price, eg £1 a unit or £100 a unit.
The other price, the one that counts, is is this good value? A share/fund at £1 could be terrible value and one at £100 good value.

To make it real, a few years back i owned Apple shares (and still do). They were $700 each.
Then they did a stock split, 7 for 1. So the number of Apple shares i held went up by 7, and the price went down by the same factor of 7, to $100.

I still had the same amount invested in Apple, it didn't increase or decrease the day after the split,and the value of Apple shares was the same as before. They were just as likely to double in the future at $100 or $700. The fact i owned, say $20k in Apple was what mattered, not how many shares, and I owned $20k worth of shares before the split and $20k after the split. My Google shares meanwhile have not split, they are now about $1,000 each. But the relative value of both remains the same, Apple arent 5x more likely to increase than Google merely because Apple shares are (now) $200 whilst Google are $1000.

And, as also said by others this is an irrelevance with pooled funds like unit trusts because you can buy fractions. All that matters is the amount of money invested. I think Berkshire Hathaway shares which have never split are more than $30k dollars each but there are ways to buy fractions of those. I own Scottish mortgage Investment Trrust and have xxx.43 units of that.
You need to understand this or you will not be making the right decisions about investing.

AnotherJoe

Alz1986 wrote: »

Sorry, it wouldnt apply to funds. But the point is with Vanguard, many of their shares prices whether ETF or Trust are running high.

Thats because the markets are !!! They simply reflect the markets, thats what they are meant to do !
Most share prices are running high most of the time. It couldn't be any other way if shares (or similar be they UT's or whatever) are over time, going up. What would you rather, buy soemthing that is at a high point (right now) because it keeps going up, or something thats lower than it has been because it is generally going down?

Dillshad

Hi all,

Interesting read this.

I didn't want to start a new thread for one question and as we are discussing vanguard...if I put a lump sum of at least £500 into a lifestratergy fund, can I then drip feed under £100pm (say £25 or £50)? The wording on their site says start with £500 or £100pm. I want to check before I open an account. Thanks.

AnotherJoe

Do they have a chat facility to ask them? Or is it not in their Ts&Cs?

Dillshad

There isn't a chat facility unfortunately and the only info I can find says invest from £100 per month or add a lump sum of £500. I imagine once the £500 is in there you can leave it or add smaller deposits as mentioned, I was just hopeful someone here might have first hand experience to confirm. Cheers

lindabea

AnotherJoe wrote: »

You need to understand this or you will not be making the right decisions about investing.

This is exactly the reason why I'm asking the question. Thank you all who have taken the interest to reply.

However, I'm not confident that I have grasped what you people are saying. Instead of using hypothetical figures, let me use some actual figures. I've selected Vanguard LS 60% to illustrate my point. From their website, the price of this fund on 25th April 2017 was 168.85, on same day in 2018, it was 173.03 and yesterday's price was 187.85. If you bought units on those days with £20000, (ISA limit)you would have 118, 115,106 units respectively.

So my thinking is that those units that you bought in 2017 would give you a higher gain in future years as the price goes up(assuming of course that there is an upward trend in the long term) than those you bought in subsequent years.

You say that units don't matter, but I don't understand why you say that. Surely, future gain is dependent on how many units you hold and not just the amount invested, since gain is units X current price. So if you take yesterdays' price, the units bought in 2017 would have a greater value (118x187.85) than those in 2019 (106x187.85). Now if you extrapolate this trend into the future, can you not see that the potential gain is greater from earlier years?

badger09

lindabea wrote: »

This is exactly the reason why I'm asking the question. Thank you all who have taken the interest to reply.

However, I'm not confident that I have grasped what you people are saying. Instead of using hypothetical figures, let me use some actual figures. I've selected Vanguard LS 60% to illustrate my point. From their website, the price of this fund on 25th April 2017 was 168.85, on same day in 2018, it was 173.03 and yesterday's price was 187.85. If you bought units on those days with £20000, (ISA limit)you would have 118, 115,106 units respectively.

So my thinking is that those units that you bought in 2017 would give you a higher gain in future years as the price goes up(assuming of course that there is an upward trend in the long term) than those you bought in subsequent years.

You say that units don't matter, but I don't understand why you say that. Surely, future gain is dependent on how many units you hold and not just the amount invested, since gain is units X current price. So if you take yesterdays' price, the units bought in 2017 would have a greater value (118x187.85) than those in 2019 (106x187.85). Now if you extrapolate this trend into the future, can you not see that the potential gain is greater from earlier years?

Apologies if I'm totally missing the point you're trying to make but, in your example above, surely the reason "the potential gain is greater from earlier years" is because you paid less for each unit you bought in 2017:cool:

bowlhead99

lindabea wrote: »

So my thinking is that those units that you bought in 2017 would give you a higher gain in future years as the price goes up(assuming of course that there is an upward trend in the long term) than those you bought in subsequent years.

Well yes of course. If you buy an ownership share of a company when the price is cheap, and I buy an ownership share of the same company a year later when it is 10-15% more expensive, then if we both sell our shares in the year 2028 for the same price, you will have made more profit than me.

Of course buying shares for a lower price is better than paying a higher price. Wouldn't we all like to go back to the 80s or 90s and buy shares in Microsoft or Apple before they became very popular and valuable!

However, if the value of a company goes up in value by exactly 10% every year, then if you buy it for £100 in 2017 and sell it for £110 in 2018, and I buy it in 2018 for £110 and sell it in 2019 for £121, we have both made the same rate of return (10% a year on all the money we invested). It doesn't mean I shouldn't have bought the shares in 2018.

You might choose to buy some shares in 2017 AND some shares in 2018, and then if you sell all of them in 2019 you'll have made more on the first lot than you made on the second lot. What that tells you is that it's better to invest your money sooner rather than later, if you know the price is going to go up. Given the choice, with hindsight, you'd probably have preferred to invest all your money at 2017 prices and none at 2018 prices. However, for practical reasons, you probably won't do that, because some of your life savings won't be available to invest in 2017 because you haven't got any more spare money at that point

You say that units don't matter, but I don't understand why you say that. Surely, future gain is dependent on how many units you hold and not just the amount invested, since gain is units X current price. So if you take yesterdays' price, the units bought in 2017 would have a greater value (118x187.85) than those in 2019 (106x187.85). Now if you extrapolate this trend into the future, can you not see that the potential gain is greater from earlier years?

The comment about 'units don't matter' was because some people assumed you were just getting hung up over the price (a unit of measurement) rather than the growth potential (whether or not you have a good chance of making a profit if you buy at today's price and hold it for ten to twenty years from now).

However, it seems what you are getting at is just 'the potential gain is greater from earlier years'. Well yes, if you are eventually selling at the same time - If I take the opportunity to buy a company in 1950 instead of in 2018, I will probably make a lot more money when selling it in 2019. However, that doesn't mean someone investing in 2018 and holding for 69 years couldn't make the same sort of profit.