Passive Investing ie Trackers

bungleberg

Thanks to all for your comments so far, it’s a complicated subject that I really don’t understand.

I would like to retire aged 60, I see no point in working beyond that point if I don’t have to at least not five day weeks which I am doing now. Life is too short!! That gives me a ten year window, so I am prepared to take a moderate amount of risk.

This may seem a silly question but can multiple funds and the 60/40 funds that have been mentioned be held in an ISA?
I’m wary of financial advisors (not sure why, but I just am) Will they give me advice without charging a fee? If I’m going down the passive route what’s in it for them, if there is nothing to manage.

Sorry if I seem dumb, but it’s a minefield and a fool and his money are soon parted.

The only investment Stock market exposure I have is 2k in a the L&G. UK index acc which I put in an Isa about a month ago, just to dip a toe in. Do you know if there are any other funds L@G do can be held in the same ISA wrapper. Or should I look at Vangaurd and Hargreaves Landsdowne.

I have about 75 k in cash ISAs but have only used 2k of this years allowance in total.

AnotherJoe

Bungleberg I suggest you read a bit more Monevator would be a good place to start.
To answer a few random Q's
Yes you can hold multiple funds in the same iSA you can hold anything that the platform provider lets you.
Uk index acct probably isn't the best place to be investing but it's only £2k.
Most here would recommend a global index fund or other pooled investment as you start off.

Thrugelmir

bungleberg wrote: »

I would like to retire aged 60, I see no point in working beyond that point if I don’t have to at least not five day weeks which I am doing now. Life is too short!! That gives me a ten year window, so I am prepared to take a moderate amount of risk.

In a ten year window you have no guarantees of achieving a positive return. S &S should be viewed as a minimum 10 year investment. Volatility is different to risk.

fronty

I'm in a similar boat, aged 50, have 380K pension to invest, currently transferring from a poorly performing expensively IFA managed SL Wrap portfolio to a cheap'n'cheerful SIPP with II - I'm ditching the IFA, saving 5K pa in fees, and looking to invest in passive funds such as VLS60/HSBC GS Balanced. However my investment timeframe is more likely 15 years, so I may take some extra risk and go for VLS80/HSBC GS Dynamic. Have you thought about going up a notch as you rate yourself as a 6/7? Or you could blend some VLS60 & 80 to make a VLS70 - same with the GS funds?

bungleberg

As I already have an ISA open with L&G I’ve I had a look at their website. They seem to do a range of multi asset funds that can be held in a Isa. Does anyone have any opinions on the quality of these funds? There is quite a lot to choose from I think the numbers attached to each fund determine your risk factor.

Albermarle

They seem to do a range of multi asset funds that can be held in a Isa.

Yes the L&G multi index funds are suitable . The overall charge of 0.6% is not the cheapest but not so high either .
However max you can put in any ISA's in a tax year is £20K and you have £200K to invest …….

I’m wary of financial advisors (not sure why, but I just am) Will they give me advice without charging a fee? If I’m going down the passive route what’s in it for them, if there is nothing to manage.

Of course no professional is going to give you advice for free !
If you go down this route , you need to find an independent financial advisor ( IFA) They are not tied to any product or provider , unlike a financial advisor ( FA) who will work for a bank or similar.
You can have a one hour chat for free and decide whether you want to go ahead or not .
Normally you can pay a one off fee for a full review , or sign up for a % annual charge.
Maybe in your case the former option could prove useful , whilst in the meantime getting more up to speed yourself in this area,

Linton

JohnWinder wrote: »

.......
Active investors, taken as a whole, can’t do better as they are the rest of the market (and usually at higher cost). But some do at the expense of others that must then under-perform the market; unfortunately the out-performing usually doesn’t go beyond about 5 years (read the SPIVA reports), and you (or anyone) don’t know which funds they’ll be. Choosing active over passive is a gamble on beating the market at a greater risk of losing against it because fees, trading turnover cost, taxes etc are higher. There’s nothing wrong with taking that risk, but the argument is over until we get new evidence or explanation to the contrary. You choose.
Yes, you could “add satellite funds in areas you think could outperform (now you’re drifting away from a ‘global index’ to favour some higher risk higher return areas!) - such as small companies or emerging markets”.
“ some of these areas may be better served with an active fund than a passive one however”. They may be, but we can say something more definite than that: the evidence is clear that they probably won’t be (see the SPIVA reports). Take the gamble to likely lose out, but first be sure you’ve got the courage and the time to hold that position until the out-performance manifests, and it has been many years in the past.

I suggest you read the SPIVA reports. See: the SPIVA Europe 2019 scorecard on https://hub.ipe.com/find-research/white-papers/spiva-europe-scorecard/hub.ipe.com/find-research/white-papers/spiva-europe-scorecard/10033818.fullarticle


If you look under "pound sterling denominated funds" - page 9 you will find in 5 out of 8 categories listed over 3 and 5 years the average UK fund outperformed the relevent S&P Index and in 3 out of 8 outperformed over 10 years.



Now we have the slight problem that you cant actually invest in most of the S&P indexes. Indeed I have only found 1 ETF that invests in UK Small Companies. It follows the MSCI UK Small Companies Index but over 5 years returned 52% against its benchmark of 56%. So when comparing passives with actives one does need to use funds that are available rather than indexes. Were you to do that with the SPIVA examples I think you will find that real UK funds on average outperform real passive funds over the majority of sectors long term.



However there is probably a fair amount of statistical error in the data (eg on which particular time and day were the prices taken) so I suggest the best one can say is that the evidence suggests that in general in the UK index funds perform much the same as the average active fund, which is what one would expect. The US and Europe may well be different, but this is a UK site.


Moving on to which funds an investor should choose other factors than performance may be more significant.

HCIMbtw

I have heard of some people!with a windfall stepping up pension payments to levels that might seem ridiculous, e.g. 80-90% of salary to benefit from the, tax advantages of gettin that money locked put!away.

Then live off the windfall in the interim

I would be inclined to look investing up to the ISA allowance, and maximising the tax benefits of pension contributions while drawing out some of the lump sum, rather than treating it all as one investment

while you have a final salary scheme, there is no reason you couldn't do contributions of salary through a SIPP I believe

JohnWinder

Linton, thanks for looking more closely at this. However........
Let's look at just one category, GBP denominated Europe equity (350) funds, and ignore the other seven categories just now.
This is one of the five (out of 8) you chose for which the average active fund outperformed the index at 3 and 5 years, as well as at 10 years. To get that average outperformance, don't you have to own all the active funds in the category, because some underperformed at times while others outperformed, the outperformance bettering the underperformance?

Reading p4 for the same 8 categories of GBP denominated active funds: at one year, only 1 category's funds outperformed the index, in the other 7 categories about 80% of funds in each category underperformed the index. By 5 years in every category there is underperformance by a majority of funds, and by 10 years the majority is at about 85%.
How do you choose which of the small % of funds in any category will outperform in the years ahead?
We are left with the problem that spiva compares the active funds with the index rather than index funds, but even after costs the good index funds track the index closely, sometimes beating it if they do securities lending (dodgy, perhaps).

Prism

Linton wrote: »

I suggest you read the SPIVA reports. See: the SPIVA Europe 2019 scorecard on https://hub.ipe.com/find-research/white-papers/spiva-europe-scorecard/hub.ipe.com/find-research/white-papers/spiva-europe-scorecard/10033818.fullarticle

Thanks for that Linton. I am particularly interested in the asset weighted table on page 9 which gives a better reflection than I have seen before of how much money is in the better performing funds than the poor ones, when compared to page 8