Vanguard LifeStrategy Fees?

mcooke999

The Vanguard LifeStrategy range has a OCF of 0.22%, however, don't the underlying index funds each have their own OCF too? 

So can anyone tell me whether you just pay the 0.22% OCF for the LifeStrategy fund or are you also effectively the average OCF of the underlying holdings on top too? 

ColdIron

You only pay the Lifestrategy 0.22% fee. If you bought the underlying Vanguard funds separately you would pay their individual OCFs but when you buy Vanguard funds via Vanguard's Lifestrategy they won't apply both charges

mcooke999

Thanks. That's what I thought but then it got me thinking, surely the performance of the underlying funds already have their respective OCF's taken into account in their prices? So aren't you effectively paying these too albeit indirectly? 

ColdIron

No, think of it like this. Tesco sell Greek Salad. they also sell tomatoes, cucumber and feta separately and apply a mark up before putting them on the shelf. When they put them in a box and slap a salad label on it they don't take them off the shelf at full price and apply another markup. Vanguard are packaging up their own funds so can structure the OCF as they wish

bowlhead99

mcooke999 said:

Thanks. That's what I thought but then it got me thinking, surely the performance of the underlying funds already have their respective OCF's taken into account in their prices? So aren't you effectively paying these too albeit indirectly? 

The price on the tin is the price you pay; under the industry standard guidelines the OCF they quote to you includes the running costs of the underlying funds to which you're exposed through the product. 

mcooke999

Thanks. So if the average OCF of the underlying holdings was 0.15% (made up) then Vanguard are effectively only charging a further 0.07% (in this example) for them to be bundled together as a Lifestrategy product?

I'm trying to decide whether it is worth me buying the main underlying holdings individually and save a bit of money (to kind of replicate a VLS product) or just go for something from their LS range instead.... If the difference isn't the 0.22% then I may aswell just go for a LS product & add satellite funds as I see fit etc maybe?

ColdIron

This comes up regularly, recent thread here

https://forums.moneysavingexpert.com/discussion/6093244/vanguard-ls-vs-buying-the-underlying-funds/p1

mcooke999

ColdIron said:

This comes up regularly, recent thread here

https://forums.moneysavingexpert.com/discussion/6093244/vanguard-ls-vs-buying-the-underlying-funds/p1

Ha ha okay sorry I should have checked. I thought I can't be the first person to think of this. Thanks

SonOf

So if the average OCF of the underlying holdings was 0.15% (made up) then Vanguard are effectively only charging a further 0.07% (in this example) for them to be bundled together as a Lifestrategy product?
Not quite.  There are also the transaction charges to take into account.   Whilst TC is a flawed calculation, some of the TC will reflect the underlying investment funds.    So, in effect, Vanguard are charging 0.07% for the management decisions but the TC will be a little higher than if held individually. Not by an amount anyone should care about though. (indeed, most investors are largely ignoring TCs)

If the difference isn't the 0.22% then I may aswell just go for a LS product & add satellite funds as I see fit etc maybe?
Why do you need satellite funds?
Vanguard have already made an active management decision on the weightings. They base that decision on a lot of research and analysis.    What data will you have access to and what knowledge and experience do you have that makes your active management decisions better than theirs?

mcooke999

SonOf said:

If the difference isn't the 0.22% then I may aswell just go for a LS product & add satellite funds as I see fit etc maybe?

Why do you need satellite funds?
Vanguard have already made an active management decision on the weightings. They base that decision on a lot of research and analysis.    What data will you have access to and what knowledge and experience do you have that makes your active management decisions better than theirs?

I get what you're trying to say, however, there are many reasons you might want to increase your exposure so certain assets or factors outside of the VLS weightings, eg: increase small cap exposure, increase EM exposure, add factor exposure such as value etc, add comoddities or reits, etc.

bowlhead99

mcooke999 said:

SonOf said:

If the difference isn't the 0.22% then I may aswell just go for a LS product & add satellite funds as I see fit etc maybe?

Why do you need satellite funds?
Vanguard have already made an active management decision on the weightings. They base that decision on a lot of research and analysis.    What data will you have access to and what knowledge and experience do you have that makes your active management decisions better than theirs?

I get what you're trying to say, however, there are many reasons you might want to increase your exposure so certain assets or factors outside of the VLS weightings, eg: increase small cap exposure, increase EM exposure, add factor exposure such as value etc, add comoddities or reits, etc.

Of  course there are 'reasons' you might want to make up your own portfolio from scratch, or by modifying someone else's.

One reason would be:  if you are an investments expert with a very specific allocation model and have done a whole load of scientific and actuarial /quantitative analysis to design that model with an expectation of how it will perform across an economic cycle and why it is better than what the experts at other financial groups such as Vanguard, HSBC etc would offer in their multi asset funds. 

What SonOf is suggesting is that these groups with their vast resources have hundreds of billions or even trillions under management and presumably know how to design investment portfolios. He wonders why you, clearly not an investments expert - no offence intended but you don't come across as someone who knows a lot about how funds work or even how to compare the fee disclosures, so unlikely that you are an investment professional - think that you will do a better job than a professionally designed fund.

If you believe it's just 'well I'll buy this off the shelf and then see what things I might want to add to it', that doesn't seem like you are following a well defined model. You are just thinking, perhaps it will turn out ok if i buy something cheap and take a stab at it and hope I get a great result by designing it myself out of individual building blocks, how hard can it be...

My mum makes great chocolate cakes. I don't. I could buy a packet mix and follow a recipe and then at least I should end up with a passable result without spending too much money on specialist equipment or ingredients. Fine.

I might instead look to incorporate some of my own preferences and adapt the mix for my own goals. For example I have a sweet tooth but the doctor reckons I should incorporate more 'healthy fats' into my diet and also more fruit and veg. It seems very efficient to just buy a chocolate cake mix and then add in things the kids like (sprinkles and popping candy and oranges and bacon and ice-cream) and also things that are good for me (avocado, broccoli, salmon) and then the family will get all our nutrition and taste preferences in one pot.

But it would be a godawful cake, which is the problem with crowdsourcing ideas on how to build a dessert menu. The off the shelf solution would have been better. Still, it's cheaper than going to a restaurant where they have pastry chefs making their creations out of science and experience, so it should be fine, right...