Newbie ISA and SIPP - Active vs Passive ?

asitaram

Hi,

35 years old, first time investor.. opened SS ISA and SIPP with HL. Initially I thought I could do with multi asset (80-85% equity) funds but for some reason decided that bonds may not be worthy so went 100 % equity. The following is the allocation. From your experience, do you "conclude" that I am wasting money on high charges for these active funds and instead, I should go for one or two passive funds/trackers for time being whilst I am only in few thousands ? If it is the latter, which funds should I move to ? As I am with HL, I will benefit from Funds instead of ETFs or Trusts.

ISA (£3500) and SIPP (£1000)

• FUNDSMITH EQUITY 50%
• ROYAL LONDON GLOBAL SUSTAINABLE EQUITY 50%   (this is a new fund)

Admitting the following with my "Newbie/Nervous/Don't know what I am doing" hat on:

Active: I was tempted to a lot of Baillie Gifford funds based on their massive returns (Longterm Growth, Positive etc) but for some reason went with Fundsmith (popular) and RLUM new fund (based on their World Trust's multi asset fund past performance and the manager ratings).
Passive: L&G funds seems to be cheaper than Vanguard on HL. L&G Tech looks interesting.
So far: Since opening the accounts (just 2 weeks into it), I have tried to switch to all the above funds and luckily cancelled most of them whilst in the "pending status" and ended up switching some back to the mentioned allocations.

With no job at the moment (Covid-19) I have spent last 4 weeks 10am - 11pm going through entire fund world only to confuse myself and invested in these by panic. I hope you get what I am saying. Money wise, I have built up rainy day savings in NS&I and will not invest it until I get into a job or we see the other end of the tunnel.

I am looking for some guidance on this given the uncertain near future and I just want to digest what you all say, realise my mistakes, make a plan, finalise the portfolio and not look at it for couple of months atleast so that I can have some life back.

Note: I have been told that I had no strategy which is true and I realised that. But I want to start somewhere and learn from mistakes and guidance.

Thanks

AnotherJoe

These are ok funds (see comments on RLUM below) . I'd advise someone to have a core of global funds before branching out though.
not sure I understand your comment "As I am with HL, I will benefit from Funds instead of ETFs or Trusts.". Should be the other way round should it not? Capped charges on etfs, shares, ITs. 

For a long term global core I think HMWO is a good choice but there are many other similar. 

RLUM is new id never heard of it. Having a look it seems to be more of a tech fund to me and I'm not convinced by the underlying premise, some might say it's a bit "greenwashy" But the constituents look fine to me. 

asitaram

Thanks for your reply.

In HL, dealing is free for Funds where I need to pay dealing charges for buying ETFs or Trusts. With the level of money I have invested and planning to invest in near future (drip feeding small amounts) I am not sure ETFs or Trusts will be suitable for me in short-medium term ? 

With regards to the Global core, do you suggest having this 50% then add one or more others OR have the Global core 100% for now ? Either way, I am struggling to find a proper index/tracker Fund for this.. they all seems to be slightly different to me where as ETFs are clearly worded to say they are MSCI World etc.

Alexland

For that amount of money you are better sticking to traditional OEIC funds than incurring trade fees for exchange traded assets. I don't see why you would want to pay HL 0.45% when you could get access to a wide range of funds on Cavendish for 0.25%. HL do have some discounted funds however the discount is less than the platform fee difference on trackers. There are some simple tracker OEIC funds on both platforms such as the HSBC FTSE All World which covers both Developed and Emerging Markets now has an OCF of just 0.13%. With respect to Fundsmith it's a very good fund so you need to make your own decisions about going active versus passive. They both seem to have good logic behind them.

Also have you considered if a LISA might give you more advantage over a SIPP?

dunstonh

From your experience, do you "conclude" that I am wasting money on high charges for these active funds and instead, I should go for one or two passive funds/trackers for time being whilst I am only in few thousands ? If it is the latter, which funds should I move to ? As I am with HL, I will benefit from Funds instead of ETFs or Trusts.

Passive is not best.   Active is not best.   Picking whichever option is best for the chosen area is the best option.  Often it will be passive. Sometimes it will be managed.

Every investment strategy has an element of management.   e.g. you choosing to put 50% into two funds is a management decision and that will likely have a greater impact in the future returns than spreading it across, say, 10 passive funds or 10 active funds.

Active: I was tempted to a lot of Baillie Gifford funds based on their massive returns (Longterm Growth, Positive etc) but for some reason went with Fundsmith (popular) and RLUM new fund (based on their World Trust's multi asset fund past performance and the manager ratings).

BG funds are typically higher risk compared to others in the sector.   So, in good times, the performance often reflects that higher risk.  In bad times, the falls often reflect that higher risk.

Passive: L&G funds seems to be cheaper than Vanguard on HL. L&G Tech looks interesting.

Dont measure just on cost.  If you look at the various sectors, you will find in some Vanguard are best, in others it will be iShares or HSBC etc.   Look at all measures and not just cost.

Tech looked interesting just over 20 years ago too.   It went on to fall 90%.

asitaram

Alexland 

Also have you considered if a LISA might give you more advantage over a SIPP?

I am a LTD company contractor so I contribute into SIPP from my company as an employer.

asitaram

dunstonh

Dont measure just on cost.  If you look at the various sectors, you will find in some Vanguard are best, in others it will be iShares or HSBC etc.   Look at all measures and not just cost.

Initially I thought Vanguard LS100 is good diversified fund but read a lot on the forums that it has more UK weight which is  something lot of people seems to be not happy about. So started looking at others. You are right, the cost shouldn't be the only one to look at.

I know that you are not here to advice people on their financial matters.. but you can give your opinion so that people like me can research on it and make a decision. For a new starter, what do you think I should do for say next 6 months.. move some or all to a Global tracker/LS100 etc or stay with my current setup ?

Linton

asitaram said:

dunstonh

Dont measure just on cost.  If you look at the various sectors, you will find in some Vanguard are best, in others it will be iShares or HSBC etc.   Look at all measures and not just cost.

Initially I thought Vanguard LS100 is good diversified fund but read a lot on the forums that it has more UK weight which is  something lot of people seems to be not happy about. So started looking at others. You are right, the cost shouldn't be the only one to look at.

I know that you are not here to advice people on their financial matters.. but you can give your opinion so that people like me can research on it and make a decision. For a new starter, what do you think I should do for say next 6 months.. move some or all to a Global tracker/LS100 etc or stay with my current setup ?

In my view you are seriously over-thinking the question of choice of funds.  Whilst you are only talking about a few £Ks or even a few £10Ks, as long as you are well diversified, stick to the mainstream and dont do anything foolish or seriously risky it does not matter very much which particular funds you invest in. With £4500 invested you might be talking a few % per year difference in returns, say £100 (plus or minus) in absolute terms.  Reasonable contributions made each year should far exceed the difference in returns.  If they dont it is hardly worth your while investing.

Either of your choice of portfolios would be fine at this stage of your investing career.  Dont worry about the detailed difference in charges - 0.1% of £4500 is £4.50.  Hardly enough to justify 4 weeks work.  In say 5 years time you will have the experience to reconsider your investments yourself.

asitaram

Whilst you are only talking about a few £Ks or even a few £10Ks, as long as you are well diversified, stick to the mainstream

Thanks. As you have rightly spotted, I am over thinking. What do you mean by mainstream ? are you suggesting I stick to my current portfolio or move to a Global core tracker and stay away from the app ?

AnotherJoe

asitaram said:

Thanks for your reply.

In HL, dealing is free for Funds where I need to pay dealing charges for buying ETFs or Trusts. With the level of money I have invested and planning to invest in near future (drip feeding small amounts) I am not sure ETFs or Trusts will be suitable for me in short-medium term ? 

With regards to the Global core, do you suggest having this 50% then add one or more others OR have the Global core 100% for now ? Either way, I am struggling to find a proper index/tracker Fund for this.. they all seems to be slightly different to me where as ETFs are clearly worded to say they are MSCI World etc.

You pay the dealing charge once on shares . You pay the 0.45% every year on funds. 

asitaram

You pay the dealing charge once on shares . You pay the 0.45% every year on funds. 

If I keep investing small amounts as and when I am comfortable with money, will I not be paying the dealing charge every time I do that ?