Vanguard Life Strategy OCF

dunstonh

Just for clarification, whilst Transaction costs (TC) are a flawed figure, the quality of the reporting on these is much improved compared to early days.  Some of the flaws do still exist though and not all fund houses appear to be consistent on this yet.   So, it continues to be a figure that you use for information but largely disregard (on the advice side, advisers and adviser platforms are declaring it but the DIY platforms seem to be hiding it away as secondary information.  You dont see many DIY investors mention TC).   However, the dealing costs for fund of funds falls within the TC and not the OCF.  So, with FoFs it is worth noting what the TC is.  And Vanguard's TCs seem more in line with expectation and suggest their method of calculation is not being affected much by the flaws in the calculation method.

lindabea

Albermarle said:

lindabea said:

Conversely, if you were to invest in the underlying funds, you will pay the OCF for EACH of the funds you select to invest.  As in your example, it will be 0.2% for each fund selected - not just 0.2% which you seem to think when making your comparison!!  A big saving by choosing the Lifestrategy fund rather than making it up yourself

I an afraid this is bad maths .eg
Index fund  A - £1000 at 0.2% = £2 charge 
Index fund B - £2000 at 0.2% = £4
Index fund C - £8000 at 0.2% = £16
Total charge for £11000 = £22 ( 0.2% amazingly ) 

Thank you - I take your point, but perhaps due to the fact that I used the OP's example of a flat rate percentage across all the underlying funds, I have not expressed myself clearly.  What I wanted to emphasize is that the underlying funds OCFs are different - usually higher than the 0.22% for the LS funds.  So if you were to buy the underlying funds individually to build your own portfolio, it will cost more than the 0.22% that you would otherwise pay for the same funds in the LS range.   

Albermarle

I'm relatively new to investing

In which case you are probably overthinking the charges situation and better to put it into some kind of perspective.

In historical terms a charge of 0.22% is very low for any kind of managed fund ( even is it is only passively managed ) and spending a lot of time and effort to reduce this to say 0.15% is probably not a very productive use of your time . Plus if you do not do it correctly and your investments underperform the professionally managed fund then you will have lost the 0.07% saving and possibly a lot more.

It might be different if you were very experienced and/or were investing large sums ( hundreds of thousands as a minimum ) but otherwise let the multi asset fund do what it is designed for.

dunstonh

In which case you are probably overthinking the charges situation and better to put it into some kind of perspective.

And adding to Albermarle's comments......

The charges on holding VLS and platform charge are lower than the charges on your savings account.  You may respond by saying that there are no charges on your savings account.  However, that is not correct.   The difference is that investment charges are explicit.  You are told what they are.   Whereas savings accounts are implicit.   You are not told what they as the interest rate is set after charges.  Historically, the net interest margin on savings (one of the terms used to describe the margin on savings) averages around 1.9% p.a.   It tends to get shorter when interest rates are low and wider when interest rates are higher.

it is important not to get too hung up on charges.  They are a secondary concern compared to the decision on where and how to invest.  The annual charge for VLS and platform charge is equivalent to a mornings movement on the markets.  For example, the FTSE100 is up 1.30% today.   If VLS is costing you 0.37% pa. (platform and fund) and you waited a day thinking about charges, then its already cost you the equivalent of over 3 years worth of charges in missed return.         (noted that you would not invest 100% in the FTSE100 as that would be poor quality investing. However, I did it for example purposes to avoid listing every index going).

lindabea

dunstonh said:

In which case you are probably overthinking the charges situation and better to put it into some kind of perspective.

And adding to Albermarle's comments......

The charges on holding VLS and platform charge are lower than the charges on your savings account.  You may respond by saying that there are no charges on your savings account.  However, that is not correct.   The difference is that investment charges are explicit.  You are told what they are.   Whereas savings accounts are implicit.   You are not told what they as the interest rate is set after charges.  Historically, the net interest margin on savings (one of the terms used to describe the margin on savings) averages around 1.9% p.a.   It tends to get shorter when interest rates are low and wider when interest rates are higher.

it is important not to get too hung up on charges.  They are a secondary concern compared to the decision on where and how to invest.  The annual charge for VLS and platform charge is equivalent to a mornings movement on the markets.  For example, the FTSE100 is up 1.30% today.   If VLS is costing you 0.37% pa. (platform and fund) and you waited a day thinking about charges, then its already cost you the equivalent of over 3 years worth of charges in missed return.         (noted that you would not invest 100% in the FTSE100 as that would be poor quality investing. However, I did it for example purposes to avoid listing every index going).

Thank you. That's a brilliant way of putting all into perspective.  

eskbanker

lindabea said:
What I wanted to emphasize is that the underlying funds OCFs are different - usually higher than the 0.22% for the LS funds.  So if you were to buy the underlying funds individually to build your own portfolio, it will cost more than the 0.22% that you would otherwise pay for the same funds in the LS range.   

If you're asserting that the underlying funds held within the LifeStrategy range are usually higher than 0.22% OCF, then several posters above have already pointed out that this isn't true and you can check the facts for yourself at the likes of https://www.vanguardinvestor.co.uk/what-we-offer/all-products