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IFA or DIY - any thoughts appreciated

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  • cfw1994cfw1994 Forumite
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    cfw1994 said:
    zagfles said:
    euanlowe said:
    I'm going to chuck in my 2 cents. A very good friend of mine is an IFA but I manage my money myself. The overall tone of this discussion I've felt has been that the IFA's value is the fund split, but I agree with @BritishInvestor that that's almost irrelevant. If you get an IFA in, typically they will write you a 40 page document analyzing the needs of you and your family. It'll cover tax, life insurance, expense related to your kids etc. My friend charges 1 percent for this, so pretty pricey, but at least its doing the work and you get to blame them for any gaps. You seem a bit early on your self management journey, so if you do decide to manage this yourself, I am going to put forward the idea of just having it all in a vanguard lifestrategy fund which is diversified by design and very low cost - and then trying not to touch it till you retire. All the space in between, with a lot of guessing and finger in the air, can work, but generally doesn't. A good IFA is a great choice - but comes with the problem of differentiating between the good ones and the bad ones. If you are determined to figure it out yourself, I'd still put most of it into something very vanilla and play around with just a portion till you have learned how to minimize the regret linked to your decisions. I really enjoy it but its a proper nerd out following the market in your spare time. It takes a lot of work not buying high and selling low.
    Indeed - if you just want someone else to handle asset allocation, just buy a multi-asset fund.
    If you want all the rest of the above, use an IFA.

    OP, you sound like your head is screwed well on.
    Whilst the IFA poo-poo’d your selections....I’m curious: have they done well?   Maybe you are an unwittingly special guesser!
    Your numbers are pretty decent for your age....have you an idea how much you want, what you need to live on?   I always feel an IFA ought to be doing more than just picking some funds for you.  Much more! 

    I also feel that many who come here are perfectly capable of managing their money well enough.  They have an interest to learn, perhaps some experience, and are actively seeking out answers.  Maybe you fall into this category?

    There is a mystique about IFAs, and how they make selections etc.  If you have other reasons to involve one, then go ahead.  I’ve a pal who uses one on the basis that if he died, his wife wouldn’t have a clue what to do, & would “spend it all on handbags”!
    I’m more a fan of the approach espoused by https://www.kroijer.com/ - chances of you getting the top funds or pick the best fund manager year after year after year.....are minimal: so buy into the lowest-cost global fund instead.  
    I'm not sure why you think IFAs don't follow the Kroijer approach? 
    Not sure why you assume I said that they didn't?
    That said....the interactions I've had over recent years (mostly via pals using them, one from a seminar) do not suggest they broadly operate a passive lowest cost fund approach - do you have evidence to the contrary?
    SteveL555 said:
    Hi, thank you again for all the feedback - I'm tending towards the self-managed route, but have much more research to do (I've ordered the John Edward book, though it takes a week to arrive, and also the FT Guide to Saving and Investing for Retirement)
    Was my patchwork of investments doing well? - yes, I think it was doing ok. As things stand I've put in cash of £278k into the HL SIPP, and it's value is £341k - so £63k up. Now it's been up and running since late 2013, however the vast majority of the money has come in over the last 2 and a bit years. I believe the weighted average investment date is 2.79 years ago. (which suggests to me, though my logic may be flawed, that I've got an annualised rate of about 7.6% - and I know this is simplistic, but that's how it's been to date). However, and it's a big however, it dropped off a cliff back in April, - lost a vast amount of that (though most of that has come back), and I think that's down to not being correctly diversified. 
    As for Fidelity vs FundsNetwork. You're both right (apologies, can't remember your 'handles'). The IFA's plan is to move things to FundsNetwork at 0.2%. I went to have a look and it seemed FundsNetwork was just for IFAs. But it appeared to be a Fidelity product, and they have their Fidelity platform, which was available to me, and that was also 0.2%.
    Oh, and I've started wading through Monevator.com. There's a fair amount there, but at the very least it's thought-provoking.
    Lifetime allowance? I can't see it being an issue for a fair old while. Nice issue to have of course.
    And yes, I'm very aware I'm lucky. I earn what for most people would be a very good salary, and sold out my share of a business a fair few years ago which meant I could get the mortgage in a half-nelson, and it's getting thrown out the ring completely at the start of September. That's allowed me to hurl cash at the pension. Honestly though, I think a lot of where I'm at is down to having parents who were very frugal, and smart, with money - they had to be. (helps having a wife who's not bothered by flash cars or multitudinous shoes - and, touch wood, our little girls seem to be equally unbothered by shows of wealth). I'm off-topic. Thank you again for your thoughts. I'll never know what difference my decision will make, but I know it's big.
    Sounds good: I would say anything over 7% annualised is reasonable for the medium-long term stuff.
    On the LTA thing - don't ignore it - I was below your number only 6 years ago, and am now battering the LTA & working on efficient ways to manage that.  Yes, I've paid in well, particularly in the past 2-3 years, but if markets pick back up....well, just be prepared to manage that!   I'm now putting the minimum in until I jack things in, just to get the employer contribution.  & yes, it is a luxury problem to have, of course.  
    On your last point - don't over stress things - yes, it is an important decision, and perhaps will be driven by your keenness to be involved, but I can say that a couple of my friends use IFAs & have not made millions - as I said earlier, I believe you should use the IFA *if* they add other value to you, otherwise I would be inclined to manage things myself!
    Let us know how you get on!
    Plan for tomorrow, enjoy today!
  • dunstonhdunstonh Forumite
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    That said....the interactions I've had over recent years (mostly via pals using them, one from a seminar) do not suggest they broadly operate a passive lowest cost fund approach - do you have evidence to the contrary?

    Plenty of IFAs use passive.  And more importantly, if a client gives instruction that it is their preference then the IFA will use passive (much as in the same way an IFA will use ethical/responsible etc if the client wants it).

    However, cost is not the primary focus when it comes to investing.   If we were to put costs before investment suitability and potential then costs would go down but so would have investment returns net of charges.    

    Sensible investors would not close their mind to any investment option.  So, going 100% managed or 100% passive because of personal bias is not really a good idea.   If you think passive is best in an area, use that. If you think active is good in an area then use that.   For a core and satellite approach, passive makes a good core choice with active as the satellite.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • IvanOpinionIvanOpinion Forumite
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    SteveL555 said:

    So I think I have a pretty fundamental decision to make. Do I manage my own SIPP or get an IFA involved?

    I was in a similar boat a few years ago when I realised just how much I was paying in fees.  I started reading up on things and opted to go DIY.  But what to buy?  I hear people criticising the 'Top 50' lists and 'herd' mentality but that along with the citywire fund ranking (https://citywire.co.uk/funds-insider/sector/aggressive-gbp-funds/i2698/?periodMonths=60&page=1&expandedList=true) is where I started.  

    I started by selling out of many of the funds that my old IFA had put me into (I considered those funds as underperforming) and bought into what I considered decent quality mixed asset funds.  The three ones I chose were (not a recommendation, just my choices)
    - Royal London sustainable world
    - Baillie Gifford Managed
    - Vanguard Lifestrategy 80
    These were and still are the bedrock of my portfolio - and doing pretty .  I have since added various other items including several of the popular funds (such as Fundsmith and Lindsell Train Global) which have done well and others such as (Castlefield Buffetology and Lindsell Train UK) which are currently not doing so well, plus some others that are doing 'OK'.  Although my real star is a punt I made on a technology index fund.

    Could I have done better with different funds ... I am sure I could, but similarly I could have done much worse.  What I do know is that my overall portfolio is doing significantly better than the old funds I was in (I curiously still track against my old portfolio).  During the dip this year I was actually surprised at how well my portfolio coped.

    If you are nervous then start with some mixed asset funds and let the fund managers manage them (or let them track).  As you gain knowledge then move small percentages of your portfolio into a few more 'specialist' areas.  My golden rule is that I do not invest in things I do not understand - which is why I will not go anywhere near crypto currencies (at this point).
    Ivan has left the building ... but reserves the right of reply!
    Use PM to keep in touch
  • edited 8 July at 5:45PM
    enthusiasticsaverenthusiasticsaver Forumite, Board Guide
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    edited 8 July at 5:45PM
    When I started investing I read a lot of beginner investment material, posted a lot of questions on this forum and started off small with a multi asset fund (Vanguard lifestrategy 60) and used the DIY approach for about 5 years then we sold a second property and I invested some of the proceeds in multi asset income funds as we were coming up to retirement.  Our portfolio by then was worth around £250k and we decided to contact some IFAs on the grounds I was not sure I was doing the best with it, I did not have the inclination to read up about investments and quite frankly I was getting nervous that this was essentially the only back up money we had to our pensions and  was more money than I was used to dealing with.  My husband never had been interested in it beyond knowing that we had money to do what we wanted to do. It is probably relevant though to say our everyday income and more is sorted by DB pensions so the investments are on top of that. 

    Now we use an IFA who risk profiled us and in fact moved us into less risky investments than the VLS60 and our SIPPS and stocks and shares isas are  spread over 11 funds in a  diversified cautious portfolio (the split is decided by the IFA and the committee of the company he heads up).  They review it regularly and yes of course it costs more than DIY but it gives us confidence that our investments are being carefully monitored. 

    I think there is room for both approaches.  Our IFA did not belittle what I had done with it up until the time he took over managing it and in fact said I had used the right approach.  Given I was a novice investor a multi asset fund of trackers with low costs was a good choice.  He did not promise he could do better in returns but he did do a full risk profile which showed that my husband was more cautious than me but we are both pretty risk averse but I would never have come up with the funds he did but even in these uncertain times it is currently around 6% up on what we invested with him last year.  He cash flowed our portfolio showing how much can be taken out every year up until the age of 99. He has more knowledge of tax and investments than me so I think we did the right thing for us at that particular time.  It means I can spend my time doing things I want to do like gardening, walking and cycling.  I can still go online to the Fidelity site and see how it is performing at any time so I don't feel like it is completely remote from us.  It gives us peace of mind.  I still take an interest in investing but my main concern now is closer to my husbands in that it is not growth I am looking for irrespective of everything else.  I need the hand holding an IFA gives us. 


    Early retired in December 2017

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages and Endowments, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to [email protected]
  • dunstonhdunstonh Forumite
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     such as (Castlefield Buffetology and Lindsell Train UK) which are currently not doing so well,

    What makes you think Buffettology is not doing well?

     Although my real star is a punt I made on a technology index fund.

    I can't believe that its nearly 20 years before tech funds dropped 90% in value.


    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • BritishInvestorBritishInvestor Forumite
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     My golden rule is that I do not invest in things I do not understand 
    Out of interest what made you choose Fundsmith and Lindsell? Seem a popular choice
  • 8370562883705628 Forumite
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    Since you're asking here's my completely amateur 2p on the subject. It’s a long read but hopefully worthwhile.

    So you're 46 with £350k now and you expect a few more years of maximum contributions, so after those few years I'll just assume you'll have a nice round £500k. I'm also assuming you have a plan for what to do between your income falling off a cliff, and being able to access your SIPP at 57 in 2031, which gives a good decade to earn some growth. I'm also assuming you have other savings, maybe some money in ISAs separately.

    Check your NI record (you can call HMRC or do it online). You need 35 years of NI stamps to get the full state pension. If you don't have 35 yet, it is definitely worth making voluntary NI contributions to top up any years with gaps or insufficient NICs.
    IFAs CAN be useful for those awkward technical things like the tax on your pension income, inheritance tax planning, if you want life insurance, but they offer no value when it comes to managing investments. Every IFA will have different ideas about how to invest your SIPP, and they will change their ideas every year, this way they make themselves seem relevant different from each other.


    As I see it you have 3 options:

    1. Pay to be lazy - go with the IFA

     2. Don't pay to be lazy - ignore the IFA, transfer the SIPP to Vanguard (vanguardinvestor.co.uk), buy a Target Retirement Fund (I suggest 2050, reasons given below, further info about this range of funds here: https://www.vanguardinvestor.co.uk/investing-explained/what-are-target-retirement-funds) *

     3. Don’t pay and don’t be lazy – transfer the SIPP to Vanguard but pick your own funds.

     

    *Further notes on 2.

    The platform fee is 0.15% but capped at £250k so effectively 0.075% for a £500k account, and there are NO other charges. Pick a single Target Retirement Fund and that way you don’t need to rebalance between different funds every year, you can just treat it like a savings account. When it’s time to drawdown you can set up an automatic regular withdrawal to your bank account. If you want it to last from 57 for life I would cap your withdrawal rate at 4% (so £20k if it’s £500k) a year, 5% absolute max.

    You can also plan around the State Pension which is £9.1k a year, so for example if you wanted £30k income you could drawdown £30k the first 10 years 57-67, then reduce the drawdown by the State Pension when you get to that age. Although this isn’t guaranteed, abolishing the state pension is politically impossible.

    Although you can access the money from 2031 I would not pick the Target Retirement 2030 fund, because within 7 years of the target date the fund's asset allocation goes down to 30% stocks 70% bonds implying a lower return and you need it to last for life, and your life expectancy takes you out to 2058. Here’s the return you can expect on such a portfolio over the next decade or so.

    Global stocks: 30%                                                

    Current dividend yield 2.5%                                     

    Expected real long-term GDP growth 2%

    Expected long-term inflation rate 2%

    Currency change? F*** knows, probably negative since the £ is so low right now

    Speculation? probably -2

    % to -1%

    Total currency + speculative change? Call it -2%

    Expected return 2.5% + 2% + 2% - 2% = 4.5%

    Return contribution to portfolio 4.5% x 30% = 1.35%

    Global bonds: 70% (hedged, don’t need to worry about currency)

    Current yield to maturity 1%

    Expected return 1%

    As a % of portfolio 1% x 70% = 0.7%

    Total portfolio return 1.35% + 0.7% = 2.05%

    Less fund charges of 0.24%, fund transactions costs of ~0.04%, platform fee of ~0.07% =  1.7%

    Less expected inflation of 2% = -0.3% total real return net of fees.

    Even in the very long term, as high stock valuations and low interest rates normalise, there is no reason to expect much more than inflation from such a portfolio.

    So I would go with the 2050 fund.

    The allocation in the 2050 fund is 80% stocks 20% bonds until 20 years from the target date. Then it starts to come down to 50:50 at the target date, then drops down to 30:70 7 years after the target date. Using the same maths as above you can expect (80% x 4.5% = 3.6%, + 20% x 1% = .2%, = 3.8% total, -~0.3% fees) 3.5% total return or 1.5% total real return net of fees between now and 2031, so you could get up to ~£700k by the time you start drawing down.

    That way you get down to that “safe” allocation of 30% stocks 70% bonds in 2057, around the time you can expect to kick the bucket in 2058, which is when you’ll be wanting to preserve it for the inheritance or care.

     

    **Further notes on 3.

    This is just what I would do in that enviable situation. You have plenty of money, no other big financial commitments, you need it to last for life, and unlike in America we have a very generous state pension and free healthcare whereas in the US their general asset allocation advice of “own your age in bonds” is based on needing more safer assets to make up for the lower Social Security payments and higher healthcare expenses.  Also, if you stick to a 4% withdrawal rate, you won’t be drawing down on that much capital, but rather living off the dividends from the stocks and interest on the bonds. So even if there is a bad year, a crash or a bear market, yes you should tighten your belt a little, but don’t worry too much.

    I would go 90% stocks, 10% bonds and pick these funds.

    60% UK equity:

    36% FTSE UK All Share, 24% FTSE 250

    30% global equity:

    15% FTSE Global All Cap, 5% each FTSE All World High Dividend Yield, Global Value Factor, Global Minimum Volatility

    10% bonds:

    5% UK Inflation-linked gilt, 2.5% UK Investment Grade Bond, 2.5% US Investment Grade Credit

    Login once a year, perhaps to work through the New Year’s hangover, and rebalance down by 1%, so by 2030 you’re on 80:20, by 2040 you’re on 70:30, and by 2050 you’re on 60:40 and so on. Add in some of either the UK or US Government Bond fund if the yield YTM (yield to maturity) ever becomes worthwhile. Right now the yield on either fund is like 0.3%-0.4%, net of fees is basically 0%, so you’d be better off using a savings account like NS&I Income Bonds, which is stupid. You can lend money directly to the government at 1.16% or you can buy a volatile bond fund that is guaranteed to earn you 0%. But these are the stupid times we’re in.

    For example in 2035, when you’re on 75:25, government bond yields might be back up to 2%, and investment grade (i.e. corporate) up to 4%, so I might do this:

    30% FTSE All Share

    20% FTSE 250

    13% FTSE Global All Cap

    4% each global yield, value, minimum volatility

    10% UK inflation liked gilts

    5% each (US or UK government bond, whichever has a higher yield net of costs), US investment grade, UK investment grade

     

    You may wonder why so much UK equity? Some people think 100% UK equity is normal, some think 50:50, some say 100% global equity. There’s a lot of pessimism in the UK at the moment (just read the comments on any Daily Mail article) and a feeling that we’re being overtaken by the rest of the world, but it’s all nostalgic nonsense. There’s a mantra that you HAVE to diversify globally, which is also nonsense. The only times the UK has done much worse than global equity measured in £ was the 1972-1974 crash and post-Brexit referendum, but in the long-term the UK has done just as well as any other market (Barclays Equity Gilts Study, Credit Suisse Global Returns Yearbook). There is no evidence that global equity or emerging markets are likely to deliver higher returns over the 2020s. Besides, ¾ of FTSE 100 earnings and ½ of FTSE 250 earnings come from overseas anyway, and plenty of that comes from the emerging markets everyone’s so excited about. With UK equity you take no currency or political risk, pay no foreign dividend withholding tax, and you are the beneficial owner of a UK-based asset subject to UK law.

    So I end up with a portfolio that effectively means 1/3 of my equity allocation is FTSE 100, 1/3 is FTSE 250 (more domestically oriented companies like Direct Line, M&S, Moneysupermarket.com as opposed to the FTSE 100 multinational giants), and 1/3 is global. The reason I pick 3 parts FTSE All Share to 2 parts FTSE 250 instead of 1 part FTSE 100 to 1 part FTSE 250, is that Vanguard’s FTSE All Share fund is actually cheaper then their FTSE 100 funds, and if you own them in that proportion it works out as about half and half FTSE 100 / FTSE 250.

    You may also wonder why own US and UK bond funds why not just one or the other, or just a global one? Well the UK one is the cheapest, it’s already very global, only 40% of the bonds are issued by UK organisations, the UK and US ones have higher YTMs than the global one (if you consider that what makes the global corporate bond fund’s YTM higher is the presence of so many US bonds), and I trust the UK and US bond markets more than I trust global bond markets.

     Additional

    As I worked out above, I don’t see how anyone expects much more than a real a return of 2% after inflation and fees from global equity measured in £. Whereas for the UK:

    FTSE All Share dividend yield as at 31/12/2019 4.1%, currently 4.6% but it changes daily

    Real growth up to 2%

    Speculation? No reason to expect much either way, all the valuation measures were completely average at the start of the year, and a little below average right now, firmly below global equity valuations.

    Expected real total return 4.6% + 2% = 6.6%, less fees of ~0.3% = 6.3%

     

    Well, that’s my 2p on the subject.


  • dunstonhdunstonh Forumite
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    . Every IFA will have different ideas about how to invest your SIPP, and they will change their ideas every year, this way they make themselves seem relevant different from each other.

    Have you seen every IFA and what their investment process is?

    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • AudaxerAudaxer Forumite
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    He cash flowed our portfolio showing how much can be taken out every year up until the age of 99. 
    I would have thought that the amount that can be withdrawn from any portfolio over a long retirement depends on the Sequence of Returns. If for example there is a poor Sequence of Returns, especially in the first decade of retirement, I would have thought that would mean that a 'safe withdrawal rate' would be a good bit lower than if there is a good first decade of returns? 
  • 8370562883705628 Forumite
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    Audaxer said:
    He cash flowed our portfolio showing how much can be taken out every year up until the age of 99. 
    I would have thought that the amount that can be withdrawn from any portfolio over a long retirement depends on the Sequence of Returns. If for example there is a poor Sequence of Returns, especially in the first decade of retirement, I would have thought that would mean that a 'safe withdrawal rate' would be a good bit lower than if there is a good first decade of returns? 
    Nah it won't make a difference. Say you retired in 1990 on a 4% withdrawal rate and then in 2000 you though "hey Ive got loads more I can go up to 5%" and then by 2010 you could be down 40-50%. Vice versa bad times are followed by better.
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