IFA or DIY - any thoughts appreciated

IvanOpinion

dunstonh said:

 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 obviously bought at some peak.  Buffetology is the only fund I have that is currently showing a negative and Lindsell Train UK is showing a positive but nowhere near its previous highs (in fact my Vanguard LS 80, which has done well, is still lower than I hoped, but I am working on the assumption that is down to a UK bias).  At the minute my line of thinking is that UK has not yet started to show the level of recovery seen elsewhere in the world. Hopefully the UK will recover and these will push back up.

Today is a very different world to 20 years ago.  As IFAs have a habit of saying you cannot judge future performance on past performance.  20 years ago it was obvious tech stock was very over priced; it may be a bit over priced but nowhere near the levels of 20 years ago.  I could take a 50% hit on my tech fund and still be in profit - but that fund only accounts for 2.5% of my portfolio (or my 'whimsical gamble' as I call it).

IvanOpinion

BritishInvestor said:

IvanOpinion said:

 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

I listened to several webinars/webcasts from both of them an looked at what they were investing in and why and they seemed as good as any other possible fund (I did look at others at the same time such as BG Discovery, BG International, Rathbone Global etc.).  Plus I did say that I went along with the herd

BritishInvestor

Audaxer said:

enthusiasticsaver 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I would have thought that the amount that can be withdrawn from any portfolio over a long retirement depends on the Sequence of Returns.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? 

Agreed, assuming that enthusasticsaver is at, or in retirement. Something like Timeline will also help determine how much risk they need to take.

BritishInvestor

tcallaghan93 said:

Audaxer said:

enthusiasticsaver 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.

 A simple spreadsheet example would disprove your theory. 

BritishInvestor

IvanOpinion said:

BritishInvestor said:

IvanOpinion said:

 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

I listened to several webinars/webcasts from both of them an looked at what they were investing in and why and they seemed as good as any other possible fund (I did look at others at the same time such as BG Discovery, BG International, Rathbone Global etc.).  Plus I did say that I went along with the herd

I think it's worth understanding the potential risks when selecting a fund manager. In addition to market risk (which you accept when buying a tracker), you have to contend with:
Style risk: Will the fund managers chosen style go out of fashion? For example, large cap growth shares have had a great decade and those fund managers lucky enough to have a tilt towards this will have done very well. Their luck might not continue forever.....
Concentration risk: How many shares does the fund manager hold? Are they concentrated in a particular sector/geography etc?
Fund manager risk: Will the fund manager deviate from their stated style if returns falter?

IvanOpinion

BritishInvestor said:

IvanOpinion said:

BritishInvestor said:

IvanOpinion said:

 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

I listened to several webinars/webcasts from both of them an looked at what they were investing in and why and they seemed as good as any other possible fund (I did look at others at the same time such as BG Discovery, BG International, Rathbone Global etc.).  Plus I did say that I went along with the herd

I think it's worth understanding the potential risks when selecting a fund manager. In addition to market risk (which you accept when buying a tracker), you have to contend with:
Style risk: Will the fund managers chosen style go out of fashion? For example, large cap growth shares have had a great decade and those fund managers lucky enough to have a tilt towards this will have done very well. Their luck might not continue forever.....
Concentration risk: How many shares does the fund manager hold? Are they concentrated in a particular sector/geography etc?
Fund manager risk: Will the fund manager deviate from their stated style if returns falter?

From my point of view I would say you are over thinking it (which is not necessarily a good or bad thing). In my (limited) experience I think this sector of the 'advice' market is where IT was 30 years ago.  You shroud it in mystery and terminology throw in some fear and keep your customers confused so that they think they cannot do without you. 

I remember telling people that building computers was very complicated and throwing in all sorts of curved balls about usage, software and reasons for buying along with recommendation (usually erring on the side of safety), talking about expansion etc. etc.  Most of it was trying to keep the customer confused and generate revenue.  The reality is that building a PC is no more difficult than a Meccano set and all the stuff about software and expansion capabilities was mostly hogwash of limited relevance.  If I was asked about a recommendation then of course one of the computers I would have would be exactly what was needed (I tailored the customer to what I had available - although we could build on that) ... go somewhere else and they will have a similar but different computer for you that would be ideal.

Eventually IT evolved, you can now pick a computer up in a supermarket and you ask your mates for advice or use social media (where some are very good at spending other peoples money).  IT is now refocussed on offering different services.  Many people would still not like to build their own PC so they will buy a pre-built model (they still need the salesman).

The way I look at it is the fund managers are the computer manufacturers, and the IFAs are the sales people.  IFAs understand the terminology and to those that do not understand the internals they provide quality offerings off-the-shelf ... each one has a slightly different view and different offering - but they will promise to have exactly what you need.  If there was a single answer to the question then all the different platforms (HL, Fidelity, II etc.) would have the same offerings in their top 50 - but they don't because there are many different options.

There is a quagmire of terminology, often driven by regulation and legislation, but in the main I believe much of it is there to cause confusion rather than enlightenment (and in many cases they are used for revenue generation).  Some will need the sales reps and, in the main, they will offer the best possible advice they can give on any given day, but that advice, in my opinion, is currently too expensive.  Like their clients, an IFA does not have a crystal ball, they have no more of an idea of where the market is going compared to my guesses/hopes/wishes - how can they when the fund managers cannot provide that information.  Supermarkets are now open for funds and managing your own investments, those with the confidence just need to take that step.

I will end with this is not meant to be an IFA bash, but I think IFAs need to rethink some of their offerings.  Some of their bread and butter (e.g. basic investing) no longer attracts the premium prices that they still demand.  However there are still many many aspects of financial advice where the only place you will get it is from a fully trained and professional IFA.

As I say this is how I perceive it.  

BritishInvestor

IvanOpinion said:

BritishInvestor said:

IvanOpinion said:

BritishInvestor said:

IvanOpinion said:

 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

I listened to several webinars/webcasts from both of them an looked at what they were investing in and why and they seemed as good as any other possible fund (I did look at others at the same time such as BG Discovery, BG International, Rathbone Global etc.).  Plus I did say that I went along with the herd

I think it's worth understanding the potential risks when selecting a fund manager. In addition to market risk (which you accept when buying a tracker), you have to contend with:
Style risk: Will the fund managers chosen style go out of fashion? For example, large cap growth shares have had a great decade and those fund managers lucky enough to have a tilt towards this will have done very well. Their luck might not continue forever.....
Concentration risk: How many shares does the fund manager hold? Are they concentrated in a particular sector/geography etc?
Fund manager risk: Will the fund manager deviate from their stated style if returns falter?

From my point of view I would say you are over thinking it (which is not necessarily a good or bad thing). In my (limited) experience I think this sector of the 'advice' market is where IT was 30 years ago.  You shroud it in mystery and terminology throw in some fear and keep your customers confused so that they think they cannot do without you. 

I remember telling people that building computers was very complicated and throwing in all sorts of curved balls about usage, software and reasons for buying along with recommendation (usually erring on the side of safety), talking about expansion etc. etc.  Most of it was trying to keep the customer confused and generate revenue.  The reality is that building a PC is no more difficult than a Meccano set and all the stuff about software and expansion capabilities was mostly hogwash of limited relevance.  If I was asked about a recommendation then of course one of the computers I would have would be exactly what was needed (I tailored the customer to what I had available - although we could build on that) ... go somewhere else and they will have a similar but different computer for you that would be ideal.

Eventually IT evolved, you can now pick a computer up in a supermarket and you ask your mates for advice or use social media (where some are very good at spending other peoples money).  IT is now refocussed on offering different services.  Many people would still not like to build their own PC so they will buy a pre-built model (they still need the salesman).

The way I look at it is the fund managers are the computer manufacturers, and the IFAs are the sales people.  IFAs understand the terminology and to those that do not understand the internals they provide quality offerings off-the-shelf ... each one has a slightly different view and different offering - but they will promise to have exactly what you need.  If there was a single answer to the question then all the different platforms (HL, Fidelity, II etc.) would have the same offerings in their top 50 - but they don't because there are many different options.

There is a quagmire of terminology, often driven by regulation and legislation, but in the main I believe much of it is there to cause confusion rather than enlightenment (and in many cases they are used for revenue generation).  Some will need the sales reps and, in the main, they will offer the best possible advice they can give on any given day, but that advice, in my opinion, is currently too expensive.  Like their clients, an IFA does not have a crystal ball, they have no more of an idea of where the market is going compared to my guesses/hopes/wishes - how can they when the fund managers cannot provide that information.  Supermarkets are now open for funds and managing your own investments, those with the confidence just need to take that step.

I will end with this is not meant to be an IFA bash, but I think IFAs need to rethink some of their offerings.  Some of their bread and butter (e.g. basic investing) no longer attracts the premium prices that they still demand.  However there are still many many aspects of financial advice where the only place you will get it is from a fully trained and professional IFA.

As I say this is how I perceive it.  

I'm not sure you understood my point. Irrespective of whether you choose to pay for advice or DIY you need to understand the risks that you are accepting. It seems, judging by the best buy tables, that many use historical performance as a filter without doing sufficient research.
Regarding IFAs selling the products of fund managers - that's surely a 90s style offering, as you say, a relic from 30 years ago where people claimed to be able to pick winning funds (good luck with that ) - I'd hope the typical IFA has moved away from that years ago?

[Deleted User]

IvanOpinion said:

Buffetology is the only fund I have that is currently showing a negative and Lindsell Train UK is showing a positive but nowhere near its previous highs (in fact my Vanguard LS 80, which has done well, is still lower than I hoped, but I am working on the assumption that is down to a UK bias).  At the minute my line of thinking is that UK has not yet started to show the level of recovery seen elsewhere in the world. Hopefully the UK will recover and these will push back up.

Its a widespread misconception that UK listed stocks represent UK economy. Its not. In fact, the large UK listed companies derive a majority of their revenue outside UK. Which is why FTSE goes up when GBP falls.
The large listed stocks in other countries too exhibit similar attributes, to a varying degree. For example the large listed Swiss companies are actually multi national companies.
The main differentiators between countries (when it comes to choosing indexes) are the managements of these companies and the sectors. UK indexes are heavy on oil & gas, retail banks, mining etc - mostly mature industries that have limited growth opportunities. Stable dividends probably, but might have to be revisited after Covid.

Audaxer

tcallaghan93 said:

Audaxer said:

enthusiasticsaver 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.

It does make a difference as can be seen from inputting examples into following Sequence of Returns Calculator:
http://www.winchfinancial.com/financial-planning/risk-management-insurance/sequence-returns-calculator/

[Deleted User]

BritishInvestor said:

IvanOpinion said:

BritishInvestor said:

IvanOpinion said:

 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

I listened to several webinars/webcasts from both of them an looked at what they were investing in and why and they seemed as good as any other possible fund (I did look at others at the same time such as BG Discovery, BG International, Rathbone Global etc.).  Plus I did say that I went along with the herd

I think it's worth understanding the potential risks when selecting a fund manager. In addition to market risk (which you accept when buying a tracker), you have to contend with:
Style risk: Will the fund managers chosen style go out of fashion? For example, large cap growth shares have had a great decade and those fund managers lucky enough to have a tilt towards this will have done very well. Their luck might not continue forever.....
Concentration risk: How many shares does the fund manager hold? Are they concentrated in a particular sector/geography etc?
Fund manager risk: Will the fund manager deviate from their stated style if returns falter?

How are these risks unique to investing in active funds? These risks remain whether you choose the stocks or passive funds or IFA - difference is in who assumes these risks.
DIY stocks / funds - you assume all these risks.
IFA - IFA assumes responsibility for these risks which is why you pay a fee
Global diversified funds - style and concentration risk is with the fund managers which is why you pay a fee (smaller than paid to IFA). You retain the fund manager risk - you mitigate it by choosing multiple global diversified funds.