IFA or DIY - any thoughts appreciated

bigadaj

Deleted_User 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?

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.  

Where have you found an ifa that is taking the responsibility for the investment risk?

[Deleted User]

bigadaj said:

Where have you found an ifa that is taking the responsibility for the investment risk?

If you read again, no one is talking about investment risk.
We are talking about style and concentration risks and i believe the IFA has a responsibility to recommend appropriate funds suitable for the client's needs.

[Deleted User]

Deleted_User 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?

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.  

Disagree on both counts. 

1. IFA does not assume “responsibility for the risk”. Who told you that? If the funds he selects for you underperform, it is your risk and yours alone.  Your pension is at stake, not IFA’s. 

2. Fund manager making poor choices = risk that is unique to active funds. By definition passive funds = the market. So you still have the market risk, which you also have with the active funds. Active funds have to attempt to outperform the market and overcompensate for the additional fee. In doing that they have to reduce diversification, focus on certain industries and take on extra risk. 

[Deleted User]

Deleted_User said:

Disagree on both counts. 

1. IFA does not assume “responsibility for the risk”. Who told you that? If the funds he selects for you underperform, it is your risk and yours alone.  Your pension is at stake, not IFA’s. 

2. Fund manager making poor choices = risk that is unique to active funds. By definition passive funds = the market. So you still have the market risk, which you also have with the active funds. Active funds have to attempt to outperform the market and overcompensate for the additional fee. In doing that they have to reduce diversification, focus on certain industries and take on extra risk. 

Have you read the above post? No one is saying IFA assumes investment risk. He has a responsibility to choose funds appropriate for the client which is the style and concentration risk that was mentioned above.

Diplodicus

IFA does not take on the risk. Neither does the Fund Manager. The buck stops with the investor. 

BritishInvestor

Deleted_User 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?

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.  

I'm not sure how the risks are present in passive funds?
Style risk: Unless you are purchasing a factor type fund (with tilts to certain factor(s)), or an index fund that tracks a benchmark with a specific tilt, you will be buying the broad market of whichever benchmark your fund is tracking.
http://www.jrbcj.org/stylebox
Concentration risk: Some of the active funds mentioned have holdings of around 30 stocks with concentrations in certain sectors. Contrast that with a global tracker fund typically contain several thousands holdings across numerous sectors.
Fund manager risk: The tracker fund will stick to its specified benchmark - e.g. it won't suddenly switch from tracking FTSE All Share to MSCI World without telling anyone. Contrast that with active fund managers where it's not unknown for them to change their style and investors to find out when it's too late to do anything about it.
https://retirementresearcher.com/style-drift-can-avoided/

IvanOpinion

Deleted_User said:

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.

Hi Deleted_User, i understand what you are saying, I just was implying that (possibly coincidentally) my 2 worst performing stocks are both 100% 'UK' and Vanguard LS80, which we know has a heavy UK bias, is also not where I would have liked.  Maybe it is the expectation of lower or no dividends, sterling, brexit or something else (you suggest old style stocks), there seems to be something in the wind holding them back.

bigadaj

Deleted_User said:

bigadaj said:

Where have you found an ifa that is taking the responsibility for the investment risk?

If you read again, no one is talking about investment risk.
We are talking about style and concentration risks and i believe the IFA has a responsibility to recommend appropriate funds suitable for the client's needs.

Your wording was very poor then as that is what you implied.

[Deleted User]

bigadaj said:

Your wording was very poor then as that is what you implied.

Which line in that included the words 'investment risk'? If you dont bother to read it carefully, dont bother replying.

enthusiasticsaver

BritishInvestor 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? 

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

We have been retired since 2016 for my DH and 2018 for me.  The report from memory was worked out at a conservative 3% and yes of course if returns are unusually low for a decade or more that might make a difference but since our DB pensions cover our expenditure with a surplus the investments are not needed unless we are doing a lot of travel, house improvements or maybe to replace a car or gift money to family. These are nice to have but not essential.  We told the IFA we may need an additional £10k per annum in addition to our DB pension and the report worked out we would be able to withdraw £20k per annum.  So far we have withdrawn nothing due to market instability and this is the end of year 1 and the portfolio has returned 6% after fees. This is low risk.  He moved it down to the lowest risk when he saw how little we needed out each year. Not sure what timeline is but maybe he used that to work out the report. To be honest we were inundated with numerous reports, some of which I am ashamed to say I have not read in detail.