DIY pension definition and related questions

fred246

Telling lies and attacking others is exactly what you do dunstonh.

zagfles

dunstonh said:

Deleted_User said:

OldMusicGuy said:

dunstonh said:

You are absolutely entitled to your opinion but it is nothing more than that.   Everyone that pays just a little bit more and gets higher returns will feel different to you.   you can be happy you are paying lower charges and they can be happy they have made more money.

It seems odd that IFAs like dunstonh who constantly trumpet their ability to "make more money" refuse to countenance value-based pricing on the basis of how much more money they make their clients. I would pay for that, not a marketing myth.

That statement was utterly unprofessional.  The man is untrustworthy.  Any “advisor” who implies he can guarantee better returns if you just pay more money is but a dodgy salesman.  The only ones worth talking to are the ones who are uncertain.  Add to that him having no idea about my finances which he is comparing to his clients’ and its blatantly obvious he is selling snake oil. 

 And you are a liar.   
1 - I have never said returns are guaranteed.  
2 - you are the one that said you had a seven-digit portfolio and don't believe in active investing.    Indeed, it was rather crass of it you to drop that 7 digit reference into the thread.

It is a shame you cannot debate and discuss issues without telling lies and attacking others.  

It's a shame you don't seem to understand what "implies" means. You do it all the time, imply that you achieve better returns than popular cheap "DIY" (your definition) options, never with any actual real verifiable evidence as far as I've seen.

It's a shame you can't debate without calling others "brainwashed" or even lacking a brain. 

[Deleted User]

dunstonh said:

Deleted_User said:

Yes, Vanguard has changed the industry dramatically and made the life of IFAs harder. More to come.  Some are taking it personally. Understandable. 

How do come to that conclusion?   Vanguard has made things better for IFAs.  I am not aware of a single IFA that takes it personally.    I suspect I know more IFAs than you seeing that you are not even in the UK.  Vanguard have a large set up to cater for IFA support and they have get large quantities of investments from IFAs.

Recent record of active vs passive speaks for itself. Very few active funds beat passive given the same level of risk. The longer your sampling period the smaller your chance.  In the US they now have really cheap active funds as a result - these might become competitive. 

One of the biggest failings with the biased passive brigade is their inability to understand that when buying an active fund, you filter out the funds you dont want to be left with a much smaller set of funds to select from. Sometimes only a couple.   Or the fact that some areas are best with trackers and some are best with active.   

It is pointless referencing the US as an example for the UK as active funds in the US are handicapped due to internal taxation and it makes sense to have as much passive there as possible.  The UK does not have that internal taxation.

There are far more duff active funds than decent.  But being close-minded to all of them is not a good idea.  Equally, there are people that only use active.  They are also being close minded and should consider passive as the key is the best of both worlds.

Of course Vanguard is using all available channels for selling its products.  That does not change the fact of them upending the industry - across the board.  They pioneered products which make advice for routine tasks unnecessary. This is how more and more people feel: https://www.reddit.com/r/UKPersonalFinance/comments/967nwl/binning_my_ifa_vanguard_advice/. At some point they may decide that the cost of advice is too high and ripe for cutting - as they have done elsewhere. 
That your comment is disingenuous is obvious as you have been rubbishing Vanguard here and in other threads. Vanguard is the reason costs are falling in the UK https://www.ft.com/content/fd81426e-5cf7-11de-9d42-00144feabdc0

You are effectively  implying that UK markets are inefficient which is a precondition for being able to easily beat the market. Thats nonsense and ignorance of fundamentals.  Taxation is just an extra burden but the root cause for active funds underperformance is that markets in developed countries are efficient and that higher costs become an insurmountable burden. As a result, the only way to beat the market is to take on lots more risk. Could work in the short term. Like any bet. 

US mutual funds do have more taxable events if they are active. US ETFs on the other hand are very tax efficient even if they are active.  Of course, US does not have the stamp duty which is a tax and a particular disadvantage to UK  consumers, costing them many billions every year. It particularly disadvantages or “handicaps” strategies requiring to trade more often. Again, the issue can be mitigated if you use ETFs. 

Your claim of most active funds being bad but you having the ability to pick only the good ones = more dodgy marketing. 

dunstonh

 You do it all the time, imply that you achieve better returns than popular cheap "DIY" (your definition) options, never with any actual real verifiable evidence as far as I've seen.

Nope.  I have never said that.  I have said it is possible and plenty of people, whether advised or DIY get better returns by doing it.     Going passive does not automatically mean better returns. Despite those biased to passive believing, it is "rare" for any element of active to beat passive.

It's a shame you can't debate without calling others "brainwashed" or even lacking a brain. 

And yet it was you that said "Hmm, whereas you sound like someone who is brainwashed by the "church of IFA" "

Linton

Deleted_User said:

Prism said:

Deleted_User said:

dunstonh said:

Its probably an unnecessary complexity but I am well into a 7 digit portfolio and trying to squeeze a little alpha by taking on more risk on a portion of investment makes sense. Smaller portfolios should focus on simplicity. 

You are absolutely entitled to your opinion but it is nothing more than that.   Everyone that pays just a little bit more and gets higher returns will feel different to you.   you can be happy you are paying lower charges and they can be happy they have made more money.

On costs, it’s not my opinion. I was briefly summarizing Vanguard’s analysis which you referenced. The higher the costs the better your chances of underperforming passive all the while taking more risk. 

The bit about “making more money than me” is a weird thing to say for a professional who knows zilch about my money. 

If funds were selected randomly then that would be true. However those of that do use active funds are not simply throwing a dart at a list of options. A certain amount of work does go into it to select a fund or stock which might be able to out perform its benchmark without increasing risk by much. In fact most of my funds have performed better with lower risk - assuming we are talking volatility and deviation which is only on that is reliably measured. 

I have nothing against passive funds and would recommend and do sometimes use passive funds. However is it far from impossible to use active funds to get a better result. That could be DIY or IFA led.

Again, I am summarizing the Vanguard White Paper he referenced, or at least my recollection of it. 

Having said it... If you want to increase your chances of offsetting higher costs and beating passive, you have to take bets and more risk. You HAVE to be less diversified. If you buy factors, you are cutting out certain types of companies and might be facing long periods of underperformance. 

Or you are as well diversified as a passive fund and then you are just buying a closet index fund but at a higher cost.  And on top of it all you have risk of bad management which you don’t have with the index. 

Recent record of active vs passive speaks for itself. Very few active funds beat passive given the same level of risk. The longer your sampling period the smaller your chance.  In the US they now have really cheap active funds as a result - these might become competitive. 

Then you have some funds buying a limited selection of US tech funds. These have done great the last decade but at a massively higher level of risk and are kinda useless. If thats your game, just buy stock. 

ISTM...
1) You do not HAVE to be less diversified than a passive fund if you buy factors.  The market itself is strongly influenced by factors as areas of investment go in and out of fashion.   An obvious example is the high rating of tech growth companies that are priced solely on investor's belief in future growth, a belief that is often not borne out in practice.  20+ years ago, before the .com boom/bust companies were more judged on current fundamentals, "blue chip" shares being the prime example.

2) The problem with saying more, the same, or less diversification and more, the same,  or less risk is that it becomes mere hand waving unless you have agreed metrics that correspond to investor's understanding of what those terms  mean to them.  You may define maximum diversification as the market cap allocation.  Then of course any allocation that differs from the market is by definition less diversified.  I would see maximum diversification as that which minimises the potential effect of problems in any single company, geography, industry sector etc on the total portfolio.  Clearly one can't optimise diversification of all these measures simultaneously so compromise is required.

Similarly risk.  To the newbie investor, "risk" means the chance of losing all your money.  To someone with more experience it may mean the size of fall during a crash.  To Trustnet I believe it means volatility over a medium time period.  My measure would be the chance of failing to meet objectives in quantity and time.  Taking this view primarily implies mitigation at the strategic level, not in the choice of individual equity investments.

zagfles

dunstonh said:

 You do it all the time, imply that you achieve better returns than popular cheap "DIY" (your definition) options, never with any actual real verifiable evidence as far as I've seen.

Nope.  I have never said that.  I have said it is possible and plenty of people, whether advised or DIY get better returns by doing it.     Going passive does not automatically mean better returns. Despite those biased to passive believing, it is "rare" for any element of active to beat passive.

It's a shame you can't debate without calling others "brainwashed" or even lacking a brain. 

And yet it was you that said "Hmm, whereas you sound like someone who is brainwashed by the "church of IFA" "

Clearly that was an ironic retort to your use of the term!

I agree passive doesn't automatically give better returns, but I don't think anyone said that. I use active mainly like I've said. But I don't make any implied claims that my investment strategy is superior to those using VLS etc, even though past performance has been better. I certainly have no vested interest in people believing whether it is or not.

[Deleted User]

Linton said:

Deleted_User said:

Prism said:

Deleted_User said:

dunstonh said:

Its probably an unnecessary complexity but I am well into a 7 digit portfolio and trying to squeeze a little alpha by taking on more risk on a portion of investment makes sense. Smaller portfolios should focus on simplicity. 

You are absolutely entitled to your opinion but it is nothing more than that.   Everyone that pays just a little bit more and gets higher returns will feel different to you.   you can be happy you are paying lower charges and they can be happy they have made more money.

On costs, it’s not my opinion. I was briefly summarizing Vanguard’s analysis which you referenced. The higher the costs the better your chances of underperforming passive all the while taking more risk. 

The bit about “making more money than me” is a weird thing to say for a professional who knows zilch about my money. 

If funds were selected randomly then that would be true. However those of that do use active funds are not simply throwing a dart at a list of options. A certain amount of work does go into it to select a fund or stock which might be able to out perform its benchmark without increasing risk by much. In fact most of my funds have performed better with lower risk - assuming we are talking volatility and deviation which is only on that is reliably measured. 

I have nothing against passive funds and would recommend and do sometimes use passive funds. However is it far from impossible to use active funds to get a better result. That could be DIY or IFA led.

Again, I am summarizing the Vanguard White Paper he referenced, or at least my recollection of it. 

Having said it... If you want to increase your chances of offsetting higher costs and beating passive, you have to take bets and more risk. You HAVE to be less diversified. If you buy factors, you are cutting out certain types of companies and might be facing long periods of underperformance. 

Or you are as well diversified as a passive fund and then you are just buying a closet index fund but at a higher cost.  And on top of it all you have risk of bad management which you don’t have with the index. 

Recent record of active vs passive speaks for itself. Very few active funds beat passive given the same level of risk. The longer your sampling period the smaller your chance.  In the US they now have really cheap active funds as a result - these might become competitive. 

Then you have some funds buying a limited selection of US tech funds. These have done great the last decade but at a massively higher level of risk and are kinda useless. If thats your game, just buy stock. 

ISTM...
1) You do not HAVE to be less diversified than a passive fund if you buy factors.  The market itself is strongly influenced by factors as areas of investment go in and out of fashion.   An obvious example is the high rating of tech growth companies that are priced solely on investor's belief in future growth, a belief that is often not borne out in practice.  20+ years ago, before the .com boom/bust companies were more judged on current fundamentals, "blue chip" shares being the prime example.

2) The problem with saying more, the same, or less diversification and more, the same,  or less risk is that it becomes mere hand waving unless you have agreed metrics that correspond to investor's understanding of what those terms  mean to them.  You may define maximum diversification as the market cap allocation.  Then of course any allocation that differs from the market is by definition less diversified.  I would see maximum diversification as that which minimises the potential effect of problems in any single company, geography, industry sector etc on the total portfolio.  Clearly one can't optimise diversification of all these measures simultaneously so compromise is required.

Similarly risk.  To the newbie investor, "risk" means the chance of losing all your money.  To someone with more experience it may mean the size of fall during a crash.  To Trustnet I believe it means volatility over a medium time period.  My measure would be the chance of failing to meet objectives in quantity and time.  Taking this view primarily implies mitigation at the strategic level, not in the choice of individual equity investments.

Yes, this is how I see risk as well. If you cut out a sector or a region... Let’s say tech because of your active view on fundamentals, then you run the risk of long term underperformance. Ignoring US tech over the last 20 years would have been damaging to anyones objectives.  Same effect if you focused on the value or small over that time period. Its a risk one takes when trying to beat the market. 

dunstonh

Clearly that was an ironic retort to your use of the term!

So, when you do it, it is ironic.  Yet when I do similar it's not (despite me too using a smilie to clearly show it was)?

I agree passive doesn't automatically give better returns, but I don't think anyone said that. 

Mordko has.  He will not countenance any possibility that having some active can lead to better to returns.  He referred to it as being rare.   Or the more recent statement that picking a good active fund is dodgy marketing

But I don't make any implied claims that my investment strategy is superior to those using VLS etc, even though past performance has been better.

Nor do I despite it having been so.         I doubt Mordko will criticise you and say your outcome is rare or it's not possible as you are not an IFA.   It's so rare that we have multiple posters on this thread who say they have been getting better returns by using some active investments.   Strangely, Mordko, when explaining his portfolio, also stated he used some active.   So, perhaps the real issue here is that you should only pick active options if you are a DIY investor with double standards.

[Deleted User]

dunstonh said:

Deleted_User said:

OldMusicGuy said:

dunstonh said:

You are absolutely entitled to your opinion but it is nothing more than that.   Everyone that pays just a little bit more and gets higher returns will feel different to you.   you can be happy you are paying lower charges and they can be happy they have made more money.

It seems odd that IFAs like dunstonh who constantly trumpet their ability to "make more money" refuse to countenance value-based pricing on the basis of how much more money they make their clients. I would pay for that, not a marketing myth.

That statement was utterly unprofessional.  The man is untrustworthy.  Any “advisor” who implies he can guarantee better returns if you just pay more money is but a dodgy salesman.  The only ones worth talking to are the ones who are uncertain.  Add to that him having no idea about my finances which he is comparing to his clients’ and its blatantly obvious he is selling snake oil. 

 And you are a liar.   
1 - I have never said returns are guaranteed.  
2 - you are the one that said you had a seven-digit portfolio and don't believe in active investing.    Indeed, it was rather crass of it you to drop that 7 digit reference into the thread.

It is a shame you cannot debate and discuss issues without telling lies and attacking others.  

1. Here is what you did say: “ Everyone that pays just a little bit more and gets higher returns will feel different to you.” And “ when buying an active fund, you filter out the funds you dont want to be left with a much smaller set of funds to select from. Sometimes only a couple.   Or the fact that some areas are best with trackers and some are best with active. ”

There is a very clear implication that you know an easy way to beat the market and your services will assure higher returns.  Very dodgy.  

2. I was making a point that I am open to active and the added complexity but only for largish portfolios. That’s what I do myself for a very limited fraction of my portfolio. I am not certain that the extra complexity is worth it - or that the approach will deliver higher returns - but at least I am not jeopardizing my overall objectives. 

There is no “lying”. You do imply you can easily  beat the market for your clients if they just pay you. Its blatant. And the bit about “attacking others” is a bit rich coming from you. 

[Deleted User]

dunstonh said:

Clearly that was an ironic retort to your use of the term!

So, when you do it, it is ironic.  Yet when I do similar it's not (despite me too using a smilie to clearly show it was)?

I agree passive doesn't automatically give better returns, but I don't think anyone said that. 

Mordko has.  He will not countenance any possibility that having some active can lead to better to returns.  He referred to it as being rare.   Or the more recent statement that picking a good active fund is dodgy marketing

But I don't make any implied claims that my investment strategy is superior to those using VLS etc, even though past performance has been better.

Nor do I despite it having been so.         I doubt Mordko will criticise you and say your outcome is rare or it's not possible as you are not an IFA.   It's so rare that we have multiple posters on this thread who say they have been getting better returns by using some active investments.   Strangely, Mordko, when explaining his portfolio, also stated he used some active.   So, perhaps the real issue here is that you should only pick active options if you are a DIY investor with double standards.

Yes, my problem is specifically with industry professionals making wild and misleading claims. Individual investors on this board, for the most part, cant even calculate time weighted returns.  They don’t know how to compare apples to apples.  Thats their problem.  IFAs making misleading claims and rubbishing good products are other peoples’ problem.