Moving to drawdown - costs reasonable?

JohnWinder

AlanP_2 said:

The trouble with the vast majority of the Active v Passive research for me is that they all assume that investors who use active funds will then behave passively and adopt an "invest and forget" approach.
More likely, and more sensibly, they are avctively managing their portfolio and will be changing funds both with sectors and across sectors in reaction to performance dropping / manager's changing etc.

That is such a good point; thanks for making it. I've no idea which approach gives better returns, although one is more work or expense to pay someone to do that work, but still could be worth it.

Theory, ideas, debate are useful, but we all need actionable information not just an ideas contest. The actionable idea with passive is not much more than 'invest and forget' as you say, and what more there is can be actioned from clear descriptions.

So, is there anywhere that we can find an actionable proposal, someone's strategy, an approach to investing, that we can use now for the sensible 'active' you envisage? And can we find it described in the past, so we can see how it would have performed up to now, compared with passive, on risk comparable basis? Describing it for the first time now is not evidence that it will work better than passive.

But here's something possibly discouraging to anyone who thinks they can get rid of the once good fund managers and take up with the future good ones: in one study of 2000 pension funds, when they went out to choose new managers for their investments the returns they achieved were less than they would have obtained from the managers they didn't choose. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3651476
It doesn't answer your question, well, my question, but it's all I've got.

AlanP_2

The trouble is academic studies are going to struggle if they try and look at the real experiences / returns of selected investors rather than looking at the aggregate market as represented by published fund returns.

The Active v Passive thread on here is probabaly as good as anything, just remember to look at in 50 years time and see what worked best.

cfw1994

AlanP_2 said:

The trouble is academic studies are going to struggle if they try and look at the real experiences / returns of selected investors rather than looking at the aggregate market as represented by published fund returns.

The Active v Passive thread on here is probabaly as good as anything, just remember to look at in 50 years time and see what worked best.

If I'm still around in 50 years time I'll be amazed   

scdandem

OldMusicGuy said:

scdandem said:

Perhaps DIY is looking more appealing. Are there courses / particular reading on the subject you know of? Silly question I expect!

Not a silly question at all. DIY is not hard at all once you get past the mindset of "IFAs are experts, I couldn't possibly do this". They are not investment managers and don't know any better than you or I when it comes to making investment choices. They do have more knowledge than most on the mechanics of pensions and the investment choices out there. So most of us on here would recommend you do a bit of reading and research to understand more.

Start with "DIY Pensions: A Simple Guide to Pensions, SIPPs & Retirement Planning" by John Edwards, go to Lars Kroijer's website and watch his videos. PensionCraft is also a good website. 

Even if you decide not to DIY, it is much better to choose IFAs from a position of knowledge rather than just accepting what appears to be a very expensive option without comparing it to alternatives. 

Well, I’ve binge-read both books and just about to embark on the videos! I’m pleasantly surprised by how much more I already understand in this thread and how much more straightforward and “doable’ DIY seems to be once you understand all the acronyms and financial jargon. I love John Edwards’ approach and, dare I say, I’m actually quite excited about getting started - although the break-up conversation with my proposed IFA looms over me.

Perhaps I’ll kick off by looking more closely into the asset split and costs of our 2 x £50k ISAs currently with True Potential, which I now understand to be actively managed funds by a robo-adviser? I think then my main learning will be around the merits of transferring from personal pensions to SIPPs with only a couple of years of investment left before moving to drawdown. I can see i have an awful lot to learn! Thanks again for all your help and replies 🙏🏻

Thrugelmir

Deleted_User said:

Thrugelmir said:

Deleted_User said:

AlanP_2 said:

Deleted_User said:

“ On a discrete basis, passive funds tend to be around mid table.   So, half the funds above have done better. Half do worse”.

That’s before fees.  If you take fees into account, passive has consistently outperformed in Europe as well as the US. https://www.funds-europe.com/news/active-vs-passive-which-is-underperforming

Saying “my active fund outperformed” is neither here nor there. Anecdotes are irrelevant when making investment choices.  Particularly when comparing different assets with different risk levels; then it becomes nonsensical.  Its like saying “for what its worth, I have some Apple stock and it outperformed all my funds”. 

In general, one should decide what is an appropriate asset allocation. Then select an appropriate investment vehicle that fits it using the following basic principles:

1. Diversification 
2. Low costs
3. Simplicity

So are you of the opinion that only passive investments should be used, for all markets across the globe, and there is no role for active investments in anyone's portfolio?

Personally the logic behind a hybrid approach makes sense to me, using passives for some markets and active options elsewhere, to achieve the desired asset allocation / diversification and higher than average returns (after costs). 

There are certain niche asset types where “active” can be a benefit (in my opinion), but not in large cap stocks in developed countries.  And if someone wants to take on more risk and go for the likes of Teslas in a big way, they should just buy companies directly, whether its for your whole fund or play money.  

In December we saw for the first time an issue that materially impacts index tracking funds. Normally it's not such an issue. As the companies that are promoted are relatively small in market capitilisation terms in relation to the overall index. In Tesla's case. A huge number of investors have had the stock added to their portfolios at an inflated price. With no choice. Throws out the window all the claims about efficient market pricing when it comes to passive investing.  

Firstly, it is your opinion that Tesla is mispriced. Not a fact by any means. Secondly, such claims have been made before and since December.  Thirdly, I owned Tesla since 2010 (through VTI). Nothing changed. 

I agree nothing changed in a matter of a few days. That's my point. Companies unfortunately take far longer to generate profits.  As people were in the Dot Com Era. Sounds as if you are too emotionally invested with your portfolio. Rather than standing back and being detached.  

Thrugelmir

AlanP_2 said:

The most you have evidence for is that a passive fund will on average beat active funds that are nominally invested in the same index.    

At a retail level, the stock market is full of reactive rather than proactive investors. Buying last years active winners isn't a bad strategy. However at some point whatever the fund manager identified as having an edge will disappear. The idea gets copied, there's a fundamental shift due to technology or politics. The smart money will have left long before the demise for pastures new. Active funds require active investor management.  Don't rely on the fund manager. It's not their remit. 

JohnWinder

Not sure how to interpret or unpick that. It should be the remit of every active fund manager to get the best risk-adjusted returns in the investment category they belong to, and if there's a comparable index fund to beat them; I'll add a 'surely' here as I might be missing something.

Nonetheless, if that's not the case and we active investors need to actively manage our active funds (is that how I should have read it?), where do I find a description of how to do that so as to beat index returns, which was written 20 years ago so I can test it? Describing one now, for the first time, won't provide any compelling evidence that it will work for the next 20 years (at least I can't see it would).

[Deleted User]

Thrugelmir said:

Deleted_User said:

Thrugelmir said:

Deleted_User said:

AlanP_2 said:

Deleted_User said:

“ On a discrete basis, passive funds tend to be around mid table.   So, half the funds above have done better. Half do worse”.

That’s before fees.  If you take fees into account, passive has consistently outperformed in Europe as well as the US. https://www.funds-europe.com/news/active-vs-passive-which-is-underperforming

Saying “my active fund outperformed” is neither here nor there. Anecdotes are irrelevant when making investment choices.  Particularly when comparing different assets with different risk levels; then it becomes nonsensical.  Its like saying “for what its worth, I have some Apple stock and it outperformed all my funds”. 

In general, one should decide what is an appropriate asset allocation. Then select an appropriate investment vehicle that fits it using the following basic principles:

1. Diversification 
2. Low costs
3. Simplicity

So are you of the opinion that only passive investments should be used, for all markets across the globe, and there is no role for active investments in anyone's portfolio?

Personally the logic behind a hybrid approach makes sense to me, using passives for some markets and active options elsewhere, to achieve the desired asset allocation / diversification and higher than average returns (after costs). 

There are certain niche asset types where “active” can be a benefit (in my opinion), but not in large cap stocks in developed countries.  And if someone wants to take on more risk and go for the likes of Teslas in a big way, they should just buy companies directly, whether its for your whole fund or play money.  

In December we saw for the first time an issue that materially impacts index tracking funds. Normally it's not such an issue. As the companies that are promoted are relatively small in market capitilisation terms in relation to the overall index. In Tesla's case. A huge number of investors have had the stock added to their portfolios at an inflated price. With no choice. Throws out the window all the claims about efficient market pricing when it comes to passive investing.  

Firstly, it is your opinion that Tesla is mispriced. Not a fact by any means. Secondly, such claims have been made before and since December.  Thirdly, I owned Tesla since 2010 (through VTI). Nothing changed. 

I agree nothing changed in a matter of a few days. That's my point. Companies unfortunately take far longer to generate profits.  

Sorry, I’ll try to type a bit slower:
1. S&P500 is an index of large companies. 

2. VTI is an ETF which covers the whole market. 

3. When a stock is about to be included into  S&P500, there is a phenomenon called “front running” as speculators buy it in advance. Tesla share price got bumped up as a result.  Its a minor issue for people who own S&P 500 funds.  It has no impact whatsoever on people who own “whole of the market” funds.   

Thrugelmir

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Thrugelmir said:

Deleted_User said:

AlanP_2 said:

Deleted_User said:

“ On a discrete basis, passive funds tend to be around mid table.   So, half the funds above have done better. Half do worse”.

That’s before fees.  If you take fees into account, passive has consistently outperformed in Europe as well as the US. https://www.funds-europe.com/news/active-vs-passive-which-is-underperforming

Saying “my active fund outperformed” is neither here nor there. Anecdotes are irrelevant when making investment choices.  Particularly when comparing different assets with different risk levels; then it becomes nonsensical.  Its like saying “for what its worth, I have some Apple stock and it outperformed all my funds”. 

In general, one should decide what is an appropriate asset allocation. Then select an appropriate investment vehicle that fits it using the following basic principles:

1. Diversification 
2. Low costs
3. Simplicity

So are you of the opinion that only passive investments should be used, for all markets across the globe, and there is no role for active investments in anyone's portfolio?

Personally the logic behind a hybrid approach makes sense to me, using passives for some markets and active options elsewhere, to achieve the desired asset allocation / diversification and higher than average returns (after costs). 

There are certain niche asset types where “active” can be a benefit (in my opinion), but not in large cap stocks in developed countries.  And if someone wants to take on more risk and go for the likes of Teslas in a big way, they should just buy companies directly, whether its for your whole fund or play money.  

In December we saw for the first time an issue that materially impacts index tracking funds. Normally it's not such an issue. As the companies that are promoted are relatively small in market capitilisation terms in relation to the overall index. In Tesla's case. A huge number of investors have had the stock added to their portfolios at an inflated price. With no choice. Throws out the window all the claims about efficient market pricing when it comes to passive investing.  

Firstly, it is your opinion that Tesla is mispriced. Not a fact by any means. Secondly, such claims have been made before and since December.  Thirdly, I owned Tesla since 2010 (through VTI). Nothing changed. 

I agree nothing changed in a matter of a few days. That's my point. Companies unfortunately take far longer to generate profits.  

Its a minor issue for people who own S&P 500 funds.  

That's the greater fool theory. When investors buy stocks on the expectation that they can sell it on to another investor at a later date at a much higher price. 

[Deleted User]

Wrong.  Front running does not result in a “much higher” price for owners of S&P 500 funds.  

Firstly, in a cap weighted index, new entries are added at a small fraction of the total.
Secondly, companies operating ETFs have learnt to anticipate front running and mitigate the small effect, eg by buying futures in advance of the entry.