Stay at Nutmeg LISA or switch to AJ Bell LISA

Free1234

I have £20k with nutmeg, adding another £5k in April, currently up 13.66% which I am happy for, any profit is good, along with the free money from the government.

Up to now, I have paid £172 in fee just over 3 years, as the pot are getting higher, is it worth switching to AJ Bell? 

By my calculation, nutmeg total fee at 0.69% will be £172.50, whereas AJ Bell wil just be 0.25% £62.50, plus £1.50 per fund

I'm aware it is a completely different platform and would have to do my own homework, picking my own fund, which I aim to get something similar to Vanguard LS 60, which is similar to my Nutmeg portfolio at 3/5 risk - balanced. 

Is it advisable to do so, any reason why I shouldn't???

Thanks

underground99

Free1234 said:

By my calculation, nutmeg total fee at 0.69% will be £172.50, whereas AJ Bell wil just be 0.25% £62.50, plus £1.50 per fund

I'm aware it is a completely different platform and would have to do my own homework, picking my own fund, which I aim to get something similar to Vanguard LS 60, which is similar to my Nutmeg portfolio at 3/5 risk - balanced. 

You may be misunderstanding the concept of a platform custody fee. AJ Bell is 0.25% fee for running the ISA or LISA wrapper, holding your assets and administering your account, plus £1.50 for doing a transaction to buy or sell some fund shares.  But the funds will also have their own running costs - for example, Vanguard LifeStrategy 60 has an ongoing charges figure of 0.22%, because Vanguard won't run the fund for free. So you would be paying 0.25% to AJ Bell while the fund that you own would be incurring 0.22% of cost, so that's 0.47% plus the occasional £1.50. There will also be some pretty inconsequential transaction costs within the Vanguard fund which you don't really see or control, but another few basis points. Overall it's going to be more like half a percent than the quarter of a percent that you mentioned.

Nutmeg currently charge 0.45% fees to give you a fixed allocation portfolio and then the underlying investments they buy for you may have a typical running cost and internal transaction costs of around 0.19% (same sort of ballpark as Vanguard's mixed asset fund) and they reckon the buying/selling spread will cost 0.05% as an average annualised figure as they move money in or out of the portfolios for you. So they come up with the 0.69% you mentioned, as an estimated total. 

But that's not directly comparable with AJ Bell's 0.25% plus the £1.50s, because the AJ Bell figure excludes the ongoing charges figure and internal transaction costs of whatever fund you choose to purchase (whether it be a Vanguard fund or someone else's fund). Add them on, and it will be closer.

Is it advisable to do so, any reason why I shouldn't???

You would still save money using AJ Bell to hold a popular mainstream mixed asset fund built on indexes (offered by the likes of Vanguard and others) instead of using Nutmeg, and there's no particular reason to expect Nutmeg would deliver a better gross performance to make up for their higher fees (the 0.45% vs 0.25% of AJ Bell).  So, from a cost and performance viewpoint, no real reason why you shouldn't  abandon Nutmeg and move to AJ Bell if you are willing to spend some time making decisions on whether you would prefer to use Vanguard or one of many other rival funds to do the same job, once the money gets to AJ Bell.

However, AJ Bell is a 'proper' DIY platform with many many investments to choose from.  Nutmeg is not, and only has a limited choice, thereby protecting you somewhat from making really dumb decisions about what to put in your portfolio.  So, a potential "reason why I shouldn't" move to AJ Bell is that you might be tempted to throw all your money into some high risk, high-flying fund, watch it crash in value, get angry, sell up for cash, miss the rebound when the fund comes back in value and be even more angry with yourself by being tempted by the thousands of choices on offer which conspired to destroy your wealth as you bought and sold between all the shiny tempting things on offer.  That's a harder mistake to make if just keeping the money where it is on Nutmeg and adding from time to time. Some people are better keeping it simple.

It sounds like you'll be happy to do your own homework, so if you're not going to be tempted to go 'off piste' and will just stick to using a mainstream mixed asset fund on the AJ Bell platform, it would be a better choice than Nutmeg; they offers more choice, at lower cost.

Alexland

As your LISA gets bigger you might also want to consider that AJ Bell cap their ongoing charges if you move away from funds into exchange traded assets.

For example our circa £25k LISAs (£16k contributions, £4k bonus, £5k growth) are with AJ Bell invested in the accumulating Lyxor LCWL global tracker ETF so the platform fee is capped at £3.50 pm, our contribution and bonus investment pattern requires five £1.50 trades per year (to avoid the £9.95 shares trading charge we setup a scheduled regular trade, then cancel after the first run) and the ETF costs us 0.12% so the account and investment costs are just under 0.32% pa in total (and reducing as the account gets bigger each year).

However that only really works if you want to go 100% equities as there aren't any cheap multi asset ETFs for your 60% equities exposure. I guess you could pick a wealth preservation Investment Trust but they are more expensive or maybe pay a few more £1.50 trades to put a proportion of the money in a bond ETF (and rebalance with new contributions) but there really doesn't seem to be a need if you are investing for the next 20+ years as that's plenty of time for the market to recover from any bad crashes.

Still if you aren't comfortable with seeing circa 50% losses maybe it's best to stick to something like VLS 60 or Nutmeg risk 3/5 where the bad crashes are only around 25% drops. The worst thing that could happen is you get upset and sell low so don't invest beyond your volatility tolerance.

Free1234

Thank you for the insightful advice. I was reading the MSE LISA page which didn't mention the extra cost.

Having looked at AJ Bell website. I have identify the following as Global and cheap OCF. 

Fidelity Index World Fund Acc 

0.12%

Obviously this is 100%, I could put £12.5k in there. And the other £12.5k in VG LS 20%, this will bring share to £15k, bond £10k, which is 60/40

Fee will be (25k*0.25%)+(12.5k*0.1%)+(12.5k*0.22%)+£6 = £108.50

Vs £172.50 Nutmeg. I will save £64 p.a.

Is this worth it? Is the product I selected good product? 

Is there other bond fund that are cheap OCF I missed? 

Thanks

Alexland

Fidelity Index World is a good fund but it's developed world only so missing the circa 10% emerging markets so you might want to pay the extra 0.01% and go for the HSBC FTSE All World fund at 0.13%.
For the bonds rather than use VLS20 you might consider the Vanguard Global Bond Index Hedged at 0.15%. Obviously use the accumulation versions to avoid £1.50 trade costs reinvesting dividends and remember to leave enough cash in the LISA to cover fees (assuming some growth in valuations) until you can next contribute or with AJ Bell you can arrange to pay the ongoing fees from a separate dealing account.

Free1234

Thank you for your recommendation.
HSBC FTSE all world fund is a great option as it is more global. 
As for the Bond, I felt like going for something a little bit more risky, since I am playing with house money haha (I can't see it drop below 25% into my own contribution)
Other than LS 20, is there any other that are similar product you can recommend me? 

Alexland

Oh you are S&S investing house money - hope your purchase is at least 5 years away preferably longer to recover from any negative market periods!
For the bonds what didn't you like about the Vanguard Global Bond Index Hedged at 0.15% suggested above? If you wanted more risky then just increase your equities ratio rather than go for lower grade bonds.

Free1234

Not much growth I guess 
5 and 3 and 1 yr
VL20 27% 15% 7%
Bond 11% 10% 1%
(I know past performance doesn't means the future)

If it is my own money from SSISA , i might go with the bond, but since the government is giving out 25% bonus, why not risk it a little bit.

Is there something similar to VL20 I could compare it to?

Alexland

Its not really fair comparing a multi asset fund with a bond fund. If applying that logic you might as well use VLS100 as your bond fund - it doesn't contain any bonds but look at the recent performance...

underground99

Alexland said:

Oh you are S&S investing house money - hope your purchase is at least 5 years away preferably longer to recover from any negative market periods!

FWIW, rather than literally buying a house with the money, "playing with house money" is a term for when you're at the casino or the bookies playing with 'their money' you won rather than your original stake.

It can encourage some extra risk taking which may or may not end well. In this case the OP is talking about the government bonus money in the same sense - thus "going for something a little bit more risky, since I am playing with house money haha (I can't see it drop below 25% into my own contribution)".

The obvious point to make is that whether you're investing in a LISA or a pension or elsewhere, all the money in the account is now your money and while it's tempting the think 'easy come easy go, it was free anyway', it's still your money that you would lose or waste if you make poor decisions, so there's no need to take unnecessary risks or skim over it without really bothering to think about what to put it into.

Whether a global bond index with the characteristics of that tracker you mentioned is fit for purpose (best result for the objectives) would probably depend on the objectives. It's a different mix of characteristics to the bond part of a VLS60 or VLS20, or to the bond parts of other volatility managed mixed asset funds made by vanguard's rivals, but we can't say it's right or wrong without knowing what sort of bond holdings they want. That's the problem with DIY vs leaving it to nutmeg or an off the shelf mixed fund, you have to learn the differences between a myriad of choices to consider what you might want.

If the reason to hold bonds is just to have 'something that's less volatile than equities', a hedged global bond index would meet the criteria, and it's cheap. Whereas if the objective could be made a bit less simplistic, it might be less compelling.

Alexland said:

Its not really fair comparing a multi asset fund with a bond fund. If applying that logic you might as well use VLS100 as your bond fund - it doesn't contain any bonds but look at the recent performance...

This. A pure bond fund versus a fund that holds equities as well as bonds, will generally give a worse result when equities are rising unless the bonds in the pure bond fund are particularly risky ones that leap up in value when equities are doing well.

Thrugelmir

Free1234 said:

Not much growth I guess 
5 and 3 and 1 yr
VL20 27% 15% 7%
Bond 11% 10% 1%

Fixed interest bonds by their very nature don't actually grow.