Stay at Nutmeg LISA or switch to AJ Bell LISA

Alexland

underground99 said:

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.

Aah yes that definition wasn't at the forefront of my mind because as you might image I don't spend much time in casinos!

Free1234

Plan A

£12500 (50%) HSBC FTSE all world fund
£12500 (50%) VLS 20
60/40, total fee £106.25

Plan B 
£15000 (60%) HSBC FTSE all world fund 
£10000 (40%) vanguard global bond

60/40, total fee £97

Look like Plan B is better ☺️☺️☺️

underground99

Free1234 said:

No, but VLS 20 has 80% bond (20% in VG global bond too) which can compare with the global bond. 

Plan A

£12500 (50%) HSBC FTSE all world fund
£12500 (50%) VLS 20
60/40, total fee £106.25

Plan B 
£15000 (60%) HSBC FTSE all world fund 
£10000 (40%) vanguard global bond

60/40, total fee £97

Look like Plan B looks better ☺️☺️☺️

It looks like Plan B is cheaper. 

Plan B gets you exposure to a specific mix of bonds which match a global index.  The index is made up of looking at all the bonds which happen to exist around the world, including the ones bought by banks who have their own specific reasons to hold them, and the ones bought by hedge funds who have their own specific reasons to hold them, and the ones bought by pension funds and insurance companies who have their own specific reasons to hold them, and the ones bought by governments and central banks around the world who have their own specific reasons to hold them, and all the consumers around the world who have their own specific reasons to hold them. There is a broad mix of different kinds of bonds available out there, with different interest rates, duration of remaining maturity, and credit quality (risk of default).  

The bond index is constructed by weighting those 10000+ different bonds issued by companies and governments and other public bodies, based on how many million or billion dollars worth exist of each type.  The Vanguard global bond tracker sets out to track that index, so it weights your exposure towards the biggest ones that happen to exist.

The bonds that exist are bought by different people for different purposes (the banks, insurance companies, pension funds, governments, hedge funds, retail investor products/  individuals), but when you buy the whole index, you are buying the blended average of all those purposes, most heavily weighted to whatever type of bonds has the biggest amounts of dollar value.  The index tracker does not care about your personal objective, it only cares about getting you the return that's the average of what 'the world' wants, even though your personal objectives for owning the bonds might be quite different to why a bank or insurance company might need to own the bond or why the chinese government wants to buy the bond. You might not really find some of the bond types which get a high allocation to be very attractive when you could put some of your money into a Cash LISA or equities or other asset classes instead.

When Vanguard put together their 'LifeStrategy' fund, or when another rival to Vanguard constructs a mixed asset fund, they consider what mix of bonds might be desirable for a UK consumer buying a packaged product who is relying on them to 'do the bond allocation'.  Within the allocation, they may well stuff part of the bond allocation with a cheap global index fund that tracks the 'Bloomberg Barclays Global Aggregate Float Adjusted and Scaled Index', such as the vanguard global bond fund mentioned. After all, it is cheap. They will then adjust the bond exposure allocation by adding in other types of bonds or bond funds.  For example, more or less UK corporate or government bonds, index linked bonds, higher risk bonds etc. With the aim of constructing something that they think would be more useful to a UK consumer than just grabbing the 'global average' of what exists.  If you look at the holdings of Lifestrategy 20, you can see they are using a global bond index OEIC and ETF, but they are also using other specialist bond indexes to change the mix.

So, VLS 20 is a professionally constructed fund heavy in bonds, and Vanguard Global Bond is a list of all the major bonds that exist, weighted to the biggest ones and hedged to sterling. The 80% bond element within the VLS 20 (or similar rival) will give a different result from the global index.  So, while you can see that one of your routes 'saves almost ten pounds a year on my twenty five grand', the performance disparity between the two options will be a lot more than ten pounds a year.   Only with hindsight will you be able to see whether using a 'weighted average index of all the bonds we could find' was *better* than having a professional construct a bond allocation from different types of bonds as part of building a packaged product for UK consumers. All you can say is it will be *cheaper*, because it gets your annual charges down to 0.388% instead of 0.425%, saving a paltry 0.037% or £9.25 of cost on £25k.

As an example, if the bond index is 40% of your assets and over the next year performs half a percent worse than the bond allocation within the VLS, it has cost you 0.20%, which is more than five times as much as the 0.037% you saved.  

I don't use either of the funds mentioned, but just an example of some thought process that may help you DIY.

Thrugelmir

Free1234 said:

Look like Plan B is better ☺️☺️☺️

Depends on the eventual return. £9.25p per annum is neither here nor there. 

Albermarle

It could be worthwhile as part of this exercise to look at some of the alternatives to Vanguard Life strategy funds.
VLS has a fixed allocation eg VLS 60 will always have 60% equities in it . It also has a bias towards UK equity and bonds .
Some other similar multi asset funds do not have a fixed % allocation but are 'risk targeted' .
Some also do not have a UK bias , which is good or bad depending on your point of view . 
Here is a comparison chart for some of them . There is also a newer one -Blackrock MyMap .
Fund-of-funds: the rivals - Monevator

Free1234

When should I start the transfer? 

As I already put in money for 2020/21, do I have to wait until 2021/22 to open a new LISA with AJ bell?

How long does the transfer take?

How does the process work? Nutmeg will sell everything, transfer the cash value to AJ bells and it will sit there as cash until I invest?

Free1234

Alexland said:

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.

Can anyone answer my post above?

Also is there a reason why you have 5x£1.50 trade, is it a personal choice?
For me (next tax year) I could have just one (£1.50 regular investment for etf) for the whole £4k contribution(?)

It does appear capped fee is cheaper, so that, I have selected down to 2 option for etf global equity and for bond.

Can you advice the pro and con of the product below

Vhvg

Lcwl

Veve (have emerging market in SSISA)

Vags

Vagp

Agbp

Alexland

Free1234 said:

When should I start the transfer? 
As I already put in money for 2020/21, do I have to wait until 2021/22 to open a new LISA with AJ bell?

You can do it anytime but it's easier if you wait until you have completed your contributions for this tax year and received any related bonuses.

Free1234 said:

How long does the transfer take?
How does the process work? Nutmeg will sell everything, transfer the cash value to AJ bells and it will sit there as cash until I invest?

Nutmeg do support transferring your bespoke ETF portfolio but charge £20 per stock and to be honest it would cost a fortune in trade fees to maintain on AJ Bell so for a quicker and cheaper transfer it would probably be best to tell AJ Bell that you want to transfer it as cash when you complete their transfer application form. Sale and cash transfers usually take at least 3-4 weeks possibly longer depending on the provider workloads. From the point Nutmeg sell the old assets you will be out the market for a while until you reinvest on AJ Bell.

Free1234 said:

Also is there a reason why you have 5x£1.50 trade, is it a personal choice?
For me (next tax year) I could have just one (£1.50 regular investment for etf) for the whole £4k contribution(?)

It's because we don't have all the money ready at the start of each tax year as we need to earn it gradually with the final trade for the final bonus. As such even with a £4k lump sum it would be 2 trades inc £1k bonus. Remember to leave some cash in the account to pay the ongoing 0.25% charge until you can next contribute assuming some growth in the valuation.

Free1234 said:

Can you advice the pro and con of the product below
Vhvg

Lcwl

Veve (have emerging market in SSISA)

Vags

Vagp

Agbp

When assessing passive ETFs look at the size, indicative spread, charges, performance, trades per day, etc.

Free1234

I already got the bonus for 2020/21, but wasn't sure whether I can open 2 LISA in one tax year. Probably best to wait for 2 more weeks.

My plan is transfer the nutmeg when the new tax year start (£22k), set up one off regular investment of £4k, the transfer and bonus should arrive end of May ish time.

My LISA (£27k), plus SSISA (£13k).
The £4k will go to aggregate etf bond (£1.50 fee), £23k go to equity etf (£9.95 fee)
Vanguard SsIsa £5k in emerging market and other index fund , £8k go to bond index fund

Should balance it to 70/30

Next year allowance, hopefully trading 212 will be open to new customer