What's your drawdown percentage and how much of that do you spend on financial fees?

arnoldy

bostonerimus said:

The UK investor has some fantastic tax shelters they can use in the ISA and the generous UK capital gains and dividend allowances. The US closest equivalent of the ISA is a ROTH account and that annual max contribution is about 1/6 of the ISA. 

Dead right, and massively undervalued and underappreciated. For example when I was in Malta in 2020 I noticed that the maximum you can put into private pension and get tax relief was 500 Euro/yr! 

When you add in the massively high personal allowances before paying tax, the increasingly generous state pension (with subs paid for you in many circumstances), free health care, and lots of other freebies and benefits on top then the UK is truly the land of milk and honey.

The fact that you can put away £40k a year in a pension, £20k in a ISA (potentially this includes £4k in a LISA)  is astonishing - and yes most cant use the full allowances but it means for the vast majority of people all their savings they can manage can be sheltered from tax and capital gains.

JohnWinder

One question I would like to raise is low cost funds vs funds that have perceived high management costs.

Your wish is the FCA's command:

'Looking at the relationship between charges and performance net of fees we find some evidence that more expensive active funds underperformed cheaper active funds. However, the strength of this relationship varies according to the investment category and performance metric being assessed.'

'

'The majority of funds cluster within a narrow price range but often deliver very different levels of return.'

'Net of fees (Figure 2) the gradient of the line of best fit is downward-sloping with or without the outliers. This suggests on average for the period examined more expensive funds have produced worse returns for the investor.'

'Looking at the relationship between performance net of fees and the level of on- going charges figure we find some evidence that the impact of higher fees for more expensive active funds on average has meant that they underperformed cheaper active funds.'

Asset Management Market Study. Final Report: Annex 4 – Assessing the relationship between the price and performance of retail equity funds in the UK June 2017.

jeelz

Justso65 said:

bostonerimus said:

pip895 said:

Age late 50s
Retired 10 years
Income rental & drawdown just commenced at 4.3% 
Financial fees - platform ~0.1% funds 50% active average ~0.3%

Current plan is that drawdown will reduce to ~3% on SP kicking in and stop from age 75 to be toped up and replaced by ISAs  all subject to change when the rules change..
 

Sounds like a tenable, well considered plan. Looks like about 10% of your drawdown is going to financial fees. It will be interesting to see the range of that percentage.

Excuse my ignorance but where does the 10% of drawdown on fees come from in the above figures?

Bostonerimus is expressing the fees as a percentage of the amount withdrawn each year. Annual Platform fees (0.1% of total pot) and fund charges (0.3% of total pot) together (0.4%) represent 10% of the 4.3% annual drawdown.

davethebb

Johnwinder, Thank you for your comment. I have downloaded the report and taken a brief look and this looks interesting. I need to make a full study of it in due course but it is certainly food for thought - thanks.

[Deleted User]

My thoughts are that providing the funds are good quality with good history and fit the risk profile what are the issues in paying the fund manager a high fee as these are deducted BEFORE the performance is quoted - what you see in Trustnet etc. is what you get. Therefore if the fund outperforms a low cost fund of the same risk then this is what you are paying for in the management fees.

Agreed; just one minor issue: overwhelming evidence that over meaningful periods of time it does not happen.