Fees too high - investment ISA

Aminatidi

Deleted_User said:

I just can’t get my head round it all , read some on AJ BELL site  and the vanguard lifestyle funds but what next? I thought it would be enjoyable to invest but it’s not

Honestly "what next" could be as simple as open an ISA and dump £500 in it and spend a while watching what happens as it moves up and down because it will move down too.

Think about basic things like your appetite to volatility.

So if you put £500 in and in a months time it's worth £400 will you be OK with that and buy more because shares are now cheaper or might you panic and sell because you don't want to lose you money?

Albermarle

I thought it would be enjoyable to invest but it’s not

The enjoyable bit is when 20 years down the line, you have a lot more money that you would have if you had left it in a savings account !

Have a look at these.

Investing in stocks for beginners: how to get started - MSE (moneysavingexpert.com)

Long-term investing: Increasing your chances of positive returns (nutmeg.com)

eskbanker

masonic said:

Deleted_User said:

If it won’t do better Than cash, might as well leave where it is, not worth the bother, that’s half the issue I know where I am with cash accounts, is it worth investing instead and having risking it going down, 

With cash savings it is almost certain the spending power of your money will decrease over time, if you invest sensibly it is highly likely the spending power of your money will increase over the long term. I don't know where you got the idea that investments won't do better than cash.

I believe OP was taking tebbins's opinions (from the previous post) at face value:

tebbins said:
VLS20 and 40 won't do much more than cash for the next decade of so, if that.

However, they've returned 73.9% and 102.4% respectively over the previous decade (of largely benign market conditions tbf), although the fundamental point remains that past performance can't be relied on as indicative of the future and that investment returns are inherently unpredictable.  I entirely agree that investing sensibly is a much better bet than staying in cash for the long term though!

Sea_Shell

OP, are you putting money into a pension each month, either through work or sipp?.  Where's this money invested?

If so, could you just duplicate those funds you currently hold, but via an ISA.

If they're good enough for your pension...

tebbins

eskbanker said:

masonic said:

Deleted_User said:

If it won’t do better Than cash, might as well leave where it is, not worth the bother, that’s half the issue I know where I am with cash accounts, is it worth investing instead and having risking it going down, 

With cash savings it is almost certain the spending power of your money will decrease over time, if you invest sensibly it is highly likely the spending power of your money will increase over the long term. I don't know where you got the idea that investments won't do better than cash.

I believe OP was taking tebbins's opinions (from the previous post) at face value:

tebbins said:
VLS20 and 40 won't do much more than cash for the next decade of so, if that.

However, they've returned 73.9% and 102.4% respectively over the previous decade (of largely benign market conditions tbf), although the fundamental point remains that past performance can't be relied on as indicative of the future and that investment returns are inherently unpredictable.  I entirely agree that investing sensibly is a much better bet than staying in cash for the long term though!

I think it would help the OP to read comments in full, do their own research and realise that approaching anything with a defeatist attitude doesn't help.

As the OP is a beginner investor I think most of us can agree that if they want to avoid the costs of the IFA route, which for that amount are unavoidable (though there is @dunstonh's suggestion) a multi-asset fund is the way to go, however we don't know much about the rest of their financial situation, risk-appetite etc.

Going off Vanguard's mid-year 2021 outlook, global equities are expected to do 3.8%, bonds 1%, before costs over the next decade.

VLS20, or a comparable conservative multi-asset fund "should" return 20% of 3.8% + 80% of 1% = 1.56% before costs, the fund's total costs are 0.43%, the net expected return is 1.13%. The upper estimates (4.8% for equities, 1.6% for bonds) net out at 1.81%, the lower estimates (2.8%, 0.6%) net out at 0.61%.

Doing the same for VLS 40 we get the following return expectations.
Lower 1.06%

Mid 1.70%

Upper 2.46%

VLS60

Lower 1.50%

Mid 2.26%

Upper 3.10%

VLS80

Lower 1.95%
Mid 2.83%
Upper 3.75%

VLS100
Lower 2.41%
Mid 3.41%
Upper 4.41%

This is just simple, rough maths plugging in numbers from Vanguard's published research to give a broad idea of what kind of returns are realistic to expect, with no adjustment for the higher expected returns for UK equity given the relatively lower valuations - at least according to Vanguard, which I agree with, but that's an opinion and shouldn't be relied on.

Other multi-asset funds that include other assets which may perform differently are available (https://monevator.com/passive-fund-of-funds-the-rivals/#:~:text=Fidelity Multi Asset Open Funds,Invesco Summit Growth Funds).

Sources:

https://intl.assets.vgdynamic.info/intl/uk_pro/assets/documents/vemo-midyear-summary.pdf

https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges.pdf

masonic

tebbins said:

This is just simple, rough maths plugging in numbers from Vanguard's published research to give a broad idea of what kind of returns are realistic to expect, with no adjustment for the higher expected returns for UK equity given the relatively lower valuations - at least according to Vanguard, which I agree with, but that's an opinion and shouldn't be relied on.

This is the danger of flirting with forecasting models: that they are taken more seriously than a guess. I have no idea how Vanguard's proprietary simulations would have fared in predicting the last 10 year's returns if fed data up to 2011. I suspect it wouldn't have been close to reality. Vanguard does fess up that it's predictions have changed markedly since December 2020, which suggests events occurring over the next few months could cause it to change again. Another proprietary forecasting model predicted negative real returns for US equities when it popped up almost a decade ago and couldn't have been more wrong so far.

Having an awareness of such modelling can be useful when considering the range of possible outcomes, but nobody should be making a binary decision to jump into, or stay away from, investments based on what numbers a computation spits out on a particular day. As Vanguard stresses at the end of the document:

"IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from the VCMM are derived from 10,000 simulations for each modelled asset class. Simulations are as at 31 May 2021. Results from the model may vary with each use and over time."

eskbanker

Yes, it would be perfectly valid to say that "VLS20 and 40 won't do much more than cash for the next decade of so, if that, according to one of many forecasts", but OP seemed to be misled by the absence of that important caveat and apparently took the comment as fact rather than opinion, albeit the rest of your original post wouldn't really have supported their conclusion that investments "won’t do better Than cash"....

bostonerimus

Deleted_User said:

I have looked at various options for an investment ISA but the fees have sent me running back to my cash ISA currently giving .3%(abismal). 

Local ifa wanted 3% of initial investment set up plus annual charges . Lloyds/ Shroders want 1.75% plus .65% annual fund fee . 

Where can I get a low risk fund with reasonable fees, please don’t suggest DIY as much as I would love to, I don’t feel confident, and can’t get my head round the info provided online. 

 I have considered Hargreaves lands down,  Arriva and hsbc. 

The first thing to do is ignore 99% of the funds and advice on line. You don't need it to successfully invest. Here's what to do...and yes its DIY. Here is a bit of information.

https://www.bogleheads.org/wiki/Investing_from_the_UK

1) Do a budget so you can see where your money is going and set aside an amount to invest every month.
2) Pay off all high interest debt
3) Save at least 6 months spending in cash in the bank
4) Put as much as you can into your workplace pension. If it is a pension where you invest in funds use a low cost multi-asset fund that contains global equites and bonds from a reputable company ie like Vanguard, HSBC, iShares, Blackrock etc. Something like VLS60 will give you a ready made portfolio that rebalances automatically to stay at 60% equites and 40% bonds/fixed income.

5) Open an ISA with someone like Vanguard, H&L etc and also invest in a similar multi-asset fund.
6) Choose a fund with a percentage of bonds very roughly equal to your age.
7) Do NOT obsess over the ups and downs of the markets, do not sell reflexively, just keep buying every month. As you get older you might want to reduce the percentage of equites and move some money into a multi-asset fund with more fixed income and biased towards "wealth preservation", but take your time.

That's essentially what I did, although I used a few index trackers rather than a single multi-asset fund to reduce costs even further, and it worked out well.

tebbins

bostonerimus said:
.

6) Choose a fund with a percentage of bonds very roughly equal to your age.

I do the same thing owning multiple index funds rather than a multi-asset as I'm overweight on UK large and mid-cap.

However re: point 6, that may have true pre-GFC when bond yields had exceeded stock yields since the 50s (for the US and UK), but these days I think the rule should be your age -20 or 30, i.e. 100% equity til 30, targeting that nice balanced sweet spot around 60-75% equity at retirement. After then, there is little benefit to be had going below 30-40% bonds.

bostonerimus

tebbins said:

bostonerimus said:
.

6) Choose a fund with a percentage of bonds very roughly equal to your age.

I do the same thing owning multiple index funds rather than a multi-asset as I'm overweight on UK large and mid-cap.

However re: point 6, that may have true pre-GFC when bond yields had exceeded stock yields since the 50s (for the US and UK), but these days I think the rule should be your age -20 or 30, i.e. 100% equity til 30, targeting that nice balanced sweet spot around 60-75% equity at retirement. After then, there is little benefit to be had going below 30-40% bonds.

Yes we can debate the status of the bond markets and how they are not what they once were, but I would not abandon the "age in bonds" chestnut for a novice with a long time horizon as doing so might put people into potentially very risky and volatile portfolios. They can always adjust after they get a bit of experience. 60-75% equities in retirement would once have seemed ridiculous and if you don't have some form of guaranteed income it still takes a strong stomach.