Funds vs Individual shares

lozzy1965

Based on what I have read previously on this forum, here's a topic to get the emotions flowing!

I invest in individual shares.  I am nearing retirement and wonder if I should lower my risk by moving to funds.  The lowest fees I can find are 0.15% per annum.  If I have a pot of £500K when I retire I will be quite well diversified in individual shares (not the 1000's of different shares worldwide that get mentioned as a 'benefit' of holding a fund - but a diversification I am happy with).

To switch it all into a fund at 0.15% would cost me £750 per year.  If a platform charged that for me to belong to it, that would be considered extremely expensive,  Why should I switch to funds?

Discuss...

OldMusicGuy

It's a no brainer for me. First is risk, investing in individual shares is much higher risk than investing in funds and it's one I would not want in retirement. But I am very risk averse, and all my retirement funds are in a SIPP. Second is complexity. I have a large pot invested in three multi-asset funds and it requires virtually no admin. I would not want the hassle of managing individual shareholdings, nor would I want to pass that hassle to my wife when I die.

GeoffTF

Lower risk. Less work. Perhaps also a better return. Vanguard Developed World ETF VHVG costs 0.12% plus (IIRC 0.02%) transaction costs. Vanguard FTSE 100 costs much less, but is not well diversified.

eastmidsaver

it's risk v reward.
shares can make you more money and quicker too,   but also the opposite effect too.
funds are essentially a basket of shares, so if some fail it doesn't impact the overall value much, but likewise, a strong performer will also not increase the value of fund much either.
however, i think with shares you really need to make sure you do your research with them.  i have been burnt by taking tips from websites and broker forecasts etc.... but you live and learn.
personally, for me, i now just go with funds.   but do research them too.

Prism

The added fees of a fund don't bother me - I pay over 1% for some of my funds. Reasons that I use funds over individual stocks are simplicity, diversification, lower risk and overall performance. I don't want to spend my time analysing company reports and trying to make (guess?) predictions of future company performance. Even if I did spend that time researching why would I be better at it than the many other people trying the same thing. So I leave it to fund managers or index trackers to do the work for me.

Thrugelmir

To be a good investor one needs emotional detachment. Getting emotional about ones investments is a sure way of making fundamental mistakes. There's no right or wrong way to invest. I hold a mixture of investments.  Active and Passive. Individual and Collective. Different horses for different courses.  Knew a guy who made his money from betting at Point to Point meetings on course. You don't have to win big. Just consistently. Find yourself a niche, do your research and exploit it fully. 

Care to share your portfolio?  Or at least your major holdings.

You talk about paying annual fees. Presumably you churn your portfolio and incur trading fees / stamp duty. How much do you spend on research subscriptions annually?  

lozzy1965

As expected the consensus is to lower the risk.  And that is a consideration I am happy to take on board.

Just for added background, I have mentioned in answers to other posts that I have dabbled in penny shares (never again!) and been burnt many times too.  But overall am happy with my long term return over the years.  This will get some blood boiling, but I don't go into the accounts of the companies.  I read about them, I go off a wide range of recommendations and I only invest in companies that I know about (or I find out by reading a bit about them).  I take the occasional punt off a recommendation, but never a large percentage of my overall investment.  I am generally a dividend investor (I started in anger for the second time off the back of the Motley Fool articles on High Yield portfolios) and have held a few individual shares that have provided good dividend returns for quite a few years.

Maybe for me it might be a good idea to hive off some of my investments in funds as and when I rebalance or acquire dividend income that I don't need to spend.

Thanks for all the answers so far.  I'll no doubt be asking lots of fund related questions soon!!!

lozzy1965

Thrugelmir said:

Care to share your portfolio?  Or at least your major holdings.

You talk about paying annual fees. Presumably you churn your portfolio and incur trading fees / stamp duty. How much do you spend on research subscriptions annually?  

The post I was writing while you were writing yours answers some of your questions.  I spend nothing in monetary terms on research or subscriptions.  Just time in reading articles/press releases/broker recommendations.  I know nothing can be trusted on it's own, but I knew a guy who paid thousands to train in analysing company accounts.  He invested, and told me to invest in AFREN.  They had guaranteed assets beyond the current 'value' of the company.  Need I say more!!!
EDIT:  He did it for a few years and didn't make his fortune!

'My' portfolio is 'our' portfolio (me and the wife) and is invested across ISA's and SIPP's, so I'll need to pull it all together to post.  I also have pensions, so am in the fortunate position of not starving if it all goes horribly wrong! 

Thrugelmir

Risk is relative. Only stake what you can afford to lose. A well balanced portfolio should be able to perform in all weathers.  Easy to make money in a bull market. One day this market will end. There's a lot of investors who'll be found to have been swimming naked once the tide goes out. 

Doesn't bother me whether you read company accounts or not.  Though does surprise me. If you are dabbling in individual shares. Seems a totally contrariary approach. By reading I'm not saying you should analyse the financial data. Just consume the huge amount of information that the company provides about it's own activities. Being informed enables one to make better judgements. 

adindas

Well, this is not an either-or scenario is not it? You might get the best of both world by doing both and start rebalancing the allocation on either direction where you are more comfortable with. To me the main problem with the fund is not about paying 0.15%, but my main concern is that with Funds they might buy the individual stock when they are close to ATH not when there is a dip in price and you have no control of it.

Just think about the stocks like AAPL, FB, GOOG, AMD, NVIDIA, Netflix etc. People who learn how to navigate when to buy and to sell it they will make a better return. You do not need to get it right 100%, the statistics has shown you only need 55%+ right to beat the market.

Nowadays there are a lot of real time news, analytical tool, technical and fundamental analytical tools available for free that will help people to make retail investor to make that decision, when to buy when to sell part or all of them. I am not saying everyone could do that, want to invest time learning that.

In the past those tools are only available to institutional investors with big bucks as many of them are behind the paywall. Also, the proliferation of zero or near zero fees investing apps help the retailer investor to enter this game as they could set up limit order as low as $50 for an execution. In the past these fees are a real killer if you are relying in the well-established platforms.

Thrugelmir

adindas said:

Nowadays there are a lot of real time news, 

Retail investors are behind the curve. RNS are released to subscribers first with general access blocked for an hour for example. The market will have traded the good or bad news before you've had a chance. A few % here and there adds up over time. 

Limit orders don't work as people expect them too. Needs somebody else on the other side of the trade. Prices can and do fall beneath set stop loss limits.