Difference between Passive Index ETF's and funds for a buy and hold retail investor

christophercharles

masonic said:

You don't have to pay the £7.50 if you use Vanguard's bulk dealing service, so the comparison is £2.90 vs £2.10 (your calculation for the fund is wrong 0.15+0.06 = 0.21%). But you aren't going to hold for just one year. Over 10 years the cost would be £24.50 vs £21.00. That's if held at Vanguard.

If you are only investing £1000 then the costs are small and it makes little difference. The difference in performance of two equivalent funds could be more than £3.50/£1000 over 10 years.

I currently hold a Lifetime ISA with about £60k in it at AJ Bell. The platform fee would be 0.25% (£150) on the whole lot if I held funds. As I hold only ETFs, I pay £42 per year. The ETF fund fees work out about 0.02% (£12) more expensive per year. I also pay a total of £6 per year in regular investing fees when I top up annually (I wouldn't need to pay this if using funds). I'm therefore better off by £90 per year by using ETFs rather than funds. If Vanguard offered LISAs, which they don't, I'd still be better off by £30 pa at AJ Bell using ETFs than funds at Vanguard. The saving will get larger as I invest more, and hopefully see some growth return to my investments.

Very similar story for my SIPP.

My S&S ISA has a flat fee structure, so I pay the same platform fee whatever I hold, but that's where all of my active investments are held. I have a fairly strong preference for Investment Trusts (though I hold a few funds including one index fund).

My apologies, i cut and pasted the fees wrongly. The correction is the transaction fees are not 0% but 0.06%:

Ongoing Costs 0.06% Transaction Costs 0.06% One-Off Costs Incidental Costs 0.00% Account Fee 0.15%

Total Costs 0.27% = £2.70, So if bought, held and sold for 1 year then it’s only £2.70

Regardless of my error, thank you, your point is still valid regarding the difference in fees which I understand.

It is becoming more and more clear to me that those who chose ETF's, do so due to platform fees. Not because ETF's are just better performing investments in general and accumulate more wealth, when invested in the same index. This is if compared to same index funds (with charges being hypothetically equal).

If i am wrong please anyone feel free to correct me.

I imagined a scenario that in 10 years time I sold my investments in a FTSE 100 tracker fund, which i chose due to lower charges, and my friend sold thier FTSE 100 tracker ETF, then they would have a significantly more money than I would due to them choosing an ETF invested in the same index compared to a fund.

masonic

christophercharles said:

It is becoming more and more clear to me that those who chose ETF's, do so due to platform fees. Not because ETF's are just better performing investments in general and accumulate more wealth, when invested in the same index. This is if compared to same index funds (with charges being hypothetically equal).

If i am wrong please anyone feel free to correct me.

I imagined a scenario that in 10 years time I sold my investments in a FTSE 100 tracker fund, which i chose due to lower charges, and my friend sold thier FTSE 100 tracker ETF, then they would have a significantly more money than I would due to them choosing an ETF invested in the same index compared to a fund.

Beyond special cases with platform fees, differences are going to be small and unpredictable. The tracking error will differ between two different investments tracking the same index. This can sometimes be positive and at other times negative for returns. Some ETFs have lower fees than the closest equivalent index fund, for example, the cheapest developed world index trackers are ETFs (same true for S&P500 when I last checked). Judging on a case by case basis and looking at all elements of the fees you would pay is the way to go. What you shouldn't see is a fund and ETF tracking the same index with significantly different results - that would suggest something has gone badly wrong.

ChilliBob

ColdIron said:

It's Monevator, no Y, to aid you in your googling

https://monevator.com/

Cheers, slip of the fingers lol