Changing funds/pension

monaymadlol

Very helpful responses. Certainly a lot to think about. I've enquired with a local highly rated IFA firm, I think a one off appointment may be needed to possibly shed more light and slightly change course, we'll see.

Albermarle

monaymadlol said:

Very helpful responses. Certainly a lot to think about. I've enquired with a local highly rated IFA firm, I think a one off appointment may be needed to possibly shed more light and slightly change course, we'll see.

The first meeting is normally free/get to know each other.

monaymadlol

JohnWinder said:

...SW Fidelity Asia and compare that with a cheap index tracker costing 0.16%, then the SW fund has performed better.

Yes, that is a comparison of an active fund (more expensive, better performance) with a tracker.

It’s also a comparison of a fund whose shares are: 64% Australia; 22% HK; 12% Singapore, and USA, with a fund whose shares are: 31% China; 19% India; 12% Taiwan; 11% Korea.
Now tell me, are the differences in performance between a fund whose objective is to invest 70% in Asia ex-Japan, and a fund whose objective is to invest in the Pacific ex-Japan, due to the managers’ brilliance or due to the different markets the funds are invested in?

Note to beginners: compare like with like, or be careful of your conclusions.

Ok great, so the average 1.5% 'all in' isn't too bad then. ‘

I think it’s terrible, and hopefully you’ll be able to look back sometime and think the same thing, but it doesn't matter what I think, you need to quantify the ‘terribleness’ with a compound interest formula.
Compare the gain you get when fees are 1.5%/year rather than 0.8%/year, see the difference and tell me.
You’re 39 years old with another 40 years of investing ahead, perhaps more.
If your fund was worth £20,000 now and grew at 2.5%/year because of fees of 1.5%/year, it would finish at £53,700 in 40 years. If it grew at 3.2%/year because fees were only 0.8%/year, it would finish at £70,500. That’s how to measure if the fees are ‘not too bad’. That's giving up 24% of your gains. You'll be able to say 'With my investments I got two children into private schools, my fund manager's children'.

Open the calculator on your phone, turn the phone on its side to get the scientific calculator, enter 1.025 for the 2.5%/year, then press the ‘x with the little y above it’ key, then press 40, then press ‘times 20000’.

Edit: It's worse than that. You'd forego 33% of your gains, which is 24% of your final value.

Would your answer be 'get a passive fund/product'? If so, which?

I get what you're saying, I've been on this course for 12 years, hopefully I can change the outcome of the next 30 years with more shrewd decisions.


Positively speaking, I've actually got a pension, religiously invested into it and it's worth more than it would have as cash.

I have a small SS ISA, worth a few k, passively invested/left alone via vls ls and HSBC global. I'm due to receive some cash soon that I'll top up into my SS ISA (I don't save much usually) - so overall, it sounds I may be better getting a similar passive pension product possibly. 

JohnWinder

Would your answer be 'get a passive fund/product'? If so, which?

I’m reluctant to give a one line answer to that. Investment advice is best tailored to individuals, and at the risk of being patronising, telling people in five minutes what to do and why doesn’t give them the understanding they’ll likely need in future to best deal with market turmoil, unheard of inflation, new investment products, interest rate gyrations, withdrawal strategies etc. One gets the competence and confidence to deal with all that by putting in some time and effort to get a handle on personal investing. It’s not that hard to do, and doing so you can avoid the worst aspects of the financial services industry.
I think it’s a no-brainer that a passive fund is a place to start looking, but there are plenty one might turn away from. Of the many good ones left, I could suggest a couple, then other posters could rightly suggest other options are even better, the differences being small with unknown consequences, while you’re scratching your head in uncertainty.
You’re already on your path of learning, knowing how to evaluate fee impact. Here’s a Nobel prize winner’s short piece giving a broad overview. https://web.stanford.edu/~wfsharpe/art/active/active.htm

monaymadlol

That's interesting, thank you ☺️

JohnWinder

Here’s a sensible investing overview from a man with a wide experience perspective and a commitment to helping small investors: The Twelve Pillars of Wisdom.
https://johncbogle.com/wordpress/wp-content/uploads/2019/08/AZRepublic-4-27-01.pdf

There’s lots of discussion about those ideas that you don’t need, but enthusiasts can indulge in at: https://www.bogleheads.org/forum/viewtopic.php?t=6716

Linton

JohnWinder said:

Would your answer be 'get a passive fund/product'? If so, which?

I’m reluctant to give a one line answer to that. Investment advice is best tailored to individuals, and at the risk of being patronising, telling people in five minutes what to do and why doesn’t give them the understanding they’ll likely need in future to best deal with market turmoil, unheard of inflation, new investment products, interest rate gyrations, withdrawal strategies etc. One gets the competence and confidence to deal with all that by putting in some time and effort to get a handle on personal investing. It’s not that hard to do, and doing so you can avoid the worst aspects of the financial services industry.
I think it’s a no-brainer that a passive fund is a place to start looking, but there are plenty one might turn away from. Of the many good ones left, I could suggest a couple, then other posters could rightly suggest other options are even better, the differences being small with unknown consequences, while you’re scratching your head in uncertainty.
You’re already on your path of learning, knowing how to evaluate fee impact. Here’s a Nobel prize winner’s short piece giving a broad overview. https://web.stanford.edu/~wfsharpe/art/active/active.htm

One problem with your argument and that of your Nobel laureate is that for many active funds there is no comparable index fund.  Secondly the effect of fund charges is very small compared with other factors.  To present it as the primary criterion for choosing investments is particularly misleading. 

 But I agree with the view that a global index tracker is a good place to start investing. Not because of low charges but rather because it gives good diversification with minimal effort or knowledge. So it is unlikely to be a bad choice. But it is very much a starting point to one’s understanding.

JohnWinder

Yes, to your second para.

for many active funds there is no comparable index fund

I imagine so, but we'd need to look at some examples to see how much of a problem it is. In some cases we might find that we can capture the returns of that 'area' within a broader index fund.

Secondly the effect of fund charges is very small compared with other factors.

Yes, but we can control the 'charges' factor, with no control over whether other factors will benefit or harm our returns. It makes sense to control what you can if it's not to a greater detriment we can be equally sure about. What remains is: when one compares like with like before we know what returns will be, why would one choose a higher fee?

To present it as the primary criterion for choosing investments is particularly misleading.

Not guilty, your honour. Of course one would choose what markets and what investing approach before considering fees. But 'The expense ratio is the most proven predictor of future fund returns'.    https://www.morningstar.co.uk/uk/news/149421/how-fund-fees-are-the-best-predictor-of-returns.aspx.   So don't under-estimate its importance.

monaymadlol

So I spoke to an ifa at a small firm. They only deal with people with pots of 500k. He said most ifa deal with pots from 100k and then charge around 1%. My pot is 75k. 
He agreed my fees are higher because it is actively managed but I could find things cheaper myself.
He pointed to getting a multi index fund with someone like vanguard, black rock etc.
I suppose this would be a SIPP and I can pick and choose funds actively involved or get one of the basket of readymade funds.
Looking at vanguard, the passive options available are tailored to retirement year and risk scores. Can these be easily changed if I decide to switch to another based on another retirement year further down the line?
The low fee of 0.24% is very attractive (I assume there will be other small fees on top):

https://www.vanguardinvestor.co.uk/investments/vanguard-target-retirement-2040-fund-accumulation-shares/overview

How would the funds as a whole compare in diversity and exposure to what I have currently? Or in general, is this a 'decent' ready made portfolio that may fair on par with the active funds I already have? Are there other good options like vanguard?

JohnWinder

How would the funds as a whole compare in diversity and exposure to what I have currently? Or in general, is this a 'decent' ready made portfolio that may fair on par with the active funds I already have?

I don't think we know how much of each of your SW funds listed originally you hold, so it’s hard to be specific about how close this portfolio is to the Vanguard LS or target date funds. But looking into a couple of your SW’s, they look similar to VG in that they are diversified with: stocks and bonds; both of those come from different countries/regions, and lots of different individual company shares. Your funds seem underweight US stocks, I suppose because there’s a view that US over-performance must end soon, and only the bravest managers will deviate too far from other managers lest they get it wrong; getting it wrong like everyone else is less punishable. And there is the added diversifying protection for you in that your SW portfolio relies on several managers, so one or two going rogue won’t kill you. To some extent, you have a ‘passive-like’ portfolio with active portfolio fees, although it might have outperformed a more passive portfolio, regardless of which it might or might not in future. With your SW you’re also getting the complexity that most people couldn’t untangle and would need one to pay an advisor to handle.
The VG funds seem to give the managers the discretion to move away from strictly reflecting ‘the market(s)’, as your active fund managers do, but less discretion judging by their US holding now.
My view is that ‘diversified’ means holdings which are at or closer to market capitalization weighting. Other people here seem to think you get more diversification by under-weighting the holdings of a giant like USA to reduce that concentration. In the end there may not be much difference in returns, but you get market returns by holding the weightings of the market; no one has a formula for getting better returns by cutting back on some of those USA-type concentrations which the market can throw up, try as they may.