Should I have different funds?

eskbanker

Cruixer said:

Albermarle said:

fundsmith is a managed fund, the fund manager trying to beat the markets, but comparing the 1, 3 and 5 year returns it didn't seem like it was consistently better than the other share based options, but with much higher fees.

Investment returns are quoted after fees are deducted.

I thought that was probably the case, but what I meant was, why pay higher fees if the outcome is not much different. It seems like the higher fees might present a higher cost risk in the event that the fund doesn't outperform the market.

You can't judge the success or otherwise of a fund on short term performance - you need to measure it against its objectives, and, more importantly, select it according to yours!

Cruixer

eskbanker said:

Cruixer said:

Albermarle said:

fundsmith is a managed fund, the fund manager trying to beat the markets, but comparing the 1, 3 and 5 year returns it didn't seem like it was consistently better than the other share based options, but with much higher fees.

Investment returns are quoted after fees are deducted.

I thought that was probably the case, but what I meant was, why pay higher fees if the outcome is not much different. It seems like the higher fees might present a higher cost risk in the event that the fund doesn't outperform the market.

You can't judge the success or otherwise of a fund on short term performance - you need to measure it against its objectives, and, more importantly, select it according to yours!

I didn't feel that I was doing that, but the 3 and 5 year performance was all that there was to go on. There does seem to be a lot written in articles about considering fees when evaluating a fund.

Cruixer

gm0 said:

OP - I am probably one of the more vocal deliberate "hedgers" here.

I apply platform, fund manager, investment strategy hedging i.e. more than one approach is used for everything I do.

On portions of the pot.  Captured by the principle in my investment statment "not all eggs in any one basket". 

I don't trust myself as a novice amateur - portfolio design and fund selection and monitoring. 
And I don't trust any of them not to screw up at some point. 
I am unconvinced government will have my back on a timely basis. 
History does not suggest this is the case.
The rest is details

So I use more than one pension provider platform
And when I hold assets - even global developed equities passively - I use more than one fund management house and chunk it up.  It costs the same.
My portfolio has more than one design philosophy at work to the extent it adds to and tilts away from a simple global passive

There is a small premium in £ to be paid for this - I hold the cheapest things (that I want) per fees structure per platform, fund charges are equal, so it's the 2nd capped platform fee - £45 pa for me.  And there is added complexity in that there are multiple logins and multiple pots and at rebalancing. 

This is the insurance premium for "half" the pot to be inside and half outside any single problem with one of the actors. Assuming they are not using the exact same IT applications or infrastructure - and the problem is down in there - you can't cover every eventuality.

How much of my pot or income is affected by a major unexpected issue happening is halved. 
The probablity of being with an affected provider has risen by using two. 
Both mainstream.

Legal perspective:

Protection can be 100% (insured funds - often found in occupational pensions)

Or 85k value (SIPP platform consumer protection)

In fact the SIPP fund investments should be held separately and properly at registrars - so you *should* get 100% anyway and the 85k isn't a real limit.

Neither protection approach - the insured fund and trust deed one or SIPP has been fully tested with a large scale major failure.  Lawsuits and delays can be expected.  Attempts during smaller SIPP platform failure have been made to get investors to pay insolvency costs (where a platform had illiquid and offshore stuff harder to sort out). But that fee earning gambit failed last time.

So you will (most likely) get your money back.  
So the approach described above is mitigating the IMPACT of a very low probability risk where even if it does happen to you - after a delay - it turns out OK in the end.

You can expect in a high profile failure there to be an access delay, IT issues etc. going on for months - while it is moved somewhere else and everybody involved in the failure shovels blame and liability and sues one another.  And consumers raise a zillion complaints which then need processing. 

So if this is all your income or all your investments that is something to consider rather than the theoretical legal protection.

I choose to mitigate the risk impact and accept the complexity.  Many others take the opposite view that it's fine and simplicity is golden.  Neither approach is "wrong".

Thanks for this. I am probably of a similar mindset. This is probably the main reason I am considering alternatives to LS-80 this time around. Of course they will both be on the same platform, but I would presume that the platform collapsing would cause a short-ish term delay in accessing funds.

Approx 50% of my (Stock/Bonds) investments are with my workplace pension, and 50% with Iweb, so any short term disruption in accessing Iweb shouldn't be a major issue. I also have one rental property where I am focussing on paying off the mortgage over the next few years, so I am reasonably well spread out.

One of the main facets of my philosophy has always been the avoidance of debt, which I know is at odds with the 'make your money work for you' philosophy. My first focus was paying off the mortgage on my home, and I have had any other loans or overdrafts for decades. Secure roof over the head first, planning for comfortable future second! 

eskbanker

Cruixer said:

eskbanker said:

Cruixer said:

Albermarle said:

fundsmith is a managed fund, the fund manager trying to beat the markets, but comparing the 1, 3 and 5 year returns it didn't seem like it was consistently better than the other share based options, but with much higher fees.

Investment returns are quoted after fees are deducted.

I thought that was probably the case, but what I meant was, why pay higher fees if the outcome is not much different. It seems like the higher fees might present a higher cost risk in the event that the fund doesn't outperform the market.

You can't judge the success or otherwise of a fund on short term performance - you need to measure it against its objectives, and, more importantly, select it according to yours!

I didn't feel that I was doing that, but the 3 and 5 year performance was all that there was to go on. There does seem to be a lot written in articles about considering fees when evaluating a fund.

Fees are certainly worth considering, but you appeared to expect that higher fees should equate to higher returns over a few years, which isn't a realistic basis of measurement.

Cruixer

eskbanker said:Fees are certainly worth considering, but you appeared to expect that higher fees should equate to higher returns over a few years, which isn't a realistic basis of measurement.

Maybe that's how it came across, but it wasn't what I meant, but 5 years seemed to be the longest comparative data available so I'm not sure what other basis for measurement I can go on.

Obviously with any fund or stock I am betting on the future, with the past as the only available yardstick, so if there are fees i'd have to be convinced that there is evidence that those fees are going to be worth it on the return.

GeoffTF

Cruixer said:
Maybe that's how it came across, but it wasn't what I meant, but 5 years seemed to be the longest comparative data available so I'm not sure what other basis for measurement I can go on.

It would be no different if you had 50 years data. Past performance tells you nothing about future performance. What matters is cost and the spread of risk. The reputation of the fund manager matters too. Vanguard is popular because it is very big, has a reputation for not having hidden costs, is not for profit, and has a long history of reducing charges.

Cruixer

GeoffTF said:

Past performance tells you nothing about future performance. What matters is cost and the spread of risk.

I've kind of said the same thing in my previous post, so I agree, but past performance must say something about future performance, and it must feed into reputation. If a fund normally gets good returns in the past, then its probably more likely to get good returns in the future, not guaranteed of course, but more likely than a fund that has historically poorer performance.

GeoffTF said:

What matters is cost and the spread of risk. The reputation of the fund manager matters too. Vanguard is popular because it is very big, has a reputation for not having hidden costs, is not for profit, and has a long history of reducing charges.

This all makes sense too, and I have invested in Vanguard funds for the last 4 years, but the reason I started with this thread was to discuss whether it made sense to start putting it in another fund. I get the impression that opinions are split on whether its necessary to worry about having too much in one fund, but I am leaning a little towards the thought that if something Enron like was to happen to Vanguard, I might be happy to have put the second half of my investment with someone else.

GeoffTF

Cruixer said:

GeoffTF said:

Past performance tells you nothing about future performance. What matters is cost and the spread of risk.

I've kind of said the same thing in my previous post, so I agree, but past performance must say something about future performance, and it must feed into reputation. If a fund normally gets good returns in the past, then its probably more likely to get good returns in the future, not guaranteed of course, but more likely than a fund that has historically poorer performance.

The first James Shack video above quotes evidence to the contrary. The worst performing funds under-performed the index slightly in the next time period, and the best performing funds under-performed it by a big margin in the next time period. You cannot rely on that though. There once was unit trust on the UK market that automatically invested in the worst performing fund. It had back testing to show that this was a wonderfully profitable strategy, but when large numbers of people invested in the fund, the strategy stopped working. Betting on what worked in the recent past did not work there either.

Cruixer said:

GeoffTF said:

What matters is cost and the spread of risk. The reputation of the fund manager matters too. Vanguard is popular because it is very big, has a reputation for not having hidden costs, is not for profit, and has a long history of reducing charges.

This all makes sense too, and I have invested in Vanguard funds for the last 4 years, but the reason I started with this thread was to discuss whether it made sense to start putting it in another fund. I get the impression that opinions are split on whether its necessary to worry about having too much in one fund, but I am leaning a little towards the thought that if something Enron like was to happen to Vanguard, I might be happy to have put the second half of my investment with someone else.

Since Vanguard does not hold the underlying assets that should not happen. You are worried about the very small risk that Vanguard or Lloyds Bank will fail, but you do not seem to be worried about the possibility of a big and prolonged stock market crash. That is not just a small risk, it is one of the likely outcomes. Not content with 80% equities, you seem to want to go to 90% or more. Your list of candidates is:

HSBC Global Strategy Dynamic ...
Fundsmith Equity I Acc
Fidelity Index World Fund P Accumulati...
HSBC FTSE All-World Index Fund ...

HSBC put up the charges on some of its funds last year. You would not have known unless you kept inspecting the latest KIDD. I am not impressed. Fundsmith is a managed fund and is therefore best avoided. The final two are 100% equity. BlackRock probably has the best reputation after Vanguard. You could consider one of their Consensus funds, e.g.:

https://www.blackrock.com/uk/individual/products/230044/

BlackRock is even bigger than Vanguard, and I believe it uses different custodians to Vanguard.

Cruixer

GeoffTF said:

The first James Shack video above quotes evidence to the contrary. The worst performing funds under-performed the index slightly in the next time period, and the best performing funds under-performed it by a big margin in the next time period. You cannot rely on that though. There once was unit trust on the UK market that automatically invested in the worst performing fund. It had back testing to show that this was a wonderfully profitable strategy, but when large numbers of people invested in the fund, the strategy stopped working. Betting on what worked in the recent past did not work there either.

My thought here is that if it makes no difference, why do they bother publishing the data of previous returns on all of the comparison sites? I am sure that while one study might show what you have stated above, others might be able to produce studies that demonstrate the opposite. I've already said in a previous post that whatever I do I am betting on the future, but if I don't take anything that ever happened in the past into account in my decision, then I may as well toss a coin. You mentioned HSBC putting up their fees in the past - that doesn't mean that they will do it in the future, but its probably a good sign. People invest in property because historically it rises in price. Arguably the reason why we are all buying funds is that we are betting that the past long term positive trend of the stock market will continue. I do take your point, but I think that the past has to have some bearing on what we decide to plan for the future.

GeoffTF said:

Since Vanguard does not hold the underlying assets that should not happen. You are worried about the very small risk that Vanguard or Lloyds Bank will fail, but you do not seem to be worried about the possibility of a big and prolonged stock market crash. That is not just a small risk, it is one of the likely outcomes.

Its not that I am unduly worried about it, but I opened the thread to ask whether it should be something I should take into account and some people seem to think that I should spread between different fund companies, and others seem to think that the possibility of Vanguard collapsing is so small that I shouldn't concern myself with it. You said "should not", rather than "cannot", because we all know that the unthinkable has happened before. I am probably more afraid of a prolonged stock market crash than Vanguard collapsing, but there is nothing I can do to mitigate the former.

 

GeoffTF said:

Not content with 80% equities, you seem to want to go to 90% or more.

Its not that I am 'not content' with 80% equities, all I said was that I was wondering whether I should consider going all in towards 100% equities.

My thought process was simply this. When I look at funds that are mostly bonds, they don't seem to perform much better than a good bank interest rate and when I look at funds with mostly equities, they tend to perform very well (over the longer term). Admittedly this is across the very small sample that I have looked at. This makes me wonder what the bonds are actually doing. Are they just a kind of comforter, to make us feel we are taking a bit less of a risk? I was thinking about my 80/20 fund in this way - if I am already risking 80% of my fund so that I can get a decent gain, does it make much difference going to 100%. In the extreme scenario, if I lost £60k of the £80k I have invested, would I feel much worse losing £80k. I read an article where the author was arguing that someone in their thirties should have mostly shares, because they have the time to ride out any bumps in the market, and the shares maximise the potential for growth. I am definitely not in my thirties, but I am also not looking to withdraw these funds for at least 10+ years. I am not sure what is consider short term and long term with respect to shares, but if the market took a dip in 10 years time and I had to wait another 5 years to draw down this fund, I don't think that would be an issue. I don't know if any of this makes sense, but this was my thought process.

I've learned a lot from this thread, and appreciate the time people are taking to discuss, but on another level I am as confused as ever!

GeoffTF

Cruixer said:
My thought here is that if it makes no difference, why do they bother publishing the data of previous returns on all of the comparison sites?

To sucker people into the lucrative managed funds. Fund managers start up lots of funds. Some are lucky some are not. They wind up the unlucky ones and advertise the lucky ones.

Cruixer said:
Its not that I am unduly worried about it, but I opened the thread to ask whether it should be something I should take into account and some people seem to think that I should spread between different fund companies, and others seem to think that the possibility of Vanguard collapsing is so small that I shouldn't concern myself with it. You said "should not", rather than "cannot", because we all know that the unthinkable has happened before.

There have been countless thousands of funds. As far as I know, the custody arrangements have always worked. If Vanguard UK managed to lose client assets, it would almost certainly be bailed out by its enormous parent.

Cruixer said:
When I look at funds that are mostly bonds, they don't seem to perform much better than a good bank interest rate and when I look at funds with mostly equities, they tend to perform very well (over the longer term).

"If 2022 taught you never to own bonds, you learned the wrong lesson":

https://monevator.com/bonds-are-bad/