Low cost tracker options (and platform fees) for £34k

ArbitraryRandom

Evening all. 

Over the last few years I've been chucking money into a LISA and SIPP, on the basis it's better to start saving than to put it off until I know what I'm doing. 

I've not really had time to look into where's 'best' for my cash to go and I'm fairly sure my current arrangement is sub-optimal - so I'm hoping someone on here can... not advise, I understand the limitations, but perhaps make a recommendation or suggestion (using small words and simple language). 

Current (all with AJ Bell): 

~£22k in LISA, invested in fundsmith I Acc 
~ £14k in SIPP, invested in vanguard life strategy 100 A Acc 

Logic was very vaguely that vanguard are UK weighted, fundsmith is US weighted, and with global events being what they were in 2020, that felt about right. 

Goal - something with low fees that I can set up automated payments into and more or less ignore for the next 18ish years. 

I'm comfortable with 100% equity and I'm not particularly vested in where the funds are located (allowing the £85k protection for UK funds). 

Any 'suggestions' you can offer are appreciated. 

eskbanker

Those are two very different funds!  Is there any particular reason why you're aiming to weight the UK in one and the US in the other - are they intended for use at different times in the future?  A cap-weighted passive global equity tracker would seem a more obvious place to start - there are many valid reasons to go elsewhere but they're not clear from the above.

ArbitraryRandom

eskbanker said:

Those are two very different funds!  Is there any particular reason why you're aiming to weight the UK in one and the US in the other - are they intended for use at different times in the future?  A cap-weighted passive global equity tracker would seem a more obvious place to start - there are many valid reasons to go elsewhere but they're not clear from the above.

Nope, none at all. 

When I was looking to start saving I read a few random threads about what were 'good' investment options and basically picked blindly. Hence now asking for wiser and more experienced heads to share their wisdom  

Both would be drawn down to bridge reducing hours/early retirement and taking my work pension - so SIPP to fund from 58 to 60 and LISA from 60 to 65 (or as late as possible to minimise actuarial reduction) then I'd take my pension. 

Currently my SIPP is first used to reclaim the 40% tax I pay, then the LISA is then prioritised because the cash is 100% tax free at the other end, once that's full then any 'extra' cash is into the SIPP. 

"A cap-weighted passive global equity tracker"

I know what a global equity tracker is... not sure I know what cap-weighted means  

dunstonh

I know what a global equity tracker is... not sure I know what cap-weighted means  

Trackers can follow different bencharks.  There are over 150 FTSE benchmarks alone.   Then add on MSCI etc and you have a whole load of different versions.

Cap weighted follows market capitalisation but there are variations within that.   However, they are for you to decide but pretty much any of them make more sense than what you currently have.

ArbitraryRandom

Thank you.

So would that include the Vanguard FTSE Global All Cap Index Fund? (is that what the 'all cap' bit is referring to)? 

If so, would you mind explaining the benefit of that approach vs say selling the fundsmith and just shifting everything over to LS100? (I'm assuming lower fees, but don't want to assume incorrectly as I assume there's also a difference in risk re mirroring the market vs a fund of funds approach?). 

Sorry for the basic questions. 

Alexland

ArbitraryRandom said:

~£22k in LISA, invested in fundsmith I Acc 

AJ Bell are great for the S&S LISA as your account valuation is reaching the tipping point where it will become cheaper to hold an ETF to have the ongoing platform charges capped at £42 pa (£3.50 pm) but consider any adhoc or regular trade costs for any new contributions, dividend reinvestment or bonuses. Capping the fees is of long term benefit when hopefully the account gets lots bigger.

This works particularly well if you are in a position to make 1 lump sum contribution per tax year as that's just one trade and another for the bonus at £5 each (or if you were really tight you could setup a cheaper £1.50 regular investment then cancel it after 1 run). Ensure you leave enough cash to pay fees until you can next contribute or switch to paying fees from the dealing account to avoid trade costs for selling units to pay fees

I now hold SWLD in my AJ Bell LISA which is a State Street Developed World tracker at 0.12% pa which accumulates so no dividend reinvestment trade costs. Fundsmith is a factor bet which as you have seen will not work in all market conditions and even if the factor causes the portfolio to outperform in the long term the high fees will be a drag.

ArbitraryRandom said:

~ £14k in SIPP, invested in vanguard life strategy 100 A Acc 

Have you considered moving the SIPP to Dodl (also by AJ Bell) and benefiting from a lower % platform fee, no trade costs and investing in the cheaper HSBC FTSE All-World fund? Many people like this fund although personally I do not want the modest emerging markets exposure. Would reduce your % costs from 0.25+0.22% to 0.15+0.13% and save any £1.50 fund trades you make.

If you want to keep the UK weighting then Dodl's website seems to offer some of the VLS funds (but perhaps not VLS100) but you could always run a multi fund portfolio with a global and UK fund(s) which would be cheaper than VLS although you would have to remember to rebalance every year or so which you could perhaps do by weighting new contributions.

ArbitraryRandom said:

I'm comfortable with 100% equity and I'm not particularly vested in where the funds are located

I'm accepting of 100% equities when there are no other compelling options but now lower risk assets are paying an above inflation rate of return I am tilting into them but yeah that's an active decision. If you are just happy to ride the market for a few decades and accept the horrible crashes then 100% global equities should be fine at least until you get closer to withdrawal.

ArbitraryRandom said:

(allowing the £85k protection for UK funds). 

If the fund management FSCS protection is important to you then maybe avoid the ETF on your LISA and just move both accounts to Dodl to invest in funds such as the HSBC FTSE All World. I don't think it's worth paying higher platform and fund fees to go All-Cap but views differ on this.

ArbitraryRandom said:

Both would be drawn down to bridge reducing hours/early retirement and taking my work pension - so SIPP to fund from 58 to 60 and LISA from 60 to 65 (or as late as possible to minimise actuarial reduction) then I'd take my pension. 

To use your personal allowance in the years 60-65 you would probably want to draw pension income else you are wasting the opportunity to draw income without paying tax. So if you can afford it you may wish to put even more in your SIPP.

dunstonh

If so, would you mind explaining the benefit of that approach vs say selling the fundsmith and just shifting everything over to LS100? (I'm assuming lower fees, but don't want to assume incorrectly as I assume there's also a difference in risk re mirroring the market vs a fund of funds approach?). 

VLS100 is the odd one out in the VLS range.  All the other VLS funds are multi-asset funds.   VLS100 is a managed global fund.     One of its management decisions is to have UK bias.   Historically, home bias, whichever country you were resident, was a common management decision across many portfolios.   However, it hasn't been popular for UK for some time now and VLS100 still has this.

If you like the management decision to have UK bias, then VLS100 is fine for you.   If you don't, then market cap (which comes in variations) is a cleaner option. 

At the end of the day, it is all about your preferences and matching the version to those. 

So would that include the Vanguard FTSE Global All Cap Index Fund? (is that what the 'all cap' bit is referring to)? 

All cap means it includes, small, medium and large.  You can variations on this, such as large only but this is what is being referred to.
  

Albermarle

and just move both accounts to Dodl to invest in funds such as the HSBC FTSE All World. 

Just to note that this HSBC fund and  a very similar alternative , Fidelity Index World. cost about half of VLS100 and do not have the UK bias.

Alexland

Albermarle said:

Just to note that this HSBC fund and  a very similar alternative , Fidelity Index World. cost about half of VLS100 and do not have the UK bias.

Is the Fidelity Index World on any low cost platforms for an adult SIPP?

I don't know if Dodl offer any more funds than are on their public website.

For that account valuation I only know of Fidelity Index World on platforms that cost 0.25%+

Albermarle

Alexland said:

Albermarle said:

Just to note that this HSBC fund and  a very similar alternative , Fidelity Index World. cost about half of VLS100 and do not have the UK bias.

Is the Fidelity Index World on any low cost platforms for an adult SIPP?

I don't know if Dodl offer any more funds than are on their public website.

For that account valuation I only know of Fidelity Index World on platforms that cost 0.25%+

It is a good point, although 0.25% is still relatively low cost, just not very low cost !

Alexland

Albermarle said:

It is a good point, although 0.25% is still relatively low cost, just not very low cost !

I guess it could be worse but their days I have got used to paying under 0.10% everywhere sometimes free or under 0.02% with capping except where I have cashback deals going on where the higher fees are more than covered by the cashback amounts.

In the current market its seems 0.15% is the most people should reasonably need to pay for a platform with a reasonable range of investment choices and no signup or transfer incentive and even then only on a small or modest account.