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Guide discussion: Fund need-to-knows

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Guide discussion: Fund need-to-knows

edited 30 November -1 at 1:00AM in Savings & Investments
11 replies 4.3K views
Former_MSE_Sam_MFormer_MSE_Sam_M MSE Staff
346 posts
MSE Staff
edited 30 November -1 at 1:00AM in Savings & Investments

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  • msallenmsallen Forumite
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    Down to MSE's usual standard I see.

    For your 8 "need to knows" ...
    1. The advantage of a fund has !!!!!! all to with sharing the risk with others, its about spreading the risk across a range of different stocks.
    2. You could possibly say that a FTSE 100 index tracker is investing in "mainstream companies" but it is not a mainstream investment (on its own).
    3. Is correct if you're comparing it to tracking an index yourself by buying all the constituent shares, but as you haven't mentioned diversification you could be talking about putting all your cash into one (or very few) stocks, in which that would be cheaper than a fund as long as you didn't hold them on a platform that charges a percentage.
    4. Got one right
    5. I've never heard the term "investment supermarket". "Fund supermarket" yes.
    6. If you have more than £20K to invest it still makes sense to use an ISA for a part of it.
    7. Being an ETF doesn't mean a fund is passive
    8. I would add a number 6 along the lines of not basing your decision on this "guide" - more of a "guide dog".
  • edited 22 June 2017 at 11:26PM
    jimjamesjimjames Forumite
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    edited 22 June 2017 at 11:26PM
    3 comments for starters:

    1) Item 7 - "The CF Woodford Income Focus - due to its performance"

    What performance is that? The fund has only been going for 2 months. Or did you mean the Income fund? Or Woodford himself? It's certainly not the most popular fund as suggested.

    2) "it could be a FTSE 100 tracker, where the fund simply invests in the UK's 100 biggest companies, While there can still be substantial ups and downs, the fluctuations are likely to be smaller."

    It might help to clarify - I'm not sure many readers of your article would understand that what you call "smaller fluctuations" would be in the order of a 50% drop.

    3) "If you have more than £20,000 to invest (the 2017/18 ISA allowance) you'd maybe be better just having a standalone dealing account"

    I think you really mean that once you've used your ISA allowance then use a dealing account. Seems pointless to avoid using an ISA just because you have over £20k.

    Not sure if the aim was to get forum regulars to rewrite the article for you but you might want to get some better input before publishing it.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • AnotherJoeAnotherJoe Forumite
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    To coin a phrase, point 1 "isn't even wrong".
    It doesn't need correction it needs completely replacing.
  • Eco_MiserEco_Miser Forumite
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    The comparison between Iweb and Cavendish just compares the first year, when Cavendish is 0.25% and Iweb is £25, with the conclusion that Cavendish would be a cheaper option for an investment of £15000 and just three trades, and totally ignores that in the second and subsequent years (and this is a 5 year plus timescale) Iweb's platform fee is £zero, meaning 8 trades before Cavendish is cheaper.

    The Hargreaves Lansdown review includes "So if you want the confidence of investing with a reputable platform", which rather implies that Cavendish and Iweb (Lloyds Banking Group) are not reputable.
    Eco Miser
    Saving money for well over half a century

  • mollycatmollycat Forumite
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    Terrible stuff, so many inaccuracies it's unreal.

    Should be pulled; in case any newbies are misguided by it.
  • BananaRepublicBananaRepublic Forumite
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    I agree, very poor.

    As stated by others, a fund does not offer lower risk because you share the risk with others. It offers lower risk because you diversify the investment ober many companies rather than buying shares in just one company.

    And if you have less than £20,000 to invest, an ISA might not be the best choice. A pension fund (such as a SIPP) could well be a better choice given the tax rebate.

    And quite why a non ISA account might be better for more than £20,000 is beyond me. For goodness sake, use the ISA and/or pension allowances.

    That guide is shockingly bad.
  • dunstonhdunstonh Forumite
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    Alternatively, it could be a FTSE 100 tracker, where the fund simply invests in the UK's 100 biggest companies, and therefore is much more mainstream.

    One of the worst ways to invest going. Single sector investing is considered bad investing. Single sector funds are meant to be held in a portfolio of other single sector funds. You choose the weightings.

    By investing in a single sector fund you are increasing your risk as you are placing your money all in one sector. And using the FTSE100 as an example is not ideal as it has consistently been a bad performer for over 20 years. People tend to read MSE articles and take them at face value. No article should suggest options which are very bad.

    Plus, the suggestion that a FTSE100 tracker can see smaller fluctuations is wrong. On a typical 1-10 scale, a FTSE100 tracker would fall under 9/10. It can lose 50% in under 12 months. Far higher than the risk tolerance of the typical UK consumer.
    You can also invest in what are known as 'funds of funds'. There's a lower risk as you invest in a fund which itself is invested in lots of other funds, but you'll pay a higher price for the management of the various funds.

    Normally the comparison is between single sector funds and multi-asset funds. Fund of funds are a version of multi-asset funds. It would have been better to explain multi-asset funds rather than one of the types of multi-asset funds.
    Investing in an ISA should ALWAYS be your first port of call

    Really? What about pension? What about when trusts are needed? (you cant ISA trusts)
    Don't put all your eggs in one basket. Try to diversify as much as you can to lower your risk exposure, ie, invest in different companies, industries and regions.

    Diversifying is good. However, you need structure if you are going to diversify using single sector funds. Having a bad asset allocation can lower returns. Inexperienced investors and not normally encouraged to build their own portfolios because they will usually get it wrong. They are best pointed towards multi-asset funds.
    Drip feeding in money over time reduces risk

    As well as it reducing returns in most periods and phasing like that is very short term. If investing over the long term, then pound cost averaging lump sums really doenst change anything and the risk isnt really reduced as you could still get a 40% the day after you put your final phased payment in.
    Instead, you should invest on a regular basis - in investment lingo this is called 'drip-feeding' - to smooth out any ups and downs.

    In investment lingo it is known as pound-cost-averaging.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • SuperscroogeSuperscrooge Forumite
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    I think your comments on HL platform charge (which I have pasted below) are somewhat misleading

    Established platform Hargreaves Lansdown has a good reputation for service, it's often been given bad press for its high charges, however this cost will be minor on smaller portfolios. So if you want the confidence of investing with a reputable platform and know you won't be investing a large amount of money, it may be a good option for you.

    However, if you know you're going to have a much larger portfolio, you'd need to weigh up whether you're willing to pay a high premium for its service and guidance. The only time it pays off is when you have a really large portfolio, as £2m+ for example wipes the platform charge.


    This creates the impression that if your portfolio is greater than £2Million the whole platform charge is wiped and there is noting to pay, whereas (if my understanding of HL charge structure is correct) you still pay the platform charge on the first £2M. The only benefit is that there is no further charge on any funds over £2M.
  • edited 24 June 2017 at 3:42PM
    badger09badger09 Forumite
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    edited 24 June 2017 at 3:42PM
    I think your comments on HL platform charge (which I have pasted below) are somewhat misleading

    Established platform Hargreaves Lansdown has a good reputation for service, it's often been given bad press for its high charges, however this cost will be minor on smaller portfolios. So if you want the confidence of investing with a reputable platform and know you won't be investing a large amount of money, it may be a good option for you.

    However, if you know you're going to have a much larger portfolio, you'd need to weigh up whether you're willing to pay a high premium for its service and guidance. The only time it pays off is when you have a really large portfolio, as £2m+ for example wipes the platform charge.


    This creates the impression that if your portfolio is greater than £2Million the whole platform charge is wiped and there is noting to pay, whereas (if my understanding of HL charge structure is correct) you still pay the platform charge on the first £2M. The only benefit is that there is no further charge on any funds over £2M.

    Which will, of course, be of huge benefit to the investing newbies at whom this 'Guide' :cool: is apparently aimed.

    MSE Sam 1/10 for at least attempting a guide, but sadly, also 1/10 for accuracy of content.

    When will MSE make use of the wealth of knowledge & experience of some of the regular forum posters to sense check their artcles before publcation? (And I don't put myself forward as one of them:p)
  • jimjamesjimjames Forumite
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    Maybe I'm being overly harsh but wrong fund details, wrong platform details, wrong investing details. What more could you want from a guide aimed as newbies!
    Remember the saying: if it looks too good to be true it almost certainly is.
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