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ravedave

Investing Using A Management Company

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Hi,

I've got approx £75k sitting in a bank savings account which is earning me minimal interest. I want to make this money earn more for me than it is currently doing.

I spoke with a family friend who is an IFA off the record and he recommended to me that I get a management company to invest the funds for me.

I've done some digging about and found a fund manager that will set up a portfolio for me and for a management fee of 0.75% will distribute the investment across a number of funds. They will send me a quarterly review of the portfolio and any recommendations that they think I should take. They will also ensure that the risk profile remains as planned by redistributing the investments across the funds if some get off plan.

They will also use wrappers such as an ISA.

I know very little about investing. I've asked across a few platforms about whether this management company is a wise choice, but I get regularly told I could do this myself. I realise that by asking on sites where there would be by default a large number of financially aware individuals, that the answers would be biased towards self investment.

I would be interested in trying this with a small amount at a later stage when I get some feedback and watch what happens with this investment.

What I'm really asking is that is 0.75% management fee of the portfolio a reasonable price? I'm aware that the funds invested in will also have their own fees and that if there is a loss in the short term then I still have to pay the fee. However, I don't know that I'd want to do this myself in the short term.

I've not read up on investing. I am planning to undertake a course later in the year (or next year) but I want to know if the above is a reasonable sounding setup for a first time invester?

If I do invest this, I will have sufficient near cash (also in a savings account and some in ISAs) to allow me to invest the funds for 10+ years.

Any advice on this portfolio management and its fees would be appreciated.

Thanks.

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far too expensive - especially as the funds they will invest in will charge on top and you don't know what risk profile they will invest in.

you can easily do this yourself. I manage much more than that myself , it's easy.

in today's low return environment you can expect returns of 2-4% after inflation in the long run so paying out 1-2% of that in fees is pretty pointless.

This is a great site run by a fellow HPC'er: http://www.retirementinvestingtoday.com

What you invest in largely depends on your horizon.

Vanguard are a great fund manager - and generally the cheapest in the world, with a good seleciton of funds. If you are lucky fund managers will just place your money in those and charge 0.75% for doing so, if you're unlucky they will place them in funds that do the same but charge another 1.00%.

Keep your costs down is my key mantra

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The thing is I know nothing about investing and I'd rather not do it with such a ledger amount. I'm happy to learn and try with smaller amounts and then take control in ten years when in up to speed and wise to what I need to do.

The way I look at it is that they will be able to get me a n much better than what I'm currently getting.

I'm aware of the effect of 0.75% compounded over ten years. However, noone has so far recommended a managed fund with less charges.

It's all to much of a hassle for me at the minute.

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I've already invested some money in premium bonds. I'm looking to spread my capital across some different platforms.

Would it be worth even getting an IFA to help me set this up initially? I'm planning to attend some courses on investment, but at the minute I just want to get this money in somewhere and earning.

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Have you considered that people are talking you down the self-invest route not because they are well-versed in it but simply because it's not that hard to learn.

I'm no expert but I've had an IFA and they were kind of useless and they just wanted to pass me onto the fund adviser, for commission probably. In the end I picked a few myself and they did pretty good. Nothing magic, they just went up with everything else from the 2009 lows.

One of the most important things you can do is make sure you use your S&S ISA allowance. If you're not too slow you'll get 15k in before April and then 15k after April tax year starts. You might open one of these with Hargreaves Lansdown, TDWaterhouse UK or IGMarkets, all those are pretty good. There are others. You can have more than one but remember to not go over your tax year total allowance for moving money in.

Once your money is in, buy in chunks of maybe £1-3000 (£6-12 buy/sell fee + 0.5% stamp duty quickly adds up on small trades). There are lots of ETFs to choose from once you have this setup, if individual shares aren't your thing.

Now you're an investor. Anyway I realise that's not what you want to hear so sorry, just maybe it's useful to someone.

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And for a good fund have a look at the vanguard lifestrategy funds. For instance the lifestrategy 60 (60% shares 40%bonds) or lifestrategy 80 (80/20%) are suitable for long term investment, at 0.24% all in costs. Depending on your risk appetite and hold period you can have more or less shares %. Very easy, well diversified, and low cost. And will do as well or better than most of not all active funds.

Www.vanguard.co.uk

You open an account at www.iii.co.uk or so, put your money in. Place an order to buy the relevant vanguard fund. Happy days. But remember, if can go up as well as down!

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  • Is something like this from Hargreaves Lansdown what I should be aiming at. The HL managed portfolios are approx twice as expensive as the fund I was looking at:

http://www.hl.co.uk/funds/help-choosing-funds/master-portfolios

  • I was going to start dabbling myself in this. Why would I choose a LifeStrategy Fund over an ETF or an Index Fund?
  • I presume that accummulation funds roll any gains back into the fund whereas the income fund transfers gains out into a nominated account?
  • The Lifestrategy funds require a minimum of £100,000 investment. What about S&P 500 UCITS ETF?
  • There does not seem to be any penalties for early withdrawal or indeed minimum investment times. This means I could remove the money if/when needed for a property purchase, correct?
  • Is there any recommended percentage splits for cash/shares/funds/ISA/etc? i.e. is there any notional breakdowns as to how an individual should have their funds split across a number of platforms?

I'm currently leaning towards investing in a managed portfolio for up to 10 years with approx £50k. I'd then put between £20k - £50k myself into something and when I'm up and confident I could then assume full control of the funds. There is no charge for removing the portfolio manager - they stop receiving a fee from the funds.

I am planning to purchase a house in the near future. I could buy cash, but I think I might be able to outperform the interest charges by means of investing.

Edited by ravedave

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Really, it's not that hard to do yourself. I know it seems like a big risk to do so but the fund managers are investing in the same markets you can, and it sounds like it's confidence that you're not going to mess it up that is your problem. Loads of people do it, hence the rise in budget brokers.

I'd recommend hopping over to Monevator and reading the Investing Basics links on this page first. Literally, it's a few hours to get well acquainted with the basics. As long as you remember not to trade, and just 'buy and hold' you'll see nearly the market return. Also, remember that if the markets fall it's not your fault, it's highly likely the same would happen with a management company, you just haven't got someone to blame!

Personally, knowing what I know now, I'd start by drip-feeding my money into SWDA (or maybe a LifeStrategy fund) every month into an ISA using a broker's regular investment option (cheaper!) to pound-cost-average purchases. Don't overcomplicate things by buying too many different funds. With more time your confidence and knowledge will grow and you may decide to spread your wealth over more funds, but make sure you know why.

Why not just start investing a grand a month into your own ISA if you're willing to try it yourself, while reading up on it in depth? I'd be surprised if you don't decide to do it all yourself by the end of this tax year if you do. Tim Hale's "Smarter Investing" is good if you want a UK-specific book.

[This is not advice, do your own research, etc...]

I was nervous at first too, but after about three months I started chucking everything I could get my hands on into my ISA. Honestly, for the sake of a few hours reading you'll kick yourself if you don't.

Please let us know how you get on and what you do!

Answers to your questions above:

1. Just create your own portfolio.

2. LifeStrategy could be considered to be a ready-made portfolio. There will be a portion in bonds (not in LS100) that is kept rebalanced to your desired risk appetite. Makes things super easy. Not much practical difference to the inexperienced end user between funds and ETFs, but they may be charged differently on platforms.

3. Acc rolled back in yes; inc dividends just go into the cash in your broker account. You can get transfers out from there automatically set up to a nominated account, but if you're wanting to see your investments grow, just reinvest them. I use inc as I like to see the dividends!

4. LifeStrategy needs £100k investment if you buy it direct from Vanguard. If it's through a broker, it will just be their minimum dealing amount - probably £25 if using regular investment.

5. Correct. You could, but never get in a situation to be a forced seller as stock markets may well be falling when house prices do...

6. Read up about asset allocation and investment horizons - ties in with the last question somewhat. Regarding spreading around different platforms, the Govt 'guarantees' losses in the event of bankruptcy (not market crashes!) to £50k.

Check out Monevator and the money you save from the few hours you spend there will probably work out the best paid time spent in your whole life!

Again, I am not a qualified advisor so this is not advice. Do your own research.

Edited by after8mink

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Hi,

I've looked at that investment account (SWDA) you linkd to. Am I correct in calculating the returns on £75k invested in 2011 as follows:

Year Capital Total Return (%)

0 £75,000.00 -5.88

1 £70,590.00 15.53

2 £81,552.63 26.68

3 £103,310.87 5.05

4 £108,528.07 -0.77

5 £107,692.40 n/a

Gain £32,692.40

Surely that can't be correct for only five years investment?

In relation to reply 5. The fee for LS80 (Accumulation) is 0.24%. However, going through a broker who incur another change on top of this - correct?

Comparing the SWDA with LS80:

iShares Core MSCI World UCITS ETF

Year Capital Total Return (%)

0 - - -

1 £75,000.00 15.53 1.1553

2 £86,647.50 26.68 1.2668

3 £109,765.05 5.05 1.0505

4 £115,308.19 -0.77 0.9923

5 £114,420.32 n/a

Gain £39,420.32

VANGUARD LifeStrategy80

Year Capital Total Return (%)

0 - - -

1 £75,000.00 12.91 1.1291

2 £84,682.50 7.58 1.0758

3 £91,101.43 14.19 1.1419

4 £104,028.73 -1.21 0.9879

5 £102,769.98 n/a

Gain £27,769.98

Is this correct?

Sorry - I'll put up a more detailed reply later when I get more time!

Edited by ravedave

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Okay, I've been doing some more reading on these. On the Hargreaves Lansdown website, for each of the LifeStrategy 60 and 80 funds there is the following text under the HL Research tab:

This fund does not feature on our Wealth 150 list of what we believe are the best funds in each sector. If a fund is not within our Wealth 150 this is not necessarily a recommendation to sell. However, if you are thinking of adding to your investments we believe Wealth 150 funds are superior alternatives. View funds on the Wealth 150 »

1. If these Vanguard LifeStrategy funds (and the funds/ETFs that make this up) are not in the Hargreaves Lansdown top funds, then why is LifeStratergy considered a good investment? I've seen them recommended in a few places.

2. The LifeStrategy fund is basically a portfolio of various Vanguard ETF's and funds. Are there additionally changes for each of these funds placed on top of the 0.24% OCF?

3. How do I know what sectors I should be picking from? Is that why I should use the LifeStrategy?

4. Looking at the Hargreaves Lansdown website they charge 0.45% OCF - which would be on top of the individual funds. Is the below analysis of this account correct:

Hargreaves Lansdown


Fund Total Fund Total Pre Charge Fund Total (omitting Charge) Performance (%) OCF
£75,000.00 £75,000.00 £75,000.00 0.7 0.45%
£75,185.14 £75,525.00 £75,525.00 7.4 0.45%
£80,385.47 £80,748.84 £81,113.85 27.3 0.45%
£101,870.21 £102,330.70 £103,257.93 2.8 0.45%
£104,251.33 £104,722.58 £106,149.15 13.8 0.45%
£118,104.14 £118,638.01 £120,797.74 n/a 0.45%

Gain: £43,104.14
Charges: £2,693.60

It would seem to me that 2.2% of the total for a £43k return is a fair charge?

Unfortunately, there is so much choice it is confusing me.

Edited by ravedave

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Your maths looks right for those five years given the figures. The reason why it's had such a bumper few years is because SWDA is a global tracker that is roughly 60% composed of the US stock market, and the US went bonkers for a couple of years. I wouldn't expect to see similar results going forward. Though in all honesty you just never know. That's why it's suggested you drip feed money in so it doesn't freak you out if it collapses immediately after you've put a big chunk in, though in missing out on big falls you also run the risk missing out on big gains too. The idea is that it's less stressful so you're more likely to stay invested.

The 0.24% is what the fund charges. This is generally just reflected in the value of the fund/ETF rather than being taken as cash from your broker/platform account. The broker/platform may charge you to purchase it, and may charge you a holding fee. Monevator has a table comparing fees structures here. To be clear, there are fund/ETF fees, then the broker/platform fees are separate.

Comparing SWDA with LS80 is not comparing like with like. SWDA is solely a global stock market tracker fund, whereas LS80 can be considered a ready-made portfolio comprising 80% stock, 20% bonds. The idea of the bonds is to reduce risk and volatility. This can result in lower returns but a less stressful ride... The LS fund will automatically rebalance which saves you the bother/expense of doing so.
SWDA or LS80 were what I would have used. They may or may not be suitable for you, depending on your age or how soon you expect to need the money back. For all I know, LS20 or a pure bond portfolio could be best for you... Or even staying in cash if you're looking to buy that house relatively soon.

Your next questions:

1. I cannot speak for HL why they are not on their list. They are often recommended as they are from a well respected company, their make-up seems sensible and the auto-rebalancing is a big plus.

2. Only the broker/platform fee.

3. Kind of. If you feel you want to play with more targeted funds then that's your prerogative, but I feel you're unnecessarily complicating things. There is no perfect portfolio, just what is best for you. If you don't know what you need, then you probably don't need them.

4. What does the performance column represent? I'm unfamiliar with HL. It's your money, if you feel happy with 2.2% then you're happy!

Bear in mind charges will still be present if the stock market falls so it might be better to think of them as 'ongoing costs' rather than as a percentage of your gains. Because they might be losses one year. [EDIT] Or multiple years, but then than means you get to buy them cheaper as you add more money.

Did you go and read up on Monevator? Please go and read the Investing Basics links. Honestly, it's packed full of useful FREE information.

I'd focus on learning first so you can decide what you want and need from a fund, then go and find what funds are out there, then see which platform is cheapest for those funds. The whole point of DIY is having the control to get the portfolio that suits your situation best. Stop focusing on individual returns from individual funds because you're much better off understanding what you're investing in, not the end result.

Usual disclaimer: This is not advice. Do your own research.

Edited by after8mink

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Gain £32,692.40

Surely that can't be correct for only five years investment?

In five years in a bull market, that's nothing out of the ordinary. A really good investment is the one that'll give you that gain not on £75k but on £7.5k or a lot less. I've never had a fund do that, but an individual share can (and that's not just high-risk small-caps).

Stick your money into a platform (H-L is one option), then decide what to do with it and make investments as and when you feel ready to take the plunge. Then you can distribute your money relatively painlessly over a mix of general funds and those that invest around a theme you expect/hope to do well: for example, a particular geographic region or sector of industry.

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That's why it's suggested you drip feed money in so it doesn't freak you out if it collapses immediately after you've put a big chunk in, though in missing out on big falls you also run the risk missing out on big gains too. The idea is that it's less stressful so you're more likely to stay invested.

I've got money to put in now and I can also drip some in too. My main aim at the minute is to get some money out of a poorly performing saving account and an onto an investment platform.

Comparing SWDA with LS80 is not comparing like with like. SWDA is solely a global stock market tracker fund, whereas LS80 can be considered a ready-made portfolio comprising 80% stock, 20% bonds. The idea of the bonds is to reduce risk and volatility. This can result in lower returns but a less stressful ride... The LS fund will automatically rebalance which saves you the bother/expense of doing so.

SWDA or LS80 were what I would have used. They may or may not be suitable for you, depending on your age or how soon you expect to need the money back. For all I know, LS20 or a pure bond portfolio could be best for you... Or even staying in cash if you're looking to buy that house relatively soon.

I like the look of the LS80. I like the auto rebalancing, spread of funds and the lowish fees.

4. What does the performance column represent? I'm unfamiliar with HL. It's your money, if you feel happy with 2.2% then you're happy!

Performance represents the return. I don't know if I should be happy with it. On the face of it paying £2,500 for a gain of £43,000 seems a fair cost. But is it? Initially I thought fees of 0.75% were fine, but once I digested compund interest I realised they were not.

Did you go and read up on Monevator? Please go and read the Investing Basics links. Honestly, it's packed full of useful FREE information.

Yip, I've read it and am going through it again. It is a good site, if a bit poorly presented.

I'd focus on learning first so you can decide what you want and need from a fund, then go and find what funds are out there, then see which platform is cheapest for those funds.

I think I'll get some IFA help to set things up initially and manage it myself. I've got approx £80k in ISAs which could be moved over and an S&S ISA which needs moving on top of the investment sum.

Stick your money into a platform (H-L is one option), then decide what to do with it and make investments as and when you feel ready to take the plunge. Then you can distribute your money relatively painlessly over a mix of general funds and those that invest around a theme you expect/hope to do well: for example, a particular geographic region or sector of industry.

Yes, that is the medium term plan. However, I'm thinking about getting advice on how to set this up and choose funds which I would then manage myself. I'm not sure if this is the correct way to go, but my procrastinating is stopping me from starting this!

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Great to see you're making steps into diy investing.

It's a great feeling to realise that most financial advisors and investment managers don't have special tricks up their sleeves and you can do it too. At a much lower cost. Some advisors are outright scammers.

The only thing to point out is that you state you want to buy a house soon and may need the cash, don't forget that with a majority share driven portfolio you can see some big declines and this needs to fit your risk appetite. Investing in shares is not a cash alternative.

You need to consider For instance if you lost 25% on this portfolio over 2 years (quite possible) how would this make you feel, and how would this impact your other financial plans?

If you're not comfortable with that possible loss you may want to consider a higher bond percentage,like LS40 or 60.

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The only thing to point out is that you state you want to buy a house soon and may need the cash, don't forget that with a majority share driven portfolio you can see some big declines and this needs to fit your risk appetite. Investing in shares is not a cash alternative.

That exact consideration - wanting to have cash for a house deposit - kept me in cash for the first 25 years of my working life.

Then I started investing (house prices being in such an obvious bubble, and rentals being so much improved).

Five years later, my investment income covered the rent in full. And it's been rising ever since.

In retrospect, what a waste - financially speaking - of those 25 years saving for a house/deposit.

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Maybe on Morningstar UK? Though if you're insisting on going the active route you're likely to come up with something that's got Woodford involved, or Fundsmith, near the top. Remember past performance is no indicator of future performance, etc...

For your interest, from the day you started this thread:

VFEM has gone up nearly 14%

VAPX has gone up nearly 14%

VJPN has gone up nearly 12%

SWDA has gone up nearly 10%

VUSA has gone up nearly 9%

VERX has gone up 9%

VUKE has gone up 8%

VMID has gone up over 7%

Admittedly, 12 February was a very convenient day to pick as lots of markets were well down around then. You could equally see those kind of swings in the opposite direction. I used examples of ETFs from my portfolio.

Maybe start dripping a little in to see if you can handle those kinds of swings psychologically? The downside is as real as the upside.

You're putting an awful lot of research into something you seem determined to pay an IFA to do for you again! If their advice conflicts with what you've researched, you've either wasted your time researching, or your money paying an IFA.

This is not advice; do your own research...

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Hi,

Is there anywhere that I could get an index of top performing funds or similar?

Thanks.

Either Trustnet or TheAIC websites will give you all the historical performance info you can digest. As well as information on the history of the manager, which might tell you if there's been a recent change.

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I am leaning to a LS80 fund. It seems pretty close to what I was originally aming for - low OCF, good spread of funds, auto rebalancing and a good performance. I would like to put a smaller amount into something a bit more 'riskier/voltaile' in order to chase higher returns. Just not sure what. I'm just trying to figure out what platform to use. Currently swaying to HL or Interactive Investor.


Just been on the Vanguard website where they have a tool for fund selection (as good a way as any!) and it threw out:

42% $31,500.00 Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
28% $21,000.00 Vanguard Total International Stock Index Fund Investor Shares (VGTSX)
21% $15,750.00 Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
9% $6,750.00 Vanguard Total International Bond Index Fund Investor Shares (VTIBX)

Playing with the options seemed just to alter the percentages for these four funds. Although there is no auto balancing. Just noticed that these funds are listed here: https://www.bogleheads.org/wiki/Lazy_portfolios

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