Last week I posted about how daft I was not paying attention to the fees I was being charged for the management of my pension fund (and I’m supposed to be interested in looking after the pennies!) What chance do the majority of pension holders have? According to the comments last week, there are people who have pensions running into the millions who don’t care what they’re being charged for them. One percent, two, three – why worry? A lot of people really don’t. But even more won’t have a clue what they’re being charged and will probably not even think about it.
I am interested, I think. I read Monevator, always browse the Sunday Times Money section, am a fan of Mr Money Moustache and buy Moneyweek, every week. I also listen to financial podcasts, including the Moneyweek one, hosted by Merryn Somerset Webb who – IMHO – dishes out sage financial advice on a variety of topics.
Imagine how I felt, then, after being rightly chided over not paying attention to the fees my pension fund was charging, to hear Merryn SW and her sidekick, John Stepick, laying into investors on their podcast who had put money into the Virgin UK Index Tracker. They expressed utter incredulity over the fact that this passive fund has over £2.8 billion in it and charges 1% for those daft enough to put their money there. They were literally aghast that this fund was not only surviving, but thriving, compared to some equivalents.
And, as you will have guessed by now, I am a holder of the Virgin UK Index Tracker fund.
So, as I have an alleged interest in financial matters, how did I end up investing in that dross? It’s a story not unconnected to being frugal and watching your spending because I bought into the Virgin Tracker when I was fixated on building my Quidco pot of money. (Quidco being one of these cashback sites). I think Virgin were offering £100 cashback if you signed up and invested £1,000 into their UK Index tracker. I took a short term gain for potential long term pain, invested that sum, and never put another penny in there. I should’ve moved my funds long ago, for sure, but my usual inertia just prevented me from doing so. I wasn’t losing a fortune, after all, and the fund was building quite nicely thanks to the market moving up.
Whatever, by the time you read this blog, it will have been sold. It’s clear to me that I’ve been a bit blase about my finances when I was telling myself I was pretty much on top of things. Or as “on top of things” as I was comfortable with being, because I don’t want to be obsessed with financial matters. I don’t think it’s healthy, but on the other hand that approach has possibly cost me quite a bit of money. The fact that I tend to think that discussions of things like TER and ETF’s are not really for me, are forcing me to consider a reassessment of practicing what I preach.
I tell myself I like to keep things simple when it comes to finances. Another of my rules is to “do nothing” when I consider switching funds, selling one investment to buy another or trade out into cash, or gold, or any other passing advice that might strike a chord with me. Over the years of reading the financial pages and blogs, I’ve felt that it is so easy to make things complicated that I would try and resist being lured out of some self-imposed guidelines, which are generally:
Invest regularly in Index Trackers
Spread the trackers across global regions – US, Europe, Asia, UK etc
Do not buy single shares for any reason and try to stick with the same funds
De-risk the pension from 100% in equities to a 75/25 equity/bond split as I approach pensionable age.
Avoid debt (apart from a mortgage)
Have an emergency fund in cash (of 3x net monthly salary)
If anyone had asked for my advice on saving and investing, I think that’s what I would have told them. Notice that I wouldn’t have said “Avoid high fees on your investments”, even although I am vaguely aware of how much that can cost in the long run. This is largely because I haven’t walked the talk when it’s come down to it, ignoring the first of my “rules” and buying some managed funds. I’ve justified this by taking what I’ve called “educated guesses”, on funds that I fancy might do well in the next five years. For example, I recently bought a Baillie Gifford Japanese fund due to aforementioned Moneyweek crowd continually pushing it (and, yes, I know Merryn Somerset Webb is a Director at that business.) I can justify this as many ways as I want but accept that, as ever, this is just a total punt on the future.
I’ve now tidied up and simplified my pension, although I still have a few managed funds in my other investments. I’m still unsure if it’s a good idea to have all my pension in the one fund though, and could split it up into some other providers outside of Vanguard. But really, if I am going to back my passive instincts, perhaps Vanguard is as good a bet as any? As ever, any thoughts or comments would be greatly appreciated.
12 thoughts on “Spring Cleaning”
Cancelled my moneyweek subscription many, many years ago. Spend your time reading good books that have stood the test of time instead. Try putting the money week round table and other suggested ideas in a portfolio tracker and check the results for yourself. I did this years ago, and the results were shockingly bad. As you also noted, there appears to be conflicts of interest with the products being pushed also.
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Just renewed my subscription! I find I’m better having it than not, despite faults.
I think your advice is sound. It is the course I follow apart from holding individual shares and with one exception they are a the result not of deliberate decision but of inheritance and employer share schemes and options. I have been attempting to slowly get rid of these shares and put the money into index funds but this had been an exercise in edge of sanity frustration. Dealing with financial companies is usually hellish and it takes months to resolve problems. I won’t go into details.
I have learnt that I am temperamentally unsuited to Monevator levels of micromanagement and attention to detail and I cope with frustration poorly. The upshot of that realisation is that simplicity is really important to me even if it means sacrificing some potential returns. That means that I go with getting rid of debt and staying debt free, saving a fair amount of cash and investing in low cost index funds, preferably Vanguard because the company is mutual. This way I find it easy to monitor what is going on with my money.
Given the money the financial companies make, a bit more proactive customer service could be expected.
If you’re going to regularly invest in index trackers spread across global regions, then why not buy a global index tracker (Lars Kroijer’s advice) and if you want some regional bias add to it with a tracker for the region you’re interested in? Even less effort.
Don’t feel too bad, if you think you took your eye off the ball, at least you know what you should be doing; (well, in principle anyway) most people having ignored pension decisions and coming to the end of their working life will now fully discover that cost: -https://www.theguardian.com/money/2018/apr/07/retirement-can-you-make-your-pension-last-at-least-20-years
If they survive the shock, they’d better hope the NHS is still there for their blood pressure and heart, because their savings probably won’t cover private medical care; I’m guessing this is another unseen, imminent crisis, or just another day in rip-off UK.
Increasingly I feel we really, really have our heads firmly in the sand with regard to the ageing population and the health of it.
I’d just be glad you got a reminder on the charges, and not worry about the sunk cost.
I have most of my money in the same brokerage – SIPP / ISA / Taxable and am happy having all my eggs in that basket. After all, the broker was chosen for costs and I’m lazy. It’s much simpler to just have one place to check.
“I have most of my money in the same brokerage” – I don’t agree with this. While the risk of loss in the event of one of your wrappers blowing up is small (should be in segregated accounts etc) it is still there. Compliance problems is just one example.
I therefore spread my risks across multiple brokers/other sources. I’m also prepared to pay a little extra in £’s and time for this to be the case.
To demonstrate on the wrapper front right now I’m:
– 24.9% in Hargreaves Lansdown
– 20.4% in YouInvest
– 17.2% in Interactive Investors
– 11.6% spread across 2 savings accounts so both are below £85k
– etc etc
There are enough risks in investing without taking risks you don’t need to. I’d feel real bad losing over £250k if HL blew up. I’d feel real stupid if I had everything with HL and lost over £1M.
I definitely agree with RIT on that one. It’s on my TODO list. Diversify across platforms and products. But not too much as to generate an admin issue.
My equities are split across HL and YouInvest (30:60, at the moment).
My numbers are a lot smaller than yours but yeah, just feels safer not to have it all in one place.
1) I too took a while to determine what my pension cost is. I have it all through my employer, and its done through Standard Life. The challenge was all the information quoted 1 fund charge (1%) – but mentioned a “potential” discount, which had to lookup, and I took a while to find. Another complexity, is even tracker funds seemed to have a 1% charge (before discount) but i digress… So in the end, I am in whatever the default fund is for my employer.
2) in a blog post of a wealth of common sense, he said something to the effect of: invest in nothing/cash 1% return, invest in something/tracker 7%, invest in an efficient/diversified/re-balanced etc 9%. Yes 9 > 7, but most people talk about and worry about how to get 9, when in reality most people would benefit from even just getting to 7. Or even just getting out of negative return/debt. In the UK over 2/3 of households have less then 10k savings (http://themoneycharity.org.uk/money-statistics/). I think there is a lot to be said about saving in pensions – and getting 40% “uplift”/”return” due to tax. Yes you could have gotten 39.7% instead of 39% after costs… but either way you’re miles away from 0 or negative, and there is something to be said about correctly concentrating on how to get 40% return, instead of concentrating on how to get/keep 1% extra – and risk some analysis paralysis. Or risk doing something even more stupid like seeing all this cash in your savings account and deciding to buy the infamous Lamborghini…