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.