Are you poorer or richer after the stalemate result of the general election? As I write, sterling has weakened so your summer holiday will cost more. But a cheap pound will help those large UK firms which sell abroad. If your Isa or pension is invested there, you are quids in this morning.
So far, so good. But with no clear political leadership, plus the obstacle course of Brexit, the value of our investments could well see some big swings and soon because financial markets hate uncertainty. Commentators are advising investors to sit tight and not panic sell. Which is all good advice, but there’s one sure way to future-proof returns: drill down on costs.
There’s another good reason to evaluate your investment manager: a new kid has popped up on the block with a cut-price service. This is Vanguard, a US company, which is offering to run your money for roughly one-fifth of what the average UK investment firm charges.
Sounds good, right? Let’s have a look at how they do it. Normally you pay a fee to whoever is making the investment decisions (the fund manager) and a charge to the middleman (a bank or broker) for maintaining that investment, generally via a website. Low charges for both services are important. My return might be 5% a year but if I have to pay 1% to the fund manager and 1% to the website, suddenly 3% doesn’t look so attractive. Remember you still pay these fees even if your investment is losing money.
Vanguard is proposing average charges of 0.14% (of your Isa investment) on its funds and 0.15% for using its website. This kicks sand in the face of finance firm Hargreaves Lansdown, for example. Funds (run by companies other than HL) average about 0.6% a year and it’s 0.45% for the website if you have less than £250,000 invested.
If your eyes have glazed over, never fear. SMM is here as usual to show you the short cut to finding the best value.
Vanguard is great on costs but you can only invest in Vanguard funds. That means you can’t shift your existing, non-Vanguard funds there. And Vanguard only offers tracker funds. These are run by robots, not humans, and mirror the fortunes of a stock market index like the FTSE 100. Finally, the information on the site is limited to the basics.
You may well pay more at places like Tilney Bestinvest, Hargreaves and the Share Centre but their sites give you research, economic news, interviews with human fund managers and recommendations. You can also keep all your funds (and shares too) in one place on their site. Out of these firms, the Financial Times says that AJ Bell is the cheapest for portfolios worth £50,000, by the way. Check out the article here.
If I were a novice investor, I would definitely have a look at Vanguard. Tracker funds are a good base (see the SMM guide here) for a portfolio and costs are low. As a seasoned investor, I’m happy to pay for a premium service at Hargreaves, however. But then there’s nothing to stop me reading Hargreaves’ information and investing through Vanguard, I guess …