Pensions - How to pick one

[wantacontract]

Vanguard lifestrategy - 80/20 (80% stocks, invested across globe, low fees)
Fire and forget, keep topping up, thank me in 15 years.

yup...

i wish you had posted this for me to know 10 years ago....

[IR35 Avoider]

Fees are important, but sometimes over-emphasised. If you make 10% a year with one provider and 2% with another, you'll do a lot better with the first even if the fees are higher.

Yes, making 10% is better than making 2%. Saying its better to make 10% than 2% whatever the cost is like telling someone they should only place winning bets, and not worry about the bookies return. That only works if they're allowed to place their bets after the results are known.

It is an arithmetically unavoidable fact that on average money invested in higher-fee funds make lower than average returns. (An individual active fund can do better than average, but it can only do so by taking money off other active investors, and there is no way to know in advance whether you are going to be with the winning or losing fund manager.)

The return you should expect from an investment is the average return for the asset class, minus the fees. Since all investors must expect the same average return before costs, it follows that the only way they can expect higher than average returns is by paying lower fees than other investors.

Note that the phrase "expect return" means what you will get with average luck. The reality might be that you get more or less, but that is down to luck, and you can't know which way that will go.

[WordIsBond]

It is an arithmetically unavoidable fact that on average money invested in higher-fee funds make lower than average returns. (An individual active fund can do better than average, but it can only do so by taking money off other active investors, and there is no way to know in advance whether you are going to be with the winning or losing fund manager.)

Guess what? Some programmers are better than others. Some football players are better than others. Some chefs are better than others. And some investment managers are better than others, too. And if you are willing to do the legwork to find out who they are, not just by looking at their average returns over an extended period, but also by looking at their overall investment strategies, you can find out who they are.

You can see which ones beat the average by taking risks, which ones did it by getting lucky timing the markets, and which ones made smart choices based on fundamentals. It's not that hard to find out which ones are likely to beat the average most of the time, and enough to justify their fees.

In just about anything in life, you can beat the averages if you want to work at it. That's true in investing, too. But if someone doesn't want to put in the work to be better, or to find out who is really better, then they should just go for average and as low a fee as possible (which means a tracker). In that, you're right.

[Fred Bloggs]

Be careful with tracker funds. If you had put money into a footsie 100 tracker in 1999 and left it there, you would have lost money as the index in 2016 is significantly lower.

[Contreras]

Be careful with tracker funds. If you had put money into a footsie 100 tracker in 1999 and left it there, you would have lost money as the index in 2016 is significantly lower.

... not to mention the 17 years worth of dividends that would have either been paid out or re-invested.

[BigRed]

An index tracker outperforms most managed funds due to lower costs but the FTSE 100 is a little unbalanced, for instance financials represent over 20% of the index with HSBC being 7%, Shell represents 6%, GlaxoSmithKline 4%, BT+Vodaphone 6%. Say the Banks were supporting a bubble in Oil&Gas as those prices only ever keep rising, a crash in oil/gas would have a major impact on the FTSE 100 with knock on effects to companies like Weir who make pumps for the oil industry and ITE who stage trade exhibitions in Russia. If you go for a tracker it's better to look at one for the FTSE 250. If you go for a SIPP make sure you are spread fairly evenly across all the sectors and hold 20 or more different companies.

I follow a strategy of hold and forget as I freely admit I can't second guess the market. If you buy into fairly large companies with a good track record of dividend payments over several years you should see steady inflation beating growth over the long term and reinvesting the dividends shows the benefits of compounding interest. The share prices themselves should largely slightly outperform inflation. My total investment of around £140K over the last 2 years has not make any gains on share price but has returned around 6% per annum in dividends. Nothing spectacular but good enough.

[WordIsBond]

... not to mention the 17 years worth of dividends that would have either been paid out or re-invested.

Exactly. Most of the FTSE 100 pay out reasonable dividends, so even if prices don't move you'll get a return.

Not to mention that if you'd bought in anytime in 1995 or earlier, in 2003, or in 2009, you'd have killed it. Checked managed funds and see how most of them did from 1999 to now. You're choosing the worst possible timing and saying an investment strategy is not a good idea because of what happens with the worst possible timing. No sane person would have bought into equity markets in any form / any kind of fund in 1999. Look up cost averaging and the benefits of investing monthly or annually instead of trying to time the market, and you don't have to worry about whether or not you are putting it all in at the right time.

But if you want to try to time the market, buy when everyone else is in full panic mode.

[Fred Bloggs]

... not to mention the 17 years worth of dividends that would have either been paid out or re-invested.

For sure, about 3.5% a year.

[WordIsBond]

For sure, about 3.5% a year.

Care to figure out what your percentage return would have been since then if, instead of putting it all in at the peak in 1999, you put in just £100 a month ever since then? Be conservative and assume 3% dividend a year, but go ahead and reinvest it while you are at it. And remember, when the prices are lower you get more shares with your £100 and fewer when the prices are higher, so the average cost of your holdings is going to be lower than the average index level through those years.

[BlasterBates]

If there was a fund manager who could beat the market we'd all invest in it and then everyone would beat the market.

The fact is there are no funds that consistently beat the market.

https://www.washingtonpost.com/news/...market-hardly/

Investing skill is overrated. All fund managers conduct the same analyses and come up with very similar results over time. There's no "golden bullet". These days everyone has access to the same analysts reports, fund managers do nothing more than filter the consensus expectations from these reports and select a list, the rest is luck.