Reply to: Pensions - How to pick one

[lukemg]

I couldn't agree more. However HL can get expensive due to their 0.45% charges on funds, so I'd imagine most contractors would be best moving to a fixed fee provider once their pension has reached a certain size.

Very much agree with this, Monevator does regular tables of who to go to when you reach a certain size etc.
I am with HL but use ETF's to reduce the cost but will prob move in the next 12 months.
For a newbie though its prob a good option.

[syrio]

Fund costs are VERY important and forget the 1-2% doesn't seem like much, this is going to hamstring you and the effect over 30 years is an absolute shocker.
Go on HL.co.uk, setup monthly payment into Vanguard Lifestrategy 80/20 fund and then start reading Monevator.com, fool.co.uk until you get it.
It will be the best paid research you will ever do.

I couldn't agree more. However HL can get expensive due to their 0.45% charges on funds, so I'd imagine most contractors would be best moving to a fixed fee provider once their pension has reached a certain size.

[lukemg]

You will be lucky to average 5% return after inflation is accounted for averaged over 10 years (some ups and downs).
If you hand over 0.5% to anyone to recommend funds charging 2-2.5%/year (forget headline costs, they dont include all the back-office and trading costs), in effect you are handing over 50% of your annual return, which is madness when there is a way to reduce this to <10% by buying an ultra-low cost index.
Fund costs are VERY important and forget the 1-2% doesn't seem like much, this is going to hamstring you and the effect over 30 years is an absolute shocker.
Go on HL.co.uk, setup monthly payment into Vanguard Lifestrategy 80/20 fund and then start reading Monevator.com, fool.co.uk until you get it.
It will be the best paid research you will ever do.

[mackenzie99d]

I'm not sure about 'joining fees' but I spoke to a couple of IFA who wanted to charge 3% upfront for sorting a pension and then 1% a year onwards. Realistically all they do for this is pick a spread of funds dependant on the level of risk you want to take based on a survey you fill in. I ended up going with someone who charges 0.5% per year which seemed fair. You really can do it yourself if you do a bit of research.

[Fred Bloggs]

Met up with an IFA this week about pensions, and as part of his fees he wants £1k as like a 'joining' fee. I know IFAs do charge upfront fees these days, but is £1k asking a bit too much? Wondering what other people's experiences are...

I can only tell you about HL. They will send an IFA to talk to you free of charge. It is then up to you if you want to set up an account (free) and run it yourself subject to their annual charge. If you want advice they will give you the advice and will charge according to what you decide you need. Their pone lines are always answered immediately and the staff are all UK people and do mostly understand what they are talking about. They will not do a hard sell on you. Their email service is also very quick with same day replies. Another approach is that they offer a range of managed portfolios which are not supposed to be fully personalised advice, but they are run on your behalf as they see fit. Naturally, there is a fee for that. I'd give them a call, have a good browse at the good website, you have nothing to lose. HTH.

[hamario]

Met up with an IFA this week about pensions, and as part of his fees he wants £1k as like a 'joining' fee. I know IFAs do charge upfront fees these days, but is £1k asking a bit too much? Wondering what other people's experiences are...

[lukemg]

Ok, you are more than welcome to chuck cash at active mgmt, a lot of people do and will continue to do so.
My belief is this:
1. Some active managers WILL beat the index over extended periods (you would expect this distribution its normal)
2. More than 80% WONT beat the index over 15 years.
3. There is no way to know who to pick, it is luck if you pick one that does and forget previous performance, the strugglers often stay down but there is a lot of jumping around apart from these.

Successful ones struggle for a number of reasons:
1. It's hard to make the right calls year after year.
2. Success grows the fund to such an extent that you need bigger returns to move the needle on massive funds.
3. Turns out a small number of shares are the killers that provide a big bulk of the over-returns, if you hit these you can smash it but if you don't then you are likely to lag. Hitting these every time is very hard.
Look up survivorship bias too - They start up loads of funds and close down any that struggle, good scam.
I would strongly advise a total novice to look carefully at a Vanguard Lifestrategy fund (probably 80/20 stocks) if you have more than 10 years to retirement.
http://www.fool.co.uk/investing/2016...professionals/

[WordIsBond]

Well, could go back and forth forever, but I'll close out my part of the discussion with this.

It is not impossible to evaluate companies based on product, market research, management capabilities and philosophy, and make reasonable assessments as to which companies are most likely to succeed over the next five or ten years. It may require interviewing CEOs or chairmen, and a lot of work going into checking out a company only to decide to avoid it.

The fund manager who does that kind of analysis and buys those companies is not going to have sexy quarter to quarter returns, he won't even have great annual returns some years. Those things are driven by market sentiment, political events, and whether the head of the US Fed has a cold when they talk to the press or not and how the financial press interprets their sneezes.

In fact, he'll probably never finish at the top of the quarterly performance tables, because he's not making the kind of guesses that drive the big short-term returns. But what he will do is, more often than not, pick companies that succeed. And over longer periods of time, the companies that succeed are going to have better share prices.

If that kind of investing isn't for you, or you don't want to do the kind of digging that identifies that kind of manager, or you don't believe that kind of manager exists, buy a tracker. A tracker is a reasonably good investment approach, especially with a regular cost-averaging investment strategy.

There is one drawback with a tracker that hasn't been mentioned here, so I'll add it to the discussion. A large tracker fund may hold virtually all the shares in the index (FTSE 100, FTSE 250). This will include the losers that drop out of the index, and they have to sell those shares at a time when others are selling (because they've dropped out) and buy the new constituents when others are buying (because they've joined the index). That means with both the buy and the sale they are not getting a very good price.

But since the holdings at the bottom are typically around 0.25% of the index, not getting a very good price on the exchange isn't likely to heavily skew the overall performance. It does mean that a completely accurate tracker (owns shares of the FTSE 100 in exact percentages matching the market cap of the constituents) would always slightly underperform the reported index averages. Or at least, it would every time there is a change in the constituents.

[Paulo100]

Pension

Most people go for a SIPP. I'm with Hargreaves Lansdowne who do off the shelf portfolios if you want to keep it simple. Their website is great for advice and information, but they're possibly not the cheapest provider. If you're an IPSE member, they've negotiated preferential rates for members with Aegon, so might be worth checking out.

Agree with the above regarding Hargreaves Lansdowne. Relatively expensive, but have a good rep.

[BlasterBates]

Why Even Experienced Fund Managers Don't Beat The Market - Business Insider

[WordIsBond]

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.

LOL. Ever hear of Warren Buffett? Just lucky, I suppose.

That Washington Post article is stupid. So nobody stayed in the top 25 percent every quarter for four years? And that proves what? Any investment strategy worth following is based on long term investing, not how you did quarter to quarter. The only way you could stay in the top 25 percent every quarter would be churning your portfolio to pick the winners for this quarter, and then again to guess next quarter's winners. Nobody can do that consistently. That's not investing, that's guessing.

And no, not everyone has access to the same analysts reports. Nor do all fund managers simply filter consensus expectations.

Over short periods, company shares will be driven by rumour, sentiment, the market as a whole, and reading the tea leaves on interest rates. At least a third (and probably more) of shares speculators make their decisions on those bases. Over longer periods, company shares are driven by whether the company has good products, sound financial management, good reputation, good employee relations, and creative people to come up with good new products. The fund manager who goes to the effort to look into those things is going to pick more winners than the average Joe who reads the Financial Times and says, "Yeah, I'll buy XXX shares this week." His investments may not out-perform the market this quarter, or next, but over years they will.

Most public market research consists of looking at financial statements. The better public stuff also looks at products. The private analysis that you won't see, but the best people use, looks at people, at decision makers with a track record of successfully running a business.

[IR35 Avoider]

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.

This is not so much aimed at you as at anyone who might be influenced by your post.

Virtually every book on personal investing written since the late 1970's, that I've read, has suggested that trying to choose funds that will out-perform is a fool's errand.

I recall one of them specifically saying that in every other walk of life, we believe we can pay more to get a better result, therefore it is very hard for people to accept there is something fundamentally strange about the world of investing, that that simply doesn't work.

[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.

[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.

[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.