Stocks and Shares ISA

(Jack) #21

That’s good! I’ll have to check the blog posts out soon then.
I feel like I spend enough time on forums as it is :smile: but they are a wealth of information :crystal_ball:

(Danny) #22

To be accurate, it’s not Buffet’s approach for Berkshire Hathaway, but it’s his recommended approach for everyone else. Actively managed funds are just a punt and the only guaranteed winner is the fund manager!

(Danny) #23

Ouch, a monkey with a set of darts would have outperformed that over the last few years!

(Eve) #24

I agree, the blogs are a lot more approachable than the discussion on the Freetrade forum but I guess that comes from everyone when they have a lot more experience. The blogs have been really good at explaining all the numerous acronyms, so it’s pretty good for beginners and I think it’s good they’re trying to make it accessible for everyone. There’s not much women on there at the moment unfortunately. I’ve signed up to the waiting list, and I can’t wait to try it when it’s launched.


noooo, managed funds over a reasonable timescale (5 years or more) generally fail to even match the market.

You’ll get loads of ‘advisors’ cherry picking the odd fund that has beaten the market in the past and telling you it’s easy to work out which will do so in the future. It isn’t. It’s really really hard.

The market is a zero sum game - we all, including the obscenely overpaid managers, make up the market. So on average we cannot beat the market. Hence most people/funds/managers underperform the average by the extent of the fees. You will pay higher fees for an actively managed fund than for a passive one, hence on average you will do worse in an actively managed fund.

Wealthify charge large fees for effectively passively managing your investments. Skip them and go to the source - I personally like Vanguard because they are owned by their customers and so their incentives are aligned, but there are many passive low cost funds available. And £10 in £600 over a few months is simply noise.

(Jack) #26

What do Vanguard get out of their funds? Do they take a slice too?

(Danny) #27

A very small slice of an insanely large pie


I recently transferred from wealthify to vanguard and bought lifestrategy 100, wealthify’s fees are just too much, and it was a bit of a shambles transferring from them, took over 6 weeks for them to sell my investments and transfer over as cash,

Would definitely recommend vanguard, they only have 0.15% account management fee + 0.22% ongoing charge fund for LS100.

(Katrina) #29

Had you bought just before the Wall Street Crash, you wouldn’t have recovered your original investment in $ terms until about 1980, and in inflation adjusted terms, you still wouldn’t have recovered it now.

Your risk is actually higher the longer you leave your money in the investment.

(Jack) #30

What benifit is there going direct with vanguard over through freetrade?

(Alex Sherwood) #31

I’m not quite sure what you’re basing that on but in fact, the opposite is true -


Vanguard is recommend if you want to buy their funds, because only vanguard funds are available through the vanguard platform, and they have very low management fee’s.

Account management fee is always 0.15% and the OCF (ongoing charge fund) is dependant on what you buy.

(Christopher) #33

@Jackcrwhitney one for @tom to provide more detail but Monzo may offer a Vanguard ETF (or equivalent) product within the Monzo app, as was alluded to at July’s Q&A. How this will look or work in practice, I don’t know, but it’s a super interesting development.

(Katrina) #34

That article looks at past performance and assumes that it is a guide to the future. There is no correlation whatsoever between past performance and future performance.

This is the FTSE since I got my first proper job. The only thing that is guaranteed about stock market performance is that there are no guarantees.

(Alex Sherwood) #35

You’re right that we can’t be sure that the market will always go up, there are times when share prices will fall. But all of the historical data so far suggests that the market will recover, if you look at a long enough timeframe..

And your chart helps to illustrate that.


Why passive is better:

Let’s say the value of the stock market is £1000 and all the shares are owned by 10 people split equally, so £100 each at the start.

Over a year, the market has grown by 10%, so the total value is now £1100. This growth is spread over the participants in the market - a zero sum game - on average each participant has gained £10. Any additional growth over the average comes at the expense of one or more of the other participants.

Half of the owners were passively invested in the whole market, owning each of the shares available, so their holdings are now £110 minus the charges they paid. Let’s say those charges were 0.1%, so they now have an account worth £110 - 0.11 = £109.89.

The other half invested in actively managed funds, which pick and choose what they invest in. One fund (call it A) grew by 15%, but we know that the whole of the market only grew at 10% so the other 4 can only have grown at an average of 8.75%.

These funds all charge 1% fees, so the investor in A now has £100 + £15 - £1.15 = £113.85 and the other investors have £100 + £8.75 - £1.09 = £107.66. Note how the other investors have both underperformed the passive investor and paid bigger charges to do so.

The active investing people all say ‘look at fund A, let’s move to them’ and shift loads of money from the underperforming funds into fund A, locking in that year’s underperformance - they could have had £109.89, but instead the liquidate their shares worth £107.66, paying charges and invest that it fund A paying more charges. With so much money in fund A, they are less agile and are unable to reproduce their outperformance and the next year, fund B does better and fund A drops back to the also rans.

This underperformance/overperformance dance continues and over time, and almost all of the actively managed funds will tend towards the average performance of the market. Over 5 years it is about 80% of them, over 20 years it is closer to 98% of them. But each year you have been paying 10 times the charges that you’d have paid in the passive fund. So you are paying those charges out of your growth and your fund value is now the average of the market performance minus those additional charges.

So in 10 years at 10% growth per year, the passive investor will have £256.79, but the average active investor will have £236.74.

You’ve given 7.8% of your final fund to the managers for nothing. Scale this up to a lifetime and real numbers and that makes a huge difference to your retirement. It’s a complex calculation, but grossly simplifying it, assume the final fund in the above case is £256790, i.e. a quarter of a million pounds. You gave your manager over £20k towards his Porsche fund, for no benefit to yourself.

(Mark) #37

But then you look at diversification, and see what would have happened during that time if also invested in the US


The only fund to invest in in my view is a world tracker.

(Is Santa here yet?) #39

What about Asia? That was one I thought (without any research) would be good


You are stock picking again though.

If very well paid managers with huge teams of researchers can’t stock pick reliably, I doubt you can. I can’t. I’ve done very well, but I was lucky. I recognised my luck and shifted the outperformance into a tracker as soon as I could.

Different regions will outperform at different times. If you invest in a world tracker it passively tracks these shifts. You are basically using the power of the crowd, where the crowd is the whole market. If the crowd decides Asia is the place to be, its market will grow to be a bigger part of the world market and more of the money you put into the tracker will be invested there.