The BM Blog: Bobcat let loose in the City
This week a rather dignified but nonetheless lethal American cat was set amongst the British financial pigeons. US whopper Vanguard launched an online investment service which lets people get a fully diversified portfolio (i.e. combines lots of different countries and types of investments) for an ongoing fee of 0.37% a year. That’s £37 on every £10,000. If you don’t have a lot of time/ interest/ confidence *(delete as appropriate) in markets, then the Vanguard LifeStrategy fund range is a great way to outsource the pain.
This is as low-cost as it gets. It smashes through some price ceilings. Expect to see a fair chunk of column inches in the weekend press about this.
It’s a radical development because until now, you either needed to have £100,000 to buy directly from Vanguard. Or you bought via an investment supermarket which would charge an extra administration fee for this service on top – usually to the tune of 0.25% – 0.45% of your assets every year. Pushing the total cost higher.
This not-for-profit business has an almost evangelical following in the States and its founder Jack Bogle is pretty inspiring. They offer mostly what we call passive investments which explains the low-cost. This investment approach works on the basis that the art of prediction is expensive and hard to get right. So why bother? A passive fund, investing in shares, simply picks any nominated region or sector and buys the biggest companies in proportion to their size. There’s no um-ing and ah-ing and furrowed brows – it’s a computer-driven formula. It’s the sensible potatoes or rice staple of my portfolio which I then spice up with some investment chilli on the side.
However, let’s rein in our excitement! If you have shares. Or you want to buy some funds from another investment house. Or you’re saving into a DIY pension called a SIPP… they can’t help today. Lots of people contacted us this week to see whether they should have a look – here’s a potted summary of who I think should have a squizz at Vanguard’s new service:
– If you are thinking of getting started with investing and want to try with a small-ish amount in an ISA – perfect choice. £500 one-off or £100 monthly is the minimum. Remember you can only pay into one stocks and shares ISA in any one tax year so if you’ve already paid in somewhere else since 5 April, you can’t move till next year.
– If you already have a bit of Vanguard stuff already on another service – think about moving BUT keep the costs in perspective. If you have £20,000 of a Vanguard fund on the UK’s biggest broker, Hargreaves Lansdown – a big, expensive and good service – jumping ship is a bore but will save you about £60 a year. If you have – or would like to have – other funds or shares then stay put.
– If you have a sizeable account elsewhere and have a big chunk of Vanguard assets in an ISA – it’s probably worth the hassle of a move and having 2 separate accounts. To get the lower cost on your Vanguard funds. But again, you can only pay into one stocks & shares ISA in any one tax year so this will limit what you can do. Ask Vanguard about what we call an ‘in specie’ transfer which is moving your fund without needing to sell up and move cash, which makes you vulnerable to market movements.
– If you are saving up and not yet retired or doing anything complicated, and using an expensive old guard wealth manager – it’s worth a look. Vanguard also cap the administration fees to the first £250,000 only. So any millionaires reading this…. you could get an all-in portfolio managed at a cost of 0.26% every year on £1 million. Don’t get me wrong. Good advice is worth paying more for – but just being held in a set of investments which tick over every year with a 2%+ price tag is not.
If you want to visit the new site it’s here – www.vanguardinvestor.co.uk/
PS As usual this is my independent view only. It feels a bit weird writing so extensively about one product – it’s just a big development and a very good solution for many people. For any sceptics – Vanguard are low-cost because they don’t splash the cash – they have paid me precisely zilch to write this :0)
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