Should I transfer my ISA to another platform where the fees are lower, to get better returns?
11 July 2019
Question by Robert
Hi - Your site is very useful and informative. For the last 9 months I've drip fed just over £10,000 into a Moneyfarm Investment ISA (balanced/medium risk) just over 60% shares, it has been a very volatile year as you know. Moneyfarm seem to have done a good job of protecting my capital. I was down around £500 at the worst point which I have now recouped, however I haven't really made much in the way of gains, which I'm a bit disappointed about. I was wary about taking on too much risk, but now think I may have not taken on quite enough. I'm thinking about giving it 12 months to see how it goes. If I then wanted to, would I be able to transfer the whole lot to another platform (say Vanguard) where the fees are lower, and I might make a bit more profit? I know you're not allowed to give regulated advice - but I'm uncertain if I should transfer the whole lot in one go, or drip feed it into the new platform should I decide to move it. I would welcome whatever help you can give me. Regards, Robert
Answered by Holly Mackay
You have been investing in a hairy old time - January tested everyone’s nerves!
This is a warning. My answer is going to be boring!
9 months is not a long time, and honestly it is true that this is all about time in the markets, not ‘market timing’.
If you constantly feel the need for action and want to see dramatic spikes, you will end up ‘investing’ in get rich quick schemes which ‘can’t fail’, and ultimately risk losing your money as you chase your tail. Good investing is dull, because human nature doesn’t want to ‘get rich slow’.
I think you are confusing two questions
A) is Moneyfarm right for me
B) am I invested in the right sort of stuff?
Moneyfarm blends a bunch of low-cost ‘passive’ investments together into a portfolio which they manage for you. Vanguard does a similar thing but blends the investments into a slightly different administrative box, called a fund - their LifeStrategy range.
We do track performance on our robo advisers pages, but the trouble is that these robos are new, and track records of a year or two mean very little. My cat could have a good one year track record and you wouldn’t want to back her. So it’s super hard to make a call that Vanguard is proven to be superior or not.
My sense is that starting a habit of moving stuff around every year will see you lose money in trading fees, and being out of the markets for maybe that one stellar week which makes a difference! I’d tend to err on the side of staying put unless you have good reason to move.
Over the 12 months to September 2018 in a balanced/medium risk portfolio Moneyfarm returned 4.72% after charges, compared to Vanguard LifeStrategy 60% making 6.62%. But this is a very short timeframe and doesn’t answer the question about who is the best.
Now, are you in the right risk profile?
Depends on your timeframes. If you don’t need this money for say 10 years and you can stomach ups and downs, then maybe you should amend your risk profile for subsequent contributions, and see what that feels like? But you have to expect greater swings without jumping ship in the downturns.
The fee differential will make a small difference, yes - Moneyfarm charge 1.09% all in, and Vanguard LifeStrategy in an ISA would be 0.48%. But Moneyfarm has a better app and communications and is probably easier to manage and check in with.
But I honestly believe that it’s a damn hard job with the small history of Moneyfarm, to make clear assessments about performance.
The biggest thing we can do to invest successfully is to stay invested (as long as you’re not in something dodgy or rip-off, which you’re not), leave it alone and keep chipping in. So my tendency would be to leave it alone. Being in the market is the single most important thing. Give it a chance to do its long-term job?
If you really want to tinker...
Maybe set up a low-cost trading account with someone like Freetrade, and limit yourself to tiny amounts on a ‘play’ shares account - which you’re willing to lose. And discipline yourself to selling half if the value ever doubles. I would personally avoid this like the plague - but if it stops you trying to roll the dice with your big pot, then maybe it’s worth thinking about?
I don’t mean to sound patronising. There is a thrill in seeing a 10p stock soar to £5. Trouble is that this works the other way too, so it’s no different to gambling.
Hope that is helpful food for thought.
As always this isn’t regulated advice, I don’t know your circumstances and I’m not a financial adviser!
So this is meant as general facts and observations. You’ll ultimately need to make the call yourself.