Holly's Blog: Navigating our way through cr@p

11 July, 2017

Trying to explain what we actually do at work to our children is hard. Visually they see me sitting in front of two white rectangles (screen and keyboard), endlessly tapping away. Mummy taps. Last night was one of the times I found myself explaining investing to a 10 year old. He has a small Junior ISA, invested in a mix of global shares. When I told him he owned a bit of Apple, his eyes nearly exploded with temporary delusions of grandeur. I had to slightly burst the bubble by further explaining that if Apple were a person, he would own about one hundredth of one eyelash. But you get the point – at its heart, the concept of investing is engaging.

But 90% of the products are ‘rubbish’….

This week I attended the launch of Hargreaves Lansdown’s (https://www.boringmoney.co.uk/isas-pensions/hargreaves-lansdown/)new shortlist of recommended funds. The Wealth 50 (https://www.hl.co.uk/funds/help-choosing-funds/wealth-50). It’s a good list of decent funds with costs which have been bartered down to competitive levels. As a retail investor you can’t buy many of these funds at a lower price anywhere else and it’s a useful filtering tool for anyone who wants some help in picking a few funds.

In the presentation, their head of research Mark Dampier, a nice and fundamentally no-nonsense bloke who knows a lot about the world of investing, said that he thought that over 90% of funds out there were ‘rubbish’.

90 per cent! [repeat in a mildly hysterical voice]. Call me naïve but this number has been playing in my mind all week – it’s absurdly and unacceptably high. Can you imagine any other sector where over 90% of products were deemed to be rubbish? And I’m not talking about shoes or sofas here – these are people’s life savings.

No-one knows who to trust, there are thousands of funds too many, consequently many retail investors hedge their bets to the point of holding more than 50 funds which is technically known as a bugger’s muddle, and too many fund managers are doing a sub-standard job. #facepalm

OK Holly. Cheers for that but it’s not very constructive.

So what to do? How to avoid the dross? I think as a general rule that these fund lists on platforms are super helpful. The choices on them are coming down (helpfully) and most now offer a manageable number per investment type and region. This week Interactive Investor also launched its new Super 60 list and there are other helpful options – we share links below.

If you stick to these lists I don’t think anyone will go too far wrong - as long as your timeframes are long enough to wear the inevitable downs as well as ups, and you pick a decent mix of stuff which spreads the investment love around by region and sector. As a very rough and crude rule of thumb I think 8-16 funds should be enough for most DIY investors. If this fries your brain look at a robo adviser (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/robo-adviser/) for a single ready-made option instead.

Hmm. Nice list but the sun does not shine out of Hargreaves’…..

I have been generally positive about the research team and the fund selection lists of Hargreaves. But as the cost of investing gradually falls around them, their 0.45% admin fee remains stubbornly high.

Let’s put this into perspective. I accept that good service costs. I have nearly 30 test accounts and I still use Hargreaves as my main account. Here are two little practical examples why. It’s tax return time, I need to find tax certificates for all my test accounts. I can find this certificate on HL in about 30 seconds and get the pdf. With some others, I look aimlessly for 20 minutes then phone them and wait for a scribe to write this out on velcrum and give it to a carrier pigeon. If I need to phone someone, at Hargreaves a polite young graduate who sounds like they are good at sport, have a well organised sock drawer and were Sixer of the Pixies, answers the call in less than 10 seconds and helps me. At other places I wait for more than 15 minutes then have to press buttons and be told how important I am as I wait for Godot.

That said, on the other hand I can see the financial impact of using them as higher admin fees nibble away at my savings. Their research team argues passionately about the importance of low charges for good investment returns. They need to have a word with their colleagues on the administration side. I’ve written more on this here (https://www.boringmoney.co.uk/learn/articles/wealth-50-our-review/) for anyone interested and I’m sure it will be debated in the weekend money press.

Soapbox

Although I see a generally improving industry around me, we still manage to make a right royal cock-up of moving from the exciting notion of owning a piece of Apple, to the practicalities of how to invest in something decent where we won’t be ripped off. I have plans for campaign and change this year but I can’t do it alone. Any finance boss who is as outraged by the 90% suggestion as I – please get in touch (https://twitter.com/HollyAMackay). We need to move this dial.

Have a good weekend everyone,

Holly

Preferred fund lists:

AJ Bell (https://www.boringmoney.co.uk/isas-pensions/aj-bell-youinvest/) – AJ Bell Favourite funds (https://www.youinvest.co.uk/investment-ideas/favourite) includes 88
Barclays (https://www.boringmoney.co.uk/isas-pensions/barclays-smart-investor/) – Barclays Funds List (https://www.barclays.co.uk/smart-investor/investments/barclays-funds-list/) has 57
Charles Stanley (https://www.boringmoney.co.uk/isas-pensions/charles-stanley-direct/) – Foundation Fundlist (https://www.charles-stanley-direct.co.uk/Foundation_Fundlist/) includes 57
Fidelity (https://www.boringmoney.co.uk/isas-pensions/fidelity/) – Select 50 (https://www.fidelity.co.uk/investing/select-50) has 50
Hargreaves Lansdown (https://www.boringmoney.co.uk/isas-pensions/hargreaves-lansdown/) – The Wealth 50 (https://www.hl.co.uk/funds/help-choosing-funds/wealth-50) includes 50 active funds and 10 passive funds
Interactive Investor (https://www.boringmoney.co.uk/isas-pensions/interactive-investor/) – ii Super 60 (https://www.ii.co.uk/ii-super-60) has 60