It’s that time of year when we put all the investment platforms into their metaphorical bikinis and parade them up and down the performance beach.
Behind all the jiggery-pokery, jargon, graphs, OCFs, ETFs and WTFs, how well are those providers offering up ready-made funds or portfolios doing? I think there is one beautifully simple way to answer this question.
Two years ago, in January 2018, I invested £500 into 20 accounts. And on 2nd Jan this year I looked at what this was worth today. The proof of the £500 pudding is truly in the eating.
The aim was to compare like with like, so back in 2018 I picked what was described as the ‘medium risk’ option. In industry speak this typically means a mixed bag of investments of which 60% are shares and 40% will be in less volatile, more cash-like investments. These mixed bags of investments will either be ‘multi-asset funds’ or ‘portfolios’ – similar contents but different packaging. They are increasingly popular for those who want a diversified spread of assets but lack the confidence, time or interest to pick and manage their own.
We can clearly see that charges play a major role in what’s left in the trough post-snouts. Picking the right platform for your sized account is important. But it’s not just administration fees – the fees levied on the investments matter. The Share Centre and Hargreaves Lansdown have ongoing fund charges of 1.55% and 1.41% respectively, which are much heftier than the ‘passive’ robo advisers
Two years ago, our investment funds or portfolios had 60% in shares- or as close as was available. Just two years on and the picture has changed. The lesson here is to check in at least once a year and make sure that the thing you bought still looks like the thing you have!
Investments are complicated creatures. Lots of industry players shout at me when I do this exercise. Two years is not long enough to evidence skill over luck. True. Passive has had a lovely time and when we get into choppier markets, active managers could do better as they have more ammo to protect our money when things are going South. Arguably. And we have not looked here at the corresponding risk these guys took. All valid moans.
Risk is of course as important to think about as returns. I will never forget a Russian taxi driver on a fixed price who got me from JFK airport to Manhattan in about 15 minutes. My sphincter took a week to recover. Yes, he probably got me there first but I could have done with a less exciting journey. Wealthify had 47% in shares on January 2nd compared to Moneyfarm’s 76%. Different sphincters altogether, mes amis!
Not one for now, but a lovely thing to look at is what we call ‘monthly drawdown’. This is simply the biggest gap in any one calendar month between the high and the low. Cash will be stuff all. Some share portfolios could start at £500, swing up to £800 and back down to £200, if you invest in Kazakstan for example – so that’s a maximum monthly drawdown of £600 on a £500 investment. OUCH. The holy grail is of course Vindaloo returns with Korma risk.
But that’s a bit like asking for a washboard tummy and drinking 5 pints of lager a day!
P.S. My marketing team want me to apologise for the sphincter references in a lunchtime email.
P.P.S. Given that 3 years ago, my blog set off a ‘Profanity Alert’ in the regulator, because of the word ‘bottom’, which to be fair was in the context of the ‘bottom of the market’, do not be surprised in the evening news leads with reports of a blackout at the FCA :0
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