Trustnet Magazine 58 January 2020 | Page 58

In the back More experienced investors tend to be interested in a wider range of asset classes, such as investment trusts, bonds, direct equities and specialist funds that are only likely to be available on the larger platforms. The SIPP account may also have restrictions on the types of assets you can hold, which could limit your investment strategy (for example, investing in unquoted companies or commercial property). Finally, do your investments really need to shoot the lights out year in and year out? Some professional investors (Terry Smith and Warren Buffett to name but two) aim to select a solid core of investments that they can hold for the long term. Is there not something that we can learn from this? Choose highly rated funds from highly rated fund managers working for highly rated asset management firms and hold them for the long term. And if we’re doing this, then do we really need the in-depth research and advanced functionality that we pay for in some of the investment platforms we use? Or is the answer to buy a small number of investments at as low a cost as possible and leave them alone? TRUSTNET [ PLATFORMS & PENSIONS ] 58 / 59 The $64,000 question Occasionally, one of my wealthier friends asks what they should do with their investments. Most are clients of wealth managers, who perform consistently but charge aggressively for their service. I don’t discourage them to switch but instead tell them to put a sum of money directly into a low-cost fund so they can see the effects of charges on performance. Using the platform comparison tool on comparefundplatforms.com, we can see the impact charges can have on a long-term SIPP investment. It shows the difference in charges between a tracker and an actively Choose highly rated funds from highly rated fund managers working for highly rated asset management firms and hold them for the long term managed fund held on the most expensive platform can be as high as 0.98 percentage points a year. On an initial lump sum of £100,000 with further investments of £1,000 a month over 25 years and assuming growth of 6 per cent per annum, the tool shows you would end up paying £166,211 more in charges if you went for the more expensive option. You’d need to generate an extra 1 per cent above a standard ETF-based portfolio every year for 25 years to eradicate the higher charges. If you’ve got real talent as an investor, you may think you can shoot for 9 per cent per annum. Those tiny increases in performance make a massive difference to the final value of your pension, regardless of charges, which here are huge. Only one thing’s for sure. Over the long term – in this case 25 years – you can control your charges and cost, but you would have to be extremely lucky to control your fund performance. trustnet.com