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