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Bizarro Buddha posted:I'm trying to help my mum with her finances and I'm a bit concerned about the cost of the financial advice she's getting. She has about 200,000 to invest to supplement her pension (from investments inherited from her mother which she's liquidated). My Dad (they're divorced, hence managing money separately) set her up with a financial advisor from a company called "true potential wealth management". Overall summary: they sound like a bunch of scam artists. I've just done a huge amount of reading since mid-July on investing and pensions. There's a crippling amount of mis-selling in the UK market. Before we go too far: in terms of the figures you've mentioned, is the target income of £4,800 per year inflation adjusted over time? If not, over 12 years of 2.5% inflation her actual income will have dropped by a quarter. The same question for the principal. If it's not keeping up with inflation it will drop by a quarter every 12 years (with inflation at 2.5% a year). The fund costs seem extortionate. As an example, here is one fund you may have heard people mention: https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc This charges 0.23%. That's the benchmark for costs you should be looking at. Costs add up very quickly. The difference between a 0.2% charge and a 1.2% charge would be an extra £2,000 a year of income for your mother. Do you have a list of funds they plan to invest in? Your dad's instincts may be in the right place however; if they're separated he probably won't want to be managing your mother's money. That said, there are many other options. Aertuun fucked around with this message at 19:50 on Sep 21, 2020 |
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Sep 21, 2020 19:46
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So the overall cost for all those funds is 0.8% annually (once you average out the percentages of the different funds). That's a lot. My most recent reading was by an author who did some very interesting research and, helpfully, covers exactly what your mother is trying to do. https://www.amazon.co.uk/gp/product/0997403403/ref=ppx_yo_dt_b_asin_title_o03_s00?ie=UTF8&psc=1 I was put onto it by Monevator, a UK site which has quite a wealth of interesting articles: https://monevator.com/review-living-off-your-money-by-michael-mcclung/ The book itself is quite... dense... but that's because it researches a wide range of different retirement options, allocations, methods etc. I've included the links so that, if you want to delve into the subject more yourself, you can see where I'm coming from. Disclaimer: There's lots of different ways of going about this. This is one way. FWIW this is the way I'd approach it. We're going to approach this from the perspective of being very conservative about both income and what the world economy/market might do. Your target income rate of 2.4% above inflation is very, very conservative (this is good). The main aim seems to be protecting the principal above inflation. So, one way you could go about this: * Split the money between equity index funds and bond funds. The bond funds should be conservative and diversified, and hold their value while getting (quite mediocre) growth. The equity index funds should also be conservative and diversified, but by their nature (should) provide decent growth. * You will "withdraw" the income money each year, at the start of the year. Sell bond funds to the correct amount (accounting for inflation). Increase the withdrawal amount every year by inflation. * There's no need to rebalance equities and bonds each year. What you want to do is "harvest" the equities whenever they go 20% over their initial amount (accounting for inflation). When they go over this figure, sell back down to their initial amount (accounting for inflation) and transfer the proceeds to your safe bond funds. You can check this once a year, or half year if you fancy it. Given the... febrile... nature of the world markets, you might want to wait until spring/early summer next year to get this going. This will be after Brexit, after the US election, etc. A 55% equity, 45% bond split is a good starting point. Your bond funds are your buffer that you eat from. The equity funds generate the growth that periodically gets harvested into the bond funds. A good buffer stops you eating the equities that generate the growth. But too much buffer and your equity funds can't generate the growth to replenish the buffer. Looking at a Bad Scenario: 2.5% inflation -0.5% Bond Growth/year (after inflation) 2% Equity Growth/year (after inflation) After 35 years you might have £231,033 in equities left over. Which seems "alright" until you realise you should have £463,064 once inflation is taken into account. I dread to think what your True Potential funds would look like. Looking at a still quite bad scenario: 2.5% inflation 0% Bond Growth/year (after inflation) 3% Equity Growth/year (after inflation) After 35 years you might have £350,183 in equities and bonds left over. Still not great. Why does the above not fully protect the principal? In both cases we're dealing with circumstances where the investments can't keep up with the amount of income we NEED to withdraw each year. On the plus side, your mother has always kept her inflation-adjusted income. Look at the above figures in context however. The Vanguard Global Bond Fund has given 3.61% annualised growth over the past ten years. The Vanguard Developed World (ex UK) Equity Index fund has annualised 14.88% growth over the past five years. Neither of these are top performers. However we can't rely on that continuing. Prepare for the worst. With slightly better equity performance: 2.5% inflation 0% Bond Growth/year (after inflation) 6% Equity Growth/year (after inflation) After 35 years you might have £625,396 in equities and bonds. Big profit! And this is still well below how equities have performed over the past decades. But a bad run of equities can very well happen. Reading through the above: I'm deliberately painting a doom and gloom scenario. I've also assumed protecting your mother's income is more important than protecting the principal. Choosing the actual bond fund and equity funds is another discussion. Aertuun fucked around with this message at 23:03 on Sep 21, 2020 |
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Sep 21, 2020 22:42
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pointsofdata posted:Those are all extremely high fees. Idk if she would be better off investing herself, just using her bank or buying an annuity but going with these guys definitely isn't the right choice. Unfortunately savings accounts in the UK are currently all negative growth once you take inflation into account. Buying an annuity would give a guaranteed income but ALL the principal would be gone.
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Sep 21, 2020 23:07
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Theophany, I would not agree that what is being offered here is discretionary fund management. This appears to be a "one-size fits all" portfolio that they offer to a wide variety of their customers. You can see the fact sheet for it here. https://www.tpllp.com/wp-content/uploads/2015/10/200915-True-Potential-Cautious-Portfolio-1.pdf It is VERY expensive for what it is. It isn't cautious, it hasn't provided reasonable growth, and if past performance continues it will not achieve any of the aims that their client is asking for. Over the past three years the cumulative performance is 5.7%, according to the company's own figures. This is at a time of hugely inflating equity markets. S&P 500 trackers have achieved 39.44% over the same time period. The hugely-diversified Vanguard Global All Cap Index Fund has achieved 26.37%. Even if someone invested everything in a global bond fund they would achieve a far higher return with far less risk (of all kinds). The Vanguard Global Bond Index Fund has achieved 12.05% over the same time period. If you were extremely risk averse three years ago and put everything in medium-term US treasuries you would be looking at a 20.93% cumulative return. The performance of their "portfolio" is terrible. And it costs 3-4x as much as any of those other options. I spoke to someone just this Sunday who does have an actual discretionary fund manager. That fund manager does charge 0.5% inc VAT. However they've also achieved a 22% real return over just this past year. I don't think it's a valid argument to say that just because other scam artists charge more, that because these people charge slightly less its "fairly reasonable for an ongoing advice proposition" The product they're offering is completely inappropriate. You'll also notice the upload date on that PDF; 2015. Despite it's poor performance, they haven't changed the weighting of any of those funds in the past five years. The asset allocation of their "portfolio" is also a Frankenstein creation. So the summary appears to be that they're charging £5,000 upfront to invest in a "portfolio" that has performed poorly for the past five years. The cost of the "portfolio" is £1,600/year, they're charging a management charge of £1,200/year (to do what exactly?) and the account charges £800/year just for existing. I'm not trying to bite your head off. It's possible you didn't get a chance to look into this in detail. I just don't understand how a self-described financial advisor can in any way defend this. Aertuun fucked around with this message at 14:54 on Sep 22, 2020 |
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Sep 22, 2020 14:52
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Bizarro Buddha posted:Thanks for the very detailed response, Aertuun. I'll talk to my parents about implementing something like this, though I'll have to get over the hurdle of selecting the funds and convincing them they don't need to hire someone to watch over it. Much appreciate the kind words! The key as others mention is to find a solution that your parents are happy with on an emotional level. This is very important if times ever get rough; they'll have confidence in what they signed up to. My understanding of the Vanguard Targeted Retirement funds is they're designed for people leading up to retirement, rather than retirees seeking an income. At your mother's (assumed) age, the Vanguard Target Retirement funds would have 35% in equities, 65% in bonds, which is far too much in bonds (for what you're aiming to achieve). That said, we're not after an "optimal" solution. The best solution might be to keep it simple. Go for a single broadly diversified world equity index fund, and a single global bond fund. Find someone who your mother trusts to do the rebalancing & withdrawals once a year. Initial allocations would be 55% equities, 45% bonds. Two examples which others can talk about & recommend: https://www.vanguardinvestor.co.uk/...xfund_fund_link https://www.vanguardinvestor.co.uk/...xfund_fund_link Disclaimer about these two: You'll find an entire range of opinions on what the best fund or selection of funds is. The book I mentioned in my earlier post had all sorts of elaborate portfolio weights. If you want to get more into this, the Monevator post on index trackers might be a good place to start: https://monevator.com/how-index-trackers-work/ Aertuun fucked around with this message at 15:22 on Sep 22, 2020 |
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Sep 22, 2020 15:09
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Ah, apologies if I came over a bit strong. You're of course completely right about the upload date! Given what you've said in your posts about the costs of operating; if I may ask, what are the typical costs of business for someone embarking as a newly qualified IFA? Is it difficult to operate without going down the "fleece the clients" route?
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Sep 22, 2020 16:37
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Very encouraging. I don't have the time at the moment to type out a longer post, but the headlines is that either of those options will vastly outperform what was on the table from before. Just on basics. The platform charge (if using Vanguard) will be far less. The fund fee is a quarter of what it was. The cumulative performance of both over the past three years is 3x that of the previous fund. It's not the best performance, but the best investment is one that your mother is happy with and will stick with if times get rough. There are some howevers, on the other hand. Because it's all lumped into a single fund, when you sell each year to take out the income, you'll be selling your growth-producing equities rather than the bonds. This is a risk over longer retirement periods, as the equities are the ones that produce the growth to support the principal and the income. This is particularly troublesome if markets have a few bad years right at the start. The funds will regularly rebalance internally back to 60/40. This means that when times are bad they'll be automatically selling growth-producing equities rather than the bonds (because equities will be lesser in value). When the recovery comes, it won't be able to bounce back as strong. And when equities are booming, they'll also be selling them to stick them into bonds (harvesting too soon because equities are higher). I'll ponder the management issue! Aertuun fucked around with this message at 18:53 on Sep 24, 2020 |
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Sep 24, 2020 18:32
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Breath Ray posted:i would. 30yo friend of mijne is being hired to be a coo I think you're responding to someone else! I was going to ponder his mother's concerns about "management", which could potentially be solved by a few very simple steps to follow, once every year...? Set up properly, all that needs to be done is withdrawing the annual income and selling the equities whenever they get too high.
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Sep 24, 2020 18:56
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Bizarro Buddha posted:Financial advisor update - my mum signed a contract with the advisor without getting back in contact with me to talk about what we'd been researching. Hmm, I think with some contracts in the UK there's a 14 day cooling off period if they're not signed in the office. However given your mother signed up to them it's worth having a long chat to work out exactly why. She may feel very uncertain about alternatives for whatever reasons. Any doubts or uncertainties about alternatives need to be addressed at the start, or else they'll just cause issues later down the line. She will need to be 100% happy and not feel forced into something. Edit: In financial terms, they're charging £4,000 a year just in terms of ongoing fees. Even if you change to a non-optimal alternative, you'll save £2,800 a year in fees. That's a huge chunk of income that you'll have regardless of how any investment performs. Not even taking into account their £5,000 upfront charge... Aertuun fucked around with this message at 13:57 on Oct 4, 2020 |
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Oct 4, 2020 13:51
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Charles Leclerc posted:Why would property values take a nosedive? Interest rates are higher than they have been for a while but in a historical context they're fairly normal. You're correct about property prices not necessarily taking a nosedive, however interest rates are deceptive because it's not just the rate itself that's important. Interest rates right now are historically at very high levels, when taking it account the size of borrowing and how it relates to people's incomes. https://twitter.com/EdConwaySky/status/1572975559449407489 To quote the example he gives, "For instance, take 1980. Back then, official BoE interest rates were on average 14.2%. But because people were much less heavily indebted, because their incomes were much higher vs their repayments, that was, in affordability terms, EQUIVALENT to 3% in today’s interest rates." Mortgage rates are now far beyond 3%. Also, rates on five-year fixes just indicates (in most cases) what the mortgage provider judges they'll be able to resell as a mortgage bond. And those markets are constantly adapting to new information as it arrives. Five-year fixes in the past few months have gone up substantially as new information has come available, and are at substantially higher levels compared to this time last year.
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Jun 9, 2023 17:56
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Charles Leclerc posted:The implication being that rates being where they are is absolutely temporary. 1980 is a specious comparison from a hack TV journalist because it ignores the context that it was before the credit boom, 1992 is a far more comparable example because rates spiked when people were very much loaded up on credit which up to that point had been comparably very cheap. I think you may be missing the point; when comparing interest rates, it's important to look at the effect they're having, not just on the percentage rate itself. The wider economic picture was radically different in 1980 in the UK (40 years ago), but this was specifically looking at the effect this would have on people's lives. In any case, you could handily draw your own comparisons by looking at 1992 on the same graph. So saying that interest rates are "normal" from a historical perspective is only correct through a really, really narrow framing. In any case, trying to predict either interest rates or house prices is a fool's errand. I'd recommend Ed Conway (in terms of his Twitter feed at least) to anyone reading the thread. I'm not familiar with any of his TV work, I mainly follow his online writing. In particular he's spent a lot of time looking at materials and sources of inflation over the past year. In other news, I'm not sure where you're getting your predictions on interest rates from, but bear in mind you got your January prediction completely wrong. Charles Leclerc posted:Rates are already falling from their peaks (albeit slowly) and the direction of travel for interest rates is somewhat more predictable than wider investment markets.
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Jun 10, 2023 07:45
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And for those interested in such things, here's a graph showing the "money in existence" in the UK, over time. Or to put it accurately, "Broad money (M4) in United Kingdom, 1900–2020, stated in millions of pounds sterling". This doesn't necessarily tell an entire story however, but it's a good broad brush indication of why direct comparison of interest rates as percentages over historical periods doesn't make sense. Looking into it more deeply requires going into effort post territory however. The world is very complicated! e: If you're wondering what happened in the early 70s, to quote the article I got this from. "On 15 August 1971, President Nixon announced that the convertibility of the US dollar into gold would be ‘temporarily’ suspended. That temporary basis has now been going on for 50 years and counting." Aertuun fucked around with this message at 08:19 on Jun 10, 2023 |
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Jun 10, 2023 08:17
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Shelvocke posted:As a little update, our deposit size and credit scores mean we should get the "best" mortgage rates for purchasing, yet those rates are now over 5% for a 5 year fixed and going up by the day. Difficult to know how to proceed - it no longer seems like a good idea to get the biggest mortgage we can afford like it was during covid. A general adage I've read a few times is that long term wealth comes from avoiding disaster rather than achieving fast success. Without knowing your full financial situation it's difficult to comment, but obtaining a mortgage that you can *easily* afford now will give you a buffer zone for any change in circumstances (and potential raise in interest rates) going forward.
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Jun 13, 2023 16:07
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Charles Leclerc posted:Mortgage rates did come down for a period after January (from which you completely yanked my post out of context), it's only in the last few weeks that providers have decided to pull a bunch of products. Again, as I have previously stated 5 year fixes being offered at lower rates than 2 year fixes demonstrates that there is a wide expectation that this trend will continue over the long term. Surprisingly, things change in financial markets in response to changes in conditions. If 5 year fixed rates are being offered at lower rates than 2 year fixes, it might be because there's an expectation rates will be lower in the future. Or, it might not. Without greater insight into the mortgage bond market (anyone willing to speak up?), we don't have any idea why they might be lower. And even then, how much visibility would that person have. Maybe there's abnormally high demand for two year bonds (which can be caused by all manner of reasons), or abnormally low demand for five year bonds (again, could be caused by many different reasons). No-one knows. If someone can correctly predict the direction of interest rates, mortgage bonds, or any other financial products, they shouldn't be posting on an internet forum. They should be out there making billions. To predict the future course of interest rates in the UK, you'd probably want to be able to predict the following: * What's going to happen to US interest rates. * What's going to happen to inflation within the UK. * What will be the outcome of the general election coming up, and what will the incoming government's policies be. * What's going to happen to the housing market in the UK, and how is that going to affect different regions. * The outcome of the war in Ukraine. * What will happen with China and Taiwan. * How is the UK and EU trading relationship going to develop. * How will the UK economy do over the next few years. All of the above will affect UK interest rates in some fashion. All the above to say; if you're trying to make an important financial decision, no-one can predict the future. No matter how qualified or authoritative they appear to be.
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Jun 13, 2023 16:29
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Charles Leclerc posted:I'm guessing. You've been doing a fair amount of guessing over the past few pages. There's been some good advice and some bad advice, to be fair, but when you make statements like "the direction of travel for interest rates is somewhat more predictable than wider investment markets", expect to have someone say that's flat out wrong, and even dangerous. Some people do come to this thread to ask questions about important financial decisions.
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Jun 14, 2023 06:48
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peanut- posted:It’s obviously true that internet rates are more predictable than other financial markets. There’s a far more limited number of inputs that’s change far less frequency. You can say right now with 90% certainty that the base rate will go up by 25bps next week, not a statement you could make about equity markets. Interesting. A lot of good points. I don't tend to read a lot about the US mortgage market, but then it's also true I also don't know exactly how much each different lender in the UK relies on mortgage securitisation. We can certainly have an debate over how "predictable" interest rates are compared to other financial markets, but in the context of giving financial advice to someone considering buying a home in this thread, I would argue that interest rates are no more predictable than any other financial market. We would need to know about which lenders were offering them products, what their particular circumstances are, and what factors would effect that lender's products in 3, 6, 9, 12 months time, in addition to 2, 5, 10 years down the line. It's far better to give advice based on someone's individual circumstances, with a deep understanding of their financial situation. If someone can predict what UK mortgage lenders rates are going to be 6, 12, 24 and 60 months down the line, please post in this thread ASAP. Market pricing might imply a number of things, it's true. However implication isn't certainty and market expectations have also, frequently, turned out to be completely wrong. Five year fixes being priced lower might indeed show that the market expectation is that interest rates will be lower over the next five years. However the market expectation 6 and 12 months ago was dramatically different.
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Jun 14, 2023 09:10
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peanut- posted:Yeah I don't really disagree with any of that, though I've lost track of what's really being argued about here! Nothing to do with you, I've found all your posts that I've read to be interesting and insightful. I was concerned that Charles Leclerc was stating a lot of things with quite... err... aggressive certainty that were (IMO) incorrect. Obviously this happens all the time on Internet and by journalists and economists and everyone else, but for some reason I thought I should dive in. I would love to continue on the vein of discussion that you've started, as you've put a focus on the different mechanics of how an everyday "consumer" interacts with equity vs mortgage markets. I think I've got a slightly different take on your last point, for example (but that doesn't necessarily mean it's incorrect). However to go into it in detail I suspect that would be a substantial derail to a thread that's mainly focused on choosing savings accounts and planning house buying decisions...
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Jun 14, 2023 10:33
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There's a very good desktop app called Portfolio Performance which is made by some Germans. However it can require a fair amount of data input. https://www.portfolio-performance.info/en/ It is, however, good at (approximately) tracking a lot of different accounts under (potentially) many different owners in one place.
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Jun 28, 2023 10:36
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MeinPanzer posted:With rates bound to go down this year or next... As qhat mentions, (and it's worth reiterating) there's no way to predict the future of interest rates. To illustrate, among the many events that could affect interest rates going forward: * What's going to happen in the Middle East over the next six months? * Will the UK and other European countries sanction the refined products of Russian oil coming in via India (among others)? * How will the situation at the Panama Canal develop? * What will be the outcome of the coming US election? * How will governments respond to the housing crises going on in various countries (Canada, Australia, UK, Germany)? * What's going to happen with the Ukraine war over the next year? So following Bills' advice, and going for a choice that reflects what you can personally afford going forward, is Wise.
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Feb 6, 2024 04:30
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