Low interest rates on savings

[kabbes]

Impressive historic performance on that ESG tracker fund. It’s in generally poor years that you see the benefits of good governance, and that fund has only produced a negative year once, which was the COVID year, and even then it was way better than a lot of others.

 

[platinumsage]

Impressive historic performance on that ESG tracker fund. It’s in generally poor years that you see the benefits of good governance, and that fund has only produced a negative year once, which was the COVID year, and even then it was way better than a lot of others.

I'm not sure it's performed much different to the global stock market.

Here it is compared to the FTSE World Index, and to an equivalent iShares ESG global tracker that uses the MSCI's equivalent index:

 

[Hollis]

Thank you (honestly) for the explanation.

But reading this kind of stuff and trying to understand it just makes me feel like the life force is draining out of me.

If I look at the Nutmeg website I can quickly find this, for example.

Socially Responsible Investing (SRI) - Open Today | Nutmeg - Nutmeg

Invest in a socially responsible (SRI) portfolio, built for environmental, social and governance (ESG) criteria. Know where you stand with ESG scoring.

www.nutmeg.com

I can see basically what it is, use a slider to see what kind of effect the risk level has on returns historically, and type in an amount to invest and see exactly what fee results from that. This appeals to me. (Black Rock MyMap, Legal and General index, ..)

I'm going to try looking at the Vanguard and Interactive Investor sites and see to what extent doing so makes me want to throw all my money in the sea and live in a cave somewhere.

If you really want to do nothing then nutmeg or similar is probably a good option.

The Vanguard Life Strategy funds also mean you really have to do nothing other than decide occasionally how much risk you want to take - which might change over time - other companies have similar funds.

Having said that with index trackers you can buy on ii you don't really have to do that much.

For most people probably the less you do the better! As I've read psychology can play alot as to why people mess up and end up getting below market returns. - e.g. trying to time the market, getting scared when the market is low, buying high , getting overattached to an investment.. etc -

 

[teuchter]

If you really want to do nothing then nutmeg or similar is probably a good option.

The Vanguard Life Strategy funds also mean you really have to do nothing other than decide occasionally how much risk you want to take - which might change over time - other companies have similar funds.

Having said that with index trackers you can buy on ii you don't really have to do that much.

For most people probably the less you do the better! As I've read psychology can play alot as to why people mess up and end up getting below market returns. - e.g. trying to time the market, getting scared when the market is low, buying high , getting overattached to an investment.. etc -

I guess my question would be, why not use Nutmeg or similar?
If it's because I can be tempted to think that having a bit more agency in choosing exactly what I am investing in is going to get me a significantly higher return, then that seems kind of unlikely, especially if I'm not interested enough to do a lot of research.
If it's because they can charge higher fees than the other platforms, because they deal with less picky customers, then I am more interested in looking at the alternatives.

 

[platinumsage]

I guess my question would be, why not use Nutmeg or similar?
If it's because I can be tempted to think that having a bit more agency in choosing exactly what I am investing in is going to get me a significantly higher return, then that seems kind of unlikely, especially if I'm not interested enough to do a lot of research.
If it's because they can charge higher fees than the other platforms, because they deal with less picky customers, then I am more interested in looking at the alternatives.

Definitely the latter. They charge 0.45% or 0.75% depending on which product you go for. Vanguard charge 0.15%. It’s not an outrageous difference (think of a 1.8% or 2.1% mortgage rate instead of 1.5%), but might start to grate as the total amount you have invested increases. You can always transfer though, so if after a couple of years you get the hang of what Nutmeg funds consist of, and think it would be trivial to replicate elsewhere, you can switch.

 

[kabbes]

They do have an app, I don't know where you have got that from. I used it to buy additional funds the other day!

I will say, when I signed up to ii I had less than zero idea what I was doing. I had no idea whether it was good value and actually no idea that 'good value' was a thing I should have been considering when getting a stocks and shares ISA. I don't think it's the cheapest one out there but it has everything you could want.

I have to return to say that following you paying this, I checked out the App Store and found that ii have a brand new app since last time I checked, which was about a year ago. I installed it and found that actually yes, they do now have a perfectly good app. So thanks for alerting me to this!

 

[Hollis]

Also re nutmeg while the returns are okay, they are nothing special!

Their highest risk fund .. has got a 5 year average return of 9.8% which is a decent return.

But Vanguard Life Strategy 100% equity averages 12.42% over the same period.

If you'd stuck the same money in a HSBC global index tracker you'd have got 14% average.. that's quite a difference with compounding. - Over 15 years you've doubled your return.

 

[teuchter]

Ok, so I have now tried to get my head around how the fees work, looking at ii, Vanguard and Nutmeg.

It seems that in each case there is a fee charged by the platform, and fees charged by the funds you invest in. The fees charged by the funds you invest in seem to be called OCF (ongoing charge figure). Is that right?

For the platform fees

• ii is a flat £9.99 per year, which gives you an ISA account as well as a general account. So for £5k it would be £9.99 and for £20k it would be £9.99.
• Vanguard is 0.15% per year of the amount invested. So for £5k it would be £7.50 and for £20k it would be £30.
• Nutmeg (for the "socially responsible" option) is 0.75% per year. So for £5k it would be £37.50 and for £20k it would be £150.

So Nutmeg is very expensive, Vanguard would be cheapest if you had less than about £7k to invest and otherwise ii is by far the cheapest. Is that also correct or am I missing something?

I don't see any reason to use Vanguard as the platform if you can buy into the same funds on the ii platform for cheaper, unless you are investing less than £7k.

Then for the fees associated with the funds - they seem to vary between 0.20% for that Vanguard ESG index fund, and an average of 0.86% for the funds listed in the ii "model portfolio". And Nutmeg gives a figure of 0.32%. But do I actually need to pay any attention to any of these? It seems that I can't really compare them like-for-like because a fund with a high OCF might generate higher returns overall, so I am not sure what useful information I can extract from this figure.

 

[teuchter]

That one fund is enough for your stocks allocation, it contains over 4000 companies in multiple countries so certainly isn’t all your eggs in one basket.

What it doesn’t have and what the Lifestrategy you funds mention above contain is any allocation to bonds.

If I understand correctly, the reason to include an allocation to bonds is to reduce overall risk/volatility.

So in very broad terms, would it make sense to say that instead of having (pulling numbers out of the air) 20% of savings in stocks, 20% in bonds and 60% in bank accounts, you could just have a strategy of 30% in stocks and the rest in bank accounts? And end up at a similar level of overall risk?

Or is the idea that bonds do well when stocks don't, so they can offset losses in a way regular savings accounts can't, or something like that?

 

[kabbes]

ii is £9.99 per month not per year. Its annual cost of £120 is by far the cheapest if you have enough invested, but it isn’t if you’re investing £5k or, in most cases (eg compared with the Vaguard platform), £20k

 

[kabbes]

By the way, if anybody does end up using ii then I’d appreciate it if I could refer you and thus receive a referral bonus! But they’re only the best value once the fund value has built enough to make the flat fee attractive.

 

[platinumsage]

If I understand correctly, the reason to include an allocation to bonds is to reduce overall risk/volatility.

So in very broad terms, would it make sense to say that instead of having (pulling numbers out of the air) 20% of savings in stocks, 20% in bonds and 60% in bank accounts, you could just have a strategy of 30% in stocks and the rest in bank accounts? And end up at a similar level of overall risk?

Or is the idea that bonds do well when stocks don't, so they can offset losses in a way regular savings accounts can't, or something like that?

Yes that's the idea. It used to be the case that both stocks and bonds offered decent returns, although stocks did better over the long term. The two were also inversely correlated, when one went down the other went up etc, meaning that with a portfolio of e.g. 60% stocks and 40% you could smooth out growth by re-balancing back to those proportions every so often. Someone e.g. in their 20s investing for retirement and not needing the money for 40 years would still have been best off in 100% stocks, but someone who might need the money sooner might have been better off with a mixture of both.

However since the financial crisis the picture has changed somewhat, in that bonds have now had a ten year bull market and arguably have nowhere to go but down (if the near-zero bond rates rise, capital values drop), and the inverse correlation is probably broken. You'll find articles everywhere talking about the death of the 60:40 portfolio etc. Keeping a proportion in cash instead is a reasonable alternative, as it lets you re-balance in the event of a crash by buying stocks when they're cheap, while still having some cash available to withdraw if needed without selling stocks at the worst possible time when their values have dropped. But of course cash doesn't rise when stocks drop, and neither does it provide an above-inflation return (it's pretty much guaranteed to lose you money long-term). For this reason I think holding less cash than you would have held bonds is a decent option, so your example of having 30% stocks instead of 20% stocks and 20% bonds could be a good plan. But really it all depends on your circumstances, future needs and income etc

 

[kabbes]

There’s bonds and there’s bonds too. Government bonds have a very different risk profile and market volatility than do “high yield bonds” (ie bonds that pay more because of an appreciable credit risk). The latter move more in line with shares, because they are similarly based more on market sentiment about perception of security, rather than so much about long term interest rates.

Bond investments is a whole other discussion, though. I think sticking with mostly shares and cash is a perfectly decent strategy.

 

[platinumsage]

Ok, so I have now tried to get my head around how the fees work, looking at ii, Vanguard and Nutmeg.

It seems that in each case there is a fee charged by the platform, and fees charged by the funds you invest in. The fees charged by the funds you invest in seem to be called OCF (ongoing charge figure). Is that right?

For the platform fees

• ii is a flat £9.99 per year, which gives you an ISA account as well as a general account. So for £5k it would be £9.99 and for £20k it would be £9.99.
• Vanguard is 0.15% per year of the amount invested. So for £5k it would be £7.50 and for £20k it would be £30.
• Nutmeg (for the "socially responsible" option) is 0.75% per year. So for £5k it would be £37.50 and for £20k it would be £150.

So Nutmeg is very expensive, Vanguard would be cheapest if you had less than about £7k to invest and otherwise ii is by far the cheapest. Is that also correct or am I missing something?

I don't see any reason to use Vanguard as the platform if you can buy into the same funds on the ii platform for cheaper, unless you are investing less than £7k.

Then for the fees associated with the funds - they seem to vary between 0.20% for that Vanguard ESG index fund, and an average of 0.86% for the funds listed in the ii "model portfolio". And Nutmeg gives a figure of 0.32%. But do I actually need to pay any attention to any of these? It seems that I can't really compare them like-for-like because a fund with a high OCF might generate higher returns overall, so I am not sure what useful information I can extract from this figure.

Yes this is all true aside the ii price as kabbes mentioned. Passive funds should be in the 0.2% ballpark and active should be less than 1%. Anything over 1% is probably doing something unusual such as private equity, or just taking the piss. But yes it doesn't matter much - it's the total return that matters. Obviously funds with a lower fee will have a better chance in theory of providing a better return long-term return because they have to do less work to make up the shortfall of the manager pocketing some of the gains.

Another platform to consider is the no-frills iWeb (owned by Lloyds Banking Group). They don't charge any ongoing fees at all, only a one-off opening fee of £100 and £5 charge per trade. Depends how much you'll deposit and how often you'll trade. It's easy to switch in future though so don't worry too much.

 

[Santino]

By the way, if anybody does end up using ii then I’d appreciate it if I could refer you and thus receive a referral bonus! But they’re only the best value once the fund value has built enough to make the flat fee attractive.

Can you lend me the capital to make it attractive enough?

 

[teuchter]

ii is £9.99 per month not per year. Its annual cost of £120 is by far the cheapest if you have enough invested, but it isn’t if you’re investing £5k or, in most cases (eg compared with the Vaguard platform), £20k

Oh yeah! Oops. That makes more sense.

 

[kabbes]

Can you lend me the capital to make it attractive enough?

At very competitive rates of 20% p.a.?

 

[teuchter]

Corrected version (for the benefit of anyone else looking at this):

For the platform fees

• ii is a flat £9.99 per month (£120 per year), which gives you an ISA account as well as a general account. So for £5k it would be £120/yr and for £20k it would be £120/yr and for £100k it would be £120/yr.
• Vanguard is 0.15% per year of the amount invested. So for £5k it would be £7.50/yr and for £20k it would be £30/yr and for £100k it would be £150/yr.
• Nutmeg (for the "socially responsible" option) is 0.75% per year. So for £5k it would be £37.50 and for £20k it would be £150 and for £100k it would be £750/yr

So Nutmeg is most expensive regardless of amount invested, Vanguard would be cheapest if you had less than about £80k to invest and ii would be the cheapest if you had more than about £80k.

 

[Santino]

At very competitive rates of 20% p.a.?

And if I lose money I still owe you all of it?

 

[kabbes]

And if I lose money I still owe you all of it?

The wonderful world of banking

 

[Winot]

Just looked back at my last pension info to check charges:

Platform charge = 0.15%
IFA charge = 0.3%
Average total investment charge across all funds = 0.91%

 

[teuchter]

Vanguard Asset Management | Personal Investing in the UK | Vanguard UK Investor

www.vanguardinvestor.co.uk

Vanguard Asset Management | Personal Investing in the UK | Vanguard UK Investor

www.vanguardinvestor.co.uk

Vanguard Asset Management | Personal Investing in the UK | Vanguard UK Investor

www.vanguardinvestor.co.uk

These are the three Vanguard funds that are passive and fall into the 'ESG' category.

I can see that the third one includes companies anywhere in the world while the first two are "developed world" only.

Is there any reason for me to care what the difference is, between those first two? Because whatever the difference is, I don't understand it enough to make any informed decision and therefore might as well choose at random.

 

[platinumsage]

Of the first two, one is domiciled in Ireland and the other in the UK. It's best to choose the UK one for reasons that don't really matter (another layer of post-Brexit FSCS protection should Vanguard commit fraud or something, and possibly it will trade a day quicker).

The last one has a few percent in emerging markets which probably won't make much of a difference either way.

 

[kabbes]

Corrected version (for the benefit of anyone else looking at this):

For the platform fees

• ii is a flat £9.99 per month (£120 per year), which gives you an ISA account as well as a general account. So for £5k it would be £120/yr and for £20k it would be £120/yr and for £100k it would be £120/yr.
• Vanguard is 0.15% per year of the amount invested. So for £5k it would be £7.50/yr and for £20k it would be £30/yr and for £100k it would be £150/yr.
• Nutmeg (for the "socially responsible" option) is 0.75% per year. So for £5k it would be £37.50 and for £20k it would be £150 and for £100k it would be £750/yr

So Nutmeg is most expensive regardless of amount invested, Vanguard would be cheapest if you had less than about £80k to invest and ii would be the cheapest if you had more than about £80k.

To add to the list, for completeness:

• Hargreaves Lansdown is 0.45% for the first £250k (sliding scale after that), so the costs on your comparisons are £22.50, £90 and £450 for investments of £5k, £20k and £100k.
• Strawberry (who are a bit like Nutmeg) are 0.3% below £50k but 0.2% for 50k to 1m, and with a £24 minimum, so that would be £24, £60 and £200 on the same amounts.

That’s all for the platform fee. I don’t know if Strawberry have an additional charge for their portfolio selections.

 

[teuchter]

Back to the mortgage thing. Previously there was the discussion about whether it can make sense to not pay off a portion of it, if you can gain more interest on investing/saving that money than the mortgage will charge you to borrow it.

I'm about to renew a mortgage deal, I want to do a fixed rated for 2 years and so they offer some options to cause confusion, the main one being that you can choose between
(a) a lower interest rate let's say 1.4% but you have to pay a one off fee of £1000
(b) a higher interest rate, let's say 1.7% but there is no one-off fee.

Worked out over the two years, going for the higher rate costs less.

But - they want to tempt you to pay the £1000 fee by offering to add it to the mortgage, so you don't have to pay it now, the monthly payments go up only marginally, and the cost over the next two years is now less than the other option.

I still have to pay it at some point, of course, but if I've decided that I am not going to pay off part of my mortgage even though I could... does logic then dictate that I should choose option (a) and add the fee to the mortgage? Or am I getting myself confused?

 

[alex_]

Back to the mortgage thing. Previously there was the discussion about whether it can make sense to not pay off a portion of it, if you can gain more interest on investing/saving that money than the mortgage will charge you to borrow it.

I'm about to renew a mortgage deal, I want to do a fixed rated for 2 years and so they offer some options to cause confusion, the main one being that you can choose between
(a) a lower interest rate let's say 1.4% but you have to pay a one off fee of £1000
(b) a higher interest rate, let's say 1.7% but there is no one-off fee.

Worked out over the two years, going for the higher rate costs less.

But - they want to tempt you to pay the £1000 fee by offering to add it to the mortgage, so you don't have to pay it now, the monthly payments go up only marginally, and the cost over the next two years is now less than the other option.

I still have to pay it at some point, of course, but if I've decided that I am not going to pay off part of my mortgage even though I could... does logic then dictate that I should choose option (a) and add the fee to the mortgage? Or am I getting myself confused?

How much interest are you going to pay on the grand over the full term ?

 

[teuchter]

How much interest are you going to pay on the grand over the full term ?

potentially this

Previously there was the discussion about whether it can make sense to not pay off a portion of it, if you can gain more interest on investing/saving that money than the mortgage will charge you to borrow it.

 

[platinumsage]

Option A. You will owe them the £1000 on taking the deal, so it will effectively be added to your mortgage at that point, but they give you the option of paying it back immediately. So, it shouldn’t really be treated any differently to the rest of your mortgage when deciding whether to save/invest your cash or hand it over to them.

 

[Artaxerxes]

Urgh, getting charged to put your money places is the number one thing that's stops me investing.

I just want to put cash somewhere and leave it to do whatever and I'm so used to getting nothing back that the idea of paying just offends me.

 

[teuchter]

Option A. You will owe them the £1000 on taking the deal, so it will effectively be added to your mortgage at that point, but they give you the option of paying it back immediately. So, it shouldn’t really be treated any differently to the rest of your mortgage when deciding whether to save/invest your cash or hand it over to them.

Yes, that's how it looks to me.

There'd be no point in taking option A if my intention were to pay it back immediately - only if I wanted to add it to the mortgage and pay it back later.

They still give people the option of paying the fee upfront but this appears to be sneaky to me, because I can't see any situation where it would be in the borrower's interest to do that. It seems like a deliberate attempt to trick people with an interest rate that appears attractive.