Here’s a quick way of working out how much your entire portfolio costs to run at the fund level. Simply take each fund in your portfolio and…
Multiply the fund’s Ongoing Charge Figure (OCF) by the percentage of your portfolio that’s allocated to the fund.
This gives you the weighted OCF of each fund in your portfolio.
Now add those numbers up to discover your portfolio’s total OCF.
For example, here’s the total OCF for Monevator’s Slow and Steady portfolio:
| Index fund | Allocation (%) | OCF (%) | Weighted OCF (%) |
| BlackRock US Equity Tracker Fund D | 25 | 0.18 | 0.25 x 0.18 = 0.045 |
| BlackRock Continental European Equity Tracker Fund D | 12 | 0.18 | 0.12 x 0.18 = 0.0216 |
| Vanguard FTSE UK Equity Index Fund | 15 | 0.15 | 0.15 x 0.15 = 0.0225 |
| BlackRock Japan Equity Tracker Fund D | 7 | 0.18 | 0.07 x 0.18 = 0.0126 |
| BlackRock Pacific ex Japan Equity Tracker Fund D | 7 | 0.24 | 0.07 x 0.24 = 0.0168 |
| BlackRock Emerging Markets Equity Tracker Fund D | 10 | 0.28 | 0.1 x 0.28 = 0.028 |
| Vanguard UK Government Bond Fund | 24 | 0.15 | 0.24 x 0.15 = 0.036 |
| Total portfolio OCF | – | – | 0.18% |
Source for OCFs: Fund factsheets.
The actual OCF of your entire portfolio may be quite a jolt. We tend to overestimate the importance of the cheapest funds even if they only account for a sliver of the whole cheese.
If you’re tempted to risk a switch to the new fund on the block, it’s instructive to find out just how little it may move your dial. The risk of losing money due to a spike in the market while your cash is on the sidelines may well outweigh any marginal cost shaving.
What’s that in real money?
The real value in knowing your portfolio’s total OCF is that you can now work out how much it actually costs in pounds and pence.
Just multiply the market value of your fund by its total OCF and you’ll have a rough idea of what you’re paying out.
Continuing with our Slow and Steady example, our little portfolio had a market value around £11,400 the last time I looked. Its total OCF of 0.1825% means that it will incur annual fund fees in the region of:
£11,400 x 0.001825 = £20.80
I know! We’re high rollers around here.
Obviously the portfolio’s market value will fluctuate and more cash will be poured in, but that figure let’s us know what ballpark we’re playing in.
Note: The cost represented by the OCF doesn’t include platform fees, dealing fees, tracking error, and any spreads that may be leeching away our returns.
Now, it’s not unknown for passive investors of my geeky disposition to get a little obsessive over costs. That’s one of the few things we know we can control.
So it’s instructive to remember that if the Slow and Steady portfolio was 50% more expensive then that would amount to about £10 a year extra on the bill. In other words, the price of a few drinks in the pub.
Anyone who’s fallen for media scare stories along the lines of “eating jam can increase your chances of contracting leprosy by 30%” when the incidence of the original illness is absolutely minimal will understand how misleading percentages can be when not rooted in reality.
Sure, the money gets more serious the larger your portfolio. And small pots undoubtedly benefit from careful husbandry.
But by calculating the cost of your entire portfolio, you can silence any worries that you may be leaking cash like a Premier League footballer in a strip club.
Take it steady,
The Accumulator
P.S. – Let us know about any calculations you find useful in your investing life. We’ll round them up in a future post if we get enough.
Comments on this entry are closed.
Maths tell you that savings on OCFs matter more in later years because all the charges are % based and the pot is bigger
Saving 0.1% a year on a £1m portfolio is worth £1,000 a year or in other words an extra acceptable holiday a year
Saving 0.2% becomes a very nice holiday
I’ll take that every year for free thanks
(I wouldn’t say a £1m portfolio is fanciful, since this is the amount you are going to need for retirement and a few million UK households will have this much in SIPPs and ISAs right now)
The problem is of course being out of the market for a while, but I think I’m just gonna take the plunge in August when everyone is on holiday
@Neverland
When you get larger numbers in your pot, you may want to do the maths for switching to your funds’ equivalent EFTs. If you are comfortable with ETFs then you may find them more economical due many brokers not charging platform fees for share investments (including EFT) portfolios.
@Accumulator
Thanks for another useful article. An idea for a future calculation example might be a fund vs. ETF running cost break even point?
Two calculations I find useful are:
1 Add in platform fees and all dealing fees (over preceding 12 months) to internal on going charges and calculate back to ‘total portfolio cost as percentage.
2 Separate costs for equities and fixed income. Bond funds mainly have significantly lower charges so a bond-heavy portfolio will flatter costs. This is a bit fiddly with Vanguard Life Strategy funds (but easy with a spreadsheet).
@RIC
Switching to ETFs is exactly what I am doing
Then, also, I won’t have this “being out of the market” problem either
@Neverland
> “…I won’t have this “being out of the market” problem ”
Yes, I like that aspect too. And being able to actually see the spread. I like transparency.
What really matters though is the the difference between the performance of the fund and that of the index (or pool of shares) it tracks. As mentioned in the box, platform fees, dealing fees, tracking error, and any spreads may be leeching away our returns.
Do we have data on this? For instance, if the FTSE 100 goes up 7% in 2013 with dividend reinvested and I own a certain index tracker, how much will I make in 2013 after ALL fees and tracking errors are considered?
Now, I know this is much more difficult to calculate, but at the same time it is the only thing that really matters.
@Federico — You might take a look at this article on tracking error if you’ve not already.
Personally I believe with big indices and mainstream funds where you’re paying competitive fees, tracking error is much of a muchness.
I don’t think you’ll find a source for an ‘all in’ cost — too many variables. That’s why we keep writing articles about this quirk or that. (Plus we don’t like the sun so much…)
Yes, I guess this info is difficult to find.
What could be useful is perhaps a retrospective analysis of how index trackers or funds performed against their targets in recent years after all fees and frictional costs have been considered.
Something like, if I had invested £10,000 in index tracker X on 1st Jan 2012 and had sold everything in it on 31st December 2012, how much would I have had in the bank?
A fund’s tracking error is all you need to know. That plus dealing fees, platform fees, initial fees and spread. Have I forgotten anything? Oh, and tracking error is an nightmare to get accurate data on. Sheesh…