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Decumulation strategy: the No Cat Food Portfolio [Members]

The No Cat Food Portfolio logo

Welcome to the second episode of our new retirement withdrawal series. The decumulation equivalent of our long-running Slow & Steady Portfolio.

Our mission?

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Our Weekend Reading logo

What caught my eye this week.

Seems that even Vanguard investors can be turned into – ahem – ‘tactical asset allocators’ if they are hit by one of the worst bond slumps for several generations.

Trustnet reports that in 2023:

[…] investors withdrew £426.2m out of Vanguard LifeStrategy 60% Equity, the largest fund in the [LifeStrategy] range.

Yet, Vanguard LifeStrategy 40% Equity was the most affected fund, as it shed £1.2bn, making it the most sold portfolio in the IA Mixed Investment 20-60% Shares sector.

Investors also shunned Vanguard LifeStrategy 20% Equity, taking out £404.6m from the smallest fund in the LifeStrategy range. As a result of those outflows, it was the most sold fund in the  IA Mixed Investment 0-35% Shares sector.

These are not inconsequential liquidations.

In the case of the LifeStrategy 20% Equity fund, it represents about a 25% outflow versus that fund’s size the year before.

Everybody hurts

While I believe that many of those taking money out of these funds are probably making a mistake, I do sympathise.

As I wrote when recapping the calamitous bond crash of 2022, the whole reason we own bonds is to (hopefully) make our portfolios less volatile.

Equities are where you go for thrills and spills. But bonds are meant to numb you into ignoring most of that action.

Great in theory, but at the time I posted that piece (late November 2022), the supposedly most-boring LifeStrategy 20% Equity fund had actually delivered the biggest one-year loss of all the LifeStrategy line-up.

That was not the game investors thought they were playing. So it’s not too shocking some have said “thanks but no thanks” and taken their marbles elsewhere.

Yet as both myself, The Accumulator, and many others have belaboured since the bond crash, that was then and this is now.

The sell-off in bonds made their yields reasonable again. That is key. It doesn’t rule out another bad year for bonds, but overall their expected returns over the medium-term are now much higher.

You may remember Vanguard itself gave us a forecast just before Christmas?

The fund titan said:

We expect UK bonds to deliver annualised returns of around 4.4%-5.4% over the next decade […]

That’s a huge difference compared to when quantitative tightening started in early 2022.

Indeed Vanguard was looking for just 0.8%-1.8% 10-year annualised returns as recently as the end of 2021, just before the rate-hiking cycle began

Sweetness follows

The ultra-low yields that prevailed for over a decade presented huge challenges for everyday investors – and for those who write about such things, too.

With hindsight, everyone would have liked to have sold bonds before they… repriced.

If only life were so simple.

Nevertheless, even before the sell-off somebody who was in the LifeStrategy 20% Equity fund probably didn’t have much capacity or tolerance for losses.

That was presumably why they were in that fund in the first place. And it wasn’t necessarily the wrong place for them to be.

Dreadful though a 10%-plus loss from a bond-heavy fund in a year might feel, that’s much less bad than the worst you’ll see from equities.

In fact a 15% down market is routine from shares every few years. (Try on a 30-50% crash for size.)

Shiny happy people

Presumably much of the money withdrawn from bond funds has gone into cash. That’s not the end of the world while interest rates are healthy.

A chunky holding of cash might not even be a bad long-term decision for some investors – though that money will likely underperform bonds if it stays in cash for long enough.

But if what was meant to be low-risk bond money held by low-risk investors has actually shifted into equities? That’s an accident waiting to happen.

We’ll have to wait and see. (And thus discover once again what only looks obvious with the benefit of hindsight.)

Have a great weekend all. Hope your side does okay in the Six Nations, which has just kicked off. But better yet that my side wins!

[continue reading…]

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Our updated guide to help you find the best online broker

Attention UK investors! You know how we created that massive broker comparison table? Well we’ve gone back to the coalface once more to update it to help you find the best online broker for you.

Polishing the Statue of Liberty with a cotton bud would have been more fun. But it would not have produced a quick and easy overview of all the main execution-only investment services.

Investment platforms, stock brokers, call ’em what you will… we’ve stripped ’em down to their undies for you to eyeball over a cup of tea and your favourite tranquillisers.

Online brokers laid bare in our comparison table

What’s changed with this update?

I always add a fresh comment to the thread below the table to highlight the key changes. This time I note:

AJ Bell ETF/share dealing fees go down in April but not yet. iWeb has extended its £100 account fee holiday. Fineco is winding down its UK operation so is out.

Anyone got experience of Lightyear? I’ve not added it so far as it’s very new and only protected up to €20,000 by the Estonian investment protection scheme. That said, Degiro is only protected up to the same amount in the German scheme.

ShareDeal Active no longer offers SIPPs. The same is also true for X-O – same company, different brand.

See my full comment for a summary of which platforms have an edge for what.

Or better yet study the table to find the best online broker for your situation.

Who’s the best broker?

It’s impossible to say. There are too many subtle differences in the offers. The UK’s brokers occupy more niches than the mammal family. And while I know which one is best for me, I can’t know which one is right for you.

What we have done is laser focus the comparison onto the most important factor in play: cost.

An execution-only broker is not on this Earth to hold anyone’s hand. Yes, we want their website to work. We’d prefer them to not screw us over, go bust, or send us to the seventh circle of call-centre hell. These things we take for granted.

So customer service metrics are not included in this table. It’s purely a bare-knuckle contest of brute cost for services rendered.

Why should DIY investors flay costs as if they were the tattooed agents of darkness? Because the last thing you need is to leak 1% in management charges. Especially not in light of annual after-inflation expected returns of less than 3% on passive portfolios for the next decade.

This makes picking the best value broker a key battleground for all investors.

Using the table

We’ve decided the main UK brokers fall into three main camps:

  • Fixed-fee brokers – charge one price for platform services regardless of the size of your assets. In other words, they might charge you £100 per year, whether your portfolio is worth £1,000 or £1 million. Generally, if you’ve got more than £12,000 stashed away then you definitely want to look here. Bear in mind that fixed fee doesn’t mean you won’t also be tapped up for dealing monies and a laundry list of other charges.
  • Percentage-fee brokers – this is where the wealthy need to be careful. These guys charge a percentage of your assets, say 0.3% per year. For a portfolio of £1,000 that would amount to a fee of £3. On £1 million you’d be paying £3,000. Small investors should generally use percentage-fee brokers. However even surprisingly moderate rollers are better off with fixed fees. Many percentage-fee brokers offer fee caps and tiered charges to limit the damage. But the price advantage still favours the fixed-fee outfits in most cases.
  • Trading platforms – brokerages that suit investors who want to deal mostly in shares and more exotic securities besides. Think of sites like Interactive Brokers, Degiro, and friends. Beware: don’t imagine zero-commission brokers are giving it away. Their services cost money so they’ll be making up the difference somewhere. Probably in less obvious fees such as spreads.

The table looks complex. But choosing the right broker needn’t be any more painful than ensuring it offers the investments you want and then running a few numbers on your portfolio.

Help us find the best online broker for all of you

The final point you need to know is that this table’s vitality relies on crowd-sourcing.

We review the whole thing every three months. But it can be permanently up-to-date if you contact us or leave a comment every time you find an inaccuracy, fresh information, or a platform you think should be added.

Thanks to your efforts as much as ours, our broker comparison table has become an invaluable resource for UK investors looking to find the best online broker.

Take it steady,

The Accumulator

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Quality street [Members]

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I fantasise about holding quality companies for decades. Of following in the footsteps of Terry Smith, David Herro, Charlie Munger, and the Nicks Sleep and Train and owning great businesses for the long-term.

In reality alas I’m at best a sometimes-prescient buyer of growth stocks. More often I’m an opportunist. Turning over my portfolio like I’m playing a shell game. Hunting for a 20-50% hit before moving on to the next one.

This article can be read by selected Monevator members. Please see our membership plans and consider joining! Already a member? Sign in here.
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