Good reads from around the Web.

A warm welcome to you if you’ve found Monevator today after hearing Mark on Money Box on BBC Radio 4.

If you want to learn more about the pros and cons of discounted funds, check out our recent article.

And there’s plenty more to dig into after that…

Why you should read Monevator

Monevator is about investing money for the long-term, whether it be for your retirement, paying off your mortgage, financial freedom, or some other goal.

We also write about saving, property, entrepreneurship – and now and then just rant about whatever gets our goat.

It’s written by two ordinary people, from our perspective as savers and investors.

Most of our articles are long, a bit nerdy, but (we hope) always readable and entertaining.

We write long articles because while investing can be easy and simple, too many people have been confused, misled, or misguided over the years.

We’re doing our bit to put that right!

If you’re new to the site, you might get started with our guide to passive investing.

A few good reads to begin with include:

• 5 reasons why you’ll love index investing

• Investing for beginners: Why invest at all?

• The 7 habits of highly successful private investors

• Which asset allocation is right for you?

• The 10 reasons most people do better with houses than shares

There are hundreds more articles in the archives, so please do dig around!

You should also check out our broker comparison table to find the cheapest home for your investments.

Make yourself at home

The rest of this post consists of links to money and investing articles on the web that I’ve found interesting this week.

I do this every Saturday morning, and there’s always something worth reading.

We have more information about investing at our fingertips than any previous generation. But at the same time it’s never been harder to know what to do with your money – nor more important to take charge of your financial future.

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The big beast of British investment platforms, Hargreaves Lansdown, has revealed the special discount rates it has secured on index funds.

On the face of it, Hargreaves now hosts the cheapest trackers on the market. From UK equity to emerging markets you could easily put together a diversified portfolio using its range. A range that consists of reputable BlackRock and L&G index funds especially discounted, thanks to Hargreaves’ powers of persuasion and market dominance.

Sadly, while the funds are super competitively priced, Hargreaves’ charges for using their platform are not the best.

The reality is you can buy a much cheaper portfolio using standard-priced index funds from a broker that’s happy to keep a smaller slice of the pie for itself.

The table below shows the full cost picture once you add in platform fees.

Every Hargreaves Lansdown fund pick is more expensive overall in comparison to rival Charles Stanley Direct when you add the two fees together:

Note: Dealing costs are zero. The above table shows a representative sample of the full HL range.

What’s the difference?

You’d pay 34% more overall for the privilege of holding a portfolio of Hargreaves Lansdown’s “super low cost” trackers in comparison to their equivalents at Charles Stanley, using the following assumptions:

• The portfolio equally weights the seven fund categories above (excluding the International fund which wouldn’t be needed).

• Costs are calculated on a portfolio that’s smaller than £250,000. Both Hargreaves Lansdown and Charles Stanley offer reduced rate tiers beyond this figure.

The weighted total cost of the portfolios is 0.59% at Hargreaves Lansdown and 0.44% at Charles Stanley.

On a £10,000 portfolio that’s no big deal: you’d pay £59 to Hargreaves and £44 to Stanley. I wouldn’t rush for the door for the sake of £15, especially when may have to pay exit fees.

But as you go up the scale, the gulf widens. On a £50,000 portfolio you’d pay:

• £295 p.a. to Hargreaves Lansdown

• £220 p.a. to Charles Stanley

• £99 p.a. to a fixed rate broker like Interactive Investor or iWeb (assuming you can keep your dealing costs within the £80 threshold, which is eminently doable for a passive investor).

Imagine your £50,000 portfolio made a return of 3% that year or £1,500. Hargreaves’ charges would snaffle 20% of that return. Charles Stanley would chomp 15% while Interactive Investor would take less than 7%.

That’s a big difference and it exemplifies why inertia and headline claims of “super low cost” deals are the investor’s enemy if left unchallenged.

Of course if we saw, say, a 20% year, then the percentage of returns eaten up by all these charges would be a lot lower. But you can count on returns closer to the 3% end of the spectrum than the 20% end over the long term.

Hi Fidelity

Fidelity is the other big player who is sounding the horn for its exclusive low cost trackers. Again, the manager’s special is a dish best served to someone else:

Note: Dealing costs are zero.

As with Hargreaves Lansdown, Fidelity is second class in every category. It even takes a beating from the institutional version of its own World index fund that’s available from Charles Stanley.

The weighted total cost of both portfolios is 0.51% vs 0.45%.4 In other words, you’ll pay 13% more for Fidelity’s exclusives.

That’s only £6 difference on a £10,000 portfolio but as your wealth heads north of £16,000 then you’re increasingly better off with a fixed fee broker.

Cleaning up

Don’t think you’re getting anything special with exclusives funds – sometimes described as Super Clean by an industry that believes you can shift anything as long as you market it correctly.

Super Clean funds are just low-price share classes of regular funds. In other words, they are exactly the same thing except for the discount.

If the discounted fund’s Ongoing Charge Figure (OCF) plus the platform fee amounts to more than you’d pay for much the same thing elsewhere then who wins? Not the investor that’s for sure.

(Ignore any references to Annual Management Charges (AMC) or any other fund fee formulation that isn’t labelled the OCF or Total Expense Ratio (TER) or “total cost of investing”. AMCs are just another little trick designed to wrong-foot unwary investors and to underplay the true costs of a fund).

What’s more, an ‘exclusive’ fund that’s not stocked by other platforms may cause problems if you decide to switch later on.

You may have to sell your exclusive into cash to facilitate the transfer and buy into a new fund that is more commonly available. That’s time out of the market that could cost you more money and may put you off a switch that would otherwise work in your favour.

So don’t be lured in by special offers designed to make you feel better about paying more for the same thing.

Big brands will always try to leverage their cachet but as savvy DIY investors we should seek out their hungrier, more competitive rivals who are prepared to do us the best deal.

Take it steady,

The Accumulator

1. Full name is BlackRock Emerging Markets Equity Tracker H [↩]
2. Full name is BlackRock Emerging Markets Equity Tracker D [↩]
3. Full name is Fidelity Index Emerging Markets [↩]
4. The assumed portfolio consists of equal weightings of the six equity funds in the table once the World fund has been excluded. This is being generous to Fidelity as the portfolio doesn’t include a gilt fund, a common category where it does not offer a discount. [↩]

Good reads from around the Web.

I don’t have a fixed routine for the weekend, besides writing this post of course. But where possible I like to watch videos of Nobel prize winners musing about the markets.

And here’s – eventually, after adverts that sound like a parody – Yale economics professor Robert Shiller, interviewed by US broadcaster Consuelo Mack:

I wish Shiller was my grandfather and that I went to his house for dinner on Sundays. Somebody out there is one lucky grandson!

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