Stop the press! Vanguard index funds are soon to be available for a monthly dealing fee of £1.50 thanks to a chunky price drop by Alliance Trust [1].
Previously Alliance Trust charged £5 per regular trade. It still charges £12.50 for a single trade.
The £1.50 rate only applies to new cash that you inject via an online direct debit. The minimum contribution is £50 and once you set up the monthly trade, you must pay in for at least two consecutive months.
The website implies this service is currently available, although I’ve been told by Alliance Trust that the launch has been delayed until Friday.
Regardless, this move is great news for passive investors [2]because Vanguard funds are generally the cheapest trackers [3] you can buy in the UK.
Now they are far more accessible to UK investors who make moderate monthly contributions. The cost of the £1.50 fee to your investment can be reduced down to a manageable 0.5% if you can drip-feed in £300 per month.
I personally try to ensure dealing fees never slice more than 0.5% off my investment, and the more you can dilute the impact [4] the better, as flat-rate fees play havoc with small contributions.
Not fair
Vanguard trackers are not as widely available to DIY investors as other UK index funds, because most investment platforms don’t like the fact that Vanguard won’t pay them commission fees.
The limited competition makes getting a good deal difficult for small investors, so it’s worth knowing a few of the tricks of the trade [5].
[6]
The only way to buy Vanguard in the UK without paying dealing fees is to go through the Fair Investment Company [7].
Unfortunately the fairness doesn’t last long, as it levies an eye-watering 0.85% annual management charge – an unacceptable amount to any DIY investor, large or small.
Vanguard expands
Meanwhile, with inflation [8] causing petrol pump prices to spin like cherries on a fruit machine, Vanguard has introduced two very topical new UK funds:
- UK Inflation Linked Gilt Index fund [9], TER 0.15%, initial charge 0.4%
- UK Long Duration Gilt Index fund [10], TER 0.15%, initial charge 0.15%
The first fund offers a measure of inflation-protection for the fixed income [11] part of your portfolio by investing in UK index-linked gilts [12]that pay out a higher coupon in the face of rising prices. Many passive investors hold 50% of their bond allocation as index-linkers, and Vanguard’s fund comes in cheaper than its rivals, if you’re prepared to buy and hold for several years.
The second fund offers exposure to UK government bonds with maturities of greater than 15 years. Longer-dated gilts are riskier than their short-dated counterparts as they’re more vulnerable [13] to unexpected rises in inflation and interest rates. However, they are a good diversifier in the face of a stock market crash. In this scenario, money flees equity and seeks a safe haven in high-quality bonds with longer durations.
The Vanguard Long Duration Gilt fund is the first tracker to focus on this part of the gilt spectrum in the UK, and is another heartening improvement in the lot of British passive investors.
Useful information on these funds is still very scarce. You can tell that by a quick glance at the factsheets, which are really more sheets at this stage. As ever with new funds, it’s a good idea to give them a while to settle down before wading in.
Take it steady,
The Accumulator