Interest rates

[Lambeth Cali]

0.6% won’t be the end of it. All those funds your FA invests your money into will have their own charges, and those funds might be investing in other funds… and so on. The price you are paying is not opaque.

That is not to say that there aren’t good fund managers. But as FMs, on average, track the market, there will be as many bad FMs as there are good FMs, and success as a FM is largely down to luck rather than judgement.

However, it is essential for there to be FMs for trackers to track the average of all FMs.

I agree that the 700% Woodford went up from 1998 to 2017 is pre fees.

I calculate how I’m doing by how much is in my pension. That’s completely opaque as it’s post fees.

I can understand most people’s scepticism about Financial Advisors but mine has averaged 9% post fees which seems good for 0.6%pa.

Your 8.5% seems a little optimistic from trackers.

Btw my current pension saving goes 100% into a US tracker. The US is considerably more energy self sufficient than the EU and UK so while Vladimir is camped out in Ukraine they are expected to do better.

 

[Amarillo]

Six tracker funds:
1. UK
2. Europe exc UK
3. US
4. Japan
5. Pacific exc Japan
6. Emerging markets

Be careful with charts such as the one used by the BBC that you have included. Sometimes they omit dividends - which could account for about 3.5% - to make a point. The Woodford returns almost certainly will include dividends.

 

[Barry Chuckle]

I have a financial advisor who charges 0.6%.
He removed a large chunk of my pension from Woodford a couple of months before it tanked. I was very grateful. 1998 to 2017 was pretty good.

View attachment 115375

I too value the services of an IFA, it's not just about the investment recommendations but not only would I have to be an investment expert but I'd have to be an expert on the complexities and intricacies of pensions freedoms and taxation, then I'd also have to be an expert on the use of trusts to mitigate other taxes.
Each to their own, but my view is unless you really are an expert in all these areas (which I'm certainly not!) I'm happy to pay for the services of a good financial adviser.

 

[Amarillo]

Both passive and active independent investors outperform fund managers according to this article.

Amateur investors are outperforming fund managers...what's the secret?

Investors with at least £20,000 in their portfolio have generated an average return of 8.2 per cent since January 2020, figures from broker Interactive Investor reveal.

www.thisismoney.co.uk

 

[Velma's Dad]

Both passive and active independent investors outperform fund managers according to this article.

Amateur investors are outperforming fund managers...what's the secret?

Investors with at least £20,000 in their portfolio have generated an average return of 8.2 per cent since January 2020, figures from broker Interactive Investor reveal.

www.thisismoney.co.uk

Haven't read the thing in detail, but just comparing average returns is a bit meaningless unless we also know the comparative risk profiles of every portfolio in the samples, and hence what was the difference in variability of outcomes, eg average draw-downs over the sample period.

(I'm not disputing that passives consistently out perform actives in the long run - because the small additional performance margin of actives fails to over-ride the additional fees burden.)

 

[Mansfieldman750]

Both passive and active independent investors outperform fund managers according to this article.

Amateur investors are outperforming fund managers...what's the secret?

Investors with at least £20,000 in their portfolio have generated an average return of 8.2 per cent since January 2020, figures from broker Interactive Investor reveal.

www.thisismoney.co.uk

If you look at the performance of active managers as a whole relative to their benchmark index, it’s a zero sum game. The sum of the outperformance minus the sum of the underperformance is zero. It cannot be otherwise - for every buyer there is a seller.
An Index tracker, tracking the same benchmark index, will beat the average active manager, because the charges are lower. Again it cannot be otherwise.
So if you are going the active route you have to find a fund manager who is consistently better than average. Or pay an IFA who “knows the good ones “
Well good luck with that. Neil Woodford was mentioned earlier. He had a good track record with Invesco Perpetual over many years then he started his own fund, championed by Hargreaves Lansdown, and many IFA‘s. A lot of people lost their life savings when the fund went bust.
Jack Bogle, founder of Vanguard, makes the case for Index trackers much better than I ever could, so all I can say is read his book with an open mind.
Then, if you still decide to go the IFA / active fund manager route, fine, it’s your money at the end of the day. At least you will be aware that your chances of beating passive investors are not good.

 

[Barry Chuckle]

If you look at the performance of active managers as a whole relative to their benchmark index, it’s a zero sum game. The sum of the outperformance minus the sum of the underperformance is zero. It cannot be otherwise - for every buyer there is a seller.
An Index tracker, tracking the same benchmark index, will beat the average active manager, because the charges are lower. Again it cannot be otherwise.
So if you are going the active route you have to find a fund manager who is consistently better than average. Or pay an IFA who “knows the good ones “
Well good luck with that. Neil Woodford was mentioned earlier. He had a good track record with Invesco Perpetual over many years then he started his own fund, championed by Hargreaves Lansdown, and many IFA‘s. A lot of people lost their life savings when the fund went bust.
Jack Bogle, founder of Vanguard, makes the case for Index trackers much better than I ever could, so all I can say is read his book with an open mind.
Then, if you still decide to go the IFA / active fund manager route, fine, it’s your money at the end of the day. At least you will be aware that your chances of beating passive investors are not good.

Yes but I'm guessing a good chartered financial planner who I really rate does a little bit more than simply pick funds. As I said picking a tracker fund online isn't going to show you the best way to mitigate inheritance tax, long term care personal tax etc....
I'm a great believer in 'you don't know what you don't know' and in my experience a good IFA will point out things that weren't even on my radar.
You clearly know a lot more about funds than me but are you also confident of know about tax wrappers/trusts/mitigation than an IFA?

 

[Mansfieldman750]

Yes but I'm guessing a good chartered financial planner who I really rate does a little bit more than simply pick funds. As I said picking a tracker fund online isn't going to show you the best way to mitigate inheritance tax, long term care personal tax etc....
I'm a great believer in 'you don't know what you don't know' and in my experience a good IFA will point out things that weren't even on my radar.
You clearly know a lot more about funds than me but are you also confident of know about tax wrappers/trusts/mitigation than an IFA?

Point taken. Yes there are two sides to it. Growing your nest egg and then holding on to it tax efficiently, which is where a good IFA could be well worth their fee.

 

[Mansfieldman750]

…although if it’s in an ISA, there is no tax to pay

 

[Amarillo]

Haven't read the thing in detail, but just comparing average returns is a bit meaningless unless we also know the comparative risk profiles of every portfolio in the samples, and hence what was the difference in variability of outcomes, eg average draw-downs over the sample period.

(I'm not disputing that passives consistently out perform actives in the long run - because the small additional performance margin of actives fails to over-ride the additional fees burden.)

The article wasn’t about passive beating active, but independent investors (both passive and active) beating fund managers.

 

[Amarillo]

If you look at the performance of active managers as a whole relative to their benchmark index, it’s a zero sum game. The sum of the outperformance minus the sum of the underperformance is zero. It cannot be otherwise - for every buyer there is a seller.
An Index tracker, tracking the same benchmark index, will beat the average active manager, because the charges are lower. Again it cannot be otherwise.
So if you are going the active route you have to find a fund manager who is consistently better than average. Or pay an IFA who “knows the good ones “
Well good luck with that. Neil Woodford was mentioned earlier. He had a good track record with Invesco Perpetual over many years then he started his own fund, championed by Hargreaves Lansdown, and many IFA‘s. A lot of people lost their life savings when the fund went bust.
Jack Bogle, founder of Vanguard, makes the case for Index trackers much better than I ever could, so all I can say is read his book with an open mind.
Then, if you still decide to go the IFA / active fund manager route, fine, it’s your money at the end of the day. At least you will be aware that your chances of beating passive investors are not good.

Way back in the 70s my dad made a lot of money from Ian “goldfinger” Posgate’s syndicate. He even had a swimming pool built in our back garden from his ill-gained profits.

So yes, it is possible to hit upon a “goldfinger” type financial advisor. It is equally - or more - likely that you’ll hit a dud.

However, tracking the market over decades is a safeish bet, even if you are unlikely to have any sexy gains.

 

[Amarillo]

…although if it’s in an ISA, there is no tax to pay

Inheritance tax is payable on ISA funds if the estate >£375,000 (>£500,000 if in main residence).

So best to start cashing in your ISA from age 70 or so, and gifting it to those you want to inherit.

Inheritance tax rules are simple enough to understand.

You can gift excess income free of IHT, for gifts from savings to be exempt you need to survive seven years after giving - tapered.

Inherited assets are subject to IHT but exempt from CGT. But if you sell an asset and then die it is subject to both CGT *and* IHT.

My dad (88) has this issue with his second home, a beachfront 4 bed house bought in the 70s for £20,000. If he sells it, 28% CGT on nearly all the value. Then if he pops his clogs within 7 years up to 40% IHT on 72% of the value. An effective tax rate of nearly 56.8%.

 

[Mansfieldman750]

Way back in the 70s my dad made a lot of money from Ian “goldfinger” Posgate’s syndicate. He even had a swimming pool built in our back garden from his ill-gained profits.

So yes, it is possible to hit upon a “goldfinger” type financial advisor. It is equally - or more - likely that you’ll hit a dud.

However, tracking the market over decades is a safeish bet, even if you are unlikely to have any sexy gains.

I had to look up Goldfinger Posgate. Eh, he were a character

 

[Mansfieldman750]

It looks like we may be on the top of Table Mountain for Interest Rates at 5.25%.
Which makes the 0% offer on HP for a new California absolutely the best offer ever on a new California.
Except for the elephant in the room which is the leaking bellows, in which case it is not a great offer at all.
Sorry if this is in the wrong thread, but for the sake of their reputation VW really have to come up with a quick solution to this fiasco.

 

[Amarillo]

It looks like we may be on the top of Table Mountain for Interest Rates at 5.25%.
Which makes the 0% offer on HP for a new California absolutely the best offer ever on a new California.
Except for the elephant in the room which is the leaking bellows, in which case it is not a great offer at all.
Sorry if this is in the wrong thread, but for the sake of their reputation VW really have to come up with a quick solution to this fiasco.

Hill rather than a mountain. I remember interest rates at 14.88% and my £40,000 mortgage rate of 15.75%.

My BTL five year fix at 2.19% ends today. Tomorrow the new five year fix is 5.53%.

While my interest payments have gone up by 2.5 times, it is still low by historic standards. Even if they went up by another 2.5 times it would still be lower than their 89/90 peak.

 

[Mansfieldman750]

Yes, around 5% seems to be the 5,000 year average. I still can’t make up my mind if you are a genius or just lucky !

 

[andyinluton]

Hill rather than a mountain. I remember interest rates at 14.88% and my £40,000 mortgage rate of 15.75%.

My BTL five year fix at 2.19% ends today. Tomorrow the new five year fix is 5.53%.

While my interest payments have gone up by 2.5 times, it is still low by historic standards. Even if they went up by another 2.5 times it would still be lower than their 89/90 peak.

In 1989 a peak of 14.88% was only almost exactly double the cheapest rate it had been in the previous 10 years and still less than the 17% it hit in 1979. So not an entirely unexpected high to get to.
Back then I seem to remember getting 10% payrises twice a year so it wasn't all bad. Had an awful lot less other outgoings as well, no broadband, Sky, mobile phone etc


Now how about some sympathy for those with more recent mortgages, if you took March 2020 as the base compared to todays base rate the increase is 52.5x the starting point - makes your 2x look like a bit of loose change, I guess you got tax relief on your mortgage as well?

 

[Amarillo]

Yes - you are quite right. Base rates have risen by 52.5 times. Another 52.5 times the rise would be crippling.

I’d forgotten about MIRAS. But as it happens a relation to MIRAS still exists for BTL mortgage interest payments.

In 1990 I was paying £525 pm interest on my £40,000 loan.

Tomorrow I will pay £79.20 interest on my £43,400 loan. Next month interest payments rise to £200 pm.

 

[Mansfieldman750]

Very difficult for anyone who has to remortgage at a much higher rate but on the other hand savers can now get a decent return on their cash savings, which they haven’t had since 2009. The pendulum has swung in favour of savers.
0% interest rates were madness. If you lend someone money you don’t have the use of the money for the period of the loan, so a loss of opportunity. Also there is the risk that the borrower may take to drinking and gambling and not pay you back. So there has to be something in it for the lender.
5% seems about right. Not too high, not too low. It’s not a coincidence that’s around where Interest Rates have been for most of the last 5000 years.

 

[Amarillo]

Very difficult for anyone who has to remortgage at a much higher rate but on the other hand savers can now get a decent return on their cash savings, which they haven’t had since 2009. The pendulum has swung in favour of savers.
0% interest rates were madness. If you lend someone money you don’t have the use of the money for the period of the loan, so a loss of opportunity. Also there is the risk that the borrower may take to drinking and gambling and not pay you back. So there has to be something in it for the lender.
5% seems about right. Not too high, not too low. It’s not a coincidence that’s around where Interest Rates have been for most of the last 5000 years.

5.53% on my BTL mortgage with a 20% tax credit is an effective rate of 4.42%.

I have recently opened a regular savers’ account paying 6.25%.

 

[Mansfieldman750]

5.53% on my BTL mortgage with a 20% tax credit is an effective rate of 4.42%.

I have recently opened a regular savers’ account paying 6.25%.

Good move. I was in a similar situation in that I need £32,000 for the balloon payment for the van in 3 years time.
I can‘t be in a position of being a forced seller of shares at the the wrong time so we stuck a sizeable chunk in a one year bond with Mansfield Building Society at 6%.
Repeat for next 2 years, although unlikely we will get 6% again.
When the time comes, if there has been some Irrational Exuberance in stock markets, I may sell some shares, failing that we‘ll use the cash savings to pay off the van, keeping the options open.

 

[soulstyledevon]

Good move. I was in a similar situation in that I need £32,000 for the balloon payment for the van in 3 years time.
I can‘t be in a position of being a forced seller of shares at the the wrong time so we stuck a sizeable chunk in a one year bond with Mansfield Building Society at 6%.
Repeat for next 2 years, although unlikely we will get 6% again.
When the time comes, if there has been some Irrational Exuberance in stock markets, I may sell some shares, failing that we‘ll use the cash savings to pay off the van, keeping the options open.

First Direct offer a Regular Savers account. Fixed at 7%, I believe it needs to be in for 12 months.

 

[Barry Chuckle]

I feel these regular saver accounts are a little gimicky for those who are salting existing capital into them. If you are saving excess income then that is different. But remember you only get the advertised interest rate on the first payment the 11/12, 10/12 on the 2nd 3rd etc (assuming it's a 12m term)

 

[Amarillo]

I feel these regular saver accounts are a little gimicky for those who are salting existing capital into them. If you are saving excess income then that is different. But remember you only get the advertised interest rate on the first payment the 11/12, 10/12 on the 2nd 3rd etc (assuming it's a 12m term)

You are right, it is gimmicky.

This is how I see the £400 pm maximum saving accumulate with Lloyds.

Oct 23 £400
Nov 23 £802
Dec 23 £1,206
Jan 24 £1,613
Feb 24 £2,021
Mar 24 £2,432
Apr 24 £2,845
May 24 £3,260
Jun 24 £3,677
Jul 24 £4,096
Aug 24 £4,518
Sep 24 £4,941

Though interest is not paid until the anniversary of the account being opened. Still, it is £141 (if my calculations are correct) that I might not otherwise have. (£141 is just 2.9% of £4,800).

 

[Mansfieldman750]

First Direct offer a Regular Savers account. Fixed at 7%, I believe it needs to be in for 12 months.

It‘s a cracker - and £175 to switch your current account to them. Not for me though, I’ve been with Bank of Scotland for 54 years and I can remember the sort code and account number. That’s important for us old people.