what to include in costs?

[Arborbridge]

I'm in the habit of keeping a running total of my HYP charges, and then expressing them as a percentage.

I know other people do this and give it in their annual reports sometimes. It seems obvious one should include all dealing costs and management charges (this is a more exacting than the industry's TER): but do people include stamp duty too?

I've just realised this is possible point of confusion when we compare figures with each other, so it would be helpful to have a concensus on this.



Arb.

[Dod1010]

Arb

And fees to any ISA manager?

Dod

[kempiejon]

I'm more of a sporadic reporter of a few headline numbers and I've only once or twice thought about my annual charges, I know on new money including stamp duty it's below 1%. At portfolio level it must be much less than that as new money is only a small %age of total portfolio value Halifax list my holdings "costs" to include stamp duty and buying fee, any "profit/loss" on capital is hence shown net. In the ISA there's another £12.50 annual charge but in the dealing account nothing more to pay.

I'd say everything is a cost, stamp, platform fee and trading costs and want to see them all included. For those with collectives as part of their HYP would the underlying costs there be seen as included as part of the valuations?

[Arborbridge]

And fees to any ISA manager?

Yes, Dod. And any SIPP fees where concerned with running a HYP, except those charged for drawdown.

[idpickering]

I'm in the habit of keeping a running total of my HYP charges, and then expressing them as a percentage.

I know other people do this and give it in their annual reports sometimes. It seems obvious one should include all dealing costs and management charges (this is a more exacting than the industry's TER): but do people include stamp duty too?

I've just realised this is possible point of confusion when we compare figures with each other, so it would be helpful to have a concensus on this.



Arb.

Good morning Arb,

I don't keep a written record of fees paid for any purchase, but try to ensure that I keep them to a minimum, preferably below 1%, including stamp duty. I'm aware that fees drain your potential overall performance, buying and selling, and try to keep them down as best as I can.

Regards,

Ian.

[77ss]

I don't keep a written record of fees paid for any purchase, but try to ensure that I keep them to a minimum, preferably below 1%, including stamp duty. I'm aware that fees drain your potential overall performance, buying and selling, and try to keep them down as best as I can.

That's pretty well my approach too. Keep costs down as much as practicable (without getting too hung up about them).

In my spreadsheets, I keep track of purchase prices and selling prices - after costs and if I need further detail for my tax return, i have all the contract notes.

I am not clear what totalling all my costs would do for me. Would it give me actionable information?

[idpickering]

I don't keep a written record of fees paid for any purchase, but try to ensure that I keep them to a minimum, preferably below 1%, including stamp duty. I'm aware that fees drain your potential overall performance, buying and selling, and try to keep them down as best as I can.

That's pretty well my approach too. Keep costs down as much as practicable (without getting too hung up about them).

In my spreadsheets, I keep track of purchase prices and selling prices - after costs and if I need further detail for my tax return, i have all the contract notes.

I am not clear what totalling all my costs would do for me. Would it give me actionable information?

I'm not so sure it 'would do for you' apart from confirming where you're at and how you're performing. It's certainly something to be aware of, but as you wisely say, "without getting too hung up about them" .

Ian.

[Arborbridge]

My interest is for comparison purposes, so the question is really only directed at people who keep records.

I understand the need to keep costs low, that goes without saying, but I would still like to know what those costs are.

[grimer]

I always include stamp duty and dealing charges within my purchase price - for example:

- Buy 1000 x ACME Ltd @ 100p a share = £1000
- Stamp Duty = 0.5% = £5
- Dealing Charge = £10

- total NET consideration = £1015
- Purchase price per share = 101.5p

I do the same when selling shares and use the net proceeds to calculate the average sale price.

[StepOne]

Hi,

I record stamp duty and commission for every trade. I think you should include stamp duty as it's a function of trading, and can be reduced by trading less.

ISA fees I don't include because they are there whatever kind of portfolio I am running so are irrelevant to comparing performance between investment strategies.

I must admit I don't really know why I do it. I started out in 2000 doing it this way, and I've just carried on. I do occasionally (very occasionally) take a look at total charges I've paid just out of curiousity. I took a look just now on a year-by-year basis and on my trading portfolio, costs have generally been less than 0.25% of portfolio value, although they have been much higher at times - e.g. in 2006 and 2007 it was more like 1%.

In my HYP, since I am withdrawing dividends, I've not incurred any charges since I made my last purchase in February 2014, so it's been running at 0% costs since then. Although it is split between 2 ISAs, one which costs £5 a quarter and the other which is free.

StepOne

[tjh290633]

Personally I include everything thing in costs, except that nowadays, ISA fees can be paid outside the account. In fact, as they come out of my regular trading account, which is unused, they are then taken from my bank account by DD. I don't think the £20 twice a year makes any material difference to what I report, although it was considerably higher last year, and I see that I include it in my calculation of yield, although not in the calculation of dividend per unit.

It all gets a bit complicated when one is excluding special dividends, tax credits, and fees and charges from a particular parameter, but as to the general point, brokerage and stamp duty should definitely be included in the cost of buying a holding.

Account fees are something about which I am ambivalent.

TJH

[Arborbridge]

Step One,

I think one should include ALL the running costs if one is interested in a comparison. The cost of SIPP or ISA charges are all part of the cost, as much as trading and stamp duty.

Naturally, comparisons will never be perfect unless there is an agreed standard, but if someone on here quotes "the cost of my HYP is 0.1%" and thinks this is great compared with an IT, for example, it woud be good to state the basis.

For my part, I include stamp duty and all fees. SIPP or ISA fees are proportioned between the HYP and other portfolios such as ITs. Last year the total cost was 0.13%. This year, to my surprise, it will be higher - possibly a sign of overtrading.

[Arborbridge]

Kempiejon,

Be a bit careful about HSDL costs because the do not necessarily include all the charges if you select the pull down menu for "charges". The ISA charge comes straight from my bank account, so I have to check I have allowed for it in my spreadsheet.

Arb.

[staffordian]

I include all costs and fees, as otherwise I feel I am decieving myself as to actual performance

Taking things to extremes, if stamp duty and dealing costs accounted for 50% of the cost of buying shares, and I ignored these costs, then I would be kidding myself that my rate of return was far greter than it actually was.

However, in some calculations, costs are taken care of automatically. E.g. with unitisation, total money in is recorded, and valuations are actual valuations, so the costs of purchase are implicitly included because the valuation is of actual shares bought, after costs.

Staffordian

[bluedonkey]

Any platform fees - SIPP, ISA, etc - I include as a deduction from dividend income, so they are part of the annual costs.

Stamp duty and dealing costs I treat as capital items. They are in effect reflected in a lower portfolio value.

[StepOne]

It depends what you are comparing. If you are comparing with other Fools' HYP costs then it would make sense not to include ISA / SIPP charges. If I am comparing against alternative trading strategies for myself then there's no point including my ISA charges because they will be the same whichever strategy I choose. So I think it depends on the purpose and type of comparison you are doing.

StepOne

[grimer]

However, in some calculations, costs are taken care of automatically. E.g. with unitisation, total money in is recorded, and valuations are actual valuations, so the costs of purchase are implicitly included because the valuation is of actual shares bought, after costs.

Just so long as you include the costs in your spreadsheet's purchase costs, otherwise your cash balance will show an artificially large amount and your unit price will reflect this.

[Gengulphus]

I'm in the habit of keeping a running total of my HYP charges, and then expressing them as a percentage.

I know other people do this and give it in their annual reports sometimes. It seems obvious one should include all dealing costs and management charges (this is a more exacting than the industry's TER): but do people include stamp duty too?

I certainly do - it's one of the two standard dealing costs, commission being the other. And there are others, though they're generally rarer, such as PTM levy (charged on buys and sells worth over £10k) or foreign exchange costs (if one buys shares in a different currency).

And in principle, I would consider Income Tax on dividends and CGT on capital gains (and foreign equivalents where relevant) to be costs as well - which counterbalances and is counterbalanced by account fees for ISAs and SIPPs, i.e. they put each other in perspective. That does come accompanied by various complications if one runs more than one portfolio, such as how you attribute the taxes and account fees between them - the simple pro rata answer doesn't really seem reasonable when e.g. I have a large gain in my smallcaps portfolio and decide to mitigate that by tinkering to realise losses in my HYP. (Yes, I know the old saying about not letting the tax tail wag the investment dog - but as people are probably all too aware, often the investment decision about whether to sell a HYP share that is standing on a loss is finely balanced, and tax considerations can tip the balance one way or the other. I.e. when the investment dog is undecided whether to wag or not, it can give the tail the casting vote!)

But in practice, for my demo portfolios I report on them as though they're in an ISA which is free of account charges for some reason - it simplifies things considerably and is not totally unrealistic, since such things do exist, though there's often a minimum assets or minimum level-of-trading test to be exempt from them. Also, anyone thinking of running a similar HYP can look at the account charges they'll be charged and add them on to my figures - which is rather easier than me reporting figures with my account charges included and them having to both subtract my account charges and add their own!

And for my main HYP, I deal with the problem by simply not reporting on it! (No, that problem isn't the main reason why I don't report on it - though it does contribute to that main reason: the job of pulling everything I've got on it together into something reportable is a daunting one...)

Gengulphus

[Arborbridge]

It depends what you are comparing. If you are comparing with other Fools' HYP costs then it would make sense not to include ISA / SIPP charges.

I would have thought the opposite: if someone else has a much lower figure than I (including management charges) then I might start questioning whether I should move to a different management structure.

--00--

Staffordian makes a good point - if one does not includes all charges, then one is fooling onseself. And looking at the cost as a percentage of income withdrawn can be quite a shock, too!

Arb.

[Raptor]

I always include stamp duty and dealing charges within my purchase price - for example:

- Buy 1000 x ACME Ltd @ 100p a share = £1000
- Stamp Duty = 0.5% = £5
- Dealing Charge = £10

- total NET consideration = £1015
- Purchase price per share = 101.5p

I do the same when selling shares and use the net proceeds to calculate the average sale price.

I do exactly the same as this, but still keep it below 1%.

Raptor.