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Portfolio costs at 0.36% - high?

Including Financial Independence and Retiring Early (FIRE)
Gilgongo
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Portfolio costs at 0.36% - high?

#411313

Postby Gilgongo » May 12th, 2021, 11:40 am

I've had a go at calculating the total weighted average costs of everything I hold across SIPPs and ISAs etc., so including platform, dealing and other charge estimates along with the TER for each holding. Comes out at 0.36%.

It occurs to me that I don't know if that's high or not. Does anyone else have comparative figures?

1nvest
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Re: Portfolio costs at 0.36% - high?

#411333

Postby 1nvest » May 12th, 2021, 12:26 pm

Gilgongo wrote:I've had a go at calculating the total weighted average costs of everything I hold across SIPPs and ISAs etc., so including platform, dealing and other charge estimates along with the TER for each holding. Comes out at 0.36%.

It occurs to me that I don't know if that's high or not. Does anyone else have comparative figures?

Sometimes there can be additional costs. For instance most US S&P500 trackers base to the S&P500TRN index benchmark, where the N at the end signifies after deduction of 30% US dividend withholding tax, so on a 2% dividend yield = 0.6%. Combined with a 0.36% costs and you might be up at 1%/year type levels, all in the way of a good cause to help fund the high rise prime location financial sector buildings and above average wages paid to those who are well adapt at extracting value from other peoples money. A nice feature (for them) is that that might be received no matter what, if a investor sees a decade of 0% real, they end up still having 'contributed' 10% of their total investment value.

Used to be higher upfront costs, such as wider spreads when buying/selling (maybe 10% or more in some cases such as when via postal trade orders) and higher broker fees such as £100 per trade, but then paper certificates that could be locked away maybe for decades at no extra cost. Nowdays with digitisation there's far better opportunities for others to filter off some of the value bit by bit that collectively can mount up over time to substantial amounts.

A unavoidable 'cost to do business'. All you can do is strive to minimise it. A tough battle however as others are highly adapt at maximising extraction of value. Actions such as changing rules to force either staying and incurring higher costs, or moving and enduring perhaps a substantial hit.

In the US some companies/stocks offer DSP, direct stock purchase. No broker or market maker. A Dollar or two to trade, 3 to 5 cents per share cost (so a near insignificant amount on a $20/share stock). Direct registration of your ownership of shares. In comparison some investments might comprise funds of funds as a means to multi-layer costs.

The financial sector will often opt to promote its products by quoting historic gross total returns. What you have to decide is whether the costs from your particular choice of assets/holdings is offset by the rewards i.e. in net terms. In some cases one choice might have seemingly high costs but where the rewards more than compensate. In other cases costs might be very low, but where the rewards are poor. If your 0.36% figure is relative to a 0% real reward then that's high compared to another perhaps having a 1% cost figure but that averages 5% real reward.

MaraMan
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Re: Portfolio costs at 0.36% - high?

#411337

Postby MaraMan » May 12th, 2021, 12:31 pm

I have just looked at the costs of our SIPPs and came out with a similar figure, if that's of any help. Probably not I guess as it's very dependant on several factors. It boils down to whether you are happy with it, and whether it's worth moving if you aren't. I came to the conclusion I could save a little, but the hassle of moving and the risk of the devil I don't know didn't seem worth it to me.

MM

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Re: Portfolio costs at 0.36% - high?

#411378

Postby JohnB » May 12th, 2021, 2:15 pm

If you have index trackers, its high. Mine are nearer 0.2%

moorfield
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Re: Portfolio costs at 0.36% - high?

#411386

Postby moorfield » May 12th, 2021, 2:33 pm

Gilgongo wrote:I've had a go at calculating the total weighted average costs of everything I hold across SIPPs and ISAs etc., so including platform, dealing and other charge estimates along with the TER for each holding. Comes out at 0.36%.

It occurs to me that I don't know if that's high or not. Does anyone else have comparative figures?


The last time I computed a TER on my HYPish SIPP, in 2018, I came up with 0.14% - that was custody charge, dealing commission and stamp duty costs as a percentage of average portfolio value. As a reinvestor of dividends and occasional tinkerer, I didn't find this particularly useful or contextual actually, and have since switched to looking at costs as a percentage of (dividend) income which were 1.0% in 2019, 3.2% in 2020 and 2.6% so far this year.
If you buy and sell regularly you may also want to look at turnover (see https://www.sapling.com/5885771/calcula ... o-turnover) - I turned over 13.6% of my SIPP last year and (probably) nearer 20% this year in an attempt to keep the income flowing - a level of activity I'm certainly not looking to repeat year on year.

Gilgongo
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Re: Portfolio costs at 0.36% - high?

#411405

Postby Gilgongo » May 12th, 2021, 4:04 pm

ReallyVeryFoolish wrote:it depends on exactly what's included in the charge percentage quoted.


I'm taking the TER quoted on the holding (obviously zero if it's a direct holding), taking a weighted average value of all of them, then adding the annual account management and any custody charges on top of that figure, then using that to create a percentage of the total value of the portfolio.

Might not be the best way of doing it, of course...

tjh290633
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Re: Portfolio costs at 0.36% - high?

#411423

Postby tjh290633 » May 12th, 2021, 4:50 pm

Here are the results for my 100% share portfolio:

.        .          Percent     Portfolio   Value    Value at    Percent  
Tax Yr Trades Brokerage Fees Total . Income
FY08-09 48 0.489% 0.080% 0.569% 05-Apr-09 6.29%
FY09-10 27 0.245% 0.060% 0.305% 05-Apr-10 10.11%
FY10-11 27 0.241% 0.052% 0.294% 05-Apr-11 8.09%
FY11-12 12 0.093% 0.050% 0.143% 05-Apr-12 3.45%
FY12-13 12 0.058% 0.042% 0.100% 05-Apr-13 2.30%
FY13-14 19 0.124% 0.029% 0.152% 05-Apr-14 3.55%
FY14-15 12 0.042% 0.033% 0.075% 05-Apr-15 1.80%
FY15-16 25 0.119% 0.034% 0.152% 05-Apr-16 3.79%
FY16-17 24 0.121% 0.015% 0.136% 05-Apr-17 3.44%
FY17-18 20 0.054% 0.007% 0.061% 05-Apr-18 1.38%
FY18-19 15 0.033% 0.008% 0.041% 05-Apr-19 0.77%
FY19-20 31 0.079% 0.010% 0.089% 05-Apr-20 1.25%
FY20-21 27 0.047% 0.007% 0.054% 05-Apr-21 1.42%


As you can see, it fluctuates.

TJH

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Re: Portfolio costs at 0.36% - high?

#411433

Postby xxd09 » May 12th, 2021, 5:14 pm

Last time I worked mine out in Feb 2021 for 2x ISAs and 2x SIPPs -low seven figures in total -it was 0.25%
All Vanguard trackers at Interactive Investor
xxd09

1nvest
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Re: Portfolio costs at 0.36% - high?

#411614

Postby 1nvest » May 13th, 2021, 11:50 am

This is for a bad timed retirement date of 2000 i.e. stocks saw the 1999 highs dot com bubble burst 2000 to 2003 decline, the 2008/9 financial crisis and the more recent Covid situation. A 4% SWR is applied i.e. 4% of the initial portfolio value drawn at the start as the first years income, and where that ££ amount is uplifted by inflation each year as the amount drawn as income in subsequent years. Assets of BRK (Berkshire Hathaway as a US stock proxy), gold, FT250, cash - defensive as sequence of returns risk is greatest in earlier years. Each year the SWR value (SWV) is drawn from the asset with the highest value. Here its assumed the FT250 was a accumulation fund, dividends automatically reinvested within the fund. Other than withdrawals, no rebalancing, the assets just bought at the start and left as-is. When income is drawn from cash obviously that's considered as a costless event.

Image
(click for larger view)

On that basis, only the FT250 incurs a fund fee, of around 0.1%, so 0.025% when proportioned to being 25% of the portfolio. Plus one sell trade each year to provide the income. I have a account with ii and they charge something like £10/month fee, but you get a free trade each month to offset that, so instead of drawing a years income once/year you could draw income on a monthly basis instead, smaller more regular income, for no additional cost. Counting £10/month costs however = £120/year, relative to whatever size your portfolio is. On a 1M portfolio that's near a insignificant percentage, so a guide figure of 0.025%/year i.e. 25% in FT250 cost assuming you preferred physical gold holdings. If you held SGLN with its 0.15% expense instead then 0.0625% (0.0375% SGLN + 0.025% FT250).

In holding BRK as a US stock proxy there's no US dividend withholding tax, that otherwise might have seen perhaps 2% dividends, 15% dividend withholding tax = 0.3%, which if 25% of the portfolio weight = 0.075%. Being a stock (somewhat like a Investment Trust) there's no fund fee. A alternative might hold US stocks and pay dividends/withholding tax, which if alongside also holding FT250 and SGLN (gold fund) rather than physical gold and combined costs of around 0.1625%/year. In return for a regular (perhaps even monthly) inflation adjusted income provision, that according to preferences could be as low as 0.025%/year.

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Re: Portfolio costs at 0.36% - high?

#411627

Postby 1nvest » May 13th, 2021, 12:07 pm

This is the same style, but from 1987

Image

Note how the original 25% equal weightings to the four assets saw drift in weightings and as such has transitioned to being more like a 70/30 stock and 'reserves' (cash + gold) portfolio. So if stocks were in funds that levied perhaps 0.1% fees then a start date 0.05% type average would have risen to 0.07%.

Gold and cash in earlier years served their purpose in reducing potential earlier years sequence of returns risk when withdrawals were 4% of the portfolio value, and where over time portfolio gains saw the withdrawal rate as a percentage of the portfolio decline to just 0.7% (whilst still providing the same income in inflation adjusted terms as at the start).

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Re: Portfolio costs at 0.36% - high?

#411667

Postby Hariseldon58 » May 13th, 2021, 3:10 pm

Gilgongo wrote:I've had a go at calculating the total weighted average costs of everything I hold across SIPPs and ISAs etc., so including platform, dealing and other charge estimates along with the TER for each holding. Comes out at 0.36%.

It occurs to me that I don't know if that's high or not. Does anyone else have comparative figures?


Your figures sound reasonable, my present portfolio is a mixture of passive ETFs, Investment Trusts and direct holdings, the figure for TERs and estimates of brokerage costs etc across SIPPs, ISAs for both myself and Mrs Hari is 0.4% for a 7 figure portfolio. The ‘active’ proportion is around 50% up from 15% when the equivalent figure was under 0.2%.

Hopefully this provides a comparator.

The TER can be misleading even for an inexpensive Vanguard ETF, eg Developed World , the TER is .12%, transaction costs are around .02% and Foreign Withholding Taxes are around .25%. So even for one of the ‘good guys’ the 0.12% is more like .39%

Similar ‘hidden’ charges apply to most investments….

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Re: Portfolio costs at 0.36% - high?

#411674

Postby Arborbridge » May 13th, 2021, 3:37 pm

Here are my costs - dealing charges plus custody charges in SIPP and ISA as a percentage, for my all share portfolio:-



As you can see from this thread, the costs vary wildly depending on one's investment mannerisms. Interesting to note that my number of trades went down during covid, whereas Moorfield reports his trading went went up,
I'm not sure if this helps, but it's a real world contribution at least.
Arb.


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