Index Funds, 2 from 4?

[GeoffF100]

A percentage lost to costs at the beginning has exactly the same effect as the same percentage lost to costs at the end.

That is true for a lump sum investment. If you are investing each month, however, the costs at the beginning have less effect on the final value than the same percentage at the end, because a much smaller percentage of the capital has been invested.

[Hariseldon58]

The OP needs to invest and whatever route he uses, the cost differences of .08% Pa is pretty much irrelevant on £30k , it would unlikely make any difference on 300K. The small discrepancy in management charge is likely to be overwhelmed by the small tracking errors that are inevitable.

I just looked at Vanguard Global All Cap, Vanguard All World and HSBC All World ( I hold the latter two plus the Fidelity Dev World, Vanguard Dev World, each with a side of the appropriate Emerging Markets Index ETF) on HL on a total return basis.

The results were very close on a cumulative five year basis (the Vanguard All. Cap has insufficient history , ie less than five years)

The difference was .04% after five years, on a discrete year basis the annual variations were up to 1.7%, obviously the leadership went back and fourth each year, some of these differences is down to time of day the valuations are done.

Whilst Vanguard All World = Vanguard Developed World and Vanguard Emerging Markets in a roughly 9:1 ratio, there are 336 more holdings in the combination than the single fund, thats probably a good thing, but there is bound to be a tracking error between the two for that reason alone.

Getting it roughly right is all thats needed. Costs matter but there comes a point where chasing a few basis points can be lost in tracking error.

An extra 0.08% compounded over 20 years amounts to just over 1.6%. Over 40 years it amounts to just over 3.25%. That is not insignificant if you have £1 million+ at the end. A percentage lost to costs at the beginning has exactly the same effect as the same percentage lost to costs at the end.

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My point was that the tracking error and other small differences can overwhelm a small difference in cost, that looking at a five year record between the HSBC All World VS VWRL the .09% difference in cost, was lost in tracking errors etc.

It was not a criticism of your suggestion of VEVE combined with VFEM ( or accumulation equivalents)

I hold VEVE with VFEM, I hold a collection of regional trackers that match fairly close to VEVE, in addition I hold the HSBC All World, Vanguard All World , the Fidelity Developed World with the iShares MSCI Emerging Markets, the iShares Global Small Cap, the Vanguard Global Small Cap.

I hold a variety of these combinations simply to spread the broker/ provider risk with my portfolio size, without that constraint, any of these combos would work, but in the spirit of Occam's razor, suggest the simplest solution is a sensible choice. My personal choice would be Vanguard Global All Cap for the simplest global equity portfolio with the most diversification, with the proviso that there was no undue cost penalty from the broker for holding an OEIC.

[GeoffF100]

My point was that the tracking error and other small differences can overwhelm a small difference in cost, that looking at a five year record between the HSBC All World VS VWRL the .09% difference in cost, was lost in tracking errors etc.

hiriskpaul has previously commented that the tracking errors of Vanguard and Black Rock are consistent with their costs, but the funds from other providers often under-perform by more than their stated costs. We can hope to reduce tracking error by sticking with the managers who appear to be the most reliable. Beyond that, we can only minimise costs.

My situation is that I am already well over the £million mark, so 0.08% is a significant cost. I have a big unsheltered holding of Vanguard Developed World ex UK, which has a large capital gain. I also have a free account with Vanguard. I favour Vanguard for those reasons. Nonetheless, Black Rock is cheaper in some cases, and would spread my risk. I am getting to an age where simplicity matters, but I have to say that simplicity can be boring.

[1nvest]

I also have a free account with Vanguard.

What/how is that?

[GeoffF100]

I also have a free account with Vanguard.

What/how is that?

I invested directly with Vanguard back in the old days when it was £100K minimum per fund, with no ISA or SIPP. When they introduced their online service, they offered me an account that was free of their 0.15% platform fee for life. I am no longer on the register, and I do not get dividends so quickly.

A free ISA is not worth much nowadays, but I have a bolt hole if iWeb ramps up its charges. A free SIPP is still a significant perk. Freetrade is currently charging £100 for a SIPP. X-O did that for a while but they later increased their charges. The corresponding Vanguard service in the US is free to everyone. I expect that Vanguard is planning to reduce their charges here when they have enough scale. The £375 price cap does seem rather high.

[1nvest]

I also have a free account with Vanguard.

What/how is that?

I invested directly with Vanguard back in the old days when it was £100K minimum per fund, with no ISA or SIPP. When they introduced their online service, they offered me an account that was free of their 0.15% platform fee for life. I am no longer on the register, and I do not get dividends so quickly.

A free ISA is not worth much nowadays, but I have a bolt hole if iWeb ramps up its charges. A free SIPP is still a significant perk. Freetrade is currently charging £100 for a SIPP. X-O did that for a while but they later increased their charges. The corresponding Vanguard service in the US is free to everyone. I expect that Vanguard is planning to reduce their charges here when they have enough scale. The £375 price cap does seem rather high.

Damn. I nearly signed up to Vanguard back in those days of £100K+ min amounts but never actually did. Opted not to sign up since with the £375/year drag either. By the time you multiply for a number of family members all with general, isa, sipp accounts the collective fees can be enough for you to start thinking what else you might have spent that money on.

Thanks Geoff

[GeoffF100]

Freetrade is currently charging £100 for a SIPP. X-O did that for a while but they later increased their charges.

Actually, the Freetrade SIPP charge is £9.99 per month. AJ Bell Youinvest charges £10 per month. AJB does have some additional charges though. AJB used to charge for draw-down, but that is no longer the case. With Vanguard, you do not pay commission on converting $ dividends to £.