Funds vs Shares
Discussion
At what size pot do people consider buying shares vs funds? With a smaller pot, funds can provide access to a much wider range of assets than would be economic buying individual shares, but as the pot gets bigger then the 0.5-1% fee per year can eat into your returns. My feeling is that I have neither the time, nor expertise, to pick stocks, although could invest that time if there was a need to do so, and while 0.75% of £5k is not much, 0.75% of £50k is a more substantial amount in cash terms.
Is there a rule of thumb, or is it simply what value individuals place on the fund manager and platform?
Is there a rule of thumb, or is it simply what value individuals place on the fund manager and platform?
Condi said:
At what size pot do people consider buying shares vs funds? With a smaller pot, funds can provide access to a much wider range of assets than would be economic buying individual shares, but as the pot gets bigger then the 0.5-1% fee per year can eat into your returns. My feeling is that I have neither the time, nor expertise, to pick stocks, although could invest that time if there was a need to do so, and while 0.75% of £5k is not much, 0.75% of £50k is a more substantial amount in cash terms.
Is there a rule of thumb, or is it simply what value individuals place on the fund manager and platform?
How are you going to diversify your risk out of the UK market if you buy shares? I always thought that was the advantage of funds in that you could spread your investment over many markets & indeed asset classes (bonds, gold etc).Is there a rule of thumb, or is it simply what value individuals place on the fund manager and platform?
You'd have to be a pretty confident stock picker to beat the average.
The fund industry has worked pretty hard over the last two decades to move investors away from the concept of building a basket of blue chip equities. The concepts of diversification and risk have very much been changed to be done geographically by funds.
20 years ago that’s pretty much what wealth management was, a broker creating and managing a portfolio of blue chips.
At the same time, the private investor has become far too busy to focus on a stock portfolio.
The individual equity market today is mostly small cap gamblers at the bottom end and HNWs at the top. The middle ground has taken advantage of the benefits of funds.
Personally, I think this middle ground area is crying out for a more equity focussed type of product that is both tax and cost efficient. And it’s something that I have been working on for a few years now.
20 years ago that’s pretty much what wealth management was, a broker creating and managing a portfolio of blue chips.
At the same time, the private investor has become far too busy to focus on a stock portfolio.
The individual equity market today is mostly small cap gamblers at the bottom end and HNWs at the top. The middle ground has taken advantage of the benefits of funds.
Personally, I think this middle ground area is crying out for a more equity focussed type of product that is both tax and cost efficient. And it’s something that I have been working on for a few years now.
Mr Pointy said:
How are you going to diversify your risk out of the UK market if you buy shares? I always thought that was the advantage of funds in that you could spread your investment over many markets & indeed asset classes (bonds, gold etc).
Easy. Many member companies of the FTSE 100 Index are domiciled in the UK, but trade all around the world. They therefore provide a geographical and currency spread of risk. Some of those 'British' companies do their accounting in US Dollars. When the Pound devalues against the dollar, Sterling profits increase and your dividends will increase, even when a dividend is held level.
Mr Pointy said:
You'd have to be a pretty confident stock picker to beat the average.
Not necessarily. The average fund does not tend to beat the average market.
Start by applying logic and common sense to whether you expect a business to grow. It is possible to beat the average, but to increase your chances, try long-term holds of large international, FTSE 100 businesses paying solid and consistent dividends. Over the long-term, it is surprising how much the dividends contribute to your total returns. Keep accurate annual records, so that you REALLY know how your progress compares to the average.
Fund managers earn their money from fees and transactions. I am sure that your own expectations are for a rather different priority.
Remember the quoted fund fees which you pay, are not all that you are really paying. They do not include other fees, which are hidden within the operation of the fund.
Edited by Jon39 on Saturday 31st August 22:00
There are plenty of shocking funds out there and I’d wager that any educated individual who took the time to create a well structured portfolio could easily outperform very many fund managers.
The FTSE100 is an excellent place to start because it isn’t a domestic index but a global one in reality. It’s a little too heavy in resource stocks these days but then maybe you build a portfolio that gives you a bit more weight in the cash generators like the utilities and less weight in the resources.
Julian’s US equity portfolio that he cobbled together for his daughter is a really good example of extreme out performance.
I think much of the problem is that everyone is told that they don’t have the time or the brains to handle something so incredibly complex and that it makes more sense to hand over to a fund manager who’ll do everything for you.
Well, I’ve spent 25 years helping fund managers tie their shoe laces and watching them confused in lobbies and it simply isn’t a collection of superhuman minds but the complete norm of all industries, a few geniuses, a few very good people, a few competent people and a hoard of tag alongs all copying each other and spouting buzz words they have no understanding of and just hoping that they get a chance to sniff one of Woodford’s or Smith’s farts.
It’s a shame that so many people have stopped selecting their own blue chips as I certainly think it has a strong case alongside funds.
The FTSE100 is an excellent place to start because it isn’t a domestic index but a global one in reality. It’s a little too heavy in resource stocks these days but then maybe you build a portfolio that gives you a bit more weight in the cash generators like the utilities and less weight in the resources.
Julian’s US equity portfolio that he cobbled together for his daughter is a really good example of extreme out performance.
I think much of the problem is that everyone is told that they don’t have the time or the brains to handle something so incredibly complex and that it makes more sense to hand over to a fund manager who’ll do everything for you.
Well, I’ve spent 25 years helping fund managers tie their shoe laces and watching them confused in lobbies and it simply isn’t a collection of superhuman minds but the complete norm of all industries, a few geniuses, a few very good people, a few competent people and a hoard of tag alongs all copying each other and spouting buzz words they have no understanding of and just hoping that they get a chance to sniff one of Woodford’s or Smith’s farts.
It’s a shame that so many people have stopped selecting their own blue chips as I certainly think it has a strong case alongside funds.
Benbay001 said:
I would rather learn what I was doing picking companies with £5k than make a mistake whilst learning with £50k.
Playing with £5k, and spending £23 + tax per round turn doesn't allow you to buy many shares though. If you only bought 5 different stocks, you've already lost 1% of your portfolio in duty and fees, and more than 1% if you want to sell them. For that 1% in a fund you could get 12 months exposure. At £50k you have enough capital to diversify into 10 or 15 stocks while not losing too much in fees. Thanks for all the insight; I might start looking and learning, although the 1 stock I do own (Shell) hasn't done very well for me.
One of the risks of shares is that investors have a tendency to go to the share bulletin boards and get drawn into the world of penny share gambling but if you stick to just blue chips then there is no reason a good portfolio won’t perform better than many funds.
The product that I am looking to bring to market will resolve the issue of comms and taxes and also offer the concept of ‘mini portfolios’ already constructed around basic rules such as a banking portfolio or utilities portfolio that investors can use to get started. The really interesting and new aspects to the product is that investors can seek to increase risk instead of via small caps or emerging markets but instead through ultra low levels of leverage and even go short particular stocks, portfolios or markets which brings an entirely new dynamic to investing.
The product that I am looking to bring to market will resolve the issue of comms and taxes and also offer the concept of ‘mini portfolios’ already constructed around basic rules such as a banking portfolio or utilities portfolio that investors can use to get started. The really interesting and new aspects to the product is that investors can seek to increase risk instead of via small caps or emerging markets but instead through ultra low levels of leverage and even go short particular stocks, portfolios or markets which brings an entirely new dynamic to investing.
DonkeyApple said:
Julian’s US equity portfolio that he cobbled together for his daughter is a really good example of extreme out performance.
I appreciate your comment about it being a really good example of extreme out performance, but months of research and analysis for the stock selection and weightings split is hardly cobbled together!
Condi said:
Playing with £5k, and spending £23 + tax per round turn doesn't allow you to buy many shares though. If you only bought 5 different stocks, you've already lost 1% of your portfolio in duty and fees, and more than 1% if you want to sell them. For that 1% in a fund you could get 12 months exposure. At £50k you have enough capital to diversify into 10 or 15 stocks while not losing too much in fees.
Thanks for all the insight; I might start looking and learning, although the 1 stock I do own (Shell) hasn't done very well for me.
I held a few shares and with hindsight I wish I hadn't.Thanks for all the insight; I might start looking and learning, although the 1 stock I do own (Shell) hasn't done very well for me.
I think it's easy to underestimate the wild swings that can impact single shares.
OK that's life and psychology plays a massive part but it's just not something I took to.
My own view is that choosing some well regard funds or IT's and paying attention to ensure they're doing what you ask of them, is a better way to a good nights sleep for most people.
Put another way, I'm guessing Nick Train and Terry Smith don't try their hand at plumbing or IT or whatever, so I don't feel any shame paying them 0.7% for their skills.
JulianPH said:
DonkeyApple said:
Julian’s US equity portfolio that he cobbled together for his daughter is a really good example of extreme out performance.
I appreciate your comment about it being a really good example of extreme out performance, but months of research and analysis for the stock selection and weightings split is hardly cobbled together!Picasso is sitting in a Paris café when a fan approaches the artist and asks that he make a quick sketch on a paper napkin. Picasso acquiesces, draws his dove and promptly hands it back to his admirer along with an ask for a rather large sum of money. The fan is flummoxed. “How can you ask for so much. It took you a minute to draw this.” To which Picasso replies, “No, it took me 40 years.”
Where can we find more about this portfolio out of interest?
trowelhead said:
JulianPH said:
DonkeyApple said:
Julian’s US equity portfolio that he cobbled together for his daughter is a really good example of extreme out performance.
I appreciate your comment about it being a really good example of extreme out performance, but months of research and analysis for the stock selection and weightings split is hardly cobbled together!Picasso is sitting in a Paris café when a fan approaches the artist and asks that he make a quick sketch on a paper napkin. Picasso acquiesces, draws his dove and promptly hands it back to his admirer along with an ask for a rather large sum of money. The fan is flummoxed. “How can you ask for so much. It took you a minute to draw this.” To which Picasso replies, “No, it took me 40 years.”
Where can we find more about this portfolio out of interest?
This was a factory worker who had a handle on a particular machine that always gave out trouble. Anyway, he was undervalued (whereas this machine was very important) and in the most recent cuts his service was deemed to no longer be required.
A few months later the machine could not be made to work by anyone. The company was facing extinction. So the ended up calling this guy in.
He walked onto the factory floor, stood by the machine for a minute, and then got out his hammer and whacked it down.
The machine started working again.
He sent an invoice for £10,000 to the company and they baulked at it, calling him in to explain how a few minutes of his time could be charged in such a way. His response was simple:
- Hammer £10
- Having the experience to know exactly what to do with it: £9,990
I would love to think this is not an underdog tale, but a true story.
Check on the IM sticky (regarding the portfolios)!
JulianPH said:
trowelhead said:
JulianPH said:
DonkeyApple said:
Julian’s US equity portfolio that he cobbled together for his daughter is a really good example of extreme out performance.
I appreciate your comment about it being a really good example of extreme out performance, but months of research and analysis for the stock selection and weightings split is hardly cobbled together!Picasso is sitting in a Paris café when a fan approaches the artist and asks that he make a quick sketch on a paper napkin. Picasso acquiesces, draws his dove and promptly hands it back to his admirer along with an ask for a rather large sum of money. The fan is flummoxed. “How can you ask for so much. It took you a minute to draw this.” To which Picasso replies, “No, it took me 40 years.”
Where can we find more about this portfolio out of interest?
This was a factory worker who had a handle on a particular machine that always gave out trouble. Anyway, he was undervalued (whereas this machine was very important) and in the most recent cuts his service was deemed to no longer be required.
A few months later the machine could not be made to work by anyone. The company was facing extinction. So the ended up calling this guy in.
He walked onto the factory floor, stood by the machine for a minute, and then got out his hammer and whacked it down.
The machine started working again.
He sent an invoice for £10,000 to the company and they baulked at it, calling him in to explain how a few minutes of his time could be charged in such a way. His response was simple:
- Hammer £10
- Having the experience to know exactly what to do with it: £9,990
I would love to think this is not an underdog tale, but a true story.
Check on the IM sticky (regarding the portfolios)!
That's great! And thanks i shall head over there to read about it... b
hstewie said:
hstewie said: My personal view is that for the average investor the 0.5-1% fee for a quality fund or investment trust will lose you less than you attempting to pick a handful of individual stocks.
Unless of course your £5k was with Mr Woodford then the op may have been better spending £5k on Pepsi (shares or fizzy drink). JulianPH said:
DonkeyApple said:
Julian’s US equity portfolio that he cobbled together for his daughter is a really good example of extreme out performance.
I appreciate your comment about it being a really good example of extreme out performance, but months of research and analysis for the stock selection and weightings split is hardly cobbled together!DonkeyApple said:
JulianPH said:
DonkeyApple said:
Julian’s US equity portfolio that he cobbled together for his daughter is a really good example of extreme out performance.
I appreciate your comment about it being a really good example of extreme out performance, but months of research and analysis for the stock selection and weightings split is hardly cobbled together!
bhstewie said:
hstewie said: I held a few shares and with hindsight I wish I hadn't.
I think it's easy to underestimate the wild swings that can impact single shares.
OK that's life and psychology plays a massive part but it's just not something I took to.
My own view is that choosing some well regard funds or IT's and paying attention to ensure they're doing what you ask of them, is a better way to a good nights sleep for most people.
Put another way, I'm guessing Nick Train and Terry Smith don't try their hand at plumbing or IT or whatever, so I don't feel any shame paying them 0.7% for their skills.
+1 to this.I think it's easy to underestimate the wild swings that can impact single shares.
OK that's life and psychology plays a massive part but it's just not something I took to.
My own view is that choosing some well regard funds or IT's and paying attention to ensure they're doing what you ask of them, is a better way to a good nights sleep for most people.
Put another way, I'm guessing Nick Train and Terry Smith don't try their hand at plumbing or IT or whatever, so I don't feel any shame paying them 0.7% for their skills.
I will be honest I have not done well on shares - sold unilever at £45 a share - well look where that is now. amongst others.
Yet my funds I have done quite well, been invested in some over 4 years now.
I have exactly the same feelings, Mr Train and Mr Smith have done well for me so I don't mind paying them 0.7% or so, to manage my money,if its going to go up 60%!
Have I done that with my own money - nope, I have just about broken even overall, including the dividend income I have had. In all honesty I did not have enough to invest, bought 8 different shares £500 in each. Still got 4 of them, topped up to even it out (one is standard life held for 3.5 years now, should of sold that a long time ago but got greedy and then it plummeted, then kept hold of it, which really was a mistake!).
I don’t want to sound mean spirited about someone’s success and I don’t intend for this to be taken as a personal slight, but I am somewhat sceptical of short-term outperformance as being an indication that there’s some value in researching a bespoke portfolio vs buying. Any returns distribution will have outliers, potentially for a very long period of time, that doesn’t necessarily mean they have a materially different insight to the market.
Edit: I should add that I’ve generally been a low-cost tracker guy, with some sprinkling of individual share picks that have outperformed the market.
Edit: I should add that I’ve generally been a low-cost tracker guy, with some sprinkling of individual share picks that have outperformed the market.
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