How you can save £8,000 with new investing website
SAVERS can get a £8,000 boost by investing in funds through a cheap new website that has undercut its expensive rivals.
Investing giant Vanguard, an american company, has launched a so-called fund supermarket with rock-bottom prices.
You pay just 0.15 pc a year to put your money into a range of funds — a third of the 0.45 pc pocketed by rivals such as Hargreaves Lansdown. This fee is on top of the annual fund management charges levied at all fund supermarkets.
Experts believe the move could spark a price war. So could you save a fortune by switching to Vanguard’s new deal?
SO HOW CAN I INVEST IN FUNDS?
THERE are two main ways to invest in funds. You can go direct to a fund manager such as M&g or Invesco Perpetual. Or you can invest through a fund supermarket such as Hargreaves Lansdown, Bestinvest or Fidelity.
Most savers choose the second option because fund supermarkets are typically cheaper and offer thousands of different investments in one place. That enables you to split Isa cash between many different funds run by different managers.
Now Vanguard, the world’s second-largest fund manager, with £3 trillion under its control, has launched its own service — vanguardinvestor.co.uk — to cut the cost of its 65 funds.
ARE THE DEALS ANY GOOD?
VANGUARD is popular with investors for tracker funds. These deals, which are controlled by robots rather than human managers, follow an investment index up and down.
For example, they might track the FTSE 100 in London or the S&P 500 in the u.S.
They are cheaper than active funds, where a stock-picker is paid to identify the best shares.
Low-cost trackers have become hugely popular because just one in ten ‘active’ fund managers beats the stock market after fees. Vanguard charges 0.08 pc a year on its FTSE uK all Share Index unit Trust fund — or £8 on a £10,000 pot. By comparison, the average active fund costs 0.9 pc — or £90 a year.
Vanguard also offers a range of funds called LifeStrategy. These are ready- made portfolios containing a number of trackers. You choose one to suit your circumstances. It also offers a small number of active funds.
HOW MUCH WILL I SAVE?
VANGUARD’S fund fees are the same whether you buy direct or through rival fund supermarkets.
However, its 0.15 pc administration fee — which is charged in addition to the fund fee — is much cheaper (see table).
That means you can save a fortune. If you put £200 a month into the FTSE all Share fund costing 0.08 pc, you’d pay 0.23 pc a year overall with Vanguard.
If the fund grew at 5 pc a year, you’d have £157,227 after 30 years, according to advisers Candid Financial advice.
By comparison, if you invested with Hargreaves Lansdown, the cost would be 0.08 pc, plus the 0.45 pc fund supermarket charge — a total of 0.53 pc. Your pot would be worth £149,178 after 30 years — or £8,049 less.
The effect is similar if you invest a lump sum. If you put £ 10,000 directly into one of Vanguard’s LifeStrategyfunds, which cost 0.22 pc, you’d have £38,877 after 30 years (based on a 5 pc annual return).
With Hargreaves you’d have £35,667 — or £3,210 less.
another bonus is that Vanguard doesn’t charge exit penalties for moving to another provider if you change your mind.
By contrast, Hargreaves and The Share Centre charge £25 for each fund you move. Vanguard caps your fees at £375 a year once your pot hits £250,000.
SHOULD I SWITCH TO VANGUARD?
VANGUARD’S service is cheap — but you don’t get much choice of funds. It offers 65 compared with more than 2,500 through Hargreaves Lansdown, Bestinvest and the others.
But if you were thinking of investing in its cheap tracker funds anyway, experts do recommend Vanguard. Ben Yearsley, of Shore Financial Planning, says: ‘Price isn’t everything. It’s vital to pick the best fund rather than the cheapest. However, this is the cheapest way of investing in trackers if that’s what you want to do.’
Tracker funds are a good option for savers putting money away for the longer term.
You’ll never beat the stock market because a tracker mirrors the return, but you are not at the mercy of a fund manager’s success (or lack of it).
If your pot is worth between £60,000 and £250,000, consider a fund supermarket with a flat fee. For example, IWeb charges a one- off Isa account fee of £25. You then pay £5 to buy and sell funds. Interactive Investor charges £80 a year and £5 each time you buy or sell funds.
Justin Modray, of Candid Financial advice, says: ‘While there aren’t many funds to choose from, Vanguard could force the likes of Hargreaves Lansdown and Bestinvest to trim fees, which is long overdue.’