The views expressed in this article are those of its author and not necessarily those of ShareSoc.
ShareSoc’s role is not to recommend one platform over another, but we do try to bring to members’ attention relevant information about platforms.
Robin Powell in the Telegraph has written about the performance of investors in Vanguard funds and highlights that in general they have been patient investors and not bought at the top, nor sold at the bottom, nor over-traded.
Data on Vanguard
A Vanguard ISA has annual fees of 0.15% of assets, capped at £375 p.a., with no charges to buy and sell funds. You are limited in that you can only buy, hold and sell Vanguard funds, but there are c. 85 of these.
Transfers in are free, so for example if you can and want to transfer in £1 million of funds, the annual fees will be only £375 (0.0375%!).
Vanguard fund charges are extremely competitive. For example:
| FTSE DEVELOPED WORLD UCITS ETF |
0.12% p.a. |
| FTSE NORTH AMERICA UCITS ETF |
0.10% p.a. |
| S&P 500 UCITS ETF |
0.07% p.a. |
| FTSE 100 UCITS ETF |
0.09% p.a. |
| Lifestrategy funds |
0.22% p.a. |
For those who do not want the bother of investing in shares, or do not have the time to monitor a portfolio of shares, then the Vanguard option is attractive.
It is not necessary to open a Vanguard account to access Vanguard funds. For example, you can buy many (not all of them) from interactive investor (with the same fund charges) and if you already have an interactive account it will be cheaper to do it this way, rather than investing via a Vanguard account.
Vanguard also offers a SIPP account (annual fees 0.15% of assets, capped at £375), Junior ISAs, General Investment Accounts and Managed Accounts. Vanguard does not offer LISA accounts – nor do interactive – if you want a LISA then you may wish to try AJ Bell, Hargreaves, or Nutmeg.
More information is at https://www.vanguardinvestor.co.uk
There are lots of comparisons of Vanguard versus other platforms and a google search will quickly find these for readers who are interested. Here is an example comparing Hargreaves and Vanguard.
Vanguard also offers an array of “Lifestyle” Options, where the investor can choose to invest 80/20, 60/40, 40/60 or 20/80 in equities/bonds. Modern Portfolio Theory suggests that bonds are safer than equities and that those wanting to take less risk should have a larger proportion in bonds. Another common theory is that as you get older you should adopt a lower-risk investment strategy. 2022 was a disastrous year for thede concepts as bonds were very volatile and lost significant value (UK gilts lost 24%, Global Bonds lost 14% in sterling terms, and the Vanguard Lifestrategy Classic 20% equity was down 17% YTD at end Q3, and the Lifestrategy Global 20% was down 14% – although both have come back since then), but to be fair it should be noted that previously there had been a 40-year bull market in bonds.
What will happen next is not clear. The ending of QE and the period of ultra-low interest rates in particular impacts the economics of future returns.
The concept of bonds being a risky investment was very relevant prior to 2022 when nominal returns were near zero and real returns even sub-zero. Nominal returns are now quite positive, although real returns remain negative. An asset class becomes attractive after a period of underperformance, so perhaps now is not the time to abandon bonds.
Cliff Weight
Neither ShareSoc nor Cliff Weight are authorised to give financial advice. Nothing in this article should be construed as advice.
Regarding bonds, it is important to understand the significance of duration. Performance in 2022 was only poor for long dated bonds, such as 10 and 30 year Treasuries. The market value of these is sensitive to interest rates and inflation, so will generate losses if sold or if bought at values above par. If bought above par they will also generate nominal losses if held to maturity. Bonds offering low yields will generate real-terms losses in an inflationary environment, even if they don’t produce nominal terms losses.
The market price of short dated bonds is not very sensitive to interest rates, as their price will tend towards par as their maturity date approaches.
It is also important to understand that bonds are INTRINSICALLY less risky than equities because they sit higher in the capital hierarchy. Coupons and repayment of principal (unless perpetual) are guaranteed, unless their issuer runs into financial difficulties, in which case the issuer’s equity would be wiped out (or very severely diluted) if bond coupons and principal are not fully repaid.
See the answer to my second question in my report on BIPS AGM for an illustration of the situation for bondholders vs equity holders when a firm runs into financial difficulties. The bondholders then have the whip hand and are able to direct any necessary financial reconstruction. https://www.sharesoc.org/agm-reports/invesco-bond-income-plus-bips-agm-2022/ . Note that distressed debt investing is for experts only, as you need to read and understand the debt prospectus and covenants contained therein to know what powers bondholders have in the event of financial problems.
In periods of high inflation, equities always do better than fixed interest bonds – and guess what we are in at present and are likely to remain so for some time. Bonds are also very volatile and vulnerable to Government monetary manipulation as they are always keen to wipe out their own debts.