One important point to note regarding the taxation section in this video (as this has been raised in some comments)... The information given relates to the tax treatment of daily priced index funds, which is what this video is about, NOT ETFs. Irish ETFs qualify for lower WHT rates. Interestingly, Lux ETFs don't. I hope that clarifies!
This is encouraging! Just bought my first index fund and had independently decided on the Fidelity World Index (before I saw your video). Hadn't seen anyone else talking about it but it seemed like a good one to me, so glad you think so too!
The tax comment about Irish/Lux funds vs UK domiciled funds is misleading & I think Chris should seek to clarify this. Investors can check the level of the withholding taxes by looking at the fund/etf's annual or interim report and doing a basic calculation. To take Vanguard's VHVG (Dev World Acc) ETF. It is domiciled in Ireland - so Chris's video creates the impression of 30% withholding taxes. But their last annual report would disclose that withholding taxes equated to 11.8% of received dividends which compares to 11.1% for his UK domiciled Fido global tracker's last set of accounts. Bottom line is that Irish domiciled funds do not necessarily have higher tax rates that UK funds.
I have to say I was confused by this. I was under the impression that if you held, say a Vanguard ETF domiciled in Ireland, that you would only be hit with 15% withholding tax if you are a UK investor.
Hi there. Thank you for raising this point... The information that I gave is correct, but for INDEX FUNDS, NOT ETFs... This was a presentation about index funds, but I realise that some viewers will relate the information to/mistake it for the treatment that applies to ETFs. I hope that clarifies.
@@chrisbourne-retirementplanner Is It correct that UK investors should look for domiciled in Ireland when looking for etfs to invest in as the tax treatment is better. Also are index funds that are UK domiciled better than Irish domiciled index funds. I was looking some time back to use the Vanguard global bond index fund as a stand alone bond fund together with my equity funds. But Vanguard told me because it was domiciled in Ireland it wouldn't work very well if I wanted to put smaller amounts into it each month. I was looking to start with £160 a month, with 40% in the bond fund in their sipp. They said it was too small an amount & wouldn't work very well. They suggested better use lifestrategy or target date retirement funds as I could put small amounts into those and when the tax refund money was invested it would work much better.
Thank you for the great video! Regarding the tax treatment part, do I understand correctly that this is only relevant for index funds held outside of an ISA/SIPP or does this impact the fund regardless of the account in which you hold it? Thanks in advance if you do manage to get to this one!
11:12 would a lot of the outperformance to VG all cap be the exclusion of EM and smaller. not sure this VG fund is comparable. the HSBC one has EM in too doesn't it? no doubt some is due to the lower and more consistent charges but my guess would be most of it was due to them tracking different indexes as you described earlier in the video. the good recent choice of excluding EM and smaller is the kicker and who knows if that will continue forever. Question about the 15/30% dividend tax. you say irish funds pay 30%. i thought i'd look up the standard VWRL/VUSA ETF's and they say they are "Irish UCITS" but for tax status they say "UK Reporting". i assume the tax status of UK supersedes the irish bit and they only pay 15%?
Hi Lee. Yes, you're quite right - the indexes do include different stocks, which follows on from what I was describing in the first section. All of the information provided is designed to first understand the differences between what you are comparing (even those sitting in the same sector), and then to compare factors that can add to or detract from performance. Regarding tax - you are describing the taxation treatment of Irish ETFs, whereas this video relates to daily priced index funds. I will pin a comment at the top to make this more clear.
Nice video. Do you have any suggestions on a bond fund which can be held in conjunction with Fidelity World Index to dampen down the overall volatility? Thanks, G.
Hi there. I can’t give specific recommendations, but if you’re looking for a something that gives exposure to high quality international bonds, a global aggregate bond fund of some sort would meet that criteria.
Yes, you won’t find a platform that allows access to funds without some sort of fee. You may find one that offers access to ETFs free. As highlighted though, there can be more significant factors at play.
great video explaining index fund selection criteria...... one off topic question how do you keep your hair looking so good?, if possible can you please share what hair products you using, thanks
My wife said I must have made it now people are asking me about my hair care routine 😆 I just use a bit of L’Oreal Barber Club defining fiber cream and blow dry it a bit.
Hi there. I certainly would do if I could, but I'm not able to share the full sheet because it's not approved as a retail distribution document. It is frustrating because there's nothing really on it that an educated person wouldn't be able to understand, but I can only link things that are approved for public dissemination.
Not enough time is spent looking at the content of the index fund - you are dead right. But then I guess folks who are looking for a simple way to invest don't always want to get into the fine details of their investments, and if they do, perhaps they don't always know what to look for
@chrisbourne-taxfreeinvesti9688 Yes, they are themed based. But you have to look at the performance over the last 10 years plus. I think people get to bogged down with the tech crash of 2000. The world is a completely different place than was then. No Facebook No smartphones No tick tok Instagram Etc etc Technology is a different beast now.
Yes, they are themed and less diversified. However, you can not ignore the performance over the past 10 years they outperform the alworld index by a fair margin. I think people get too bogged down from the tech crash of 2000. The world is a completely different place than 25 years ago. Technology will be what the Industrial Revolution was 100 years ago 👍
Hello Chris, is there a ticker for this, for example VHVG for a similar Vanguard fund, so I could track on Tradingview? I cannot find one for this. Also an accumulator version?
I guess LGGG or similar ETF might be useful if you are on a platform than has high OEIC fees might be comparable to Fidelity Index World? It’s a hassle to tranfer.
@@chrisbourne-retirementplanner cheers for the reply. I don't have the knowledge or the experience to ascertain where the tracking error originates from, or how I would find that out.
Hi Josh. Well they're both popular and low cost, although the HSBC fund cost does vary a little more. You are obviously doubling down a lot on your exposure to developed markets, but the HSBC fund includes more constituents because it's a FTSE tracker.
also look at how your platform charges for OEIC's vs ETF's. for example HL 0.45% gets applied to a lot for OEIC's and is capped for ETF's. even with the trading costs for ETF's it could be a lot cheaper even if the ongoing charge is a bit higher. with regular investing even those trading costs can go to zero with HL or possible reduced for others.
Great video as always Chris, in my none VG portfolio I run with the majority Fidelity World and a little bit of L & G Global 100, for some time my VG portfolio has been 100% Dev World Ex UK, on fees it is important that people realise the stated performance figures are after the OCF has been deducted !
Hi Chris. well explained. i hv a related question re ocf of VG LS 100. mentioned ocf is 0.22%. The money is invested in other funds which technically have their own ocf. For ex- abt 20% is invested in Vanguard FTSE U.K. All Share Index Unit Trust GBP Acc which has an ocf of 0.06% and so on so forth. Am i correct in assuming that the real ocf of LS100 is 0.22% + ocf of the invested fund (in relative %). i hope my question is clear.
Always my most anticipated financial related videos come from Chris Bourne. Thank you! I invest in several flavours of global, ex-UK, developed and all world funds. FIW constitutes 25% of my SIPP so I'm pleased to hear that it ranks high. I've always liked that fund but never knew why 😃
Tracking error is more a measure of volatility - it indicates how much the fund is expected to deviate from its index, whereas tracking difference shows the actual difference in returns between fund and index.
👍 Are there any UK domiciled ETFs? I buy Irish domiciled ETFs because the withholding tax is 15% vs 30% in Luxembourg, and buying them from Trading 212 there are no commission or platform fees. Are there any advantages to buying unit trust funds vs ETFs? You never know at what price you are buying or selling. What if you are selling and the market falls 23% as it did in October 1987?
This is a fair question without a simple answer unfortunately - basically, there are advantages and disadvantages to both daily priced index funds and ETFs.
Chris, another key thing for me that I think many investors overlook is the funds hedging policy. I think that should be front and centre, and will make a far bigger difference to your future returns than a slighter lower AMC. Personally i avoid any sterling hedged share class as I want to dilute my exposure to sterling, and holding a global fund is an easy and cheap way of doing it. The last thing I want is to be in a fund that hedges its exposure back, as it leaves you fully exposed to the next Liz Truss or other UK PM who decides to try and destroy our currency! However others may feel very differently, and will want to benefit from sterling’s future strength, or at least not dilute their global returns if it does strengthen, and so I guess a tracker might not be best for them as I assume for their low cost, automatic hedging, or at least a hedged share class is not an option?
Yes currency considerations are very important as they can wreak havoc on your returns. The risk needs to at least be understood before making investment decisions.
I switched from my company's default pension fund to Fidelity World P fund last year after I discovered the interesting world of global indexes funds, thanks to UA-cam channels like this. Like Chris, I was attracted by how well the Fidelity fund tracks the MSCI world index and the very low cost. It's nice to have my choice of fund validated by a trusted source! Having said all that, I've been concerned lately by my lack of emerging markets exposure with this fund. Anyone know of a good complementary fund with a similar tracking performance to gain EM exposure?
Hi David. This is obviously just my opinion, but I think emerging market exposure is better accessed through a more active mandate rather than an index one. EMs are less efficient markets than the major developed ones, and there are huge structural and economic differences between markets that are classed as 'emerging'. I think people could benefit from a more tactical selection between these, because you'll often find that a large part of your EM index fund will be allocated to China for example, and that may not be where you want to be.
Apart from comparing fund fact sheets there are professional analysis tools, but they come at a cost. Either that or you can pay for advice from sites like unbiased.co.uk.
The fidelity fund is what I've chosen for my children. Happy I seem to have made a good choice. It's cheap and on the fidelity platform there are no fees for under 18s.
Morningstar says the Fidelity O fund is just large cap, but it must also be Mid Cap? What is the split between Large Cap and Mid Cap? It's frustrating that financial services and info providers fail to give even this most basic information even on their own factsheets sometimes.
I would rather choose a low cost S&P 500 ETF and dollar or pound cost average every month, that way i am not paying any fancy charges to fund managers and people who think they have got a crystal ball.
Yes, that is the strategy I describe in this video by using index funds. By only holding S&P 500 though you are making a large tactical bet on just US large cap stocks.
Not at all. I would prefer that my investment is representative of the world market at large, which is comprised mainly of the US. I wouldn’t want to do this at the exclusion of every other market though, as that would indicate that I think one country is totally infallible, and cannot fail. It would be too much of a risk for the core part of my strategy.
The difference in performance is mostly due to the compounding in OCF. For example, 0.12 vs 0.13 over a 5 years period accounts for a 5.1% difference. Still a useful comparison though, as 0.13 in this case was HSBC, if I recollect, and the difference between Fidelity and HSBC I think was around 8%. 3% is not insignificant, and assuming similar differences over a much longer period this could be the difference equivalent to a tidy sum. It also highlights the fact that charges do matter, and boggles the mind that some people prepared to pay much higher charges still.
Risks of global index funds: 1) They are usually more expensive (so higher fees), than a FTSE 100 tracker for example 2) Remember currency risk 3) 60% of global funds are actually US equities, which are very expensive currently. UK FTSE 100 is cheap currently, and outlook reasonable according to experts. Good rule of thumb - is it cheap? Is it unloved? Does it have have good potential? Focus on those areas. I'm sticking with UK plc.
It sounds like you're taking a large tactical bet on the UK. It may work out, but it's certainly a gamble. I'd be cautious about seeking out opinions to back up what you hope to be true - that's how mistakes are made. There are probably more experts who are less positive about the UK, in relation to other developed markets, than there are experts who are positive at the moment. What you're broadly describing is value investing, and whilst the US does look expensive based on historical earnings metrics, there are questions as to how relevant some of those metrics now are. There will no doubt be a time that the UK outperforms again in the future, but if you'd held that view for the last 20-30 years you'd have been seriously hamstrung. There will naturally need to be a time when some of the froth is removed from US mega cap stocks, and that will lead to sharp corrections. That will certainly make other strategies look good, but for how long? The UK is laden with energy and mining stocks as some of its biggest constituents and you have to ask - are they what will be driving the world's economy in the future? Are technology companies on the wane? It doesn't feel that way. I have my hunches, but I wouldn't want to take a definite stance on any of these questions. Holding a global index fund as the core of my strategy for the long term means I don't have to. The last thing to mention is, you won't find a UK tracker that costs much less than the 0.12% mentioned in the video. Really, any saving below that level is going to be of very little significance.
@@chrisbourne-retirementplanner 7.4% total return for FTSE 100 from 1984 to 2022. That’s not “hamstrung”. I place capital preservation as the highest priority before seeking out riskier markets, some of which are unequivocally over-priced (such as US large caps, which are mainly performing due to movement in the Magnificent Seven). Putting your eggs in one basket which mostly has 7 eggs is risky in my book. Remember as well that we are about the climb The Wall of Worry now as we’re close to the end of the cycle (year 16 of 18 if you listen to Akhil Patel). As for FTSE 100 being largely oil and miners, great! Listen to the great Rick Rule - that’s exactly where we should be currently, and he should know. Oh, and peak oil will be 2065, not 2035. Oil price will go up, up, up in years to come. Value investing has consistently beaten growth historically. Nothing wrong with Warren Buffet’s famous investing style - buy high quality companies with a moat, when they’re cheap. UK FTSE 100 will do just fine.
@@chrisbourne-retirementplanner 7.4% total return for FTSE 100 from 1984-2022. US large caps are massively overpriced currently. Value investing beats growth investing historically. Warren Buffett will attest to that! Peak oil will be 2065. Listen to the great Rick Rule - miners & energy companies is exactly where to be currently. Renewables have brought our use of oil all the way down from 82% to 81%. Be careful about jumping on the tech bandwagon and falling for the rhetoric (Magnificent 7 have provided virtually all of the S&P 500 performance recently). We are climbing the Wall of Worry now. Last 2 years on average before crash at 18 year point (2026). Listen to Akhil Patel. His latest book is excellent. People need to ensure their portfolios are properly diversified as well, with asset classes that are as inversely related as possible (e.g. equities, govt bonds, gold and cash). Much to be said for Harry Browne’s Permanent Portfolio (if you want to sleep at night). Also, it’s time in the market, not timing the market. You haven’t mentioned currency risk which I highlighted. My UK-based permanent portfolio has returned 4.65% in last 9 months after fees. That’ll do me just fine. Beating the market is very, very difficult, unless you’re one of the highly talented few, which we are not!
One important point to note regarding the taxation section in this video (as this has been raised in some comments)... The information given relates to the tax treatment of daily priced index funds, which is what this video is about, NOT ETFs. Irish ETFs qualify for lower WHT rates. Interestingly, Lux ETFs don't. I hope that clarifies!
This is encouraging! Just bought my first index fund and had independently decided on the Fidelity World Index (before I saw your video). Hadn't seen anyone else talking about it but it seemed like a good one to me, so glad you think so too!
The tax comment about Irish/Lux funds vs UK domiciled funds is misleading & I think Chris should seek to clarify this. Investors can check the level of the withholding taxes by looking at the fund/etf's annual or interim report and doing a basic calculation. To take Vanguard's VHVG (Dev World Acc) ETF. It is domiciled in Ireland - so Chris's video creates the impression of 30% withholding taxes. But their last annual report would disclose that withholding taxes equated to 11.8% of received dividends which compares to 11.1% for his UK domiciled Fido global tracker's last set of accounts. Bottom line is that Irish domiciled funds do not necessarily have higher tax rates that UK funds.
I have to say I was confused by this. I was under the impression that if you held, say a Vanguard ETF domiciled in Ireland, that you would only be hit with 15% withholding tax if you are a UK investor.
Hi there. Thank you for raising this point... The information that I gave is correct, but for INDEX FUNDS, NOT ETFs... This was a presentation about index funds, but I realise that some viewers will relate the information to/mistake it for the treatment that applies to ETFs. I hope that clarifies.
@@chrisbourne-retirementplanner Is It correct that UK investors should look for domiciled in Ireland when looking for etfs to invest in as the tax treatment is better. Also are index funds that are UK domiciled better than Irish domiciled index funds. I was looking some time back to use the Vanguard global bond index fund as a stand alone bond fund together with my equity funds. But Vanguard told me because it was domiciled in Ireland it wouldn't work very well if I wanted to put smaller amounts into it each month. I was looking to start with £160 a month, with 40% in the bond fund in their sipp. They said it was too small an amount & wouldn't work very well. They suggested better use lifestrategy or target date retirement funds as I could put small amounts into those and when the tax refund money was invested it would work much better.
I use ETF as the platform fees are capped. To minimise provider risk I split my global invested SIPP between four funds - VWRL, IWRD, HMWO and WLDL
Nice one. How well do you find they track the indices?
@@chrisbourne-retirementplanner VWRL is underperforming the other three
Is this really necessary and there is an awful lot of overlap. Surely one fund would do
Minimising provider risk as I said previously @@fredatlas4396
I’m not familiar with ‘provider risk’. Initially I thought you wanted to split your money between different brokers/banks, but this seems different.
Thank you for the great video! Regarding the tax treatment part, do I understand correctly that this is only relevant for index funds held outside of an ISA/SIPP or does this impact the fund regardless of the account in which you hold it? Thanks in advance if you do manage to get to this one!
You haven’t mentioned currency hedged funds and if they are worth it. Good for a comment / video on this. Not advice but thoughts.
Thanks for the suggestion. I do try to bear them in mind for future content.
11:12 would a lot of the outperformance to VG all cap be the exclusion of EM and smaller. not sure this VG fund is comparable. the HSBC one has EM in too doesn't it? no doubt some is due to the lower and more consistent charges but my guess would be most of it was due to them tracking different indexes as you described earlier in the video. the good recent choice of excluding EM and smaller is the kicker and who knows if that will continue forever.
Question about the 15/30% dividend tax. you say irish funds pay 30%. i thought i'd look up the standard VWRL/VUSA ETF's and they say they are "Irish UCITS" but for tax status they say "UK Reporting". i assume the tax status of UK supersedes the irish bit and they only pay 15%?
Hi Lee. Yes, you're quite right - the indexes do include different stocks, which follows on from what I was describing in the first section. All of the information provided is designed to first understand the differences between what you are comparing (even those sitting in the same sector), and then to compare factors that can add to or detract from performance.
Regarding tax - you are describing the taxation treatment of Irish ETFs, whereas this video relates to daily priced index funds. I will pin a comment at the top to make this more clear.
Thanks for your Video & insight into index funds. Us amateur investors are seldom given these facts. I wouldn’t know what to ask tbh.
You’re welcome. Glad it’s helpful.
Nice video. Do you have any suggestions on a bond fund which can be held in conjunction with Fidelity World Index to dampen down the overall volatility? Thanks, G.
Hi there. I can’t give specific recommendations, but if you’re looking for a something that gives exposure to high quality international bonds, a global aggregate bond fund of some sort would meet that criteria.
Great video (but, my mileage does vary, I'm going to stick with my Vanguard global funds 😊)
I know almost nothing about money/finances/investments so i just have a Life Strategy 100 and pay a small amount to that every month.
Thanks John.
What platform are folk buying this on? Not available on T212 or Freetrade so a platform fee will be a feature.
Yes, you won’t find a platform that allows access to funds without some sort of fee. You may find one that offers access to ETFs free. As highlighted though, there can be more significant factors at play.
great video explaining index fund selection criteria...... one off topic question how do you keep your hair looking so good?, if possible can you please share what hair
products you using, thanks
My wife said I must have made it now people are asking me about my hair care routine 😆 I just use a bit of L’Oreal Barber Club defining fiber cream and blow dry it a bit.
Thanks Chris, I wonder if you are so kind to share online that spreadsheet (or a mini version of it). Rgds
Hi there. I certainly would do if I could, but I'm not able to share the full sheet because it's not approved as a retail distribution document. It is frustrating because there's nothing really on it that an educated person wouldn't be able to understand, but I can only link things that are approved for public dissemination.
Not enough time is spent looking at the content of the index fund - you are dead right. But then I guess folks who are looking for a simple way to invest don't always want to get into the fine details of their investments, and if they do, perhaps they don't always know what to look for
Quite right David. It can feel like information overload. I guess it’s best to invest into something than to be paralysed by choice and do nothing.
Really enjoyed the video. Can you please do some more comparing different funds.
Thank you. I will certainly aim to do so in future videos.
My index funds.
Legal and global global technology. Number 1 in performance of all index funds.
2) vusa sp500
3) iitu information and technology.
👍
They will be, but they are also very sector and country specific. I probably wouldn’t choose them as my own ‘core’ holdings for that reason.
@chrisbourne-taxfreeinvesti9688
Yes, they are themed based.
But you have to look at the performance over the last 10 years plus. I think people get to bogged down with the tech crash of 2000. The world is a completely different place than was then.
No Facebook
No smartphones
No tick tok
Instagram
Etc etc
Technology is a different beast now.
Yes, they are themed and less diversified. However, you can not ignore the performance over the past 10 years they outperform the alworld index by a fair margin. I think people get too bogged down from the tech crash of 2000. The world is a completely different place than 25 years ago. Technology will be what the Industrial Revolution was 100 years ago 👍
Hello Chris, is there a ticker for this, for example VHVG for a similar Vanguard fund, so I could track on Tradingview? I cannot find one for this. Also an accumulator version?
Hi Andrew. No ticker for this one as it’s not an ETF - it’s an index fund.
I was hoping you was going to recommend the Vanguard Global All Cap Index Fund because that's the one I have.
Expensive for what it is and tends to get overlooked.
Nice video as always Chris, thankyou 🙂👌🏼
You’re welcome. Hope it’s useful.
Thanks Chris for your transparency, another good video as usual 👏👌🏻👍🏻
Glad you enjoyed it Paul.
Awesome video, Chris. Good informative, video.
As always
Thank you 🙏🏻
I guess LGGG or similar ETF might be useful if you are on a platform than has high OEIC fees might be comparable to Fidelity Index World?
It’s a hassle to tranfer.
Should a tracking error, even when it's in your favour (i.e. your returns are higher) be deemed as a negative, or a positive?
Depends if you can isolate the reason for it - if it’s down to a positive taxation advantage and is consistent, then it’s no problem.
@@chrisbourne-retirementplanner cheers for the reply. I don't have the knowledge or the experience to ascertain where the tracking error originates from, or how I would find that out.
Amundi Prime Global UCITS ETF ticker: PRIW and charges 0.05% is it good?
That's very low, really good value.
Correct but tracking error? BTW is my fav
Seems very small 0.1% but I could just find 3y data
How can I find the tracking error of a fund / ETF?
It is often published on the fund fact sheet. You’ll find these on sites like Trustnet and Morningstar.
Good video Chris! What’s your thoughts on a 50/50 split between fidelity world index & Hsbc ftse all world? I’ve been doing that a few years.
Hi Josh. Well they're both popular and low cost, although the HSBC fund cost does vary a little more. You are obviously doubling down a lot on your exposure to developed markets, but the HSBC fund includes more constituents because it's a FTSE tracker.
also look at how your platform charges for OEIC's vs ETF's. for example HL 0.45% gets applied to a lot for OEIC's and is capped for ETF's. even with the trading costs for ETF's it could be a lot cheaper even if the ongoing charge is a bit higher. with regular investing even those trading costs can go to zero with HL or possible reduced for others.
Great video as always Chris, in my none VG portfolio I run with the majority Fidelity World and a little bit of L & G Global 100, for some time my VG portfolio has been 100% Dev World Ex UK, on fees it is important that people realise the stated performance figures are after the OCF has been deducted !
Thanks Paul much appreciated.
Hi Chris. well explained.
i hv a related question re ocf of VG LS 100.
mentioned ocf is 0.22%. The money is invested in other funds which technically have their own ocf. For ex- abt 20% is invested in Vanguard FTSE U.K. All Share Index Unit Trust GBP Acc which has an ocf of 0.06% and so on so forth.
Am i correct in assuming that the real ocf of LS100 is 0.22% + ocf of the invested fund (in relative %). i hope my question is clear.
Hi there. The 0.22% charge on LS funds is inclusive of underlying fund costs.
Always my most anticipated financial related videos come from Chris Bourne. Thank you!
I invest in several flavours of global, ex-UK, developed and all world funds. FIW constitutes 25% of my SIPP so I'm pleased to hear that it ranks high. I've always liked that fund but never knew why 😃
Cheers Keith. It’s a great fund. Hasn’t let me down yet.
It's 50% of my SIPP, so it's reassuring that others feel the same way.
Fabulous video thank you Chris! You’re the best finance channel on youtube by far!
There’s some stiff competition Gemma, so I appreciate that 😊
What is the difference between the "daily valuation difference"...and the "tracking difference"?
Tracking error is more a measure of volatility - it indicates how much the fund is expected to deviate from its index, whereas tracking difference shows the actual difference in returns between fund and index.
👍 Are there any UK domiciled ETFs? I buy Irish domiciled ETFs because the withholding tax is 15% vs 30% in Luxembourg, and buying them from Trading 212 there are no commission or platform fees.
Are there any advantages to buying unit trust funds vs ETFs? You never know at what price you are buying or selling. What if you are selling and the market falls 23% as it did in October 1987?
This is a fair question without a simple answer unfortunately - basically, there are advantages and disadvantages to both daily priced index funds and ETFs.
Chris, another key thing for me that I think many investors overlook is the funds hedging policy. I think that should be front and centre, and will make a far bigger difference to your future returns than a slighter lower AMC. Personally i avoid any sterling hedged share class as I want to dilute my exposure to sterling, and holding a global fund is an easy and cheap way of doing it. The last thing I want is to be in a fund that hedges its exposure back, as it leaves you fully exposed to the next Liz Truss or other UK PM who decides to try and destroy our currency! However others may feel very differently, and will want to benefit from sterling’s future strength, or at least not dilute their global returns if it does strengthen, and so I guess a tracker might not be best for them as I assume for their low cost, automatic hedging, or at least a hedged share class is not an option?
Yes currency considerations are very important as they can wreak havoc on your returns. The risk needs to at least be understood before making investment decisions.
Obrigado!
I switched from my company's default pension fund to Fidelity World P fund last year after I discovered the interesting world of global indexes funds, thanks to UA-cam channels like this. Like Chris, I was attracted by how well the Fidelity fund tracks the MSCI world index and the very low cost. It's nice to have my choice of fund validated by a trusted source!
Having said all that, I've been concerned lately by my lack of emerging markets exposure with this fund. Anyone know of a good complementary fund with a similar tracking performance to gain EM exposure?
Hi David. This is obviously just my opinion, but I think emerging market exposure is better accessed through a more active mandate rather than an index one. EMs are less efficient markets than the major developed ones, and there are huge structural and economic differences between markets that are classed as 'emerging'. I think people could benefit from a more tactical selection between these, because you'll often find that a large part of your EM index fund will be allocated to China for example, and that may not be where you want to be.
What's the best way to see what S&P 500 funds are best?
Apart from comparing fund fact sheets there are professional analysis tools, but they come at a cost. Either that or you can pay for advice from sites like unbiased.co.uk.
The fidelity fund is what I've chosen for my children. Happy I seem to have made a good choice. It's cheap and on the fidelity platform there are no fees for under 18s.
Good choice indeed. I also use it for my daughter and nephews.
Morningstar says the Fidelity O fund is just large cap, but it must also be Mid Cap? What is the split between Large Cap and Mid Cap? It's frustrating that financial services and info providers fail to give even this most basic information even on their own factsheets sometimes.
Have you looked on Trustnet? You can view Trustnet’s and the provider’s own fact sheet and they’re reasonably detailed from memory.
Really interesting Chris looking forward to catching up with you in a couple of weeks
Cheers Graham
Thanks Graham and yes, I look forward to speaking.
I would rather choose a low cost S&P 500 ETF and dollar or pound cost average every month, that way i am not paying any fancy charges to fund managers and people who think they have got a crystal ball.
Yes, that is the strategy I describe in this video by using index funds. By only holding S&P 500 though you are making a large tactical bet on just US large cap stocks.
@@chrisbourne-retirementplanner I agree however are you willing to bet against the US.
Not at all. I would prefer that my investment is representative of the world market at large, which is comprised mainly of the US. I wouldn’t want to do this at the exclusion of every other market though, as that would indicate that I think one country is totally infallible, and cannot fail. It would be too much of a risk for the core part of my strategy.
The difference in performance is mostly due to the compounding in OCF. For example, 0.12 vs 0.13 over a 5 years period accounts for a 5.1% difference. Still a useful comparison though, as 0.13 in this case was HSBC, if I recollect, and the difference between Fidelity and HSBC I think was around 8%. 3% is not insignificant, and assuming similar differences over a much longer period this could be the difference equivalent to a tidy sum. It also highlights the fact that charges do matter, and boggles the mind that some people prepared to pay much higher charges still.
Hi Justin. A 0.01% difference definitely doesn’t compound to 5.1% over five years!
@@chrisbourne-retirementplanner :} no, your right, I calculated 1% compounded - missing a couple of zeros after my decimal, rookie error.
Risks of global index funds: 1) They are usually more expensive (so higher fees), than a FTSE 100 tracker for example 2) Remember currency risk 3) 60% of global funds are actually US equities, which are very expensive currently. UK FTSE 100 is cheap currently, and outlook reasonable according to experts. Good rule of thumb - is it cheap? Is it unloved? Does it have have good potential? Focus on those areas. I'm sticking with UK plc.
It sounds like you're taking a large tactical bet on the UK. It may work out, but it's certainly a gamble. I'd be cautious about seeking out opinions to back up what you hope to be true - that's how mistakes are made. There are probably more experts who are less positive about the UK, in relation to other developed markets, than there are experts who are positive at the moment. What you're broadly describing is value investing, and whilst the US does look expensive based on historical earnings metrics, there are questions as to how relevant some of those metrics now are. There will no doubt be a time that the UK outperforms again in the future, but if you'd held that view for the last 20-30 years you'd have been seriously hamstrung. There will naturally need to be a time when some of the froth is removed from US mega cap stocks, and that will lead to sharp corrections. That will certainly make other strategies look good, but for how long? The UK is laden with energy and mining stocks as some of its biggest constituents and you have to ask - are they what will be driving the world's economy in the future? Are technology companies on the wane? It doesn't feel that way. I have my hunches, but I wouldn't want to take a definite stance on any of these questions. Holding a global index fund as the core of my strategy for the long term means I don't have to. The last thing to mention is, you won't find a UK tracker that costs much less than the 0.12% mentioned in the video. Really, any saving below that level is going to be of very little significance.
@@chrisbourne-retirementplanner 7.4% total return for FTSE 100 from 1984 to 2022. That’s not “hamstrung”. I place capital preservation as the highest priority before seeking out riskier markets, some of which are unequivocally over-priced (such as US large caps, which are mainly performing due to movement in the Magnificent Seven). Putting your eggs in one basket which mostly has 7 eggs is risky in my book. Remember as well that we are about the climb The Wall of Worry now as we’re close to the end of the cycle (year 16 of 18 if you listen to Akhil Patel). As for FTSE 100 being largely oil and miners, great! Listen to the great Rick Rule - that’s exactly where we should be currently, and he should know. Oh, and peak oil will be 2065, not 2035. Oil price will go up, up, up in years to come. Value investing has consistently beaten growth historically. Nothing wrong with Warren Buffet’s famous investing style - buy high quality companies with a moat, when they’re cheap. UK FTSE 100 will do just fine.
@@chrisbourne-retirementplanner 7.4% total return for FTSE 100 from 1984-2022. US large caps are massively overpriced currently. Value investing beats growth investing historically. Warren Buffett will attest to that! Peak oil will be 2065. Listen to the great Rick Rule - miners & energy companies is exactly where to be currently. Renewables have brought our use of oil all the way down from 82% to 81%. Be careful about jumping on the tech bandwagon and falling for the rhetoric (Magnificent 7 have provided virtually all of the S&P 500 performance recently). We are climbing the Wall of Worry now. Last 2 years on average before crash at 18 year point (2026). Listen to Akhil Patel. His latest book is excellent. People need to ensure their portfolios are properly diversified as well, with asset classes that are as inversely related as possible (e.g. equities, govt bonds, gold and cash). Much to be said for Harry Browne’s Permanent Portfolio (if you want to sleep at night). Also, it’s time in the market, not timing the market. You haven’t mentioned currency risk which I highlighted. My UK-based permanent portfolio has returned 4.65% in last 9 months after fees. That’ll do me just fine. Beating the market is very, very difficult, unless you’re one of the highly talented few, which we are not!