Originally Posted by
WolfiesPapa
Two points here:
First ongoing charges. 0.22% per year for this Vsnguard fund sounds about right. That’s what the fund manager charges. On top of that are platform fees, so if I’m with Interactive Investor say then they also charge me a fee, for example 0.2% so In that case the total cost of ownership would be 0.22% + 0.2% per year, even though the money goes to two different companies.
Vanguard has the advantage that it is owned by its own funds, allowing it to use profits after covering costs and business investments to lower its fees, rather than reward outside shareholders with dividends and buybacks. So that’s a virtuous circle, any profits created are used to lower their fees further.
Anyway, might be worthwhile what these 0.61% your workplace scheme charges actually compromise. Is it just the platform fee, or also the ongoing charges for the underlying funds? Apples for apples? If so, then yes - 0.61% per year is competitive. But I doubt that that fee is only on contributions. Usually these fees are charges on total assets under management.
Your second point, trading costs. That is indeed one of my bugbears tgatbthe fund industry gets away with not including trading costs in their ongoing charges! So these are usually on top and indeed very opaque, for every provider.
The more the fund manager trades, the higher the charges. Good news is though that any passive funds tracks an index. So for example if your bought a FTSE 100 tracker than that fund would hold exactly the 100 stocks that compromise the FTSE100 index, in the same weight as the index.
So say Shell has 6% weight in the FTSE100, then the index tracker would also hold exactly 6% Shell shares (there are variations, like buying FTSE futures or index swaps, but let’s ignore these here).
These indices like the FTSE100, or Nasdaq or whatever usually rebalance only a couple of times a year (say every 3 months). What does that mean? Well, the FTSE 100 is supposed to compromise the 100 largest UK companies, so If a company would have lost market capitalisation and no longer be within the 100 biggest ones that it would be removed from the index at the next quarterly rebalance, and instead replaced whatever company is now within the top 100 instead (recently happened to Marks & Spencer for example - they lost their place in the FAtSE 100).
But ultimately there would only be 4x trades a year for an index tracker like that, as they just buy and hold the index, and rebalance when the index does. So trading costs should be minimal. (From my experience Someone like Vanguard would pay no more than 0.02% per trade in commissions, so not very much at all).
If you invest in an active fund though - and the fund manager managing that fund likes to trade in and out of shares then yes, trading fees can indeed be significant. Another reason to go passive...