Vanguard UK Equity Income Index Fund

Wasn’t 2008 & 2009 scary

I know the world’s stock markets are doing well currently, but let me take you back to the dark times for a moment. The period from the end of 2008 to early 2010 saw the UK stock market bottoming at half of the level it is today. At it’s worst, it had fallen to almost half the level it was in 1999. Ouch! We tend to forget the scary, uncertain times like those.

Back then I was looking to buy into the UK share market whilst it was still low, for myself and my clients. I didn’t want an expensive fund, run by someone who thought they not only knew more than the rest of the market did, but considered themselves able to consistently know more than the market forever. No, I wanted a cheap tracker. But I did not want to just buy a FTSE 100 tracker, because the FTSE 100 as an index was full of failing financials and retailers. With many large institutions suddenly collapsing like Northern Rock, the Halifax, MFI and Woolworths, it was impossible to know who would be the winners and who would be the losers?

Vanguard asset management arrives

Like a knight in shining armour a huge American fund group silently slipped into the UK in late 2009. At the time it brought with it an outlandish idea. It brought “pile them high and sell them cheap” to the UK. Previously funds cost investors 1.5% per year. Vanguard’s fund cost just 0.2% per year. It couldn’t be any good could it? After all you tend to get what you pay for.

I was drawn to its cheapness, but more importantly it’s ethos. It wasn’t going to employ expensive experts who were going to dust off their crystal balls and pronounce who the future winners and losers would be. It couldn’t afford to do that, charging just 0.2% per year. No it was going to select every company in the FTSE All Share Index. Every one, as long as they paid a dividend. I thought that was just brilliant. Simplistically I thought that if companies didn’t pay a dividend, they could be one step away from going out of business themselves as they had no cash to distribute. If conditions continued to be bad and the company needed some cash they couldn’t turn to the banks. After all the banks had no money and were going bump themselves.

The rest is history. It did exactly as it said on the tin and continues to do so.

Performance

The times they are a changing’

Now every company in the FTSE 100 bar three pay dividends. The reckless pursuit of income by investors has forced all companies to pay dividends, whether they can afford to or not. Remember HMV with its 9% dividend, just before it folded? The fund hasn’t changed, but the UK Stock Market has. If I just wanted to track the index I could do it now for only 0.08% per year. And no, that isn’t a typo.

So guess what happened on Monday? After 5 years of being delighted with the fund, with compound growth of 12.14% per annum, I sold half of our remaining holdings. It was hugely difficult. Back in 2010, 40% of our savings were in the fund, now just 10% remains. When the UK market hit 7000 points on Monday it seemed like a good exit point. With a General Election around the corner that threatens to do more harm than good, I may also sell the rest shortly.

Don’t worry, I have my plan ready to go for the next 5 years. The next blog you get will accompany your quarterly valuation. I think you will be pleased.

Greatest Hits

If you want to track our love affair with the Vanguard UK Equity Income Index Fund since we bought it, then check out some of my earlier blogs containing a nod to the fund. In the early days I often waxed lyrical about its performance, but since then the fund has soldiered on as an unsung hero in the background, like Michael Carrick in Manchester United’s midfield.

Thanks for the memories

So long Vanguard UK Equity Income Index Tracker – you have been loved by all invested in you. You have bought us cars, set our children up in their first homes, taken us on exotic holidays and helped us to collectively realise many of our life’s goals and childhood dreams.

Individual Savings Accounts

Last Call for ISA2014. Proceed to Gate

I won’t bore you with the details, because as a client I’m sure I will have mentioned ISAs many times in our meetings.  If you need reminding of how much you can invest and what the tax free benefits are then here is a link to wikipedia with a perfect description. 

If you are still thinking of getting on board our internationally invested ISA, then it’s now time to leave the duty free shopping, the bar or the toilet and proceed directly to our gate.  If you need individual assistance now or are looking for priority boarding of ISA2015, please contact Melissa on the usual telephone number or email address.

This years ISA allowance is about to leave you behind unless you act now.

If you want to read my previous blogs going into more detail about ISAs, here are the links:

It’s now your money!

Pensions eh!

You save your whole life and then you want to retire.  You want to now spend all the money that you have put into your pensions for all these years.  For 28 years I have been telling clients that your pension fund is actually not your money; if it was your money, you could just go out and spend it all couldn’t you.  Well you can’t.  Only 25% is truly yours and the rest is in a trust.  You can only spend a set amount, a set amount deemed sensible by some Treasury Mandarin who hasn’t got a pension at all similar to yours.

The Pensions Freedom Bill

In a few short weeks now all that changes. From 6th April The “We know best” period finishes and you can for the first time spend your pension pot at the rate you decide.  Of course there is the question of income tax on what you draw out, but you had tax-relief on what you invested. You should end up no worse than even.

Why Change Now?

These changes have come about because of this coalition government. Steve Webb the pensions minister, actually the longest serving pension minister since the job was created, just got stuck in and brought about change. Unfortunately he is about to lose his job. As a Lib Dem he has little chance of retaining his role after the next general election in May. However there is broad cross party support and the next pension minister is likely to be a short term lazy journeyman who changes nothing.

What’s Next?

So big changes to come for every client with a pension fund over the age of 55. You will be hearing from us in the new tax year.