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AVAILABLE NOW!

The wealth of information on this site is available in a handy-sized book. Buy it from your bookseller, or online here.

ISBN 978-1-906439-21-7

 

 

   

Expenses take the shine off managed funds.

The recent introduction of the Child Trust Fund (CTF) (see below) provides a reminder of how management charges can make a hole in your returns. A quick survey of some typical CTF schemes shows that the provider charges 1.5% of the value of the fund every year. Since these are very likely to be ‘closet trackers’ (funds that more or less mirror an index such as the FTSE 100 or All Share), the costs of running them will be low and their performance should be in line with the market as a whole. The dividend yield on the All Share index is 3.2%. After taking off 1.5% for the fund managers, your CTF will have an annual income of 1.7%. If economic growth averages 2.5% a year over the next 15 years or so, your CTF is likely to have a real rate of return of just over 4% a year. If your child starts with a maximum CTF contribution from the Government of £500 at birth, the fund will be worth about £1,000 at his or her 18th birthday, and the fund managers will have made around £200.

 

  9 October, 2008 © 2008 K.R.Wade and Co Ltd prev page next page