In July last year, I began the process of populating my new Self-Invested Personal Pension (SIPP) by purchasing a FTSE All-Share tracker fund.
I’d just transferred three legacy company pensions into my SIPP, with every penny sitting in cash. While I was getting some interest I was keen to put it to work as soon as I could, by investing in shares.
The vast majority of my portfolio is invested in individual stocks, but I wanted to take my time picking them. So I slapped £5,000 into the Vanguard FTSE UK All Share Index Unit Trust without a moment’s hesitation. I could just as easily bought another popular All-Share tracker, for example, SPDR FTSE All Share UCITS ETF (LSE: FTAL). It’s one of the longest established.
Passive income and growth
Tracker funds give me passive exposure to every share on the FTSE 100 and FTSE 250, plus a spread of small-caps too. Better still, they do this at minimal cost, with no upfront fee and low ongoing charges. The SPDR ETF, for example, charges 0.2%. Vanguard’s even cheaper, charging just 0.06%.
I can still remember the days when FTSE trackers charged 1% a year, or sometimes more. That may not sound that much but, over time, the impact’s huge.
Say I invested £5k in a tracker charging 0.06% a year and the index grew at an average of 8% a year, roughly the long-term return on the UK stock market. After 25 years, I’d have £33,770. Yet if the fund charged 1%, I’d have £27,137. That’s a staggering £6,633 less.
The charging difference becomes colossal for largest sums. Let’s say I invested £5,000 every year of that 25-year term. With the low-cost fund I’d have £424,882 after 25 years, the higher cost fund would give me £365,520. Those charges have cost me a scarcely believable £59,362.
Selling my winner
I bought my Vanguard tracker on 7 July last year and got one thing dead right. I love buying cheap shares when markets are down and the index was in the summer doldrums. My £5k investment is now worth £5,875.46, a total return of 17.51% in just over a year.
Over 12 months, the FTSE All-Share’s up 7.7%. I’m ahead for two reasons. First, I bought on a dip. Second, my total return included reinvested dividends. The current yield’s 3.7%.
I’m delighted with that return, but now I have an issue. The vast majority of my SIPP is invested in individual stocks, many of which have smashed the All-Share. Some have done worse, but they’re fewer in number and I’m backing them to recover with style.
This gives me the confidence to believe that I can beat the average FTSE return by individual stock-picking. So I may soon bank the profit on my tracker to raise funds to buy individual stocks. I’ll bid it a fond farewell. It’s done well for me.
The post I put £5k into a FTSE All-Share tracker fund one year ago. Here’s what I have now appeared first on The Motley Fool UK.
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If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now
Harvey Jones holds the Vanguard FTSE UK All Share Index Unit Trust. He has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
