In July last year, I started building my new Self-Invested Personal Pension (SIPP) by purchasing a FTSE All Share Tracker funds.
I had just transferred three old company pensions into my SIPP, with every penny in cash. Although I was getting some interest, I wanted to put the money to work as quickly as possible by investing in shares.
Most of my portfolio is invested in individual stocks, but I wanted to take my time selecting them, so I invested £5,000 in the Vanguard FTSE UK All Share Index Unit Trust without a moment’s hesitation. I might as well buy another popular all-share tracker, for example SPDR FTSE All Share UCITS ETF (LSE: FTAL). It is one of the longest established.
Passive income and growth
Tracker funds allow me to have a passive exposure to every stock on the FTSE100 And FTSE250plus a spread of small caps. And best of all, they do it at minimal cost, with no upfront fee and low ongoing costs. The SPDR ETF, for example, charges 0.2%. Vanguard is even cheaper, charging just 0.06%.
I can still remember the days when FTSE trackers charged 1% per year or sometimes even more. That may not sound like much, but over time the effect is huge.
Let’s say I invested £5,000 in a tracker that returns 0.06% per year and the index grows by an average of 8% per year, which is roughly the same as the long-term return of the UK stock market. After 25 years I would have £33,770. However, if the fund returned 1% I would have £27,137. That’s an incredible £6,633 less.
For the largest sums, the difference in fees becomes enormous. Let’s say I invested £5,000 in each year of this 25-year term. The low-cost fund would give me £424,882 after 25 years, while the more expensive fund would give me £365,520. These fees cost me a staggering £59,362.
Sell my winner
I bought my Vanguard tracker on July 7 last year and I did one thing absolutely right. I love buying cheap shares when the markets are down and the index is in the summer doldrums. My £5,000 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 is 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 is 3.7%.
I’m happy with that return, but now I have a problem. The vast majority of my SIPP is invested in individual shares, many of which have outperformed the all-share index. Some have underperformed, but they are fewer and I trust they will recover in style.
This gives me confidence that by picking individual stocks I can beat the average return of the FTSE. So I may soon deposit my tracker’s profits to raise money to buy individual stocks. I’m going to say goodbye to it. It has served me well.
The post I invested £5,000 in a FTSE All-Share Tracker Fund a year ago. Here’s what I have now appeared first on The Motley Fool UK.
Further reading
Harvey Jones is the owner of Vanguard FTSE UK All Share Index Unit Trust. He does not own any of the stocks mentioned. The Motley Fool UK does not own any of the stocks mentioned. The views expressed in this article about the companies mentioned in this article are those of the author and as such 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 broad range of insights makes us better investors.
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