So as to be expected my search in the bond markets for worthwhile investments has literally turned up nothing.
Yields of 5% with 2.5% fees do not make me want to run out and start investing in bond market funds.
It’s things like these ridiculous fees that make me wish that people like Terry Smith of Fundsmith would open a bond market fund along the same lines as his equity fund:
- NO FEES FOR PERFORMANCE
- NO UP FRONT FEES
- NO NONSENSE
- NO DEBT OR DERIVATIVES
- NO SHORTING
- NO MARKET TIMING
- NO INDEX HUGGING
- NO TRADING
- NO HEDGING
It appears that the vast majority of the funds universe is a bit of a rip off when it comes to fees.
I get that people need to make money for managing money but in today’s low yield environment it just doesn’t wash.
And as for the financial jargon it’s no wonder private investors who simply want to park their money somewhere just to achieve a tiny yield are forced to wade through layers of unnecessary complexity.
When shopping for funds all I want to know quickly is:
- What has been the net (after fees) long term performance?
- What are the ongoing charges for the fund?
- Are there redemption fees?
- How easy is it to get money in or out of the fund?
- How are fund managers incentivized?
Finding out this basic information is more cumbersome than it needs to be and so I’ve switched focus towards ‘alternative investments’ that will not be a drag on returns and have the same in-built safety of government and corporate bonds.
Two Examples Of Alternative Investments
There are two alternative investments I’ve been working on this week and they are:
- Nationwide Flex Direct account – currently pays 5% (4.89% gross) interest on balances up to £2,500 for a period of twelve months – a truly awful experience opening this account including unnecessary delays and a lack of communication as to what to do in each stage of the application process.
- TSB Plus Account – currently pays 5% (4.89% gross) interest on balances up to £2,000 – a very easy and pleasant experience opening this account online including being given an account number and sort code at the end of the very quick application process (7 minutes) so you can transfer cash immediately upon completion.
Do read the small print when reviewing these products such as how much money each account needs to show going through it.
Switching focus away from bonds to alternative investments ensures that at least some of the capital allocated towards bonds is earning an above average risk-free interest rate for the next twelve months (bank deposits in the united Kingdom are protected by the Financial Services Compensation Scheme – ie the government – up to £75,000).
Currently the rest of the bond allocation is earning a paltry albeit risk-free rate of 1.25%.
This week I’ll be working on more alternative (risk-free if possible) investments and transfer the cash from government bonds into these types of alternative investments.