Proposed Portfolio Opinions

geeovana
geeovana Posts: 91 Forumite
edited 21 February 2018 at 12:18PM in Savings & investments
Currently investing in the Vanguard FTSE All Cap Index with an OFC of 0.24%. In an effort to save fees and more accurately capture the market I am proposing to purchase the following funds in the following percentage splits:

Vanguard North America UCITS ETF @ 47%
Vanguard Emerging Markets UCITS ETF @ 17%
Vanguard FTSE Developed Europe UCITS ETF @ 16%
Vanguard FTSE Japan UCITS ETF @ 10%
Vanguard FTSE UK All Share Index Unit Trust @ 6%
Vanguard FTSE Developed Asia Pacific ex Japan @ 4%

The above will have an OFC of around 0.14%, so a pretty good saving and I believe it captures the markets more accurately. I am investing through HSD every two months using their regular investment plan which has a commission charge of £2.00 per fund.

Does this seem a sensible proposal?
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Comments

  • economic
    economic Posts: 3,002 Forumite
    Dont forget the bid-offer spread you pay on ETFs!!
  • JohnRo
    JohnRo Posts: 2,887
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    Since you're enamoured with Vanguard why not let them capture the entire global equity market performance for you in one go?

    https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf

    I'm assuming HSD is Halifax, without looking it up I don't know what their costs are but why not iWeb (also Halifax in all but name) at £5 a trade and with no ongoing platform charges?
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
  • cloud_dog
    cloud_dog Posts: 6,021
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    JohnRo wrote: »
    I'm assuming HSD is Halifax, without looking it up I don't know what their costs are but why not iWeb (also Halifax in all but name) at £5 a trade and with no ongoing platform charges?
    Plus, iWeb offer the same £2 Trade Plan investing option.
    Personal Responsibility - Sad but True :D

    Sometimes.... I am like a dog with a bone
  • bowlhead99
    bowlhead99 Posts: 12,295
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    cloud_dog wrote: »
    JohnRo wrote: »
    geeovana wrote: »
    I am investing through HSD every two months using their regular investment plan which has a commission charge of £2.00 per fund.
    I'm assuming HSD is Halifax, without looking it up I don't know what their costs are but why not iWeb (also Halifax in all but name) at £5 a trade and with no ongoing platform charges?
    Plus, iWeb offer the same £2 Trade Plan investing option.
    Halifax Share Dealing like many other mainstream brokers charging a tenner or thereabouts per trade, have a 'regular investing' feature where they can combine your orders with other clients' orders and execute them on a set day per month so you're not in charge of the timing or price of your trade but you will basically take whatever the market gives on a certain day. With most of the big brokers charging £9-13 for UK market trades it is a convenient feature to be able to deal for £1.50 or perhaps £2 per trade. This is what the OP is doing every couple of months.

    IWeb do not seem to offer this sort of 'plan' investing where you can commit ongoing monthly amounts to be executed on particular days per month without you having control of price.

    What they describe as their 'trade plan' is simply a planned purchase or exit when a particular price is triggered, which other brokers simply call a stop loss or limit order.

    At IWeb the standard price for a trade is only £5. If you want to place a 'trade plan' order to buy or sell above or below a particular price, you pay them £2 to place the order and then they will give you that £2 back by knocking it off the standard £5 dealing commission when your order executes, if it ever does before running out of the time limit set when you placed it. But effectively you have always paid at least £5 for the overall transaction which they consider is cheap enough - no further discounts available.

    That's quite different to placing a 'regular investing' order with Halifax Sharedealing or AJ Bell or Hargreaves Lansdown or Interactive Investor / TD where you commit to a monthly plan and pay £1.50 or £2 when the deal executes each month (or whenever there's sufficient funds in the account, which you might choose to time to occur only every two or three months to further reduce transactions costs.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
    cloud_dog wrote: »
    Plus, iWeb offer the same £2 Trade Plan investing option.

    iWeb don't offer the same £2 trade plan.
  • bostonerimus
    bostonerimus Posts: 5,617
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    edited 21 February 2018 at 3:23AM
    JohnRo wrote: »
    Since you're enamoured with Vanguard why not let them capture the entire global equity market performance for you in one go?

    https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf

    I'm assuming HSD is Halifax, without looking it up I don't know what their costs are but why not iWeb (also Halifax in all but name) at £5 a trade and with no ongoing platform charges?

    My thought exactly for the equity component....my next question is what about some bonds, short to medium term high quality corporates and maybe some boring gilts for stability more than gain right now. Going 100% equity takes a lot of nerve.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • economic wrote: »
    Dont forget the bid-offer spread you pay on ETFs!!

    This is the first I am hearing of such a fee. Thank you. I will look into it.
    JohnRo wrote: »
    Since you're enamoured with Vanguard why not let them capture the entire global equity market performance for you in one go?

    https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf

    I'm assuming HSD is Halifax, without looking it up I don't know what their costs are but why not iWeb (also Halifax in all but name) at £5 a trade and with no ongoing platform charges?
    My thought exactly for the equity component....my next question is what about some bonds, short to medium term high quality corporates and maybe some boring gilts for stability more than gain right now. Going 100% equity takes a lot of nerve.

    I am currently investing through a global fund. I am attempting to reduce fees by replicating the global fund through individual funds with lower OFC's. The vanguard all cap index actually has a lower OCF than the one you are suggesting. All this is assuming I have calculated the percentage splits correctly of cause. :think:

    Once you start looking into it, the 'all-in one' funds tend to be skewed towards various countries as well, not as accurately capturing the market as you can do on your own.

    With regards looking at other fund providers, Once someone has given me the nod that the above seems sensible I can compare who is offering the cheapest funds.

    Many thanks for the advice.
  • cloud_dog
    cloud_dog Posts: 6,021
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    ValiantSon wrote: »
    iWeb don't offer the same £2 trade plan.
    Serves me right for scanning down their charging page.
    Personal Responsibility - Sad but True :D

    Sometimes.... I am like a dog with a bone
  • bowlhead99
    bowlhead99 Posts: 12,295
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    Once you start looking into it, the 'all-in one' funds tend to be skewed towards various countries as well, not as accurately capturing the market as you can do on your own.
    You already have an 'all in one fund', tracking the FTSE global all cap index.
    The idea that you can 'accurately capture the market on your own', *better* than an index which itself captures and represents the market (such as the Global All Cap) , might be far fetched. It sounds so, at face value.

    Presumably the only way you are going to know what are the relative proportions of the various regions in the overall global market (in order to set your portfolio up in the first place) is to look at a global index such as the Global All Cap in which you currently invest. The components of that particular index are not generally easily available daily, but only in a monthly factsheet with something of a delay. Unless you subscribe commercially to FTSE's data.

    So, you would be looking to an index to decide how to structure your holdings of individual specialist index funds, and then you would be incurring transaction costs to build them up, ensuring to invest in the latest correct proportion each time you add money every couple of months.

    In your current plan, where you are investing in the UK all share unit trust for example, that's only 6% of your total bimonthly contribution. I suppose if the bimonthly contribution is £2k, that's £120 for UK and £80 for Pacific ex Japan, but with smaller amounts you may be below the size thresholds for a subscription so you might be juggling each month which funds you actually buy. And the ratio won't stay at 6% each month because global markets move all the time. So sometimes it could be 6%, other months maybe 7% and so on. Modeling a wider index out of component index funds, with ongoing contributions, is a pain when the wider index itself could just be bought.
    geeovana wrote: »
    . All this is assuming I have calculated the percentage splits correctly of cause. :think:
    Well, you don't seem to have done the splits correctly, if the goal was to mirror your Global All Cap fund at a lower price.

    For example you have under 50% in the US. With 17% in emerging markets. That is much higher than the exposure to emerging markets you would get in FTSE's All World or Global All Cap. They have China about 3% and India or Brazil and South Africa no more than about 1% each, half a percent to Russia. All other smaller EMs are less, so I don't know how you get to 17% if you are trying to capture investible market capitalisation in free float, as the FTSE or MSCI would do in their global indexes.

    Perhaps this is what you meant when you said you can 'accurately capture the market on your own', because you believe that (e.g.) China is underrepresented because some shares can't be bought by foreigners, so you are going to buy more of the shares that can, to try to make up for it, and stack lots of extra cash into emerging markets generally because you think EMs are the future. If so, fair enough, but you are not following the _actual_ public markets that can be generally accessed by an international investor, you are making up your own mix by personal preferences.

    Also, the FTSE global all cap fund includes $5 trillion of smaller companies which are not included in the FTSE all world or MSCI AWCI (such indexes only follow large or medium companies). Your constituents follow the latter approach of only following large and medium market capitalisation companies. The All World is missing over 10% of what the All Cap tracks. While different sized companies may have roughly the same fortunes over time, in both 2016 and 2017 the All Cap result differed from All World by 0.2% ; greater than the operating costs you hope to save.

    By investing in six funds instead of one that's five extra transactions when you buy. Doing it every other month for a year is thirty transactions. At £2 per transaction, £60 a year. If you save 0.1% off the management fees (ocf of 0.14% instead of global all cap OCF of 0.24%) that is a saving to offset the extra transaction costs of £50 per year on a £50k portfolio. So it goes without saying that you should only be thinking about doing this if you have a £50k portfolio or bigger.

    Really, the reason to use specialist single region index funds is because you don't like the mix of a world index but you do like the idea of believing in the mix that the index gives you in each country. Some people say that's flawed logic; "the market-cap weighted index is right" is either a good concept or it isn't, and shouldn't be affected when you invest across borders. Without getting into passive Vs active debates, my point is just that if you can create what you feel is a better mix, for genuinely lower costs, then sure, go ahead, but others would be quite happy to buy something off the shelf as a single product.
  • BLB53
    BLB53 Posts: 1,583 Forumite
    Have you considered Vanguard Lifestrategy? It would be much simpler.
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