Critique my S&S ISA choices.

2

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  • System
    System Posts: 178,077
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    I think high risk is right if you're young since I think years of better returns kinda insure against the next crash or chance of loss, and you have time to hold tight and ride out any crash that does happen. Just gradually tone it down near the end

    With a long term buy&hold view and a strong stomach I don't feel the need to capture the whole economy, if you feel there is significantly better returns in one place then pile in now, diversify later, if you don't need to rely on a steady figure.

    Save margin loans for crash opportunities. Also when I said about active in small cap, just be aware it might be more expensive, whether or not that's worth it I'm dubious about
  • bowlhead99 wrote: »
    In the OP's case he feels that despite the 'rookie' moniker, he is already a bit of an expert, and that 25% of the Lifestrategy equities being UK listed is still not enough, so he is adding more of the UK equity index which he already has in the lifestrategy and more of the UK government bond index which he already has in the lifestrategy, as well as a UK smallcap fund. And then he's adding more emerging markets because although he already had that sector in the lifestrategy fund he has diluted all the international holdings of the lifestrategy fund by holding the three UK funds on the side.

    Seems a pretty complicated way to do it, to me.

    Im not sure how you've decided that I feel I am an expert, if i did i wouldn't be here asking for advice. Yes, it looks like I've made a few errors so far but then again I wouldn't expect to get it spot on first time. Id rather make mistakes and learn from them than never make an attempt to learn more.

    bowlhead99 wrote: »
    You are kidding us right? Please say you are.

    From end of October 2011 to start of August 2015, Blackrock Gold & General lost 65% of its value. If you have looked at the five year charts before setting off on your investment journey three months ago and didn't notice that massive and rapid decline happening over a period of four years right in the middle of it, so you think it is a safe choice, you need to be more observant.

    If you didn't even look at the five and ten year charts for all your investment choices, please throw out all your 'research' and start again.

    OK, maybe what I meant to say was safe in the sense that from what I read precious metals etc appears to be a good place to put money in the event of some sort of crash. Also, this may be me being really thick but if since October 2011 I had put an amount into blackrock gold and general each month then by now I would be up?

    If you want an active element I think small/micro/nano cap is the best place for it, where there is alpha to be had (but there are liquidity and fraud risks for micro and nano and I'd rather let some of the tiny ones fail and catch the successes when they reach small cap)

    But I think index gives you a more diverse spread, and with that, less volatility, and more of a blend rather than just value or growth

    People here say things like bonds and property to make the investment itself steady, but if its a long term thing I don't think it should be viewed in isolation from your other assets - my sipp itself isn't balanced at all, but when you mix it with the isa and my house and mortgage the overall picture is more balanced

    I wouldn't touch commodities, gold is betting against yourself with no dividend, making it dangerous. I suppose at least oil would see a reducing supply but I'd still rather hold equities

    Thanks for the reply, a few things to think about from that.

    General consensus seems to be to move mostly into VLS with perhaps a small percentage elsewhere if I am still set in my ways in terms of taking a chance on something and seeing how it plays out.

    VLS 60, Emerging markets and FTSE All share I will transfer into VLS100 for a start I think.
  • System
    System Posts: 178,077
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    If you already have small holdings in vls60, emerging and all share, I wouldn't sell just to buy something else, but just sell when you need access to cash

    Reason being "out of the market" - in the days between your sale completing and purchase completing the stocks would've probably risen, costing you more. For this reason I don't switch old money to cheaper trackers.

    I don't know vls's management fees, perhaps those trackers you had are cheaper. If you do go down to one fund maybe self select isn't so appropriate
  • ruperts
    ruperts Posts: 3,673
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    Can't see any point in holding the two Vanguard funds, the FTSE and the bond fund unless you've got some reason to believe that particular asset allocation is superior to Vanguard's. It's like buying two small portions of chips when a large portion is cheaper and contains just as many chips.


    Can see what you're trying to do with Emerging Markets and Small Caps in terms of ratcheting up the risk to try and squeeze out a bit more return. I do the same but the three riskier funds I hold are only 5% of my portfolio each.


    Property and Gold I would say are more diversification tools (useful for lowering risk particularly for those with sensitive time frames). If you've got a long time frame and can handle substantial falls then I'd ditch them and go all in with equities as I believe expected returns are better.
  • System
    System Posts: 178,077
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    Also if you don't already have a sipp then maybe have one as a "retire at 57" pot - can claim extra tax credits for it ;)
  • bigfreddiel
    bigfreddiel Posts: 4,263 Forumite
    Having seen all the comments here so far my advice is that you should pay an IFA. It will be well worth it in the long run.

    Of course no one is allowed to give advice on MSE, so my advice is merely a suggestion.

    When you do see an IFA make sure you are very clear on your attitude towards risk, and your long term objectives.

    And before you do anything save at least 6 months salary as a buffer against anything bad like losing your job.

    Good luck fj
  • geeze - I thought I was mad going for 4 funds. Who could be bothered trying to work out which fund is doing better than the other one when it is that many? keep it simple and spend less time on your computer tracking all your funds and get amongst some nature - get some mustachian philosophy in your life
  • I would agree with most of the other comments above that if you are willing to invest into the Vanguard lifestyle funds then adding others to it will unbalance it and defeats the object of using them. They are balanced fund of funds. I hold all my stocks and shares isa in Vanguard LS60. It seems to me you should either stick with just Vanguard (choose which one, either 80 or 100) or create your own fund of funds but be prepared to rebalance regularly. There is a lot of UK exposure in your portfolio which automatically raises the risk. Adding small companies and emerging markets raises it higher so you may have to be prepared for a bumpy ride. You need to be prepared that the value of your holdings may decrease significantly during economic cycles and be able to ride it out - ie have you got sufficient cash reserves should you need cash in a hurry?
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  • bowlhead99
    bowlhead99 Posts: 12,295
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    rookie123 wrote: »
    Im not sure how you've decided that I feel I am an expert, if i did i wouldn't be here asking for advice. Yes, it looks like I've made a few errors so far but then again I wouldn't expect to get it spot on first time. Id rather make mistakes and learn from them than never make an attempt to learn more.
    That's fair enough, we all start somewhere.

    My flippant comment was that until you have a large pot where indvidual holdings start to make a real difference in terms of actual extra pounds made from the strategy, there is little to be gained from investing huge amounts of time or buying advice to find out how better to deploy your portfolio than what you could get from just researching relatively simple multi asset funds and buying one that suits your needs.

    The reason not to do that would be if the portfolio was sufficiently large for the tweaking of satellite funds to have a meaningful effect on your wealth, or if you feel your expert portfolio management skills will allow you to construct something more suitable for your needs than what the expert portfolio managers sell.

    As such, if you are messing about with two multi asset funds, three UK funds, and a specialist gold mining fund, and more emerging markets than the 8% of equities that the multiasset fund gave you, and a smallcap fund, it stands to reason that it is because you are loaded and need something bespoke, or because you are an expert. And as you are not loaded, it must be because you are an expert.

    As it turns out, it is the exact opposite, it because you are lost, and should perhaps go back to basics and something simpler. Good to see you are now concluding that.

    FWIW it is good to make mistakes and overcomplicate things when you are right at the beginning of your investment journey, rather than later when your life savings are literally the savings of an entire working life. Mistakes or wasted time on a small pot when you are young and have spare leisure time is absolutely fine. However, there is much that can be learned from reading and research rather than actually making the mistakes in practice yourself.
    OK, maybe what I meant to say was safe in the sense that from what I read precious metals etc appears to be a good place to put money in the event of some sort of crash.
    Precious metals can be a diversifier in a crash because a lump of precious metal might still buy the same number of loaves of bread that it did last week, even if shares in your supermarket have halved in value.

    However, your 'gold and general' fund does not hold lumps of metal for that purpose. It invests in gold mining companies. These are very highly geared to the metal price with a bunch of other factors.

    For example, imagine it costs a mining company $1000 per ounce to get a block of gold out of the ground, process it and get it to market. That cost being a function of local energy costs, labour costs, the borrowing cost of getting enough money together to construct the mine in the first place, and so on.

    Imagine the gold is sold at $1200 an ounce. So the miner makes $200 profit on every ounce. 100,000 ounces is $20m profit a year. Then gold goes up in value from $1200 to $1400. Wow, the profit went up 100% to $40m profit a year, even though gold only went up 12%. Then imagine gold price ticks up a further $100 to $1500. It's now 25% higher than when it was at $1200 but the mine is 150% more profitable.

    The value of the mining company is a function of the proven and probable and possible reserves of ore in the ground, and its operational profitability. So as the gold price goes up, profits go up and the value of in-situ reserves go up and it's a great company to buy.

    However if the oil price goes up increasing the cost of the generators that power the drilling site, and the local labour force exerts some collective bargaining techniques, the mine might find it now costs $1100 to dig an ounce of gold. No problem if the gold is still selling for $1500. But what about when the gold is only selling for $950? It is not worth digging any gold at all, because each ounce loses you $150. Then there's a credit crunch and nobody will lend to risky highly leveraged miners so you can't complete your planned plant improvements and you have negative cashflow so you can't refinance. It is literally uneconomic to dig any gold out of the ground.

    Only thing to do is shutter the mine and put it on care and maintenance for five years, sacking your entire labour force, until the gold price hopefully comes back up. Or maybe tap the shareholders for more cash to keep the lights on, issuing new shares at a price much below what most people bought in at, permanently diluting their holding and destroying their wealth.

    Until the gold price recovers to $1100+, which could take a decade, you are producing zero ounces per year and your profitability is nil, negative in fact and there are no dividends to reward shareholders for the risk they took buying in. Investors will pay virtually nothing to buy your company compared to what they would pay when you were a company that made $40-50m of clear profit every year.

    So, translating that to the real world, when the gold price fell from £1100/oz five years ago to £700/oz a year ago (35% drop), the value of an investment in blackrock gold and general, even with dividends reinvested, fell 65%. Ouch. So it is geared to gold price and much riskier than gold on its own.

    The advantage is that in the good times, mining companies can pay dividends while blocks of metal or bags of coins do not. But also, mining companies are just like other companies in that they are affected by energy prices,credit availability, quantitative easing, investors attitudes to equities vs bonds, politics and so on. So Gold & General is a lot more complex and substantially more risky than holding the lump of precious metals that you thought would be a diversifier if equities crash. The fund holds equities of companies, so cannot be a true diversifier if equities generally crash!
    Also, this may be me being really thick but if since October 2011 I had put an amount into blackrock gold and general each month then by now I would be up?
    Just looking at the chart from end of October 2011 without doing the maths properly. Say at end of October 2011 you paid £100 for a share (as I'm reading a chart showing end of Oct 2011 as 100% and the price declining thereafter). For the next 18 months you were paying between 70 and 100. Then you had 6 months between 50 and 70. Then for the next 18 months you were paying between 40 and 50. You then had 6 months of real low prices between 35 and 40.

    So at a rough guess the average amount paid each time you bought a share would have been 60 (percent of the start price), over those first 4 years. However, if you were not buying a fixed number of shares each month but instead paying a fixed amount of cash each month you would have bought more shares in the cheap months. This would skew the average price down from 60 to about 55.

    Only at the end of April 2016, 4.5 years after the decline starts, does it finally recover back up as high as 55. So at that point, your four and a half years of payments would actually have got you to a marginally profitable position. Basically break-even plus a tiny bit, after 54 months of plugging away your £100pm or £200pm or whatever.

    Today, in those terms, after the last 6 months has unfolded, the price is back at 70 (i.e. 30% below where it started in 2011). As we were at breakeven at 55, we can see that we'll now have made a bit of profit from that final 30% jump of 55 moving up to 70.

    However, that jump incorporates the fact that the gold price in sterling leapt over 20% in a couple of weeks after the unprecedented Brexit referendum result ; in the 6 weeks post-referendum the shares soared 35%. Global political uncertainty plus the pound weakening dramatically helped the gold price in pounds, at the same time as equities generally were rising around the world. It has slipped back along with other mining equities since though the gold price remains at basically the same high level.

    So, fortunately in this case, 60 months of constant investing would have led to an overall positive result, though only really in the very last few months where brexit came out of nowhere and delivered a one-time boost to uncertainty at the same time as a one time hammering of the pound, making things denominated in non-pounds, very valuable. A last-minute reprieve for the otherwise terrible holding.

    People go on about the power of drip feeding and when the maths works out to allow you to make money on a terribly performing stock it can give you a false sense of security. However, generally we are buying things we hope and want to go up, and we don't plan for them to fall by 65% just so we get a few months of buying them cheap.

    Imagine if the shape of the performance graph of BG&G was instead inverted - which is not at all unlikely as it is a volatile fund. And instead the price shot up 65% rather than shooting down, and you carried on your monthly drip-feed purchases. You would be buying at sky high prices for years and then when it 'normalised' and gave back up a lot of the gains, you would find yourself, not at break-even after 4 years, but at a very substantial loss instead having plugged away for 60 months to get a seriously negative result.

    The bottom line is that BG&G is some sort of a diversifier but definitely not for "widows and orphans" and it does not work as well as gold at being a defensive holding, because of operational and financial gearing
  • Thanks for all the replies.

    Bowlhead, a lot of relevant information there, my original plan appears to have been a bit simplistic without looking at the finer details and as a result I've made it more complicated than it needed to be.

    I'll definitely be taking onboard what has been said and simplifying what I hold. still tempted to keep 5 or 10% to take a bit more risk though. Will do a lot more research before I make a decision on that though.
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