Critique my S&S ISA choices.

rookie123 · 16 October 2016 at 6:07PM

Hello all,

First post here and would be interested in getting a second opinion on my savings decisions to make sure there's nothing I've overlooked or beginners errors I've made.

So to set the scene a little. I'm 27 years old and have spent the last two years or so saving hard for a house deposit and managed to get my first house during the summer, before that I wasn't really saving anything but was paying off a car loan so now find my self in the fortunate position of no debt apart from mortgage and a recent increase in salary.

Its this increase in salary, and the desire to do something useful with it which has brought me here. A few months ago, after a bit of reading I opened up a S&S ISA with the plan of picking a few funds that could slowly accumulate and hopefully give me a decent return with me contributing £500 per month:

I ended up with these:

Vanguard Lifestrategy 100
Vanguard Lifestrategy 60
HSBC FTSE All Share Index
JPMorgan Emerging Markets Class B
Blackrock Global Property Securities Tracker
Standard Life UK Small Companies
Blackrock Gold and General
Vanguard UK Government Bond Index

I feel like I should have some sort of global equities tracker in there somewhere but haven't decided on that yet.

Also is there any reason why I shouldn't have two different vanguard lifestrategy? Do you think i would be better off combining those two into the lifestrategy 80?

Long term I would like to build these funds up to a decent amount and then start looking for some high dividend shares, perhaps 10 to 15, these shares and the funds above will be the vast majority of any retirement savings I will end up with.

So, is there any more knowledgable people who see any fatal flaws in my plan, or anywhere I will be missing out? I appreciate any replies.

colsten · 16 October 2016 at 6:52PM

I don't understand why you have two VLS, and why you have anything aside from VLS. VLS is supposed to be a one-stop shop for a fully balanced portfolio. If you add to it, you distort the portfolio balance.

http://monevator.com/vanguard-lifestrategy/

george4064 · 16 October 2016 at 7:38PM

As per colsten's post, a simple solution would be to put 95% into Vanguard LifeStrategy 80% and the remaining 5% in the BlackRock Global Property tracker fund. (Or any other similar split between the two).

System · 16 October 2016 at 7:51PM

Global small cap perhaps?
I don't bother with emerging markets, I think small cap generally does better and is less volatile

Also there will be bonds in VLS60, but you have a mortgage - are these bonds better performing than the mortgage? If not I'd drop the bond element and overpay instead

Also if your house makes up a large % of present wealth, then maybe hold off on the property fund

dunstonh · 16 October 2016 at 8:21PM

I ended up with these:
Vanguard Lifestrategy 100
Vanguard Lifestrategy 60
HSBC FTSE All Share Index
JPMorgan Emerging Markets Class B
Blackrock Global Property Securities Tracker
Standard Life UK Small Companies
Blackrock Gold and General
Vanguard UK Government Bond Index

Why two multi asset funds of similar underlying assets but different allocations?
Why multi-asset and single sector funds? Do you believe your allocations are better than a professionally arranged multi-asset fund?

I feel like I should have some sort of global equities tracker in there somewhere but haven't decided on that yet.

Why? Is VLS 100 not sufficient for you?

You dont give the weightings into each fund. So, its difficult to be accurate here but your spread is certainly biased towards the higher risk end. It will be a rollercoaster ride during negative periods. Losing over half in 12 months will happen at some point.

So, is there any more knowledgable people who see any fatal flaws in my plan, or anywhere I will be missing out? I appreciate any replies.

The spread lacks structure and reason and you are only putting £500pm in. It will take many years before you really need to look at single sector funds. So stick to just multi-asset for now.

rookie123 · 16 October 2016 at 9:30PM

Thanks for the replies.

colsten wrote: »

I don't understand why you have two VLS, and why you have anything aside from VLS. VLS is supposed to be a one-stop shop for a fully balanced portfolio. If you add to it, you distort the portfolio balance.

My thinking with holding other funds alongside the life strategies is that they seem to me to be a "medium" risk. Im hoping to keep these savings building over the next 20 years at least and as I am at the very start of that I don't mind taking some more risk as I have plenty of time to recover if needed, I figured the emerging markets and UK small cap would fill that gap. Gold and general and the bond index are then my "safest" choices.

george4064 wrote: »

As per colsten's post, a simple solution would be to put 95% into Vanguard LifeStrategy 80% and the remaining 5% in the BlackRock Global Property tracker fund. (Or any other similar split between the two).

I think I will go ahead and combine the two vanguard life strategies into one but feel like i should still hold more than 2 in total just to allow me to take on more risk and slowly reduce it over time.

MatthewAinsworth wrote: »

Global small cap perhaps?
I don't bother with emerging markets, I think small cap generally does better and is less volatile

Also there will be bonds in VLS60, but you have a mortgage - are these bonds better performing than the mortgage? If not I'd drop the bond element and overpay instead

Also if your house makes up a large % of present wealth, then maybe hold off on the property fund

Bonds I may look to get rid of or at least stop adding to them for now, they are also the second worse performing of the bunch since I started (although 3 months is not much time to judge I suppose).

I will have a look at the global small cap, I have been considering adding one more fund in the form of something more global from the start so that may be a good choice.

Equity in my house does make up a lot of my wealth at the moment but I haven't really been including it as I would like to treat it as a home and separate from investment but it is something to bear in mind I suppose. Mortgage will be overpaid as soon as furnishing and decorating costs have calmed down a little. Hopefully with everything else staying as is this would not affect the amount being put into the ISA

I was planning to leave everything for a year and see how it settled out before making any changes but there have been a couple of things bugging me so have put it out there for a second opinion and now have a couple of options to look at. So thanks for that.

I guess I'm not totally for passive investing and would still like to take some risk in areas while still keeping a core of "safer" holdings. Don't want to go into individual shares though, apart from some high dividend stuff in future.

TrustyOven · 16 October 2016 at 9:35PM

dunstonh wrote: »

Why? Is VLS 100 not sufficient for you?

Slightly on a tangent, but I thought the issue with VLS is that it's got too high of an allocation to UK equities. Not too sure why Vanguard do this.
So I guess that's one reason to include trackers in other regions to try to balance it out.

rookie123 · 16 October 2016 at 9:59PM

dunstonh wrote: »

Why two multi asset funds of similar underlying assets but different allocations?
Why multi-asset and single sector funds? Do you believe your allocations are better than a professionally arranged multi-asset fund?

The VLS I will combine into one, having both was something i doubted from the start but I am also conscious of doing too much fiddling.

The multi asset I planned on having as my main holding with some other sectors added as the more risky options.

dunstonh wrote: »

Is VLS 100 not sufficient for you?

You dont give the weightings into each fund. So, its difficult to be accurate here but your spread is certainly biased towards the higher risk end. It will be a rollercoaster ride during negative periods. Losing over half in 12 months will happen at some point.

The spread lacks structure and reason and you are only putting £500pm in. It will take many years before you really need to look at single sector funds. So stick to just multi-asset for now.

To be honest I am looking at taking on a bit more risk for the first few years, all going well this money shouldn't need to be touched for many years so i figure if there is any time to include some risk it is now.

I will have to look at how much I am allocating to each fund and from the replies so far it seems I should reduce the number of funds a little, however I don't want to go as far as going to just one vanguard fund, I'm thinking somewhere between that and what I have now?

I did quite a bit of reading when starting this ISA and had an idea of what I wanted in terms of risk and how I was going allocate between these funds, however none of it was really written down which I think was my first mistake and probably why it seems to lack reason.

dunstonh · 16 October 2016 at 11:11PM

however I don't want to go as far as going to just one vanguard fund

Why? its plenty good enough until you get to around £20k plus. Remember it is not just one fund. It is a fettered fund of funds. It has a number of underlying funds at part of its asset mix. Its just a bit more expensive than holding each one individually to reflect the cost of them rebalancing.

Slightly on a tangent, but I thought the issue with VLS is that it's got too high of an allocation to UK equities. Not too sure why Vanguard do this.

And the rigidity of their allocations is one of their weaknesses along with the lack of funds they have in different sectors. its good but its always worth looking at weaknesses as well as positives.

bowlhead99 · 17 October 2016 at 12:49AM

TrustyOven wrote: »

Slightly on a tangent, but I thought the issue with VLS is that it's got too high of an allocation to UK equities. Not too sure why Vanguard do this.
So I guess that's one reason to include trackers in other regions to try to balance it out.

The reason they do it is because a bit of home bias is a natural desire for an investor. The UK only makes up under a tenth of world equity markets, but a typical UK investor is not comfortable investing 93% of their equities in foreign countries. If you feel it's too much, or not enough, you could break the allocation and invest to your own personal comfort level and view of the world markets.

As Dunstonh notes, Vanguard give a static allocation which they do not aim to tweak much over time - so once you have a large pot, and if you consider yourself an expert, you might benefit from tweaking it with some satellite funds to move the risk/volatility needle.

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.

To the OP - you have received some sensible guidance from Dunston, George and Colsten. I'll just pick up on a couple of points that struck me as funny:

rookie123 wrote: »

Gold and general and the bond index are then my "safest" choices.

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.

Bonds I may look to get rid of or at least stop adding to them for now, they are also the second worse performing of the bunch since I started (although 3 months is not much time to judge I suppose).

You just said in the paragraph above that they were there as your 'safer' choice. Of course they are likely to be lower performing over a random 3 month time period. That is how they function as a safer choice. So, ignore suggestions to dump them by people who are themselves newbie investors, unless you are going for a much higher risk portfolio.

Of course, if the bond fund you are buying is a simple UK government bond index, it is nothing that you do not already have in the lifestrategy fund, which already contains UK government bond indexes along with other types of bonds. Given a 10 year UK gilt is only yielding 1% there does not seem to be much attractive about buying an extra UK government bond tracker fund instead of just having cash in an interest-bearing bank account, unless the bonds are all index-linked (yielding much lower but having an element of inflation protection).

System · 17 October 2016 at 5:31AM

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

Critique my S&S ISA choices.

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