Investing during Brexit
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sixpence.
Posts: 295 Forumite
Hello
Looking for people's opinions on the following: The UK economy looks uncertain with Brexit, and London property prices drooping.
I am currently planning and forming two stocks/bonds portfolios. One will be for income (58% UK shares/bonds) and the will be for growth (20% UK shares/bonds). Both portfolios will be weighted 70//30 between equity and bonds.
The UK makes up only 6% of the global stock market. Does this, coupled with the coming and current economic uncertainty, make my portfolios too UK heavy?
Of course currency is a factor as well..
I own the flat I live in and I hold no assets outside of the UK.
What are people's thoughts?
Looking for people's opinions on the following: The UK economy looks uncertain with Brexit, and London property prices drooping.
I am currently planning and forming two stocks/bonds portfolios. One will be for income (58% UK shares/bonds) and the will be for growth (20% UK shares/bonds). Both portfolios will be weighted 70//30 between equity and bonds.
The UK makes up only 6% of the global stock market. Does this, coupled with the coming and current economic uncertainty, make my portfolios too UK heavy?
Of course currency is a factor as well..
I own the flat I live in and I hold no assets outside of the UK.
What are people's thoughts?
0
Comments
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I am currently planning and forming two stocks/bonds portfolios. One will be for income (58% UK shares/bonds) and the will be for growth (20% UK shares/bonds). Both portfolios will be weighted 70//30 between equity and bonds.
Not quite sure what you mean. Where exactly are your equity investments?0 -
It is difficult to create an income portfolio without a major component being UK equity. The UK provides some of the best dividends available globally though the Far East is also worth looking at. Given the necessarily high UK % in the income portfolio perhaps it would be prudent to lower the UK% in the growth portfolio.
You could consider a higher % of bonds in your income portfolio - corporate bonds can produce good interest at lower risk than the corresponding equity and are available for companies across the world. They represent a good way to get income from the USA.
The coming and current economic uncertainty is irrelevent. There is always coming and current economic uncertainty. You should set up your portfolios as broadly based as possible to minimise the effect of single points of failure.0 -
Yes, regardless of Brexit.Hello
Looking for people's opinions on the following: The UK economy looks uncertain with Brexit, and London property prices drooping.
I am currently planning and forming two stocks/bonds portfolios. One will be for income (58% UK shares/bonds) and the will be for growth (20% UK shares/bonds). Both portfolios will be weighted 70//30 between equity and bonds.
The UK makes up only 6% of the global stock market. Does this, coupled with the coming and current economic uncertainty, make my portfolios too UK heavy?
Of course currency is a factor as well..
I own the flat I live in and I hold no assets outside of the UK.
What are people's thoughts?
Why not have a single globally diversified portfolio? Does that not provide sufficient income (eg. Foreign and Colonial has a dividend yield of 1.6%)?0 -
Yes, regardless of Brexit.
Why not have a single globally diversified portfolio? Does that not provide sufficient income (eg. Foreign and Colonial has a dividend yield of 1.6%)?
Yup. That's exactly the issue mate. I am looking to average 2.25-3.5% income.It is difficult to create an income portfolio without a major component being UK equity. The UK provides some of the best dividends available globally though the Far East is also worth looking at. Given the necessarily high UK % in the income portfolio perhaps it would be prudent to lower the UK% in the growth portfolio.
You could consider a higher % of bonds in your income portfolio - corporate bonds can produce good interest at lower risk than the corresponding equity and are available for companies across the world. They represent a good way to get income from the USA.
.
Thanks for this helpful reply. My response below
1. I am planning on having about 15% of the portfolio based in far east markets (tracker fund). I'll think about increasing this.
2. My growth portfolio will essentially be a VLS 60 (to make up about 70% of the portfolio) and then a few other funds to diversify/spice it up a bit. It's the VLS that weighs it to the UK, unfortunately. I like it because its a good fund though...
3. Will look into US bonds, although I am attracted to index funds for their low costs, so would be looking for an index is one exists.
I am consoling myself the fact that the UK is still one of the largest economy in the world so stuff is unlikely to go completely to pot...0 -
To get more yield you invariably have to take more risk.
UK offers more income because the market sees UK as more risky because of Brexit etc.
Only time will tell if the market is right.“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair0 -
Glen_Clark wrote: »To get more yield you invariably have to take more risk.
UK offers more income because the market sees UK as more risky because of Brexit etc.
Only time will tell if the market is right.
Except that companies in other parts of the world will give priority to growth rather than dividends (partly because of different tax systems).0 -
Glen_Clark wrote: »To get more yield you invariably have to take more risk.
UK offers more income because the market sees UK as more risky because of Brexit etc.
Only time will tell if the market is right.
Its not risk that drives a high yield although a yield may be unnaturally high if a company is seen as being at short term risk. But in general high risk companies dont pay dividends. Solid UK companies have paid good dividends from Victorian times. Many of the UK's most committed dividend payers are comparatively safe companies such as the utilities. The reason why UK companies pay higher dividends is perhaps that historically shareholders liked dividends as they were seen as a good steady income like rent from property. I believe there is a similar cultural situation in the Far East.
Conversely in the US it is more tax advantageous for companies to use their spare profits to buy back shares.0 -
Its not risk that drives a high yield although a yield may be unnaturally high if a company is seen as being at short term risk. But in general high risk companies dont pay dividends. Solid UK companies have paid good dividends from Victorian times. Many of the UK's most committed dividend payers are comparatively safe companies such as the utilities. The reason why UK companies pay higher dividends is perhaps that historically shareholders liked dividends as they were seen as a good steady income like rent from property. I believe there is a similar cultural situation in the Far East.
Conversely in the US it is more tax advantageous for companies to use their spare profits to buy back shares.
In the current market I would say dividend stocks are riskier then non dividend stocks in the uk and us.
Low rates have driven capital into div stocks.
I own amazon shares. They pay no dividends and trade at a pe of 200. I consider it one of the least riskiest shares I own.0 -
OP what yield target are you aiming for?
I personally don't see why there has to be a heavy UK focus to obtain a healthy yield. The UK 100 index is composed of many large global companies anyway and isn't directly dependent on the health of the UK economy, the exchange rate of GBP is the bigger concern in that regard.
A basket of globally oriented and diverse collectives can be used to achieve a very respectable level of dividend income.
Alternatively there are individual collectives specialising in delivering a decent yield derived from global equities, with potential for some strong capital growth in the good years alongside.
What about something like this as a global equity income component?'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB0 -
Creating separate income and growth portfolios is one popular approach. Some people just don't like the overhead - fees, memory, and psychology - of selling to create income, or have a tax situation that makes dividends more favourable.
But if doing so means you have to take on extra home bias - to the extent of 58% of your portfolio being UK - that seems an extraordinary manoeuvre to make to enjoy the benefits of trading less often or reducing dividend tax. And of course you need to actively manage that income portfolio on the flip side.
As a reminder, in theory the dividend policy of a stock is irrelevant to the return of the stock. In practise, the popular desirability of dividend paying stocks creates a demand that in effect reduces its total return. You pay to told a dividend yielding stock.
In uncertain markets, such as you are predicting, a history of paying dividends can be harmful. Any drop in forecast dividend is seen as a sign of weakness and there may be a sell off, or the company may try to cover the shortfall by selling some assets that it should not otherwise have had to sell. You get the dividend, but your capital is worth less.
Understanding all these factors is key in deciding the drawdown strategy you'll take.0
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