Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • rookie123
    • By rookie123 16th Oct 16, 6:07 PM
    • 5Posts
    • 2Thanks
    rookie123
    Critique my S&S ISA choices.
    • #1
    • 16th Oct 16, 6:07 PM
    Critique my S&S ISA choices. 16th Oct 16 at 6:07 PM
    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.
Page 1
    • colsten
    • By colsten 16th Oct 16, 6:52 PM
    • 8,137 Posts
    • 6,622 Thanks
    colsten
    • #2
    • 16th Oct 16, 6:52 PM
    • #2
    • 16th Oct 16, 6:52 PM
    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
    • By george4064 16th Oct 16, 7:38 PM
    • 575 Posts
    • 597 Thanks
    george4064
    • #3
    • 16th Oct 16, 7:38 PM
    • #3
    • 16th Oct 16, 7:38 PM
    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).
    "If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett

    Save £12k in 2016 - #045
    • MatthewAinsworth
    • By MatthewAinsworth 16th Oct 16, 7:51 PM
    • 2,243 Posts
    • 908 Thanks
    MatthewAinsworth
    • #4
    • 16th Oct 16, 7:51 PM
    • #4
    • 16th Oct 16, 7:51 PM
    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
    • By dunstonh 16th Oct 16, 8:21 PM
    • 85,071 Posts
    • 50,097 Thanks
    dunstonh
    • #5
    • 16th Oct 16, 8:21 PM
    • #5
    • 16th Oct 16, 8:21 PM
    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.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • rookie123
    • By rookie123 16th Oct 16, 9:30 PM
    • 5 Posts
    • 2 Thanks
    rookie123
    • #6
    • 16th Oct 16, 9:30 PM
    • #6
    • 16th Oct 16, 9:30 PM
    Thanks for the replies.

    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.
    Originally posted by colsten
    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.

    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).
    Originally posted by george4064
    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.

    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
    Originally posted by MatthewAinsworth
    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
    • By TrustyOven 16th Oct 16, 9:35 PM
    • 429 Posts
    • 497 Thanks
    TrustyOven
    • #7
    • 16th Oct 16, 9:35 PM
    • #7
    • 16th Oct 16, 9:35 PM
    Why? Is VLS 100 not sufficient for you?
    Originally posted by dunstonh
    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.
    Goals
    Save £12k in 2014 #192
    (£4115.62 / £5k) (82.3%)
    Save £12k in 2016 #041 (£3487.50 / £6k) (58.1%)
    • rookie123
    • By rookie123 16th Oct 16, 9:59 PM
    • 5 Posts
    • 2 Thanks
    rookie123
    • #8
    • 16th Oct 16, 9:59 PM
    • #8
    • 16th Oct 16, 9:59 PM
    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?
    Originally posted by dunstonh
    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.



    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.
    Originally posted by dunstonh
    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
    • By dunstonh 16th Oct 16, 11:11 PM
    • 85,071 Posts
    • 50,097 Thanks
    dunstonh
    • #9
    • 16th Oct 16, 11:11 PM
    • #9
    • 16th Oct 16, 11:11 PM
    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.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • bowlhead99
    • By bowlhead99 17th Oct 16, 12:49 AM
    • 5,083 Posts
    • 8,981 Thanks
    bowlhead99
    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.
    Originally posted by TrustyOven
    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:
    Gold and general and the bond index are then my "safest" choices.
    Originally posted by rookie123
    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).
    • MatthewAinsworth
    • By MatthewAinsworth 17th Oct 16, 5:31 AM
    • 2,243 Posts
    • 908 Thanks
    MatthewAinsworth
    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
    • MatthewAinsworth
    • By MatthewAinsworth 17th Oct 16, 5:43 AM
    • 2,243 Posts
    • 908 Thanks
    MatthewAinsworth
    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
    • rookie123
    • By rookie123 17th Oct 16, 7:07 PM
    • 5 Posts
    • 2 Thanks
    rookie123
    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.
    Originally posted by bowlhead99
    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.


    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.
    Originally posted by bowlhead99
    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
    Originally posted by MatthewAinsworth
    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.
    • MatthewAinsworth
    • By MatthewAinsworth 17th Oct 16, 7:39 PM
    • 2,243 Posts
    • 908 Thanks
    MatthewAinsworth
    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
    • By ruperts 17th Oct 16, 7:41 PM
    • 150 Posts
    • 153 Thanks
    ruperts
    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.
    • MatthewAinsworth
    • By MatthewAinsworth 17th Oct 16, 7:41 PM
    • 2,243 Posts
    • 908 Thanks
    MatthewAinsworth
    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
    • By bigfreddiel 17th Oct 16, 8:04 PM
    • 4,056 Posts
    • 1,857 Thanks
    bigfreddiel
    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
    • Holmesy999
    • By Holmesy999 17th Oct 16, 8:18 PM
    • 19 Posts
    • 7 Thanks
    Holmesy999
    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
    • enthusiasticsaver
    • By enthusiasticsaver 17th Oct 16, 11:28 PM
    • 2,540 Posts
    • 4,339 Thanks
    enthusiasticsaver
    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?
    Debt and mortgage free and saving for early retirement
    • bowlhead99
    • By bowlhead99 18th Oct 16, 2:56 AM
    • 5,083 Posts
    • 8,981 Thanks
    bowlhead99
    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.
    Originally posted by rookie123
    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
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

4,627Posts Today

7,223Users online

Martin's Twitter
  • It's not fair or accurate to assign all leave voters (nor remainers) one voice. The vote may have been binary but t? https://t.co/QMqKrfY1jv

  • That's cos the UK voted for Brexit. The choice now unless something radical happens is what type. (Plus twitter o? https://t.co/SLmh2jL4bU

  • Todays twitter poll: The lib dem leader says more people now want soft brexit (ie still in single market etc) than hard - what do you want?

  • Follow Martin