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  • FIRST POST
    • A_Hes11
    • By A_Hes11 19th Apr 17, 9:14 AM
    • 2Posts
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    A_Hes11
    Building a First Time Portfolio
    • #1
    • 19th Apr 17, 9:14 AM
    Building a First Time Portfolio 19th Apr 17 at 9:14 AM
    Hi,

    I'm in my late twenties looking to build an accumulation portfolio of index funds with a view to investing in these monthly for the next 10-15 years.

    The real issue I'm having at the moment is what funds to invest in that run alongside my core holding in the Vanguard Lifestrategy 80% Equity Fund. Roughly 70% of my monthly investment amount will go in here, however when it comes to looking at ways to invest the other 30%, I keep feeling that I'm running the risk of investing in funds that are too similar/repetitive and not giving myself the necessary diversity to help ensure more consistent returns in the future.

    My instinct tells me that I should look at investing 15% in a bond tracker of sorts to help balance the heavy equity VLS80, and then take a flyer on another riskier equity fund with a small amount invested in gold/commodities to round it off.

    I guess my key question is, is this outlook logical/necessary (i.e. another bond index investment), does the VLS80 provide that balance already? Is there perhaps another approach that would better diversify a porfolio that includes such a core holding in the VLS80?

    Any opinions would be very much appreciated as I'm wasting time simply going around in circles!

    Many thanks,
Page 1
    • bowlhead99
    • By bowlhead99 19th Apr 17, 9:39 AM
    • 6,424 Posts
    • 11,374 Thanks
    bowlhead99
    • #2
    • 19th Apr 17, 9:39 AM
    • #2
    • 19th Apr 17, 9:39 AM
    A Vanguard lifestrategy 80% equities fund is already a "portfolio of index funds".

    It is a portfolio of which 80% of the money is put into a variety of equity index funds and 20% of the money is put into a variety of bond index funds.

    Sure, if you like, you can decide that only 70% of your money should be [80% in a variety of index funds and 20% in a variety of bond funds] and then the other 30% of your money should be [x% in a variety of equity index funds and y% in a variety of bond index funds and z% in a variety of other index funds]. Then you can feel satisfied that you have lots and lots of funds instead of just lots of funds.

    However, then you will have to spend time and effort deciding what should be in those other funds that you're manually adding to the mix to break Vanguard's mix that they give their UK customers out of the box. Once you have researched a homemade allocation that you believe to be better than Vanguard's, you will need to keep tinkering and tweaking it because your mix of self-selected funds will grow or shrink at a different pace to Vanguard's collection each year so you will need to constantly balance it back to your target, to preserve your intended mix.

    The obvious question is what do you as an investing newbie know better than Vanguard about constructing a 10-15 year, monthly drip-fed portfolio (average time each pound is deployed, 5 to 7.5 years). Why will yours be better for your needs?

    Perhaps because it has lower overall equity content? Perhaps because its non-equity content includes asset classes other than just bonds (e.g. direct property). Perhaps because it is more or less UK focused. If that is what you're looking for, it would make sense to just buy a multi-asset fund that has those different properties, rather than buying a fund that doesn't do what you want and then adding a whole home-made portfolio around the side to "improve" it.
    • A_Hes11
    • By A_Hes11 19th Apr 17, 10:12 AM
    • 2 Posts
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    A_Hes11
    • #3
    • 19th Apr 17, 10:12 AM
    • #3
    • 19th Apr 17, 10:12 AM
    Many thanks for sending through such a quick and detailed response.

    I guess as an investing newbie, my natural instinct rightly or wrongly, is that when investing in such a fund that is heavily equities focused, I need to somehow re-balance that extra risk with something that is traditionally 'safer', hence the inclination to look at adding another bond tracker to the ones already included in the VLS80. What if stocks tank? Will the bond composition of the VLS80 be enough to mitigate any serious losses?

    Cheers
    • bowlhead99
    • By bowlhead99 19th Apr 17, 10:35 AM
    • 6,424 Posts
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    bowlhead99
    • #4
    • 19th Apr 17, 10:35 AM
    • #4
    • 19th Apr 17, 10:35 AM
    As mentioned, the purpose of the lifestrategy '80' fund is to hold 80% equities indexes and 20% bond indexes. The bond indexes will act as a mild brake on an equities-led crash. More of a brake than not having them, less of a brake than having more.

    The effectiveness depends on what happens to bonds as equities fall which can be difficult to predict without knowing why equities are falling, which we don't know yet because it isn't yet happening.

    Your home made solution (because you think you might want more bonds and less equities) is to add more bond indexes. In that case why not just buy a different fund in the first place (e.g. Vanguard's "lifestrategy 60 % equity" fund is only 60% equity indexes and 40% bond indexes).

    Vanguard Lifestrategy range gives you a choice of 100, 80, 60, 40, 20% equity and intend to deliver the result of that percentage in worldwide equity indexes combined with the inverse percentage of bonds (i.e. 0, 20, 40, 60, 80%). If you don't want those static percentage targets, you might like to use a different fund from a different manager that floats the percentages around a bit based on their perception of what they should hold to deliver the risk-targeted exposure they think you want when you buy their fund.
    • LHW99
    • By LHW99 19th Apr 17, 11:16 AM
    • 763 Posts
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    LHW99
    • #5
    • 19th Apr 17, 11:16 AM
    • #5
    • 19th Apr 17, 11:16 AM
    I suppose if you took a view that Vanguard 80 was too low in emerging markets, for example, you may wish to boost that with a specialist fund
    • Fatbritabroad
    • By Fatbritabroad 19th Apr 17, 12:05 PM
    • 149 Posts
    • 67 Thanks
    Fatbritabroad
    • #6
    • 19th Apr 17, 12:05 PM
    • #6
    • 19th Apr 17, 12:05 PM
    Or something it doesn't cover like property and or (bowlhead please correct me if this is wrong) small cap shares. I wouldn't bother until you have a 6 figure sum personally at least that's what I'm going to do
    • BLB53
    • By BLB53 19th Apr 17, 12:19 PM
    • 1,034 Posts
    • 835 Thanks
    BLB53
    • #7
    • 19th Apr 17, 12:19 PM
    • #7
    • 19th Apr 17, 12:19 PM
    You are unlikely to know what level of equities you feel comfortable with until you have money in the market and then a market correction. Why not start off with Lifestrategy 60 and see how it goes?
    "A low-cost index tracker is going to beat a majority of the amateur-managed money or professionally managed money" Warren Buffett
    • AnotherJoe
    • By AnotherJoe 19th Apr 17, 4:40 PM
    • 6,571 Posts
    • 7,009 Thanks
    AnotherJoe
    • #8
    • 19th Apr 17, 4:40 PM
    • #8
    • 19th Apr 17, 4:40 PM

    My instinct tells me that I should look at investing 15% in a bond tracker of sorts to help balance the heavy equity VLS80, and then take a flyer on another riskier equity fund with a small amount invested in gold/commodities to round it off.
    Originally posted by A_Hes11
    Your instinct is wrong, because as said you already have 20% bonds. If thats too rich for you why not swap to VLS60 which would be 40% bonds, compared to your possible 35% (20 in VLS80, 15 yourself)?

    Its also seems very contradictory having said that you want more bonds, to them play very speculatively with gold and then at the same time go the other way with even riskier equities.

    Also beware small numbers, sometimes people come on here with discussion of 5% here, 3% there,and it turns out that with what they are investing they are talking about (say) £200 in a "risky" fund or in your case maybe £250 in gold or whatever, eg frankly it makes no difference.

    Find a VLS ratio thats suits (maybe 60 as said), and perhaps 10% if you are bored in something risky if that is a decent amount lets say £2k minimum. Otherwise stick with VLS or similar global fund until there is £25k minimum.
    • Sean473
    • By Sean473 20th Apr 17, 6:11 PM
    • 62 Posts
    • 28 Thanks
    Sean473
    • #9
    • 20th Apr 17, 6:11 PM
    • #9
    • 20th Apr 17, 6:11 PM
    I'm not a fan of VLS tbh... With the recent massive swing in the market, VLS has totally got nuked for me... I personally rather just build my own portfolio, which has done better then VLS till the last 2 days... Hopefully the US market stays up as it is currently so VLS makes up some ground today!.
    • bowlhead99
    • By bowlhead99 20th Apr 17, 7:15 PM
    • 6,424 Posts
    • 11,374 Thanks
    bowlhead99
    I'm not a fan of VLS tbh... With the recent massive swing in the market, VLS has totally got nuked for me... I personally rather just build my own portfolio, which has done better then VLS till the last 2 days...
    Originally posted by Sean473
    How did your portfolio do against VLS in the couple of thousand days leading up to the last 2 days?

    If you're viewing the effect of a few percent exchange rate swing as being as bad as nuclear meltdown, you're probably best to avoid a product like VLS and buy something more suitable (of course, suitability is in the eye of the beholder).
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