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  • FIRST POST
    • Retired Minky
    • By Retired Minky 29th Jun 17, 6:50 PM
    • 44Posts
    • 8Thanks
    Retired Minky
    How do self investors decide on asset/fund allocation?
    • #1
    • 29th Jun 17, 6:50 PM
    How do self investors decide on asset/fund allocation? 29th Jun 17 at 6:50 PM
    If I go SIP or self managed what's the best way to decide on fund/asset allocation?

    Are there sites that offer examples of allocations and changes to make.

    What do other SIP managers do to decide on asset allocation? Not everybody with a SIP can be a stock market expert can they?
Page 1
    • ermine
    • By ermine 29th Jun 17, 7:53 PM
    • 547 Posts
    • 778 Thanks
    ermine
    • #2
    • 29th Jun 17, 7:53 PM
    • #2
    • 29th Jun 17, 7:53 PM
    If I go SIP or self managed what's the best way to decide on fund/asset allocation?
    Originally posted by binning
    There is no best way. It all depends on you, your stage of life, your attitude to risk, and any other resources you may have.

    Start with Monevator, read these forums, read the thread The Number in this forum which helps you rough out how much people need at retirement. It's a big life decision, and you can't get it right for you without learning about the subject. And if you do want to ask others for help, an idea of your age, existing pension savings and commitments will help people point you in the right direction.

    But you have to do the work yourself. You are trying to do forward planning in the face of significant uncertainly. Not everybody is up for that.
    • quotememiserable
    • By quotememiserable 29th Jun 17, 8:10 PM
    • 386 Posts
    • 251 Thanks
    quotememiserable
    • #3
    • 29th Jun 17, 8:10 PM
    • #3
    • 29th Jun 17, 8:10 PM
    I go self select on my workplace pension. I looked at the funds available, looked through performance and risk information at Trusnet and choose some that fit my appetite. I split the money three ways. I've come to like the Ethical and Amanah funds, not for any ethics or religious reason, but because they are consistent long term good performers.
    • BLB53
    • By BLB53 29th Jun 17, 8:17 PM
    • 1,063 Posts
    • 866 Thanks
    BLB53
    • #4
    • 29th Jun 17, 8:17 PM
    • #4
    • 29th Jun 17, 8:17 PM
    Asset allocation is one of the most important aspects of investing ..especially for those who want to diy. Your mix of equities, bonds, property and cash in a portfolio could make the difference between staying the couse for the long haul or bailing out when the markets take a tumble - which is quite often.
    Are there sites that offer examples of allocations and changes to make.
    One of the best articles I have read is on the diy Investor site http://diyinvestoruk.blogspot.co.uk/2016/05/asset-allocation-revisited.html
    "A low-cost index tracker is going to beat a majority of the amateur-managed money or professionally managed money" Warren Buffett
    • bostonerimus
    • By bostonerimus 29th Jun 17, 10:26 PM
    • 642 Posts
    • 338 Thanks
    bostonerimus
    • #5
    • 29th Jun 17, 10:26 PM
    • #5
    • 29th Jun 17, 10:26 PM
    Most allocations emphasize equities over bonds when young and gradually increase the bond and fixed income percentage as retirement approaches. Having said that I was basically 60/40 equity to bonds when I was working and now that I've retired I've drifted up to 70% equities as I have a pension and can take the risk.

    A 60/40 allocation is the starting point for many people and in the UK you could do that with a global equity tracker and a global bond tracker or just buy VLS60. I live in the USA and I have a US equity biased portfolio in just 3 funds

    Vanguard Total US Stock Market 50%
    Vanguard Total International Stock Market 20%
    Vanguard Total Bond Index 30%.

    Don't worry too much about getting the "perfect" allocation.....it doesn't exist. There'll be times when you lose money and times when you are ahead and times when you'll hear people saying what great gains they made in their portfolios. Ignore all that and continue to rebalance and save regularly.
    Last edited by bostonerimus; 29-06-2017 at 10:33 PM.
    Misanthrope in search of similar for mutual loathing
  • jamesd
    • #6
    • 3rd Jul 17, 9:45 PM
    • #6
    • 3rd Jul 17, 9:45 PM
    Safe withdrawal rate research has examined this a lot. In general:

    1. Stay below 40% in bonds on average because more starts to seriously cut the safe withdrawal rate.
    2. High equity allocations usually do well but not when equity prices are as high as they are now.

    The research has found significant improvements are possible, one being a rising equity glidepath that starts relatively high in bonds to protect against a crash in the early years then increases equities over time.

    Highest safe withdrawal rates come from combining more modern drawdown rules like Guyton-Klinger with Guyton's sequence of return risk reduction method that cuts equity percentage at high prices and increases it at low ones. These approaches are ideal for those who can vary their income during retirement, accepting cuts if they happen to live through a bad time.
    Last edited by jamesd; 03-07-2017 at 10:06 PM.
    • ianthy
    • By ianthy 3rd Jul 17, 10:03 PM
    • 76 Posts
    • 37 Thanks
    ianthy
    • #7
    • 3rd Jul 17, 10:03 PM
    • #7
    • 3rd Jul 17, 10:03 PM
    I have been wrestling with the same issue for the last few months - where to allocate my funds and the appropriate distribution. I have already allocated 50% of my pot to my IFA to manage and the remaining half I am doing it myself. There is so much to read ... almost too much really. As previously mentioned, DIY investor and Trustnet are really good for research and testing a portfolio - adding some funds and then removing them to see the overall impact on my portfolio.

    I already have some property investments, cash and OH has a DB pension too. I rated as dynamic investor but I decided to invest based on a balanced profile with 60% equities, 30% bonds and 10% fixed. My IFA will manage part of my portfolio split between balanced to dynamic. I have selected 21 funds - maybe too many based on some of the comments I have read but I am happy with the number and will re-visit them over time.

    My advice as a amateur would be to do as much research as you possibly can and review the funds before investing. I checked my funds against performance, volatility, mix, rating, geography and if they would sit within a cautious/balanced portfolio. Volatile funds/investments may not suit, until you are more experienced and comfortable with the ups/downs of the markets. Therefore you might be happy with a lower rate of return but less risk.

    Best of luck and keep posting q's as you will also get lots of great advice from this forum too.
    Last edited by ianthy; 03-07-2017 at 10:15 PM.
    • bostonerimus
    • By bostonerimus 4th Jul 17, 4:39 AM
    • 642 Posts
    • 338 Thanks
    bostonerimus
    • #8
    • 4th Jul 17, 4:39 AM
    • #8
    • 4th Jul 17, 4:39 AM

    I have selected 21 funds - maybe too many based on some of the comments I have read but I am happy with the number and will re-visit them over time.
    Originally posted by ianthy
    What is the percentage of each fund and do you have a rebalancing strategy? I'd go mad trying to manage 21 funds.....5 or 6 would be my limit.
    Misanthrope in search of similar for mutual loathing
    • ianthy
    • By ianthy 4th Jul 17, 3:20 PM
    • 76 Posts
    • 37 Thanks
    ianthy
    • #9
    • 4th Jul 17, 3:20 PM
    • #9
    • 4th Jul 17, 3:20 PM
    What is the percentage of each fund and do you have a rebalancing strategy? I'd go mad trying to manage 21 funds.....5 or 6 would be my limit.
    Originally posted by bostonerimus
    I have a min of 3% in each fund. As I am not too concerned about drawdown for at least 5+ years, I am not too concerned about absolutely rebalancing the portfolio and keeping it perfectly aligned. Also, I am going to try to resist the itch to fiddle with things. Having said that I don't want equities to occupy more than 70-75% max and I will review annually. I think this may mean moving into cash/fixed for a short period, until I find a more suitable fund in the right category. I like the info/presentation format from Trustnet and will use this to help monitor and identify if any of the funds/investments need to change.

    All my investments are with AJ Bell You Invest, so at least I only have to work across 1 platform. Interestingly, the other half of the portfolio managed by my IFA has 21 funds too but held on a different platform and different funds too.

    I am definitely not an expert but I am enjoying the research and challenge of managing my own SIPP.
    Last edited by ianthy; 04-07-2017 at 3:43 PM.
    • bostonerimus
    • By bostonerimus 4th Jul 17, 5:55 PM
    • 642 Posts
    • 338 Thanks
    bostonerimus
    ianthy......so 41 different funds in total. you'll probably have a lot of overlap. I think this excessive slicing and dicing approach will be difficult to manage and will create more work for you than is necessary.
    Misanthrope in search of similar for mutual loathing
    • TBC15
    • By TBC15 4th Jul 17, 6:26 PM
    • 162 Posts
    • 39 Thanks
    TBC15
    Safe withdrawal rate research has examined this a lot. In general:

    1. Stay below 40% in bonds on average because more starts to seriously cut the safe withdrawal rate.
    2. High equity allocations usually do well but not when equity prices are as high as they are now.

    The research has found significant improvements are possible, one being a rising equity glidepath that starts relatively high in bonds to protect against a crash in the early years then increases equities over time.

    Highest safe withdrawal rates come from combining more modern drawdown rules like Guyton-Klinger with Guyton's sequence of return risk reduction method that cuts equity percentage at high prices and increases it at low ones. These approaches are ideal for those who can vary their income during retirement, accepting cuts if they happen to live through a bad time.
    Originally posted by jamesd
    Is there an idiots guide/worked through example to these rules based on say £1,000,000 pot and £40,000 draw down.
    • bostonerimus
    • By bostonerimus 5th Jul 17, 12:04 AM
    • 642 Posts
    • 338 Thanks
    bostonerimus
    Is there an idiots guide/worked through example to these rules based on say £1,000,000 pot and £40,000 draw down.
    Originally posted by TBC15
    Have a look here for a start

    https://www.bogleheads.org/wiki/Safe_withdrawal_rates
    Misanthrope in search of similar for mutual loathing
  • jamesd
    Is there an idiots guide/worked through example to these rules based on say £1,000,000 pot and £40,000 draw down.
    Originally posted by TBC15
    I link to some examples of calculating safe withdrawal rates here. There's discussion of how to use the Guton-Klinger rules here.

    The boggleheads page is OK on the history but it's about five years behind the research, enough to make a substantial difference. Boggleheads refers to fans of the buy and hold philosophy of Jack Bogle, founder of the Vanguard fund management firm best known for its tracker funds. I don't know whether that's the reason that the more recent research, which varies the investment mixture over time to reduce risk and increase the safe withdrawal rate, is missing from their page. I'd say that most of it is old enough now to be obsolete, it doesn't even get as far as Guyton-Klinger, just Guyton's original take that he improved on with Klinger a few years later.
    Last edited by jamesd; 06-07-2017 at 5:28 AM.
    • bostonerimus
    • By bostonerimus 6th Jul 17, 12:28 PM
    • 642 Posts
    • 338 Thanks
    bostonerimus
    I link to some examples of calculating safe withdrawal rates here. There's discussion of how to use the Guton-Klinger rules here.

    The boggleheads page is OK on the history but it's about five years behind the research, enough to make a substantial difference. Boggleheads refers to fans of the buy and hold philosophy of Jack Bogle, founder of the Vanguard fund management firm best known for its tracker funds. I don't know whether that's the reason that the more recent research, which varies the investment mixture over time to reduce risk and increase the safe withdrawal rate, is missing from their page. I'd say that most of it is old enough now to be obsolete, it doesn't even get as far as Guyton-Klinger, just Guyton's original take that he improved on with Klinger a few years later.
    Originally posted by jamesd
    The Bogleheads page is a good starting point.......and probably more than most people need. There are regular research papers about withdrawal methods and asset mixes and it's fun to look at the nuances. For more detail a search on the forums at bogleheads.org and early-retirement.org will provide lots of information.
    Misanthrope in search of similar for mutual loathing
  • jamesd
    It's a decent starting point but the approaches which vary spending and investment mixture produce substantially higher initial and average safe withdrawal rates and the only one there is that old Guyton version. Nothing wrong with it that some updating can't fix.
    • Itsallagame
    • By Itsallagame 6th Jul 17, 11:35 PM
    • 38 Posts
    • 62 Thanks
    Itsallagame
    With markets so high and value in equities difficult to find I am tending to let FTSE100 run up to highs and then taking positions in ETFs that short the market. It has been working out well whilst I hunt around for value in individual equities.

    I've also used ETFs to buy and short oil and the same for GBP/USD.
    • Retired Minky
    • By Retired Minky 7th Jul 17, 12:08 AM
    • 44 Posts
    • 8 Thanks
    Retired Minky
    With markets so high and value in equities difficult to find I am tending to let FTSE100 run up to highs and then taking positions in ETFs that short the market. It has been working out well whilst I hunt around for value in individual equities.

    I've also used ETFs to buy and short oil and the same for GBP/USD.
    Originally posted by Itsallagame
    I wish I knew what that meant. Lol.
    • bigadaj
    • By bigadaj 7th Jul 17, 12:16 AM
    • 9,604 Posts
    • 6,110 Thanks
    bigadaj
    I wish I knew what that meant. Lol.
    Originally posted by binning
    It's derivatives, so betting that the market, or oil, will fall in price.

    Also cable, which is the dollar, pound exchange rate.

    A bit spicy for most.
    • bostonerimus
    • By bostonerimus 7th Jul 17, 1:50 AM
    • 642 Posts
    • 338 Thanks
    bostonerimus
    Shorting is betting that something will lose value. You might have a contract with someone to borrow some shares they own and then give them back plus a fee at some time in the future. If you think those shares will lose value you sell them now and buy them back at a lower price before you have to give the shares back and you pocket the difference.

    This really is gambling and you don't want to be doing it.
    Misanthrope in search of similar for mutual loathing
  • jamesd
    Shorting can be speculation but that's not all it's for. It can also be used to protect you from stock market falls, say by buying a short option that pays out if the market drops by more than twenty percent over the next three months. That can be used to protect you against big drops.

    I've done things like placing a short spread bet to reduce downside risk.

    You can also use shorts as part of a plan to obtain leverage. You could pace a long spread bet on the FTSE and a three month in the future short bet that it won't be more than twenty percent lower on that future date. That constrains the downside risk but you do still need to be able to cover drops above twenty percent until the specified date. Then you can invest the money you don't need for this somewhere else, like in P2P.
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