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  • FIRST POST
    • george4064
    • By george4064 4th Oct 17, 7:30 AM
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    george4064
    Portfolio Unitisation Question
    • #1
    • 4th Oct 17, 7:30 AM
    Portfolio Unitisation Question 4th Oct 17 at 7:30 AM
    I have been unitising my ISA portfolio since December 2013, and the last 6 months or so I have been holding my dividends as cash (as opposed to re-investing them).

    I have been considering the effect on performance of holding some cash in the portfolio, so I will explain my thought process here.

    Scenario 1

    Portfolio is 95% equity and 5% cash. Lets say there are 100 units held.

    Scenario 2

    The cash is withdrawn from the ISA, meaning the portfolio is 100% equity however there are only 95 units held (as the cash was withdrawn therefore some units were redeemed).


    So, if the market fell by 10% am I correct in saying Scenario 1 would outperform scenario 2?
    And if market increased by 10%, scenario 2 would outperform scenario 1?

    Hope this makes sense!
    "If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett

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Page 1
    • Linton
    • By Linton 4th Oct 17, 7:51 AM
    • 8,325 Posts
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    Linton
    • #2
    • 4th Oct 17, 7:51 AM
    • #2
    • 4th Oct 17, 7:51 AM
    I don't understand your problem...

    In scenario 2 you would be left with 95 units.

    If the market fell by 10%, scenario 1 units would fall by 9.5% whereas scenario 2 units would fall by 10%. The % numbers would be the same if the markets rose. So withdrawing the cash would make the portfolio more volatile, outperforming in the good times and underperforming in the bad.
    • george4064
    • By george4064 4th Oct 17, 8:59 AM
    • 844 Posts
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    george4064
    • #3
    • 4th Oct 17, 8:59 AM
    • #3
    • 4th Oct 17, 8:59 AM
    I don't understand your problem...

    In scenario 2 you would be left with 95 units.

    If the market fell by 10%, scenario 1 units would fall by 9.5% whereas scenario 2 units would fall by 10%. The % numbers would be the same if the markets rose. So withdrawing the cash would make the portfolio more volatile, outperforming in the good times and underperforming in the bad.
    Originally posted by Linton
    Im comparing the performance per unit.

    My conundrum is that I want to make use of the cash sitting in my S&S ISA, but I dont want to invest it. So Im trying to ascertain the impact on the portfolio performance if I remove it (thus redeeming some units) or if I leave it in there.
    "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 £10,358.81/£12,000 (86%)
    Save £12k in 2017 - #003 £9,136.98/£12,000 (76%)
    • Audaxer
    • By Audaxer 4th Oct 17, 9:02 AM
    • 480 Posts
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    Audaxer
    • #4
    • 4th Oct 17, 9:02 AM
    • #4
    • 4th Oct 17, 9:02 AM
    If you look at in cash value terms of say £10k, in both scenarios you have £9,500 in equities and £500 in cash, just that in scenario 2 the cash is outside the S&S ISA. So a 10% increase or decrease in equities in both scenarios would have the same effect. The only difference would be you could be earning some additional interest in scenario 2 when the cash is outside the ISA.
    • Linton
    • By Linton 4th Oct 17, 9:18 AM
    • 8,325 Posts
    • 8,221 Thanks
    Linton
    • #5
    • 4th Oct 17, 9:18 AM
    • #5
    • 4th Oct 17, 9:18 AM
    Im comparing the performance per unit.
    ...
    Originally posted by george4064
    Why? In scenario 2 you have fewer units which exactly makes up for the increased (in the good times) % performance.
    • coyrls
    • By coyrls 4th Oct 17, 12:12 PM
    • 882 Posts
    • 910 Thanks
    coyrls
    • #6
    • 4th Oct 17, 12:12 PM
    • #6
    • 4th Oct 17, 12:12 PM
    Im comparing the performance per unit.

    My conundrum is that I want to make use of the cash sitting in my S&S ISA, but I dont want to invest it. So Im trying to ascertain the impact on the portfolio performance if I remove it (thus redeeming some units) or if I leave it in there.
    Originally posted by george4064
    You get to decide what constitutes your portfolio, so if you withdraw cash from an S&S ISA and put it in an account where it earns interest, you don’t have to take it out of your portfolio for unitisation purposes; you are just relocating your cash. As your cash earns interest, you can add that interest to the value of your portfolio. If at some point you want to use that cash to buy investments, you can transfer it back to the S&S ISA but the number of units won’t change. If you withdraw the cash and buy something, then you will have to reduce the number of units in your portfolio.
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