Investment Trusts (Russia & Japan markets)

EdInvestor

Franko43 wrote:

bit of both to be honest - I went in at the wrong time but the fund consistently underperformed the market in the 5 years I had it. If it had have outperformed I would have sat it out until the market took its upward turn - which it did in 2006

Actually the market got into recovery mode in 2003, as soon as the Iraq war started.

EdInvestor

Franko43 wrote:

bit of both to be honest - I went in at the wrong time but the fund consistently underperformed the market in the 5 years I had it. If it had have outperformed I would have sat it out until the market took its upward turn - which it did in 2006

Actually the market got into recovery mode in 2003, as soon as the Iraq war started.They called it the "Baghdad bounce." It's now almost back to its pre crash record high of late 1999.

Franko43

yeah -only prob by that time was that I'd lost 50% of my initial investment, I waited out until it recovered to what it was, pulled it out and put it against my mortgage which leaves me currently mortgage free. So now I've knocked up some more savings and am coming back at it with the lessons learnt and alot of help from my friends here at MSE. Dunshonh, as ever, makes a sensible argument. Spread them out evenly and be prepared for the long haul. How many funds can I invest in with a ISA wrapper at one time I wonder?...

si1503

dunstonh wrote:

I also rebalance often by switching gains into lower risk funds.

How often is often?

si1503

Franko43 wrote:

How many funds can I invest in with a ISA wrapper at one time I wonder?...

Considering you get an allowance of upto £7000 in a maxi stocks and shares ISA in any one given tax year that would be 7 funds at £1000 per fund. You might be able to find a lower min investment at some fund supermarkets, but the lowest I've seen is £1000.

I only had a 4k mini ISA last year after putting 3k into cash (which i've already closed and put into stocks and shares). Next year I'll be wrapping those in an ISA wrapper along with using up the rest of the 7k. 10-14 funds should be enough diversification to significantly reduce the threats of unsystematic risk, assuming the funds are split well amongst different investment sectors to meet your own risk profile.

dunstonh

si1503 wrote:

How often is often?

It is reviewed a minimum of once a year. Sometimes quarterly.

Rebalancing doesnt have to be exact. If it is only a little out of sync with your sector allocation, there is no point doing it. If it has gone out of sync by a lot, then it can be done. Its about managing risk.

a simplified example: A portfolio may have 65% in medium risk sectors and 35% in higher risk sectors at the start. A few years down the road after a good growth period could see the portfolio now have 50% in medium risk and 50% in higher risk. That is no longer consistent with the risk profile of the individual. It also means that any correction/drop will see the portfolio drop back by a greater amount then it would have done with the initial allocation.

YorkshireBoy

dunstonh wrote:

It is reviewed a minimum of once a year. Sometimes quarterly.

Rebalancing doesnt have to be exact. If it is only a little out of sync with your sector allocation, there is no point doing it. If it has gone out of sync by a lot, then it can be done. Its about managing risk.

a simplified example: A portfolio may have 65% in medium risk sectors and 35% in higher risk sectors at the start. A few years down the road after a good growth period could see the portfolio now have 50% in medium risk and 50% in higher risk. That is no longer consistent with the risk profile of the individual. It also means that any correction/drop will see the portfolio drop back by a greater amount then it would have done with the initial allocation.

dunstonh, thanks for your continued perseverence with us 'investment newbies'. Just to continue this re-balancing theme...

For someone like myself with £4K invested currently (possibly £11K from April this year), and likely to be several years before I get a reasonable portfolio value, isn't re-balancing an expensive exercise?

I mean, at £25 a go (£12.50 each to sell and then the same to buy again with my Selftrade account) you'd need a fairly decent investment size - or to have made significant gains - to make re-balancing worthwhile surely?

Or am I missing something?

Franko43

Dunstonh - it's a Friday afternoon and I hope you won't get too mad if I ask the question: How do I determine my risk profile?

carnet

EdInvestor wrote:

Actually the market got into recovery mode in 2003 It's now almost back to its pre crash record high of late 1999.

The FTSE 100 as a "bare" index (ie disregarding divis) is still some 10% below its all time high recorded on 31 Dec. 1999.

dunstonh

For someone like myself with £4K invested currently (possibly £11K from April this year), and likely to be several years before I get a reasonable portfolio value, isn't re-balancing an expensive exercise?

You cant do proper sector allocation until you have around 20k due to the minimum £1000 per fund rule that most providers have (not all). However, with £4000, you could have four funds. If that £4000 grew to £5000 then you can switch £1000 out of those four funds (in other words what they have grown by) into a 5th fund. Make the 5th fund a different area to what you currently have or make it lower risk so you are protecting some of your profits.

I mean, at £25 a go (£12.50 each to sell and then the same to buy again with my Selftrade account) you'd need a fairly decent investment size - or to have made significant gains - to make re-balancing worthwhile surely?

If thats the charge for selftrade, then it's expensive if its 12.50 x 4 to sell some of the 4 funds and then another 12.50 to buy in a new one. If its £25 in total then its not too bad. It is often the case that those with cheaper costs on purchase will try and make them up elsewhere with other charges so you do need to check.

Not all are expensive like that. Selestia charge nothing on switches and cofunds & Fidelity FNW charge 0.25%. So £1000 being switched at 0.25% = £2.50

Pension funds and life funds do not normally incur a switching cost at all so this applies to them as much as ISAs and Unit Trusts. How many of you follow your ISAs and Unit Trusts carefully but take no notice of how your pension is doing? Yet they can all invest in exactly the same areas. How often have we seen people say that they dont invest into a pension any more as the pension doesnt make any money and they have invested into ISAs instead? Its daft because its all the same. Anyway, thats for another thread but it may prompt a few reading to check their pensions out and make sure they are invested sensibly.

As for whether cost is worthwhile. I did a review for a small ISA in December on the £1000 per fund basis which had grown from £6000 in 6 funds to just over £7000. I switched £1000 into a 7th fund on the 19th Dec. That £1000 is now worth £1079.84. That is an increase of 7.98% in two weeks. It has out performed the other funds it came out of in that period. It could have gone down, it could have gone up less but it was a totally different investment area to the other 6 funds and was done to increase potential. So, was that 0.25% charge worth it on a small amount.... yes

It is important to check the contract you are in to make sure the switching costs are not excessive. If you have similar contracts then going for the one with lower or no switching costs is best. Some contracts are beginning to include automatic rebalancing at no cost.

Dunstonh - it's a Friday afternoon and I hope you won't get too mad if I ask the question: How do I determine my risk profile?

Look at my profile and you will see my email address. Send me an email and I will email you back a questionnaire in pdf form which helps you identify your risk profile.

Its not rocket science but I find the main benefit (apart from a audit trail for my own protection showing how I ascertained the risk profile ) is that it makes you think about different scenarios and how you would react if you were in that scenario. Its multiple choice and there are no wrong or right answers. At the end it scores your answers and you total it up and that places you in a risk profile. From there you make sure your investments average out to match that risk profile. It doesnt mean you have to pick funds only in that profile. 25% below, 50% on profile and 25% above = 100% on profile as the lower risk fund offsets the higher risk.