Investing the lot - YOUR ideas?

si1503

EdInvestor wrote:

OK let's look at the figures over 5 years in % growth


Asia Pacific ex Japan: +155 +115
Asia Pacific incl Japan +100 +63

Europe excl UK +150 +112
North America +19 +7 Ouch!

Global emerging markets +254 + 149
Global growth +144 +90

Now let's look at the UK over the 5 years:

UK All companies +164 +135
UK Equity Income +117 +101

Your "sector allocated protfolio is not going to do any better than investing at home because the gains on the emerging markets side will be wiped out by the losses in the US due to the rise of sterling.

Again, there is no risk premium and not much putperformance either.

That proves nothing. A sector allocated portfolio would only have small weightings in the US compared to other areas. What happens if the UK market sees single figure growth? This is why it is important to diversify.

Global emerging markets are performing well of late, and personally I believe they will continue to do so. If you have no direct exposure to these areas then IMO you are missing out on some of the best returns out there!

EdInvestor

Global emerging markets are performing well of late, and personally I believe they will continue to do so.

But with respect, what do you know?And what does the IFA down the road or the salesman in your bank branch know?

The figures don't actually show that you make more money by taking the extra risk of investing in foreign markets.And nor do they show that this particular diversification reduces risk.Whereas diversification among asset classes that are not correlated can be shown to reduce risk.

I'm always very keen on reducing risk in investing.But I have yet to be convinced that "sector allocated portfolios " insofar as this seems to mean putting a significant chunk of your money in foreign equity markets, does the job.

betlarge

Now then chaps, I didn't mean to start a fight!

Thanks a lot for all your ideas though. I am starting to veer towards getting an investment IFA but am still so undecided.

Edinvestor - are IFA's really so lazy and mercenary?

Thanks.

si1503

EdInvestor wrote:

But with respect, what do you know?And what does the IFA down the road or the salesman in your bank branch know?

My knowledge is based on a variety of sources, research, news reports, independent journals and studies, articles, current affairs. I'm no expert, but I do try to keep a close eye on the global economic situation.

The figures don't actually show that you make more money by taking the extra risk of investing in foreign markets.

Well that is debatable, we could argue over previous growth figures all day long.

And nor do they show that this particular diversification reduces risk.Whereas diversification among asset classes that are not correlated can be shown to reduce risk.

I disagree, investing in a number of different sectors will reduce overall risk, most definately, if you held 100% in USA over past 5 years you wouldn't have done so well, a sector allocated portfolio would have avoided that scenario. It goes to show that sectors above are not directly correlated. And as you have just rightfully mentioned diversifying into non correlated investments will reduce risk.

dunstonh

I'm always very keen on reducing risk in investing.But I have yet to be convinced that "sector allocated portfolios " insofar as this seems to mean putting a significant chunk of your money in foreign equity markets, does the job.

It doenst mean putting a significant chunk of your money into foreign markets. It means putting some of your money.

Here is a risk 6 spread for example:
UK Fixed interest 19%
Property 22%
UK Equity 25%
N America 9%
European 9%
Japanese 5%
Far East 3%
Emerging markets 3%
Global Specialist 5%

Within those sectors you can pick funds to vary the volatility so you end up with a risk profile of 5.5 or 6.5 (crudely speaking).

Now then chaps, I didn't mean to start a fight!

Its not a fight. Its the MSE investments and savings section at its best. Debate and discussion is what its all about.

There is no such thing as the one perfect investment strategy. There are merits to all the different options. There are highly flawed strategies of course but Ed's strategy is not flawed. It's limited and given Ed's negative views on overseas investments, it could be that her risk profile doesnt suit it.

Edinvestor - are IFA's really so lazy and mercenary?

That is very charming.

StevieJ

I notice you have 22% in property, what geographical spread would this be.

EdInvestor

betlarge wrote:

Edinvestor - are IFA's really so lazy and mercenary?

The problem with IFAs from the investment advice point of view IMHO is that most of them just don't have the skills. Their training is basically focussed on distribution of (primarily) insurance products. For many years, something like 80% of UK investors were in With-profits funds, which until recently required no advisor skill whatsoever (but have now become very complex and landed promptly in the "too hard" basket).So many of them don't really have much experience of investment strategies.

Here's an example of what IFAs tend to do

Dustonh is not really typical as far as I can see. He's a New Model Advisor and they are only a small (albeit growing) minority.

But investment is not actually that hard:and there is plenty of free info and help around on the internet.Since you will have some time on your hands and quite a lot of money to invest, I'd suggest it's worth your while to get a grip on it yourself.

dunstonh

I notice you have 22% in property, what geographical spread would this be.

That would be UK. Typically bricks and mortar funds although the new breed of UK property funds would fall under that. Global/European property funds fall under global specialist.

The problem with IFAs from the investment advice point of view IMHO is that most of them just don't have the skills.

I do not disagree with most of what Ed says. When I go to meetings and there are around 200 odd IFAs there and you go into sub meetings (mini seminars), you will find that some are a disgrace and are working as tied agents under the IFA name. Then you have others who leave me in awe at their technical knowledge and ability and make me feel quite small and inadequate. Then you have a load in between.

Because I own my company, I tend to deal with other company owners and directors and I find most of them are at the higher skilled end. They also tend to specialise in areas rather than be GP IFAs. You will find most of the lower skilled ones at the salesforce end.

That thread that Ed links to is a confirmed national salesforce adviser and there is enough information available to have an upheld complaint. The poster on that thread has been given the FSA rule number that directly relates to the breach.

The FOS published some stats last year that said over 80% of current advisers have never had a complaint. They also said something like 15 companies accounted for around 70% of all complaints. More research showed that over 70% of people speaking with a tied agent thought they were dealing with an independent. Most people in the country have never dealt with an IFA but will blame IFAs for the actions of tied agents.

Avoid the salesforces and try to get in with the director/owners and you stand a good chance of getting proper advice.

Another bit of research that was published before Christmas was that the majority of IFAs licenced today would be better off dropping IFA status and becoming just mortgage advisers as they do not transact enough investment class business to make it profitable. This is why it's important to see an investment IFA and not a mortgage IFA.

Dustonh is not really typical as far as I can see. He's a New Model Advisor and they are only a small (albeit growing) minority.

We are getting there and growing all the time. I have converted another adviser who is moving to NMA basis now. He wont be at the low cost stage for a few years as he has to revamp his business model but its another one on the way.

StevieJ

Dunstonh, I have noticed a warming in relations between you and Edinvestor.
You seem very kind to each other now.

On the UK property front is a 22% allocation not going to depress your returns in the short term.

dunstonh

Dunstonh, I have noticed a warming in relations between you and Edinvestor.
You seem very kind to each other now.

We dont dislike each other. A lot of the time we agree with each other. Another poster once said to me that the posting styles were like me looking at it things with a positive point of view (the ideal world) and Ed looking at it from a negative point of view (the ugly world).

However, don't worry. By tomorrow there will bound to be something to allow us to resume normal service.

On the UK property front is a 22% allocation not going to depress your returns in the short term.

UK residential Property and UK commercial property dont fall in line with each other. Commercial property returns tend to be a closer linked to GDP than residential housing values.

However, the benefit of the lower risk sectors (property and fixed interest) is when it comes to rebalancing. Over a period, the sector allocation will go out of sync. If left alone, the risk of the portfolio would begin to increase and when a correction comes along, the portfolio would be hit harder.

Rebalancing allows you to take some of the profits out of the sectors that have performed well and put them into the ones that have performed poorly (or are lower risk and less volatile). Basically, it works on the principle that what goes up comes down and what goes down comes up.

So, the property and fixed interest is the defensive side of the portfolio and would typically be used to move profits into in a rising market. However, after a correction or crash the money would be moved out of those sectors into the areas that have dropped. This allows you to sell some when its high and buy when its low.

Another point is one CM mentioned earlier. Volatility. The UK fixed interest chunk could be made up of UK corporate bonds totally or UK Other Bonds. That would alter the volatility and risk of the portfolio. Just as replacing say New Star Property with Standard Life Inv Select Property would adjust the the property volatility.