Portfolio Advice

Hooloovoo

Linton wrote: »

All comments IMHO of course.

Agree absolutely Linton.

I was writing a reply to that post, but you've said everything better than I would have.

amictus

Saw this and thought it might be relevant given earlier discussion in this thread:

http://monevator.com/vanguard-interactive-investor/

I noticed that they were available a couple of weeks ago but was unable to invest through an ISA account. On equiry I was told that this was being investigated and they would let me know when it was resolved. I hope this means that the the Vanguard funds will eventually be available in an ISA. Note, the full range of funds are not available (yet?).

It's perhaps also worth mentioning that the Vanguard ETFs will be arriving soon:

[FONT=&quot]https://www.vanguard.co.uk/documents/portal/press_releases/vanguard-launches-low-cost-etfs.pdf[/FONT]

Daniel_Elkington

Monthly rebalancing works in the same principle as pound cost averaging.

If you simply rebalance back to your original portfolio every month you will make more money. Fact.

You're talking about a tech&tel fund as you think you are underweight in that, you like the illusion of control, you don't just want a global tracker. All these things add up to the fact that you like the idea of passive investing, but think you can beat 'the markets'.

Have you even chosen an appropriate benchmark for your returns. How can you track nothing by choosing some trackers and making your own asset allocation, therefore defining your own benchmark which is not correlated to anything that exists in reality and therefore you are not tracking the markets as you have not defined the market you want to track.

If you want to track the markets you need to define the market and find the cheapest tracker that follows that market with a full replication strategy.

Just going back to your post on core/satellite Linton you understand it wrong.

Your core holdings do not have to be reliable. They can be whatever you want, they are your long-term holdings. They are markets that you feel will do well in the long term and you buy and hold these no matter what.

Your satellite holdings are those that you reckon will do well short term. That could have been emerging market bonds, or Index linked gilts last year (Triple A debt being the best UT/OEIC sector? What?)

Risk and stability do not play a massive part in that kind of strategy.

Most people need to go back to basics, understand the underlying principles behind investment strategies and build their own strategies on the foundations already laid. There is no secret ingredient for future success, but if you know the theory inside and out you'll get it right more often than not.

Read 20 buffetisms every day!

Linton

Daniel_Elkington wrote:

.....

Have you even chosen an appropriate benchmark for your returns. How can you track nothing by choosing some trackers and making your own asset allocation, therefore defining your own benchmark which is not correlated to anything that exists in reality and therefore you are not tracking the markets as you have not defined the market you want to track.

If you want to track the markets you need to define the market and find the cheapest tracker that follows that market with a full replication strategy.

Just going back to your post on core/satellite Linton you understand it wrong.

Your core holdings do not have to be reliable. They can be whatever you want, they are your long-term holdings. They are markets that you feel will do well in the long term and you buy and hold these no matter what.

Your satellite holdings are those that you reckon will do well short term. That could have been emerging market bonds, or Index linked gilts last year (Triple A debt being the best UT/OEIC sector? What?)

Risk and stability do not play a massive part in that kind of strategy.

In my case the benchmark is simple: the retirement Plan requires a 4% average return per year in straight cash terms. That is the only number that matters - if the FTSE drops 30% and my investments drop 10% the target has been missed. If they rise 10% great success has been achieved no matter what the FTSE does.

I am at a disadvantage with regards to the requirements of your satellite concept as I have no idea whatsoever which investments are going to make the best short term gains. It could be anything, even Index linked Gilts as in the past 12 months. It would be a pure gamble. Clearly those who knew would have benefited hugely by their knowledge.

So using your definitions it's 100% core though the core would contain many niche investments.

gadgetmind

Daniel_Elkington wrote: »

If you simply rebalance back to your original portfolio every month you will make more money. Fact.

Only if your dealing costs are sufficiently low.

Daniel_Elkington

I'm not being confrontational btw, I'm challenging your approach, which should give you confidence in your actions and also ensure you know what you are doing.

That is not a benchmark, that's a targetted growth base.

A benchmark is an instrument which you can measure performance against.

Your 4% must have been calculated by reference to inflation, so maybe you may want to use one of the inflation measures to benchmark your performance, but what benchmark are you tracking?

This leads me to something a little bit out there...

There is no such thing as passive investing. If one can track the investment performance of every single asset and investment instrument from every single company etc., the total global GDP, then that would be truly passive investing.

As soon as you choose one sector over another you are deciding upon your own asset allocation. As soon as you make an investment decision then you have actively engineered a portfolio. Even choosing one tracker over another based on cost is an active decision, the more expensive may have a lower tracking error and therefore is a better tracker for instance.

jamesd

Daniel_Elkington wrote: »

If you simply rebalance back to your original portfolio every month you will make more money. Fact.

No, it isn't a fact. That ignores costs - like dealing spreads and time out of the market while trading - and there's also plenty of reason to believe that one month is too short a time period for rebalancing, so there can be an opportunity cost as well.

If we were in a theoretical world you'd be right but it might still make less than say doing it every six months. Just how often is best is not clear but a month is likely to be considered too short by most people familiar with the concept.

As an investment professional I also expect you to know that Pound cost averaging theoretically reduces expected returns, while rebalancing theoretically increases them. That means it's not a great idea to write that rebalancing works like Pound cost averaging.

What Pound cost averaging does do is reduce the chance of a larger loss or gain compared to a lump sum investment. Since markets in general trend upwards that means that in theory Pound cost averaging loses investors who have a lump sum money. The investors may still be happy with that lost potential because investors are typically more unhappy with losses than pleased by gains. Since investor psychology is a significant factor in people sticking with investing and with buying at the best times this really can make it a good deal in spite of the cost.

Daniel_Elkington wrote: »

Just going back to your post on core/satellite Linton you understand it wrong.

Your core holdings do not have to be reliable. They can be whatever you want, they are your long-term holdings. They are markets that you feel will do well in the long term and you buy and hold these no matter what.

Your satellite holdings are those that you reckon will do well short term. That could have been emerging market bonds, or Index linked gilts last year

Linton has correctly described one of the meanings of a core/satellite approach. You being familiar with another one does not make the version Linton is using incorrect. Yours is one that seems much less used here.

Daniel_Elkington wrote: »

I'm not being confrontational btw, I'm challenging your approach, which should give you confidence in your actions and also ensure you know what you are doing.

On three occasions over the last two days I've had cause to make posts here correcting errors in your posts. Please try to do better on the accuracy front.

As well as the content in this post you might usefully review:

1. The "annual allowance charge" applied to an individual by HMRC when individual or company pension contributions for them exceed £50,000 plus any carried over allowance.
2. The current triviality rules.

Both have changed this year and your posts about them did not seem to correctly reflect the current rules.

gadgetmind

jamesd wrote: »

there's also plenty of reason to believe that one month is too short a time period for rebalancing

Back-testing suggests that shorter periods are better but the difference is pretty marginal given the potential downsides that you list.

jamesd

gadgetmind wrote: »

Back-testing suggests that shorter periods are better but the difference is pretty marginal given the potential downsides that you list.

A couple of recent non-theoretical suggestions on frequency:

Vanguard: "Vanguard has found that, historically, rebalancing once or twice a year — and only when a portfolio has drifted from its goal by at least 5 percent — produces results that are just as good as more complicated, frequent rejiggering strategies"

SEC: "Many financial experts recommend that investors rebalance their portfolios on a regular time interval, such as every six or twelve months."

And some discussion of the importance of time periods and investments selected for back-testing in the results of the back-testing study may be of interest. The contrast between "monthly rebalancing returns dominated less active approaches" and "Monthly rebalancing is too frequent. There are small rewards to increasing one’s rebalancing frequency from quarterly up to several years" is interesting.

"Do it" seems to have broad agreement, just difference on frequency/triggers and method.

Daniel_Elkington

Sorry James, I should know these things, after checking with old Google it seems I was wrong about the tax things. Wonder why CII have not published them in their text updates as I usually go by them. Worrying really.

Core/Satellite is simply;

Core = Buy and hold

Satellite = Short term opportunities

I forget about trades as the platforms I use don't have switching charges or initial charges.

That table is badly flawed, S&P 500 and US bonds, hardly a balanced portfolio to begin with.