Portfolio Advice

Jegersmart

Hooloovoo

I am a bit late to the "party" as they say - but would like to give my 2 cents - after all investments strategies, even long term, are likely to change over time.

To give you some background, I have been working in the financial and energy markets for about 15 years and although I have somehow avoided a trading position in that time I have been trading and investing my own money for a couple of decades. On the whole it has gone well but we all make mistakes of course:) I tell you this not because it should make me more believable or authoratitive in some way, just to let you know who I am and what my background is - for what that is worth.

First of all, praise should be given for the amount of effort you have put into this - it is great to see and provided you don't stop learning and growing that attitude should be a great asset for you in the years to come. I spend some hours per week doing some high level technical and fundamental analysis myself - to keep abreast of what I see as important factors that may be developing to influence my invested position (or not). I appreciate that most people do not have the interest, tools, experience, knoweldge or did I mention interest - to do this

I also should say that I very rarely use tracker funds, but again this is just for info and not for a debate regarding pros and cons as you have decided what is best for you.

Here is what I wanted to say:

In my opinion we are entering "uncharted waters" in terms of investing so I think it will be less and less relevant to look to the past for clues. If you look across the board (more or less) there has been huge asset value inflation over the past 3-4 decades - i.e. if you put your money in property or whatever else it would probably have increased in "value" manyfold. Why is this? In my view there is only one answer (in the main) and that is "credit expansion". Why is this important? Well, it is because a debt-based system is going to fail at some point - or at the very least need some fairly invasive "restructuring" to allow continuation. After the last bubble in 2008, we now see very severe strains on markets and imbalances in the system and risk of default. Risk of default of course is nothign new, Latam and Russia and other countries/geographies have defaulted before - but tthe markets and instruments used have developed greatly even since LTCM blew up and almost caused a meltdown around 1999/2000.

The reason that I bring this up is that I personally don't think we can necessarily look back now and say "buy a house son, property always goes up" or "as long as you have a 15 year timeframe equities investments will be fine" because we are running out of room to inflate in my opinion. For me this means that we will see greater volatility than we have seen before in most markets in the coming era, and lets face it that can be a good thing because we need prices to move in order to make a return but I feel that a more "hands-on" approach will be needed. So my point is that if you are willing to spend the time on allocations and thinking about what you are doing, it may be that spending time managing your investments may not be out of the realms of possibility? Also, limiting yourself to purely trackers may be something to reconsider if prices are very volatile but do not necessarily go anywhere over a longer period - which would be different historical performance generally?

I am not saying I make changes to my funds every week or anything like that - that would also be counter-productive potentially in terms of missing out on dividends and so on, but I do think we will need to play the game a bit differently going forward - which is why I start to allocate out of equities as price reaches and fails at highs, and over the last few weeks start to allocate back in to equities as the far sets in and sell-offs are occurring. This works quite well for me but it does take more effort than setting up tracker allocations and sitting back to see what happens over the next 10-20 years. Sure, timing can never be perfect but you don't switch from 100% bonds/cash/gilts etc all in one go - you start the process when an index or sector or whatever you are tracking reaches certain points that you can analyse with very basic analysis. It is not an exact science, but it means that I missed out on losing 40%+ of the value of my investments in 2008/2009 (I was down around 7% at the peak) and then was lucky enough to ride the QE asset inflation across all classes from them until last year (like most have done). That is the beauty of QE of course because almost all markets go up and you "can't lose" - until of course QE stops and we realise that we wet our pants to keep warm but in relaity as a result we are now much colder....:D

I use Fidelity and I generally pay 0.25% switch charge on ISA's and in some cases initial charge fees for certain funds minus any discount I get for being a Fidelity Wealth client. Whilst I look at TER's they are certainly not the most important thing for me, more importantly certain funds have an investment style or remit or exposure that I feel is needed and then I just go from there. I would consider using trackers, but only after massive sell offs and then I would sell out again as we tested highs again depending on the price action.

Anyway, this has turned into a bit of a ramble - the most important thing for me to get across is that we have never seen these market conditions and forces before in my view - and we may need to stay light on our feet to get the best out of it - and that does not involve limiting oneself to certain types of funds or other vehicles in my view.

Good luck and let us know how you get on!

J

Aegis

Daniel_Elkington wrote: »

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.

I think what's more worrying is your reliance on the CII texts. They have historically tested on the previous tax year right through to July or thereabouts each year, whereupon they typically release their new study texts and test that material from the following October sittings. Not sure how that works with the newer exams, but I'm fairly sure the textbook is released in July each year.

Does this mean that you advise your clients on the previous tax year until the CII updates you? Changes to the tax system are usually announced months in advance, so the CII is usually at least six month behind the knowledge curve.

It's really not worth relying on the CII texts, they're out of date almost as soon as they're printed. Good for exams and for building your knowledge framework, but not good at all for staying up to date.

jamesd

Daniel_Elkington wrote: »

Worrying really.

Well, I'd be more worried about you relying on them for this, frankly. Not what I expect. You've probably had enough of a surprise to change how you do things though.

Daniel_Elkington wrote: »

Core/Satellite is simply;

Core = Buy and hold

Satellite = Short term opportunities

That's one correct definition but there is another, a core of trackers and satellite of active. The latter is the meaning you'll see most often intended in this place. Doesn't mean that either is right or wrong, just different.

Daniel_Elkington wrote: »

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

Undertandable but you do have to consider the differences due to funds switching between bid and offer basis for pricing* or where an OEIC might place its position in its pricing tunnel or perhaps apply a dilution charge. None of these is explicit but they do still produce some small effects that can penalise too-rapid switches. Not a big deal even compared to a 0.25% switching charge, just not quite free of cost even if the platform is charging nothing and doing simultaneous same day swaps of holdings to avoid out of the market issues.

*Not bid price and offer price. Bid or offer basis for the bid price. The two are different things. Though unit trusts are becoming an endangered species compared to OEICs these days.