Your thoughts on my investment plan

DUS

Hello,

Starting in the new tax year, I would like to start regular/monthly investments in funds, using my Shares ISA account.

I plan to invest a sum of 800 pm and consider these investments to be for my pension, so have a long-ish view of 20 years.

My thoughts are that I don´t want to have highly speculative investments but don´t want to start on too cautious a note either given the 20 years perspective. At the same time I want to focus on what I think are and will remain the key drivers/sectors in the years and decades to come:

- Asia/Pacific and Emerging Markets in general
- Food/Agrar
- Infrastructure
- Health/Pharma
- Biotech
- Technology

Based on my thoughts described above, here´s what I currently have on my shopping list. It´d be great to get your thoughts on it, what you like/dislike about it and where you personally see better options or a better allocation of the investment amount of £ 800/month:

£ 200 First State Asia Pacific Leaders
£ 100 Aberdeen Global Emerging Markets Smaller Companies
£ 150 Sarasin AgriSar
£ 150 JPM Global Healthcare
£ 100 First State Global Listed Infrastructure...
£ 50 Franklin Biotechnology
£ 50 Aberdeen Global Technology Equity Fund

Generally, I definitely see the main focus of my investment on Asia/Pacific & EM as well as Food/Agrar. But rather than putting 800 pounds just in these 2 sectors, I thought further diversifying my long-term portfolio might be a good idea. I am just wondering if splitting the £ 800 pounds up into 7 seperate funds isn´t a bit "too much" of diversification.

What do you think about my choice of strategy, funds and budget allocation? Any thoughts and comments will be greatly appreciated.

Cheers and best

DUS

ColdIron

You are doing this the right way around, decide on the sectors you think will do well and then find the funds. The only one that doesn't sit well with me is the Technology fund but that's just me and it is only a small proportion, some of the companies in it are rock solid (Oracle, Cisco etc) though it does have high management charges. Also be aware that Aberdeen GEM Smaller companies is introducing a 2% initial charge from March I think

PS I don't think 7 funds is too many

Linton

Agree with ColdIron that by first looking at sectors you are approaching choosing investments the right way round.

You need to accept that the type of investment you have chosen can be volatile. For a drip feed investor with a long timescale this is a good thing as you buy more units when there are large falls in prices. So dont get frightened and jump ship at the next major downturn.

At some stage you may wish to consider your geographic diversification. If you find that your total investments are low in some significant geographic area you may want to modify your allocations or add extra funds. However it's not an issue for the time being.

dunstonh

My thoughts are that I don´t want to have highly speculative investments

All the funds you have selected are highly speculative (or very high risk) and extremely volatile.

What do you think about my choice of strategy, funds and budget allocation?

On a risk volatility scale of 1-10 (cash being 1) your selection is firmly at 10. If it was an adviser case, it would mis-sale written all over it. As a DIY case, its up to you what you do but what you have selected is not consistent with the risk level you set out with.

Asset allocation is harder to achieve with funds than sector allocation. It works better with share. With funds, the use of specialist niche funds tends to result in highly volatile investments and poor diversification as you leave core assets out.

Linton

dunstonh wrote: »

All the funds you have selected are highly speculative (or very high risk) and extremely volatile.
.....

In the case of these sort of funds I think "speculative" and "volatile" are totally different for the very long term investor. Investing long term in a single company that may invent perpetual motion or a cure for cancer or come to that any other single company is highly speculative. Conversely it is a pretty safe bet that say the Far East or biotechnology arent going to disappear or even collapse into insignificance. So given the OPS timescale I would suggest investing in a number of such funds is not speculative, at least no more so than investing in a FTSE or US tracker.

But volatile - yes certainly.

I think the use of the term "risk" together with a single scale is unhelpful in these circumstances.

benalder284

Always interested in discussions from the above posters about 'risk' and 'volatility'. As regards the OP, I'd agree that the funds listed are individually aggressive (which is not necessarily an issue for long-term investors) but it is the lack of diversification that would concern or worry me - little UK exposure, limited US exposure.

Personally, I am also overweight in Asia and Emerging Markets reflecting my thoughts on future economic trends - but this is supplemented by a core allocation to existing developed markets via UK, US and European trackers - is there any reason for avoiding these areas completely?

westy22

risk volatility scale of 1-10 (cash being 1) your selection is firmly at 10

As I don't use IFAs I have never been formally 'risk assessed' but it is interesting that cash (which is more or less guaranteed to lose 2% per annum to inflation) is graded at 1 whereas First State Asia Pacific Leaders (which has returned 16.5% annualised over the past 5 years) would be classed as a 10.

I'm with Linton, there is a world of difference between risk and volatility, but I wouldn't even say that FS APL has even been particularly volatile over the past 5 years. It dropped in 2008 (who didn't!) but it has grown steadily and consistently since then.

DUS

benalder284 wrote: »

... - but this is supplemented by a core allocation to existing developed markets via UK, US and European trackers - is there any reason for avoiding these areas completely?

Thanks to all of you who´ve provided some valuable and much appreciated comments so far.

As for the lack of "core western/global assets", I fully understand where you are coming from as I contemplated buying a fund covering the "global players". The reason why I haven´t put it on my list so far is that I thought adding even more funds to the list would "dilute" the available investment sum too much. Also, when I looked at the respective TOP 10 holdings of funds such as the JPM Healthcare with companies such as Roche, Merck, Pfizer and Bayer, or the Aberdeen Tech fund with major holdings in companies such as Oracle, Samsung, Cisco and Vodafone that even though this isn´t a full representation of the Global Top 50, it would still provide sufficient exposure to the broader "developed" market. Maybe I am too "optimistic" or generous with my assumptions here?

DUS

dunstonh

As I don't use IFAs I have never been formally 'risk assessed' but it is interesting that cash (which is more or less guaranteed to lose 2% per annum to inflation) is graded at 1 whereas First State Asia Pacific Leaders (which has returned 16.5% annualised over the past 5 years) would be classed as a 10.

attitude to risk is a combination of volatility, capacity for loss, accepting of the levels of loss and understanding. It has nothing to do with potential for gain. Cash has no volatility and it wont drop in value. It wont give real terms returns and is simple to understand. There is no standard with measurements. Just opinion. A lot of that opinion is driven by the FOS and the FSA.

The selection of funds could easily lose 60% over 12 months. If the individual is not accepting of that then it would be wrong to invest on that basis. If they are happy to accept that level of volatility and can afford to do so then fair enough. Although the diversification is still lacking.

Risk is not about upside when looking at a risk profile. It is about downside.

It dropped in 2008 (who didn't!)

cash. Hence why its at 1.

Ark_Welder

westy22 wrote: »

I'm with Linton, there is a world of difference between risk and volatility,

Depends upon the context to which risk is being assessed. Higher volatility implies an increased risk that a fund might drop in value when the time comes to sell. dunstonh's post does state that the the 1-10 scale is 'risk volatility'. Cash might be more exposed to inflation risk, but its volatility should be minimal to non-existent.

westy22

Accepting that Cash is a 1 and FS APL as a 10 as you have outlined above then what, typically, would be a 6 or 7? Most equities could drop 60% in a market crash so are all equity funds and ITs a 10?