Which fund would you choose? Why?

ChopperST

Similar to the OP I am starting out on my investment journey with relatively small funds currently using the HSBC trackers. I keep seeing that I should add bonds / guilts to smooth my ride but haven't taken the plunge, instead I've kept it in cash and using some to overpay my mortgage. With the relatively small sums I have I am more or less keeping pace with CPI inflation but am running out of places to put it.

bigadaj

ChopperST wrote: »

Similar to the OP I am starting out on my investment journey with relatively small funds currently using the HSBC trackers. I keep seeing that I should add bonds / guilts to smooth my ride but haven't taken the plunge, instead I've kept it in cash and using some to overpay my mortgage. With the relatively small sums I have I am more or less keeping pace with CPI inflation but am running out of places to put it.

Interestingly the oft quoted Barclays gilt equity study shows performance to fall from equities to bonds to cash in general over most time periods. This is over the last 110 years or so, and interest rates have never been this low in that time period so we are in uncharted territory. Also I've seen comment that their assessment of cash doesn't follow the average persons chasing of higher rates, but the average rate of the high street banks instance access accounts, so may well underestimate cash returns for most people in realistic scenarios.

ChopperST

Agreed, my money is in the 5% flex direct, and a 2.55% cash ISA so as a higher rate tax payer it is just about keeping pace with inflation. Would be interested to see come April with the scale back of FFL if cash ISA rates creep up a little. Would be nice to see some NS&I inflation linked accounts crop up again as an alternative too. As you say real unchartered territory ATM.

Jegersmart

skillboy wrote: »

Honestly speaking I was going to go for a FTSE 250 tracker as my first ever fund as it seems like a reasonable way to start.

However the Vanguard LS was mentioned several times as a potentially better fund so even though the funds are different, I would be interested to know given the choice of the 2, which one people would choose...

There is no way to tell which fund will be "better" - and I assume that "better" can be defined as giving you the largest return?

The Vanguard fund is a globally diversified fund, which means that as another person pointed out you will be "exposed to growth wherever it comes from" - however what that person failed to mention (and I presume this was not purposefully) was that you would also be exposed to all "losses" also wherever they come from.....

What I can tell you with a certain degree of certainty is that the Vanguard fund *should* prove to be less volatile over a long timeframe than a 250 company portfolio even though a lot of those companies do business globally. Would that be important to you?

There has been thousands of discussions on here about being diversified or not. There is no right answer, there are too many factors involved.

Have a think about how long you want the funds invested ideally speaking and how likely it is that you will need all or some of the money before the perceived end date.

Some would clearly argue that you should perhaps not put all your funds in equities alone, but we do not know what your overall portfolio is and what your age, income, job security and so on are.....the best thing you can do at this point is to truly understand:

a) what the differences between the 2 funds are and what the possible consequences for you are
b) what drew you to these options
c) what other options there are out there
d) what would happen if you did need the money unexpectedly in 6 years' time and at that point it was worth half of what it is now.

Good luck.

J

Jegersmart

p.s. as mentioned above - if you have debts just get them paid off as quickly as possible. Consider this even if you have a tracker mortgage with very low interest rates because debt (leverage) is a risk if you depend on employment to service it and/or have dependents etc.

J

DonM

If it was me I'd choose option 3 (which doesn't exist above). It would be to invest in a basket of developing market equities and other higher volatility assets. This is because you intend to invest regularly over the long term - thereby benefiting from pound cost averaging. I would then scale the volatility back when you are coming up to point when you need the funds. For information on reducing risk see this link:
liberty-wealth.com/news/understanding-and-benefiting-from-risk-869.html

For the suggestion of using bonds I would consider emerging market bonds but would shy away from developed market bonds at this time. Developed market bonds do not offer the return risk reward based on the (limited) profile given.

Alternatively, if I had to just chose one fund and stick with it then I'd maybe go with CF Ruffer Total Return fund.

Cheers,

Don