Portfolio for a novice

cwrw

Hi, I want to focus upon a 300% or so growth by 15 years, and have a tight lump sum limit of £10,000 and a possible £100 a month to invest. Any learned opinion how to achieve this with relative caution, and regarding the portfolio options below, and how to purchase them (at the cheapest price) would be ABSOLUTELY GREAT AND GREATFULLY RECEIVED!

"GONE FISHING PORTFOLIO FROM INVESTMENT U.
Since its inception, The Gone Fishin' Portfolio has compounded at 17.3% a year. And this is an extremely risk-averse approach, making it the perfect home for what I call your "serious money."
Notice that we have a 30% allocation to U.S. stocks. It is divided between small-cap and large-cap stocks. Likewise, the 30% allocation to international markets is evenly divided between Europe, the Pacific and Emerging Markets.

You might wonder how including some of these riskier assets – like emerging markets, gold and small-cap stocks – actually makes your portfolio less volatile. By combining these riskier – but non-correlated – assets, you actually increase your portfolio’s return while reducing its volatility.

Vanguard Total Stock Market Index (VTSMX) – 15%

Vanguard Small-Cap Index (NAESX) – 15%

Vanguard European Stock Index (VEURX) – 10%

Vanguard Pacific Stock Index (VPACX) – 10%

Vanguard Emerging Markets Index (VEIEX) – 10%

Vanguard Short-term Bond Index (VFSTX) – 10%

Vanguard High-Yield Corporates Fund (VWEHX) – 10%

Vanguard Inflation-Protected Securities Fund (VIPSX) – 10%

Vanguard REIT Index (VGSIX) – 5%

Vanguard Precious Metals Fund (VGPMX) – 5%

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MONEVATOR.COM
5. Harry Browne’s Permanent Portfolio
Asset class Asset allocation Fund name OCF
Domestic equity 25% Vanguard FTSE UK Equity Index 0.15%8
Government bonds (Gilts) 25% Vanguard UK Long Duration Gilt Index 0.15%9
Gold 25% iShares Physical Gold ETC 0.25%
Cash 25% High interest account -

This truly is a portfolio for all-seasons. It’s armour-plated against inflation or deflation, recession, and even the good times. The assets have been picked for their contrasting behaviours, so whatever the conditions, some should thrive even while some dive. William Bernstein has written an excellent article about the permanent portfolio.

8. Harry Markowitz’s ‘In Real Life’ Portfolio
Asset class Asset allocation Fund name OCF
Global equity 50% Vanguard FTSE All-World ETF 0.25%
Government bonds (Gilts) 50% Vanguard UK Government Bond ETF 0.12%

A portfolio based on the oft-told tale that the Nobel Prize winning inventor of modern portfolio theory split his real life portfolio 50:50 between equities and bonds. The All-World ETF offers plenty of diversification in a single fund.

7. William Bernstein’s No Brainer Portfolio
Asset class Asset allocation Fund name OCF
Domestic equity 25% Royal London UK All Share Tracker Fund Z 0.14%
Developed world 25% Vanguard FTSE Dev World ex-UK Equity Index 0.3%
Domestic small cap 25% iShares MSCI UK Small Cap ETF 0.58%
Government bonds (Gilts) 25% Vanguard UK Government Bond ETF 0.12%

Another simple and aggressive portfolio that’s 75% in equities. Note the straightforward 25% split between asset classes. This is because passive investors understand that there is no ‘correct’ answer to asset allocation.

Fine grain allocations may look impressively scientific but are no more likely to provide a better return than a crude four-way slice of the pie.

N.B. I’ve thrown in alternative solutions for UK domestic equity and government bonds for this one."

MANY THANKS FOR ANY THOUGHTS REGARDING THIS.

Totton

With 10k and wanting a 300% return in 15 years you will probably need to take some higher risk than one of those portfolios, you could try sticking it all in a Biotech holding such as International Biotechnology (IBT) or Biotech Growth Trust (BIOG). This is high risk though and the sector has recently suffered falls of 25% or more, that could be a good time to buy or a time to avoid the falling knife!

Buying 10 Vanguard funds with 10k seems a waste of effort, why not simply opt for the Vanguard Life Strategy range and select say the 100% equity option if looking for high growth.

jimjames

Claiming 17%+ pa is possible from a risk averse portfolio sounds like someone isn't giving a true picture.

Vanguard 100% sounds like a good invest and forget option.

cwrw

Thanks for the uptake. I'm speculating and trying to grip what is realistic - it seems that vanguard lifestyle 100% equity option would represent a medium/high risk? Baring this in mind, would it be prudent to invest the sum of around 7k in this, 3k in small companies uk index fund, and 100 per month into an accumulative index fund based on the whole uk stock/share market?

ColdIron

The VLS100 already holds the FTSE All Share, so I'm not sure how it's prudent to increase the allocation. Also adding a more volatile UK Smaller Cos fund is unlikely to mitigate risk

masonic

cwrw wrote: »

Thanks for the uptake. I'm speculating and trying to grip what is realistic - it seems that vanguard lifestyle 100% equity option would represent a medium/high risk? Baring this in mind, would it be prudent to invest the sum of around 7k in this, 3k in small companies uk index fund, and 100 per month into an accumulative index fund based on the whole uk stock/share market?

You are correct that the 100% equity fund is medium/high risk. To reduce your overall risk, you would need to add holdings that are not well correlated with global equities, preferably low volatility. UK small companies would add diversity, but also add volatility, and the VLS fund already has significant leanings towards the UK market.

grey_gym_sock

actual returns are very dependent on whether the next 15 years happen to be a good, bad or indifferent period for the markets. if you are aggressive - e.g. 100% in equities - then it's perfectly possible that £10k will have grown to £40k after 15 years. but it's also possible that it will be much less.

the "gone fishing" portfolio seems to be aimed at US investors. the monevator portfolios are aimed at UK investors (monevator have adapted them to fit the UK, where necessary).

System

ColdIron wrote: »

The VLS100 already holds the FTSE All Share, so I'm not sure how it's prudent to increase the allocation. Also adding a more volatile UK Smaller Cos fund is unlikely to mitigate risk

To be fair though, the All Share doesn't exactly hold much in the way of smaller companies (~4% in companies wiith a market cap of <£1 bn). As you say though, a smaller co fund wont mitigate 'risk' or more accurately-volatility, it will increase it of course, but the potential returns vs large caps are significant.

Look the performance of the FTSE 100 v All share over the last few years. Then look at the difference between the FTSE 100/All share and the FTSE 250. It does go to show how much the 100 dominates the All Share.

Sobryma

Passives would be good for fit and forget imho.

Monevator has been mentioned, UK biased books include oft mentioned Hale's Smarter Investing, recent Kroijer Demystified Investing - both pretty global based equity portfolios (Hale throws in a few diversifiers, Kroijer argues for World Equity).

More leftfield would Yale type multi asset slice and dice portfolios, such as 7Twelve, Ivy Portfolio etc. fairly easily adopted for UK (Investors Chronicle ran a recent article on a 7Twelve variant).

Alternatively active managed passive as Vanguard mentioned, Blackrock Consensus 100, or maybe something like SCM Private.

cwrw

MANY THANKS FOR THE LEARNED REPLIES.
I will not pretend to be something that I am not - I have read a few articles but desperately need direction towards steady/cumulative gains towards financing a better future without maxing out on risk. At present I am led to believe that index funds are the way ahead for my timescale (15 years), but I would like to optimize my gains, so there goes the risk gong again - is there a way ahead out of this which will be affordable for my budget (ie management charges/platform costs - also who has the best deal presently).
Again, thank you for the advice as it is shaping my thoughts as I type!

masonic

I would suggest you go and poke around on http://www.trustnet.com. Look up the "FE Risk Score" for various funds you are interested in. You can set up a virtual portfolio and get an overall risk score for that. That should give you a feel for some of the funds you're interested in investing in and also how adjusting them will affect the overall risk of your portfolio.

The FE Risk Score is based on the FTSE100 = 100, so change the timescale of this FTSE 100 Tracker to 10 years and the chart basis to "£ return" and then you'll see a nice 50% drop between mid-2007 and the end of 2008. Decide on what proportion of that drop you could stomach and you should be able to arrive at a suitable target risk score.