Significant money to invest.

Your_Hero

Archi_Bald wrote: »

It's just fine for people to stick out their necks and say an IFA isn't needed if you opt straight for passive investing. It is also fine to say there is no evidence that active investments outperform passive ones - because that is true.

I completely agree - not everyone needs an FA/IFA. This was not what my post was about, neither did I comment on the passive vs active investing because there is no evidence to suggest either one is better. It's a preference to investing.

All of you FAs and IFAs laying into people who have decided to DIY doesn't actually do the FA/IFA community a lot of favours.

Sorry but this did not happen at all. I was responding to his comments about 'monkeys', bananas and plumbers.

Linton

Bastiat wrote: »

Linton, I strongly disagree with the notion that a financial adviser is like a plumber. A plumber has very demonstrable and objective skills. He either fixes the problem or he doesn't. The adviser on the other hand cannot demonstrate his skills because the results are so far out into the future. A financial advisor is more akeen to an astrologist or an economist.
Regarding passive funds no one is suggesting investing all in one index. You should have a diversified portfolio across asset classes. The academic research in favour of passive investing is overwhelming. Furthermore if you don't think you have the skills and time for stock picking what makes you think you can do better at fund manager picking?

You seem to believe that stock/fund picking is what an investor focuses on. My focus is on investment sectors and investment classes to ensure that I have the appropriate level of short term security and long term high return with higher risk and diversification to safely meet my income needs over the next 30 odd years of retirement. Stock or fund picking is a secondary concern (as incidentally is overall return). Though as regards fund picking the academic evidence appears to show that there are long term dog funds. You can at least avoid those.

My investment allocation requirements will almost certainly be different to yours. Choosing the right one depending on individual circumstances is a key job of an IFA, not stock/fund picking.

You suggest that investing across multiple indexes will provide the diversification you need. Whilst you major on capitalisation based indexes where your money is overwhelmingly invested in the largest companies this diversification will be severely compromised. World wide the largest companies will largely exist in the same global market and so values will be highly correlated. It doesnt really matter whether an oil company is quoted on the UK, US, Frankfurt or Brazilian stock market. Values will be more a factor of the world oil market than local conditions.

In order to achieve my asset allocation I must use mainly active funds. There are too many areas of investment that arent satisfactorily covered by index funds. If you can achieve yours with simple trackers, fine. If you choose trackers primarily because they are trackers rather than fitting your overall investment plan (if you have one) then that would seem to be poor investing.

KPLpard

Thanks All. There is lots of great advice here.
Right now, I am leaning towards looking at some managed funds with a bulk of the money, perhaps 2 or 3 of these.
Perhaps a coupld of passive funds after this and then maybe a few riskier options (emerging markets or particular individual shares that might take my fancy).
It really is a minefield out there and I am still changing my mind every time I read something which I know is not a good place to be but absolutely determined to get this right.

lozzy1965

KPLpard wrote: »

Thanks All. There is lots of great advice here.
Right now, I am leaning towards looking at some managed funds with a bulk of the money, perhaps 2 or 3 of these.
Perhaps a coupld of passive funds after this and then maybe a few riskier options (emerging markets or particular individual shares that might take my fancy).
It really is a minefield out there and I am still changing my mind every time I read something which I know is not a good place to be but absolutely determined to get this right.

Read it, digest it, don't dive in.
Could do worse than choosing something, then watching it for a while to see how it performs. Will give you some experience in looking for what you want at least

bowlhead99

Bastiat wrote: »

Linton, I strongly disagree with the notion that a financial adviser is like a plumber. A plumber has very demonstrable and objective skills. He either fixes the problem or he doesn't. The adviser on the other hand cannot demonstrate his skills because the results are so far out into the future. A financial advisor is more akeen to an astrologist or an economist.

A plumber might appear to fix the problem of water dripping visibly onto your bathroom floor from an old or knackered shower or toilet by installing a new unit badly that leaks water or sewage somewhere in your walls or under your floorboards which doesn't manifest itself as a huge problem until somewhere down the line. A builder might build you an extension which looks superficially good but has removed a supporting wall of your house and the whole thing collapses into rubble after many years of looking good.

Paying a more expensive builder or plumber or financial adviser versus a cheap builder plumber or IFA doesn't guarantee better results of course. Different advisers/builders /plumbers will deliver different results from each other and from a DIY job at different prices. The passive investor or DIY builder knows he has a cost advantage but a cheaper solution does not guarantee a sounder strategy. Price is one thing, the quality of the solution and fitness for purpose is another.

Regarding passive funds no one is suggesting investing all in one index. You should have a diversified portfolio across asset classes. The academic research in favour of passive investing is overwhelming. Furthermore if you don't think you have the skills and time for stock picking what makes you think you can do better at fund manager picking?

Well, fund manager picking requires you to select a manager who is following the strategy you want to follow. While stock picking requires you to have a strategy and able to implement it yourself by by judging a ridiculous amount of data from a massive universe of stocks.

Passive funds do not always give you a choice of strategy for each asset class. Where they do, you are making similar strategic choices as you are when picking active managers. Where they don't, the choice is easier because it's just price and tracking error. However, it doesn't mean it is the best solution to your problem.

dunstonh

All of you FAs and IFAs laying into people who have decided to DIY doesn't actually do the FA/IFA community a lot of favours.

Where on earth have you seen IFAs laying into people who DIY? All I have seen on this thread and other recent ones is the opposite. i.e. DIY investors laying into IFAs. I actually think myself and the other advisers that contribute to the board take a balanced view on DIY and the posts indicate no issues with DIY investors. It is a shame that it cannot always be said the other way.

lozzy1965

bowlhead99 wrote: »

Well, fund manager picking requires you to select a manager who is following the strategy you want to follow. While stock picking requires you to have a strategy and able to implement it yourself by by judging a ridiculous amount of data from a massive universe of stocks.

I'm not quite sure from this whether you are pro funds or pro stocks? Difficult to tell from the unbiased passive language you have used to describe each

moxter

KPLpard wrote: »

Right now, I am leaning towards looking at some managed funds with a bulk of the money, perhaps 2 or 3 of these.

You've also mentioned that you're looking to use a significant chunk of the money to buy a house with. Is that something you're looking to do in the next 5 years? If so, then putting "the bulk" into equity of any sort probably isn't the best idea and the arguments raging in the backgrouns might be of no relevance to you at all. Think about your life goals first and foremost and everything else can follow on from that. It might be that much of your money needs to be in far less sexy places.

bowlhead99

lozzy1965 wrote: »

I'm not quite sure from this whether you are pro funds or pro stocks? Difficult to tell from the unbiased passive language you have used to describe each

I do some stock picking (generally but not exclusively UK and US listed) and some fund picking, IT/investment company picking, ETF picking

The point was simply that not being confident enough to both come up with an investment strategy and actually implement it through shrewd stockpicking, doesn't mean you couldn't find someone who broadly had the same idea as you as to strategy and then buy their fund. Finding a set of funds you like is, to me, fundamentally easier than finding an equivalently diversified set of stocks you like that cover the same bases without giving a monstrous amount of volatility.

So, the person who liked indexes and would scorn someone who picked a set of active funds (implying it was just as difficult as picking individual stocks) is a little off in that comment, IMHO.

Building a portfolio of individual stocks for a portion of, or all of, your equities exposure is perfectly reasonable, if you don't mind hefty swings from volatility, and only want include mainstream UK stocks and specifically want to avoid non-UK assets within your life's plan. It's harder if you are trying to get a more balanced global exposure. For example, what would your pick be within smaller German manufacturing companies, eastern European banks, Chinese retailers? What about private companies or emerging technologies?

Funds and trusts can have better exposure to sectors and companies that are not based in your nearest city, and give easy diversification right out of the box, perhaps with automatic rebalancing. So, many will think that's worth paying fees for rather than just buying up 15 blue chip companies in large enough quantities to keep transaction costs down.

kidmugsy

What I would do in your shoes.
i) Contribute enough to a pension to avoid higher rate tax, but no more. You would still need to decide what to invest the money in. Since it will be invested until you are 55 or more, something equity-heavy, or property-heavy, would make sense.
ii) If your spouse is a 0% or 20% taxpayer, use her/him to hold lots of cash in interest-bearing current accounts paying 3, 4, or 5% p.a.
iii) Consider using Premium Bonds: the limit is £40k each.
iv) Buy gold sovereigns - say £10k-£20k - and store at a safety deposit.
v) Fill your and your spouse's ISAs, and perhaps stick some cash aside in something tax-efficient for the nipper too. A mixture of equities and bonds is often recommended; many people admire Vanguard as a merchant of such mixtures. My own feeling is that buying a gilt might make better sense than buying a bond fund.

Above all, you'll just have to accept that assets are expensive at the moment. No IFA can avoid that for you. Diversification gives some defence perhaps, hence my suggestion that you mix cash/gold/bonds/equities. If you feel the money may be needed in five years time, go easy on the equities outside your pension, and perhaps make your bonds something like five-year gilts held to maturity, or seven year gilts running down towards two years. You'll just have to take the interest rates on the chin. http://markets.ft.com/research/Markets/Bonds

If you might need the money in five years you really mind less losing 1% or 2% per annum to inflation, than risking a 40% equities decline with no time left to claw it back.