Sound start to S&S investing ?

Ryan_Futuristics

Good looking portfolio ... Totally agree with being underweight US, and many do favour equity income at the moment (and reinvested dividends have been where most long-term returns in the UK markets have come from in recent times - with flat markets since 1999)

I guess you're using some form of valuation? Nice new site with some interactive graphs estimating 10-year returns across various asset classes and regions (based on relative CAPE)

http://www.researchaffiliates.com/assetallocation/Pages/Core-Overview.aspx

As you see, very low returns expected from the US - I'd consider going a bit higher on emerging markets (I'm between 12 and 26% EM - depending how you count it)

There are many different approaches to valuation - I generally use absolute CAPE and price/book - but the important thing is that you're using something to tell you whether you're buying cheap or expensive ... and then be diversified enough to cushion the general chaos of the markets

I've got Vanguard's UK equity income, but I'm considering selling it to up my holding in Woodford equity income ... Also considering MFM Slater Growth (for small cap value exposure - very much drip fed, like a FTSE 250 tracker, but I like Slater's investment criteria and I don't think it's too duplicated by other funds ... Which is where trackers could fall down in the future)

What I've done with my portfolio is compartmentalise it into a few investing approaches ... I've got about 40% in funds like Woodford and Edinburgh investment trust, which I consider strong core holdings, with good dividends (which should compound and grow even in stagnant markets) and largely UK (to limit vulnerability to currency movements)

Then 20% in investment trusts like Murray International (which can rotate between regions and asset classes depending on value) - essentially my 'passive' investment - part of my portfolio I'm Outsourcing completely - as their track record for long-term growth is exceptional

Then I've got a 25% global value sub-portfolio, where I simply buy cheap regions and sell them when they're correctly valued ... Meb Faber's Global CAPE approach

Then the rest is mostly in Asia (which I'm a fan of, but which everyone else is too - so valuations aren't cheap cheap) and a bit in property and specialist funds

What I'm doing more is I've got my target allocations, but I'm using dips and low valuations to increase allocations where I can buy cheap - e.g. My Asia's lower than I want it, but I'm waiting for a better opportunity to buy ... From a lot of my models, buying cheap (whether through valuation, or just buying the gap between current market price and market peak) is what really dictates returns ... Moving away from a passive drip-feed, spray-and-pray approach

asarmstrong

Thanks for SIPP suggestion Kidmugsy, its something that i will look into. I've not got a large amount of surplus cash for investing and doubt i will be reaching annual ISA limit but tax relief is always a plus.

Thrugelmir, thanks too, 4% div yield to me is 'high', i won't be chasing any higher amounts for the reasons you stated. All my funds are accumulation to benefit from compounding.

asarmstrong

Thanks for links and insight Ryan, sounds a well thought out strategy which you have going. Will check out the link as i need to consider further valuation analysis for when i start to tweak % allocations. Do you buy & sell many funds to try to time the market correctly?

Ryan_Futuristics

asarmstrong wrote: »

Thanks for links and insight Ryan, sounds a well thought out strategy which you have going. Will check out the link as i need to consider further valuation analysis for when i start to tweak % allocations. Do you buy & sell many funds to try to time the market correctly?

Actually I try and avoid market timing, and instead use valuation and what you'd call tactical asset allocation to at least avoid the mistake of buying expensive ... And at the moment, while I've got more in cash than in equities, I'm not doing much selling

Another amazing example I saw yesterday of what simply buying cheap means for returns
http://www.millennialinvest.com/blog/2014/10/28/the-contrarian-sociopathic-mindset

A 1,600% return buying the big, high valued stocks everyone else did since the 1960s, vs 142,700% buying the stocks no one wanted

In regional terms today this might be buying regions like Eastern Europe, Italy, Greece, Hungary, Poland (and possibly Frontier markets, like Qatar and Nigeria, but they're a little trickier to value, and funds and trackers dealing with them are generally expensive)

When I started, I was very focused on asset allocations - I'd want 13.333% in European value rather than 12% ... I'd spend an hour entering values into a spreadsheet to decide whether to be 1% over or under

But I think everyone eventually realises those decisions don't make much difference, and buying cheap is where your returns come from ... Also if you're too diversified, the chances are you'll just be recreating a global index tracker ... So I use diversification to smooth out volatility, but not just to be exposed to everything ... I'd love more US equities, and more UK mid-caps, but there's no point (from my perspective) building up those allocations if you're paying more than their underlying value (I'm anticipating a 30-40% market drop sometime in the next year or two - so I'm keeping my cash quite high to buy on that dip, if it comes)