Please critique this passive portfolio

Jevvers

Hello

We are are investing in order to pay off our I/O mortgage in 2026. Have already been tracking the FTSE All Share for many years and we have a decent chunk in there.

But in order to diversify we have stopped adding any extra there and started to invest £1000pm into these, having read Monevator etc.

Any thoughts about these specific choices, the balance and mix? Thanks

Growth - 65%

40% into
Vanguard FTSE Developed World ex UK Index
http://www.iii.co.uk/investing/factsheet/FPC9

7.5% into
Vanguard FTSE Emerging Markets
http://www.iii.co.uk/research/LSE:VFEM

17.5% into
Vanguard FTSE All World High Dividend
http://www.iii.co.uk/research/LSE:VHYL


Defensive: 35%

17.5%
iShares UK Gilts 0-5yr
http://www.iii.co.uk/research/LSE:IGLS

17.5%
Vanguard UK Inflation Linked Gilt Index Acc
http://www.iii.co.uk/investing/factsheet/MEC5

MrMalkin

Would you not be better of converting your mortgage to a repayment type, and paying off that way? What's your current interest rate, and is it fixed or variable?

The danger that you face is that in 5 or 10 years you might find that interest rates rise, which will simultaneously increase your mortgage repayment and likely negatively impact the value of the shares. You'd be in a situation where you might need to cut your monthly investment just to pay the mortgage, leaving you less able to take advantage of a stock market rally and putting you at risk of not having enough to pay off your mortgage lump sum.

Jevvers

I have considered that but think that switching is unlikely to be advantageous. we're on a flexi tracker mortgage which is 0.49 above BOE base for lifetime of the mortgage.

We do also have cash in high interest current accounts and the defensive part of the investment is meant to mitigate stock market falls.

dunstonh

What made you choose that asset allocation?
Where is your property, global bonds?

Do you think that your asset allocation is likely to be better researched and planned compared to the like of L&G (multi-index funds) or Vanguard (LS funds)?

Jevvers

Vanguard 60:40 seemed to have a lot of UK equity exposure which we already have - but maybe there are other vanguard portfolios which I haven't seen.

dunstonh

Jevvers wrote: »

Vanguard 60:40 seemed to have a lot of UK equity exposure which we already have - but maybe there are other vanguard portfolios which I haven't seen.

Why limit to vanguard? They are not the only ones that do multi-asset passive portfolios.

However, there is a reason why UK equity will be higher and that most multi-asset funds are geared to fall within a volatility band and UK equity is less volatile than global equity. If you start breaking asset allocations then you are bringing in management decisions. So, what makes you better than a fund manager that has resources and knowledge you do not have? Some of the other multi-asset passive funds are not so rigid as vanguard and performance indicates they are doing better.

racing_blue

MrMalkin wrote: »

Would you not be better of converting your mortgage to a repayment type, and paying off that way?

I'm with Jevvers

£370k IO mortgage due to be repaid in 2033

Our plan is this:

1. Invest monthly into VUKE, VWRL, and cash within ISAs
2. Have in mind a "cash floor" which rises each year and is not defined as a % but as an absolute number. For example his year it is £16k, next year £25k, increasing exponentially each year until 2033 when it will be £370K, allowing us to repay the mortgage.

The benefits of this are mainly to do with taking full advantage of ISA allowance each year. But it is also a bet on equities over the long term.

I can imagine a scenario in which plans change and we downsize to a small house without a mortgage. Anything remaining in the ISAs can provide essentially tax free income. Particularly valuable for anyone who suspects they might be a higher rate tax payer in retirement.

Jevvers

Dunstonh thanks for your comments, I value your input. I have read Smarter Investing and Monevator. This does not make me an expert by any means but it did encourage me to invest in low cost trackers and avoid fees from fund managers eating into our investment.

The whole point of doing this was to diversify away from UK equities where we have £66k invested already.

I would be keen to know the names of other funds like Vanguard which may fit the bill.

I want to continue investing monthly to benefit from pound cost averaging, where that applies.
Thanks

dunstonh

I would be keen to know the names of other funds like Vanguard which may fit the bill.

L&G Multi-index funds. Similar cost but wider diversification and whereas vanguard is rigid on allocations, L&G will use management decisions to adjust the allocations. But still use their passives.

nicknameless

dunstonh wrote: »

L&G Multi-index funds. Similar cost but wider diversification and whereas vanguard is rigid on allocations, L&G will use management decisions to adjust the allocations. But still use their passives.

If the L & G funds use management decisions to adjust allocations how are they truly passive investments?

Ryan_Futuristics

nicknameless wrote: »

If the L & G funds use management decisions to adjust allocations how are they truly passive investments?

Neither are passive

Vanguard do adjust their regional allocations (and it's not a bad thing - despite Vanguard's OWN marketing drive, their active funds do consistently outperform their passives)


For me, the two main advantages to managing your own asset allocation are:

1) You're not forced to buy expensive assets (buy Vanguard LS today, and you're buying a lot of overvalued US equities ... whereas if you built your own version, you could wait for a better entry point into US equities, and build up your emerging now ... Your money could go a lot further)

2) Most multi-asset funds are constrained by having to focus on short-term returns and low volatility ... It's not been the best way to build a portfolio if you want high returns