active vs passive?

atush

Holding equities within a tracker doesn't increase that risk.

I dont recall suggesting this. but 100% equities, yes I do.

Jaguar_Skills

dunstonh wrote: »

You can just select a FTSE index fund but that would be poor quality investing. Ignoring the higher risk nature of that (100% equity), it is a single market. If you went FTSE100 then its not a very diversified market either. Do you think Amercians or Germans would wake up in the morning and think that they should invest 100% of their money in the FTSE?

When using single sector funds, you aim to use a spread of them to build a portfolio to give you the diversification of the different markets and different asset classes. However, if you are doing that on £600pm you face the problem that its going to be many years before it becomes sensible. For example, if you allocated 3.7% to Japan then on £600 that is £22.20. Not a big amount. You can do it but is it worth it?

Plus, do you intend to be a lazy investor or active investor? if you are going down the lazy route then you shouldnt build a bespoke portfolio as you will need to adjust it to suit the economic cycle and rebalance it.

Multi-asset funds control the asset allocation within the fund. They can give you the diversification without you choosing the amounts to allocate to each sector. Then, when the portfolio gets bigger and if you still feel you want to do more with it then you can change to a bespoke portfolio.

Thanks dunstonh. I wasn't ever going to put it in one index like the FTSE but spread it across a number of them. I guess as linton said abover it may be best to start with a few multi asset funds? Are there decent examples for portfolios if how people balance their %'s ie like the splits that are shown on thr monevator site.

I appreciate this is like teaching someone to suck eggs but I need it.

Would reading smarter investing be a good idea?

Ryan_Futuristics

I have about 15-20% of my portfolio in multi-asset funds - I think of them as good, solid, long-term performers, and great for getting started

The problem I've sometimes mentioned is outlined here:

Vanguard Lifestrategy has a lot going for it. Shame you have to buy it all at once
http://simple-living-in-suffolk.co.uk/2014/02/vanguard-lifestrategy-buying-at-once/

When you buy a multi-asset fund, you're buying stocks and regions at all sorts of different points in their cycle (some assets at the bottom of their cycle, waiting to rise, others in the middle, and many that are probably about as stretched on valuation as they're likely to get)

Despite the popular narrative going around at the moment, the best way to avoid losing money in the markets has always been to buy cheap ...

If you wanted to build a Lifestrategy portfolio, you'd probably be buying mainly the European and Emerging parts this year, while adding more gradually to the UK allocation, and only very slightly to the world index

Bonds may not be good value for a while, so you might hold a small amount of short-duration bonds and put some of that money into P2P lending(?), and maybe high interest savings accounts

It's a consideration ... In theory, even if takes longer to build the complete portfolio, buying the expensive parts now probably won't benefit you (especially as the US's dividend is so low)

ChopperST

As always Ryan I read your posts with interest as an alternative approach to the consensus on this board.

One thing I do agree with you here is the fact that P2P does increasingly appear to be an alternative to bond funds, albeit with (IMHO) marginally higher risks.

A 5 year loan on Ratesetter will return 3+% after tax for a higher rate taxpayer which is much better than many gilt funds at present and over a shorter timescale, allowing for reinvestment and compounding.

One thing I would be careful of is Ryan's advice above.

Ryan_Futuristics wrote: »

In theory, even if takes longer to build the complete portfolio, It'buying the expensive parts now probably won't benefit you (especially as the US's dividend is so low)

An investor starting off now for the long term should pay no attention as to where the market is. Its where it will be in 20-30 years time that should be their sole concern. You are suggesting market timing to novice investors and from all the evidence I've seen that is nigh on impossible whether you actively or passively invest.

TheTracker

OP, yes Smarter Investing would be a good book to read. You need to settle on a strategy before choosing funds. You need to work out your needs before settling on a strategy.

Ryan_Futuristics

ChopperST wrote: »

An investor starting off now for the long term should pay no attention as to where the market is. Its where it will be in 20-30 years time that should be their sole concern. You are suggesting market timing to novice investors and from all the evidence I've seen that is nigh on impossible whether you actively or passively invest.

Glad if I'm just able to offer some alternative ideas ... But this is I think where people may be going wrong

A distinction I'd make is that timing the market involves predicting short-term trends - which is difficult ... Whereas valuation is the best predictor we have of long-term trends

So both get lumped together as 'market timing' (because the popular narrative has become "Passive, passive, passive") yet one involves chance and the other involves a weak inevitability

A chart I made earlier valuing the markets using the current data:



What concerns me is that World markets look overvalued (unsurprising considering the $trillions the US has pumped into them)

My other concern is that there may be signs developed markets have reached maximum efficiency (ageing demographics may now take over as a long-term trend)

So for me, if we can't take the long-term uptrend as an inevitability, buying at anything other that fair value might not work out as well as it has previously

Rollinghome

Ryan_Futuristics wrote: »

Sure - I've been investing in an index since I was a teenager (something on TV - basically the advice from Rich Dad Poor Dad and The Richest Man in Babylon - stuck with me and has influenced how I deal with money from probably the age of 11)

I realised not long ago I've got a lot of capital I'm not doing much with (I've kept a lot in cash too) so I've been managing my money and building a new portfolio as an almost full-time job recently

Ah, I see. I seem to recall you saying in an earlier post that the US hadn't been at reasonable level for entry during the time you've been investing.

From that, as the S&P was below 700 only just a few years ago, should I assume that you're just out of your teens now and you've become interested in investing in just the last few months?

Well have fun but I saw you also say that that you're not in work at the moment, so unless there's some reason why you can't work, don't forget that finding a job is a more reliable route to riches than small time investing. Believing otherwise is usually little more than a fantasy.

Have to confess have never read Rich Dad Poor Dad, though I was given a copy some years ago, but I hope it would have a similar message. Anyone daft enough to take seriously the title of chapter 7 "Don't work for money" is likely to be disappointed.

EdGasket

Rollinghome wrote: »

Well have fun but I saw you also say that that you're not in work at the moment, so unless there's some reason why you can't work, don't forget that finding a job is a more reliable route to riches than small time investing. Believing otherwise is usually little more than a fantasy.

Erm, I don't think so, unless you are a CEO of a FTSE 100 company that is. Everyone (should) know that working people are too busy working to make any money. I think you need to read that book.

ChopperST

Rollinghome wrote: »

Have to confess have never read Rich Dad Poor Dad, though I was given a copy some years ago, but I hope it would have a similar message.

Was given it to read from one of the lads on my Rugby team.

To be honest its all about stating the obvious.

In summary;

Rich Dad gets rich by buying assets that generate passive cashflow i.e. property and poor Dad works hard for a living and buys crap.

The book also has an undertone that going to school and getting an education is a poor idea as opposed to becoming the next Sir Alan Sugar.

In a few words;

Money breeds money. Save and invest rather than earn and spend.

Rollinghome

EdGasket wrote: »

Erm, I don't think so, unless you are a CEO of a FTSE 100 company that is. Everyone (should) know that working people are too busy working to make any money. I think you need to read that book.

Well I don't know your experience but I don't know anyone who has become rich by investing alone.

I'm now in a position that many people might consider quite comfortable with a seven figure sum in investments but couldn't have got to that position without working. Working earned me the money to invest.

An alternative route to wealth, short of an inheritance, might be to hype a get-rich-quick book and persuade the gullible to hand me their money for it.



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