New investor help - vanguard LifeStrategy fund with a possible 2015 crash.

edinburgher

there is a definite US bias at 35.1% and, to a certain extent a UK bias as well at 20%.

My understanding was that these funds were based on market capitalisation. The US is the largest economy in the world, in an attempt to own the market, you would assume that you have larger holdings in their S&S. I can't see how this is 'bias'. Whether we like it or not, the US drives a huge proportion of global economic activity.

I see quite a few posts on this forum effectively suggesting that having a local bias is a good thing. Unless you have a crystal ball, I can't see why...

edinburgher

black_taxi wrote: »

invested for 1st time today

regular monthly investment

11/16 year horizon

nest egg---won't be rich or poor but comfortable

Congrats! :beer: (sorry, should probably be :coffee: )

gadgetmind

edinburgher wrote: »

I see quite a few posts on this forum effectively suggesting that having a local bias is a good thing. Unless you have a crystal ball, I can't see why...

Well, for bonds it avoids currency risk or hedging costs. For equities, the only argument I've seen brought forwards is that some people become disturbed if their portfolio behaves very differently to the market they see discussed on the news.

Personally, I regard the FTSE as rather bad regards sector diversity, so I actively reduce my UK holdings but will admit that I am at about double the (from memory) 8% the global market cap would suggest.

HUMBUG

IMHO after wasting about 10 years investing in share ISA's and losing thousands (believing all the hype from financial gurus at the time), I do think a crash is imminent. Not because I believe anyone in the upper echelons of the financial world (as most try to manipulate people's money in a way that is advantageous to themselves), but because of allowing banks to refinance themselves with cheap money (ie. quantitative easing , funding for lending). So banks needed money to balance their books, so they couldn't lend to businesses , growth dies , businesses fail, people lose their jobs, money no longer being spent, reduced taxes for the government, public money slashed, poorer standard of living , people vote government out . Government thinks "what can we do to retain power" and keep our financial mates happy? Hey, we'll print or loan money to the banks (at vastly lower interest rates). Then they can lend to businesses and people who want mortgages at higher interest rates. They won't need to offer regular savers high interest rates anymore so the rates plunge. People then move their money to the stock market and 'hey presto' the market starts to get pushed artificially high (ie. a buyers market because people all want to buy shares now). The market is high not because the businesses are making vast profits but because of consumer demand. So again (IMHO) there is going to be one almighty crash looming when QE and 'Funding for lending' stops and the chickens 'come home to roost'. What the latter is doing is just deferring the inevitable for political reasons alone.
I am tempted to put quite a bit of money temporarily in a 'Fidelity Funds Network Cash Fund' so that I can easily invest in low cost tracker funds once the crash has happened.

ChesterDog

But the market (US aside) isn't 'high'.

Ryan_Futuristics

gadgetmind wrote: »

Well, for bonds it avoids currency risk or hedging costs. For equities, the only argument I've seen brought forwards is that some people become disturbed if their portfolio behaves very differently to the market they see discussed on the news.

Personally, I regard the FTSE as rather bad regards sector diversity, so I actively reduce my UK holdings but will admit that I am at about double the (from memory) 8% the global market cap would suggest.

Nice answer here
http://canadiancouchpotato.com/2012/05/22/ask-the-spud-does-home-bias-ever-make-sense/

Basically same as bonds, it reduces currency risk, it's usually cheaper to own local stocks/funds, and better tax treatment

I think in the optimal equities portfolio, taking exchange rate volatility into account, most people are only about 20% over where they should be for home country bias ... I'm 30% UK, but consider that slightly underweight

Ryan_Futuristics

HUMBUG wrote: »

IMHO after wasting about 10 years investing in share ISA's and losing thousands (believing all the hype from financial gurus at the time), I do think a crash is imminent. Not because I believe anyone in the upper echelons of the financial world (as most try to manipulate people's money in a way that is advantageous to themselves), but because of allowing banks to refinance themselves with cheap money (ie. quantitative easing , funding for lending). So banks needed money to balance their books, so they couldn't lend to businesses , growth dies , businesses fail, people lose their jobs, money no longer being spent, reduced taxes for the government, public money slashed, poorer standard of living , people vote government out . Government thinks "what can we do to retain power" and keep our financial mates happy? Hey, we'll print or loan money to the banks (at vastly lower interest rates). Then they can lend to businesses and people who want mortgages at higher interest rates. They won't need to offer regular savers high interest rates anymore so the rates plunge. People then move their money to the stock market and 'hey presto' the market starts to get pushed artificially high (ie. a buyers market because people all want to buy shares now). The market is high not because the businesses are making vast profits but because of consumer demand. So again (IMHO) there is going to be one almighty crash looming when QE and 'Funding for lending' stops and the chickens 'come home to roost'. What the latter is doing is just deferring the inevitable for political reasons alone.
I am tempted to put quite a bit of money temporarily in a 'Fidelity Funds Network Cash Fund' so that I can easily invest in low cost tracker funds once the crash has happened.

Usually we only get severe crashes following a period of irrational exuberance - and although US valuations are approaching dangerous territory, we haven't really had that ... Investors have generally been skittish and cautious

I'd rather we had a crash so we do get buying opportunities - but my worry is more that it'll play out in slow motion (with the US still purchasing $billions in stealth QE, and Japan and potentially Europe joining in), and we may have a prolonged era of sideways or down-trending markets

That's just my pessimism - but it's why I'm going long on active funds (which have the potential to maintain income and growth through unspectacular conditions) and putting more of my portfolio into value and momentum strategies (which seek to gain off market inefficiencies, rather than sticking money in trackers which assume we'll see a return to global growth) ... I think we're entering into global divergence

AlanP_2

edinburgher wrote: »

My understanding was that these funds were based on market capitalisation. The US is the largest economy in the world, in an attempt to own the market, you would assume that you have larger holdings in their S&S. I can't see how this is 'bias'. Whether we like it or not, the US drives a huge proportion of global economic activity.

I see quite a few posts on this forum effectively suggesting that having a local bias is a good thing. Unless you have a crystal ball, I can't see why...

I'm sure Market Cap comes into it somewhere but cannot see a relationship between UK at 20% when it is about 8% of world market cap.

I suppose I meant it was a much higher US allocation than I would ideally like so I have diluted it with other non-US funds.

AlanP_2

Ryan_Futuristics wrote: »

Nice answer here
http://canadiancouchpotato.com/2012/05/22/ask-the-spud-does-home-bias-ever-make-sense/

Basically same as bonds, it reduces currency risk, it's usually cheaper to own local stocks/funds, and better tax treatment

I think in the optimal equities portfolio, taking exchange rate volatility into account, most people are only about 20% over where they should be for home country bias ... I'm 30% UK, but consider that slightly underweight

I'm aiming for much lower than that at about 23%.

As I said earlier Active Decisions implemented via Passive Funds.

gadgetmind

HUMBUG wrote: »

10 years investing in share ISA's and losing thousands (believing all the hype from financial gurus at the time),

Well, I've been investing for a few decades, and have multiplied my investments many fold during that time. I have achieved this mainly by ignoring all of the "end is nigh" merchants and financial "gurus".