simple passive investment - is this OK?

masonic

omnirife wrote: »

I am a bit frightened of selling my LS fund in order to make the jump into individual funds, in case I somehow end up loosing money somehow.

Savings of 0.06% could easily take a few years to cancel out the loss of the market moving against you during the fund switch, not to mention the fact that the Vanguard bond fund you've selected has a dilution levy (and you've already paid one of those when you bought into LS). While you are content to hold trackers in roughly the same proportions as your LS, it doesn't seem worth changing. There isn't any flexibility to make changes to your allocation over time, though, so the time to change over to separate holdings would be the time you need that flexibility.

collingbone614

masonic wrote: »

Savings of 0.06% could easily take a few years to cancel out the loss of the market moving against you during the fund switch, not to mention the fact that the Vanguard bond fund you've selected has a dilution levy (and you've already paid one of those when you bought into LS). While you are content to hold trackers in roughly the same proportions as your LS, it doesn't seem worth changing. There isn't any flexibility to make changes to your allocation over time, though, so the time to change over to separate holdings would be the time you need that flexibility.

Thank you, that's a helpful post.

Ultimately, over time, I will want to reduce my exposure to equities and increase bond holdings. So that I end up "lifestyling" them in line with my age.

To do that I could take the edinburgher route and just buy a second LS fund, then just skew them as appropriate. As per this.

Or buy the individual funds as per my above post.

The question is whether it's best to take that plunge now or leave it til later. I'm 28, earning 23k per annum pre-tax, saving just over £400 per month into S&S ISA.

(Sorry for derailing the thread slightly but it seems like it is still bearing information that will be helpful to the OP.)

Ryan_Futuristics

But omnirife's is a much better suggestion if you want to build the portfolio over a period of years, buying what's reasonable value at the time

e.g. Right now you'd be buying Europe, UK and Emerging Markets, and you could buy Vanguard's new short-term bond index (rather designed for this environment - in which regular bond funds are extremely vulnerable)

It's all very well convincing yourselves of the marginal low-fee benefits of passive investing, but buying US equities and bonds at some of the worst valuations in 30 years isn't in any 'Smarter Investing' handbooks I've ever seen

TheTracker

Ryan_Futuristics wrote: »

Just to play devil's advocate ...

Passive investing's good if you think the global economy's likely to keep growing

[Load of drivel cut]

Investing's good if you think the global economy's likely to keep growing.

Passive investing's good if you consider it worth investing.

In your inimitable style, you say passive investing is good if you think the economy will grow, inferring that in uncertain times passive investing is best avoided for the sure hands of an active fund manager. Load of pish posh. There is no evidence (or indeed mathematical possibility) that active fund managed money performs better as a whole than passive trackers during downtimes, despite the canard you oft repeat about being able to strategically "rotate".

I'll now ready myself for an RF chart to follow.

TheTracker

Ryan_Futuristics wrote: »

It's all very well convincing yourselves of the marginal low-fee benefits of passive investing, but buying US equities and bonds at some of the worst valuations in 30 years isn't in any 'Smarter Investing' handbooks I've ever seen

You must have skipped those pages. Tim Hale's Smarter Investing discusses valuation including the historical high valuation of US stocks and explains there may be some merit in taking it into consideration when constructing your asset allocation. Further, he goes on to explain how one may exploit any value premium (if it is real) through value tilts in ones portfolio. Not sure why you have it so hard in for TH, his book is first and foremost about asset allocation not passive investing.

Constructing your entire portfolio around CAPE however does seem peculiar to me and he doesn't cover such a creature in his book. Nor do many authors.

masonic

omnirife wrote: »

The question is whether it's best to take that plunge now or leave it til later. I'm 28, earning 23k per annum pre-tax, saving just over £400 per month into S&S ISA.

It certainly doesn't make any sense to make any new contributions into the LS fund if you don't plan to keep it long term. You could start diverting new money into separate trackers and at some point start switching from LS into those funds in tranches during periods of low market volatility in order to minimise any losses.

masonic

TheTracker wrote: »

Not sure why you have it so hard in for TH, his book is first and foremost about asset allocation not passive investing.

Perhaps I'm mistaken, but Ryan's post read to me as one occasion where he wasn't attributing any evils to TH's book.

Ryan_Futuristics

TheTracker wrote: »

Investing's good if you think the global economy's likely to keep growing.

Passive investing's good if you consider it worth investing.

In your inimitable style, you say passive investing is good if you think the economy will grow, inferring that in uncertain times passive investing is best avoided for the sure hands of an active fund manager. Load of pish posh. There is no evidence (or indeed mathematical possibility) that active fund managed money performs better as a whole than passive trackers during downtimes, despite the canard you oft repeat about being able to strategically "rotate".

I'll now ready myself for an RF chart to follow.

Well as far as "mathematical possibility" goes, simply holding 10% in cash would ensure even a closet tracker 'active' fund would do better in a bear market ... Think about what you're saying

Ryan_Futuristics

The fact managed funds often hold more in cash and alternative assets (bonds, REITs, foreign equities) means they probably shouldn't be compared to pure equities indexes

e.g. If a fund hold 5% in property, it should probably be compared to a 95% equities index and a 5% property index

On the same note a Vanguard LS 80 fund shouldn't be compared to the straight S&P 500: it will appear both a poorer performer, and more expensive

Making our benchmarks more consistent - by categorising them by investment style, active share, fees, etc. can paint a much clearer picture .. and might not support out 'efficient market' ideas quite so well

A favourite chart showing Vanguard's own active funds consistently outperforming their indexes, and cheap actives in general doing the same



So if markets aren't efficient, who loses?

The typical investor still loses ... Whether stock picker or buy-and-hold ETF investor, the typical investor returns FAR short of the market ... 80/20 rule, 20% of the market makes 80% of the returns ... Don't be in the herd - it will eventually take you down a cliff face

masonic

Ryan_Futuristics wrote: »

Don't be in the herd - it will eventually take you down a cliff face

Well the herd, in terms of the chart above, will be lumped into the expensive active camp. I don't think there's any danger of your current audience falling into that trap.

What's interesting from that chart is that the results from 'other' cheap actives does not appear materially better than passives, even after the expensive active funds have been removed. I'd be pretty disappointed if the active funds I hold were ranked in the same decile as passive funds, like the chart seems to suggest, but it is probably because we are looking at the average cheap active fund. In fact, you are normally the first to take issue with people comparing the average managed fund to trackers, with the average active fund pretty much constituting the market the passive funds are tracking.

The chart does raise the question: what exactly are these Vanguard Active funds? I'd be inclined to think these are something along the lines of the smart-beta products that are starting to emerge here. I'd suggest whether or not these really should be called active or passive is a moot point. The reason they are outperforming the other active funds in aggregate is likely down to lower charges and lower portfolio turnover. But nobody is going to go out and buy the available funds universe in aggregate, so I don't see the point of the comparison.