24Y - Passive Investment Plan - Comments/Advice

sadhu99

Please see to end of post for update portfolio

Hey everyone,

First post here! Just graduated (as a dentist), and I've taken an interest in investing which I've followed up with lots of reading both online and in books. Thought I'd share my investment plan and would be very grateful of any advice/comments you'd have for me.

Aim
Create a diversified portfolio of index-tracking funds with a focus on minimising costs (inc. tax), and operate a pound cost averaging strategy with monthly payments.

Platform
Initially in an S&S ISA with Cavendish Online (0.2% platform fee with no buying/exit fees), transferred to iWeb ISA at £30K (with a yearly lump sum strategy for purchases).

Purchases
£500pm - With an investment horizon of 30 years. (I hope to be able to invest much closer if not over the 15K ISA allowance as my career progresses.)

Funds
%Portfolio - Fund Name (OCF%)

50% - Vanguard Life Strategy 80% Equity Acc (0.24%)
20% - Vanguard FTSE Developed World Ex UK Acc (0.15%)
5% - Vanguard Global Small-Cap Index Acc (0.28%)
5% - Fidelity Index UK Fund P Acc (0.07%)
5% - HSBC FTSE 250 Index C Acc (0.17%)
2.5% - BlackRock Emerging Markets Equity Tracker D Acc (0.26%)
5% - BlackRock Global Property Securities Equity Tracker D Acc (0.23%)
5%- Vanguard UK Government Bond Index Acc (0.15%)
2.5%- Vanguard UK Inflation Linked Gilt Index Acc (0.15%)

Average OCF%= 0.21% (+0.2% Platform Fee)

Approximate Projected Earnings
With a switch from Cavendish Online --> iWeb after 4 years, at a projected return of 7% P.A (figures from compare fund platforms)
4 years- £27,502
10 years- £84,983
15 Years- £154,581
20 Years - £252,194
25 Years - £389,102
30 Years - £581,122

Other Points
The reason I chose to include the Vanguard LifeStrategy 80% is for further diversification, which is captured to an extent in the section below titled 'sectors'.

Sectors
• Global Equity – 52.5%
o Vanguard FTSE Developed World ex. UK – 20%
o Vanguard Global Small-Cap – 5%
o Vanguard LifeStrategy – 27.5%

• UK Equity – 20%
o Fidelity Index UK – 5%
o HSBC FTSE 250 – 5%
o Vanguard LifeStrategy – 10%

• Emerging Markets – 5%
o BlackRock Emerging Markets – 1.75%
o Vanguard LifeStrategy- 3.25%

• Global Property – 5%
o BlackRock Global Property Securities- 5%

• Bonds – 17.5%
o Global Government Bonds – 7%
• Vanguard LifeStrategy – 7%
o Corporate Bonds- 0.75%
• Vanguard LifeStrategy – 0.75%
o UK Government Bonds – 6%
• Vanguard UK Government Bond – 5%
• Vanguard LifeStrategy- 1.5%
o UK Inflation-Linked Bonds – 3.25%
• Vanguard UK Inflation-Linked Gilt – 2.5%
• Vanguard LifeStrategy- 0.75%

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I apologise for the lengthiness of this post, but I hope the member base of this forum find such a post interesting to read, and I look forward to reading your comments!

EDIT

With the advice received this is where my portfolio now stands:

Funds
40% - Vanguard FTSE Developed World Ex UK Acc
10% - Vanguard Global Small-Cap Index Acc
10% - Fidelity Index UK Fund P Acc
10% - HSBC FTSE 250 Index C Acc
10% - BlackRock Emerging Markets Equity Tracker D Acc
10% - BlackRock Global Property Securities Equity Tracker D Acc
5%- Vanguard UK Government Bond Index Acc
5%- Vanguard UK Inflation Linked Gilt Index Acc

Average OCF= 0.16% (+0.2% Platform fee)

dunstonh

Are you aware that your property allocation is high risk property share and not lower risk bricks and mortar. This effectively means the 5% you have allocated to property is not actually property but is high risk specialist.

Why have you gone so UK heavy?

Could you not access the cheaper blackrock funds on your chosen platform?

reate a diversified portfolio of index-tracking funds with a focus on minimising costs (inc. tax), and operate a dollar cost averaging strategy with monthly payments.

Are you based in the UK? Your comment above suggests you are not. In the UK we do not use the dollar and funds do not suffer internal taxation as they do in the US (one of the reasons managed funds fair better in the UK than the US where they do suffer internal taxation and why using US research doesnt work for UK).

sadhu99

Are you based in the UK? Your comment above suggests you are not. In the UK we do not use the dollar and funds do not suffer internal taxation as they do in the US (one of the reasons managed funds fair better in the UK than the US where they do suffer internal taxation and why using US research doesnt work for UK).

Thank you for your reply dunstonh. With regards to the quoted text, I'm based in the UK, should've just stuck to saying 'regular savings' or 'monthly payments' or even 'pound-cost averaging' rather than dollar. By reducing tax I meant keeping everything in an ISA.

Are you aware that your property allocation is high risk property share and not lower risk bricks and mortar. This effectively means the 5% you have allocated to property is not actually property but is high risk specialist.

Ah, this is very interesting, would you be able to explain further what you mean by a high risk specialist rather than bricks & mortar? My rationale for including global property was that they are relatiely not as correlated to other classes of equity. Does the fund I chose not follow global property prices? Any more advice/information you can provide on this would be appreciated.

Could you not access the cheaper blackrock funds on your chosen platform?

These were the very cheapest funds I could find from blackrock in emerging markets and global properties, but from what you wrote there it sounds like there are cheaper out there.

steelbru

Your funds add up to 110% rather than 100% so you've mis-typed something somewhere :-)

dunstonh

Ah, this is very interesting, would you be able to explain further what you mean by a high risk specialist rather than bricks & mortar? My rationale for including global property was that they are relatiely not as correlated to other classes of equity. Does the fund I chose not follow global property prices? Any more advice/information you can provide on this would be appreciated.

The fund you have invests in property shares. Not actual property. So, performance will be related to the stockmarket and how property companies perform rather than the actual property.

Bricks and mortar funds actually own the property and have no stockmarket element.

Funds which invest in a specific area of the stockmarket tend to be highly volatile and high risk and treated as specialist. e.g. Bio, Tech, Financials, Property share.

By selecting that fund, you have increased the volatility risk rating of your portfolio rather than reduce it which is what bricks and mortar funds would have done.

Does the fund I chose not follow global property prices?

No.

These were the very cheapest funds I could find from blackrock in emerging markets and global properties, but from what you wrote there it sounds like there are cheaper out there.

Blackrock have a 0.1x% range. I think, from memory, they are class L. Not all platforms offer the lower charged ones.

sadhu99

Your funds add up to 110% rather than 100% so you've mis-typed something somewhere :-)

Thank you, edited to the correct fund allocation (there was 10% too much UK equity)

The fund you have invests in property shares. Not actual property. So, performance will be related to the stockmarket and how property companies perform rather than the actual property.

Bricks and mortar funds actually own the property and have no stockmarket element.

Funds which invest in a specific area of the stockmarket tend to be highly volatile and high risk and treated as specialist. e.g. Bio, Tech, Financials, Property share.

By selecting that fund, you have increased the volatility risk rating of your portfolio rather than reduce it which is what bricks and mortar funds would have done.

Thank you for that information, I will read further into it and see if I can adjust the allocation towards property in my portfolio.

kangoora

As a dentist presumably you are going to hit higher rate tax at some point. It would be worth considering diverting salary over £42,386 into a pension (you could even use the same proportions for investments) to recover the 40% tax in your pension. Just putting it into an ISA means it is post-tax cash and you will have paid 40% tax on it.

This depends on if you don't 'need' that cash.

sadhu99

As a dentist presumably you are going to hit higher rate tax at some point. It would be worth considering diverting salary over £42,386 into a pension (you could even use the same proportions for investments) to recover the 40% tax in your pension. Just putting it into an ISA means it is post-tax cash and you will have paid 40% tax on it.

Thanks for the reply, yes I agree with that, and plan to set aside a proportion of my earnings towards a SIPP.

masonic

sadhu99 wrote: »

50% - Vanguard Life Strategy 80% Equity Acc (0.24%)
20% - Vanguard FTSE Developed World Ex UK Acc (0.15%)
5% - Fidelity Index UK Fund P Acc (0.07%)
5%- Vanguard UK Government Bond Index Acc (0.15%)
2.5%- Vanguard UK Inflation Linked Gilt Index Acc (0.15%)

I'm not sure I understand why you would hold both VLS and the overlapping trackers below it. If you are trying to adjust your asset allocation vs. VLS, then wouldn't it be simpler to do so just through the other trackers? The only significant component you don't already have an overlapping fund is the global bond index and arguably that could be left out.

In_For_A_Penny_2

sadhu99 wrote: »

Thanks for the reply, yes I agree with that, and plan to set aside a proportion of my earnings towards a SIPP.

As a dentist in the UK do you not pay into the NHS pension?

Not what it was but still generous.

dunstonh

masonic wrote: »

I'm not sure I understand why you would hold both VLS and the overlapping trackers below it. If you are trying to adjust your asset allocation vs. VLS, then wouldn't it be simpler to do so just through the other trackers? The only significant component you don't already have an overlapping fund is the global bond index and arguably that could be left out.

To be honest, if you are going to hold single sector funds that need rebalancing then you may as well go the whole hog and save yourself another 0.1% p.a. Mixing single sector and multi-asset with no rationale doesnt make a lot of sense, as you say.