Portfolio Review

Futuristic

I've been reading up on Monevator lately and I am in a position to invest excess income for at least 5 years, most if not all interest accounts have already been covered should I need emergency cash. I am young (<25) with no cash issues, will be eventually looking for a home in 5+ years time.

I am looking at income portfolio and was looking to do something like Rick Ferri's "core four" portfolio.

Domestic equity 36% - Vanguard FTSE U.K. Equity Income Index Fund Inc
Developed world 18% - Vanguard FTSE Developed World ex-U.K.Equity Index Fund Inc
Property 6% - BlackRock Global Property Sec Eq Tracker Class D Inc
Government bonds (Gilts) 40% - Vanguard U.K. Government Bond Index Inc

I have £10k to put into S&S ISA immediately and will have the same next year to put in.

Thanks

jimjames

The only question I'd ask is why you are looking at an income portfolio when you're 25 and not looking for income? Apart from that it seems a sensible idea to branch out into investments for some money.

Futuristic

jimjames wrote: »

The only question I'd ask is why you are looking at an income portfolio when you're 25 and not looking for income? Apart from that it seems a sensible idea to branch out into investments for some money.

I was thinking of reinvesting the income in which case it's probably better to go with the accumulation funds assuming the chosen funds are ok for I assume 5-8 years (short term) investment.

Also noticed just now the Vanguard FTSE U.K. Eq Income Index has a 0.40% buy charge so not sure if there's any good alternatives for it as well

Sam_J12

A few thoughts:

1) There is a heavy bias towards UK stocks, which is not a terrible thing as long as you are sure you want this, but investing in a UK all-share fund will give a heavy bias to the FTSE 100 which has not performed well for a long time. I would much prefer investing in a FTSE 250 tracker for any UK exposure.

2) Consider using ETFs, as these will generally be cheaper than mutual funds - in particular because platforms exist where this is no % fee for holding ETFs. There will be commission charged on purchases though but ETFs can still work out cheaper, especially for larger sums. I would certainly choose ETFs on a platform with no fee for the initial £10k.

3) If you are looking to buy a home in around 5 years time then any investment in shares is a bit of a gamble. It is possible you may have to delay buying a home for while longer than anticipated if there is a market downturn. Consider increasing your bond exposure closer to the time of purchasing your home.

TheTracker

Instead of
36% Vanguard FTSE U.K. Equity Income Index Fund Inc
18% Vanguard FTSE Developed World ex-U.K.Equity Index Fund Inc

I'd expect to see
36% Vanguard FTSE Dev World ex-UK Equity Index
18% Vanguard FTSE UK All Share Index Trust

But maybe you have your reasons.

I'd be happy with a simple portfolio of the two above, plus the other two (property, gov bonds) for my portfolio. Mine isn't dissimilar - less home bias, value and small cap tilts, and p2p exposure.

BLB53

Keep it simple - Vanguard Lifestrategy 60 (acc) - globally diverse, low cost, no dilution levy, auto rebalance.

(Recent article on Monevator http://monevator.com/using-vanguard-lifestrategy-funds-life/).

bigadaj

Agree with most of the above, though the big thing that jumps out is the uk bond allocation to me.

Whilst this is a potentially shirt term investment over five years or so, this does look an odd choice for someone in their twenties.

In fact it looks odd for a heavy bond allocation for most people, little potential for upside I'd prefer to stay in cash if a large cash or bond allocation is required and play the current account game for that portion of the sum.

Sam_J12

bigadaj wrote: »

Agree with most of the above, though the big thing that jumps out is the uk bond allocation to me.

Whilst this is a potentially shirt term investment over five years or so, this does look an odd choice for someone in their twenties.

In fact it looks odd for a heavy bond allocation for most people, little potential for upside I'd prefer to stay in cash if a large cash or bond allocation is required and play the current account game for that portion of the sum.

I think the bond (or cash) allocation makes sense if he will need the money in around 5 years for a house deposit. I guess it depends how flexible he is with house buying - if he is willing to gamble and prepared to buy a house later then a 100% equity allocation gives the highest expected return. Otherwise I think 40% bonds/cash (or more) makes sense.

bigadaj

Sam_J12 wrote: »

I think the bond (or cash) allocation makes sense if he will need the money in around 5 years for a house deposit. I guess it depends how flexible he is with house buying - if he is willing to gamble and prepared to buy a house later then a 100% equity allocation gives the highest expected return. Otherwise I think 40% bonds/cash (or more) makes sense.

Understand the reasoning behind reducing volatility but I wouldn't have it in gilts in any case.

TheTracker

I'd missed the Rick Ferri call out. I'm a fan of RF and his books. He speaks major sense. But you can't just transplant a foreign strategists model portfolio to local shores verbatim or by switching the origin country. The reason it makes sense for a US investor to hold 2:1 domestic:international equity is that the US is already 60% of the world market. It's a fair world market allocation, in fact nearly all local markets (including US) have a home bias when you look at real allocations. So for a UK investor you would translate RFs portfolio by copying his allocation of US:Intl, rather than transposing it to UK:Intl. The UK is less than 10% of the world market. If you want home bias, then uk:intl of 1:2 is plenty, though 1:1 is seen commonly too.

On the fixed front, I too would max out safe but higher rate options before gilts. Such as High Interest current accounts, particularly if you will eventually need the money for a house.

Futuristic

TheTracker wrote: »

On the fixed front, I too would max out safe but higher rate options before gilts. Such as High Interest current accounts, particularly if you will eventually need the money for a house.

I have maxed out all available interest accounts currently, my santander 123 has also enough to feed out to the regular savers with high interest for the next year as well my normal expenditure so that amount sitting in there in addition to this £10k I have completely free is already sitting doing nothing.

Bar this what suggestion(s) would you guys have for the 40% Bond replacement?