Asset Allocation

TheTracker

dunstonh wrote: »

Your level is very high risk. REITS, EM and Commodities are all at the extreme high risk end of the scale when it comes to UT/OEIC funds. You could be in for one hell of a rollercoaster ride.

I have been advising for over 20 years and not had one person with a risk profile that high.

VLS100UK is 8% EM so the quoted portfolio is

Developed World Equities - 62%, SmallCap - 10%, Property - 10%, EM - 13%, Commodities - 5%

This isn't massively different from Tim Hale's 100% equities model portfolio:

Developed World Equities - 55%, SmallCap - 15%, Property - 10%, EM - 10%, Commodities - 10%

Tim Hale's model portfolios are built on MPT/CAPM to provide the best return for a given risk appetite. His calculations show a long term return of 6.3% above inflation with a risk/volatility of 19%. Very risky, to be sure, but the arithmetically best fit model for 100% equity exposure. He calculates the portfolio would have lost 20% in 2008.

If anything, the quoted portfolio is dialled down from Hale's.

So I'm extremely intrigued: what would a DustonH 100% Equity portfolio look like?

Anticipating a "more cautious set of funds/allocation", theory has it one should dial down the total level of equities instead. Indeed, the other model portfolios do just that, maintaining the above proportions inside the equity allocation.

I'm yet to read your book about 20 years of experience (maybe you could have written one instead of 80,000 forum posts). So for now I'll stick with Mr Hale and the scientific evidence in his book.

darkidoe

colsten wrote: »

My recommendation would be that you don't try to create your portfolio based on portfolios other people have. Especially if those other people are total strangers on the internet.

I know there is no one size fits all portfolio, if there was one, Lifestrategy would be it. I am just looking for some ideas on how to build mine. My idea is for it to be simple and easy to rebalance.

Archi_Bald

You seem to suggest that diversification means you have no equities, and if you have equities, you can't have any diversification.

Can you elaborate on that as it makes no sense to me.

Also, who suggested that you should not invest in equities?

dunstonh

So I'm extremely intrigued: what would a DustonH 100% Equity portfolio look like?

I dont create my own allocations. I pay for that research and data.

Tim Hale's model portfolios are built on MPT/CAPM to provide the best return for a given risk appetite. His calculations show a long term return of 6.3% above inflation with a risk/volatility of 19%. Very risky, to be sure, but the arithmetically best fit model for 100% equity exposure. He calculates the portfolio would have lost 20% in 2008.

If anything, the quoted portfolio is dialled down from Hale's.

Sod Tim Hale. Risk doesnt change because Tim Hale says so. The risk rating of that spread quoted is speculative and way above the typical UK investor by a long way.

I'm yet to read your book about 20 years of experience (maybe you could have written one instead of 80,000 forum posts). So for now I'll stick with Mr Hale and the scientific evidence in his book.

I will stick to the scientific evidence used in my allocations. However, I fail to see how your messiah has got anything to do with this. That spread is very very high risk by anyones book. Even the book by the one you worship.

Rollinghome

A far better way is to look at assets in the round. Simply knowing what they have as "investments" is of limited value. None of the posters say what they have as cash, index-linked pensions, equity in their homes or other assets: not to mention their ages or responsibilities. Are they talking hundreds of thousands or just a few month's salary?

75% of all assets, in equities of whatever form at 65 is very high risk. A portfolio of 100% very high risk equities but which forms only a small part of the assets of a younger person may carry minimal risk.

It's the overall risk that counts, not the particular risk of just one catorgory of assets, share, or investment.

Superscrooge

darkidoe wrote: »

I know there is no one size fits all portfolio, if there was one, Lifestrategy would be it. I am just looking for some ideas on how to build mine. My idea is for it to be simple and easy to rebalance.

As per your quote. If you are looking for something simple and easy to rebalance then one of the lifestrategy funds is probably your best option.

Whilst I'm also a fan of passive investing I've taken a slightly different route by investing in Fidelity's range of low cost index trackers which gives me more flexibility with each years ISA to decide which market region to invest in rather than just investing each year into the same 'world index tracker'. Whether this strategy is any better than a simple lifestrategy fund is debatable.

Some years it has worked to my advantage such as 2013 when I invested my ISA in US Index tracker which just happened to be the top performing major stock market that year. 2014 I chose Japan which turned out to be another excellent choice. This year I chose Europe. Not looking too good at the moment! although to be fair it's performance is no worse than if I'd added to my UK tracker.

https://www.fidelity.co.uk/investor/tracker-funds/our-range.page

webnibbler

dunstonh wrote: »

Your level is very high risk. REITS, EM and Commodities are all at the extreme high risk end of the scale when it comes to UT/OEIC funds. You could be in for one hell of a rollercoaster ride.

I have been advising for over 20 years and not had one person with a risk profile that high.

Thanks Dunstonh, appreciate the candid feedback. I was aware that it is high risk, but perhaps not to that extent.

I am looking to dial down the risk over the next few years, but in light of what you said I may start that sooner!

I have around 25 years before I need to draw this money and it will certainly need to be a lower risk spread by then.

darkidoe

Superscrooge wrote: »

As per your quote. If you are looking for something simple and easy to rebalance then one of the lifestrategy funds is probably your best option.

Whilst I'm also a fan of passive investing I've taken a slightly different route by investing in Fidelity's range of low cost index trackers which gives me more flexibility with each years ISA to decide which market region to invest in rather than just investing each year into the same 'world index tracker'. Whether this strategy is any better than a simple lifestrategy fund is debatable.

Some years it has worked to my advantage such as 2013 when I invested my ISA in US Index tracker which just happened to be the top performing major stock market that year. 2014 I chose Japan which turned out to be another excellent choice. This year I chose Europe. Not looking too good at the moment! although to be fair it's performance is no worse than if I'd added to my UK tracker.

https://www.fidelity.co.uk/investor/tracker-funds/our-range.page

I might be committing a passive investor sin, but I feel lifestrategy doesn't give you any scope to be 'active' in the process. Having to pick and choose funds to build up a portfolio will probably let me learn along the journey. I am probably falling into the trap of 'passive can be boring.'

dunstonh

Thanks Dunstonh, appreciate the candid feedback. I was aware that it is high risk, but perhaps not to that extent.

If you took a typical 1-10 scale (1 being cash) then you would be at 10. However, do note the other comments about it being relative to the amount of cash you hold. £10,000 in invested in equities with £90k in cash means the risk is significantly diluted. Whereas 90k in equities is not.

Ideally, you would have cash, fixed interest, property and equities and balance it out to risk profile but also capacity for loss (can you afford to take that risk.

Finally, risk is diluted by time. However, remember to phase the risk down as time goes by.

webnibbler

dunstonh wrote: »

If you took a typical 1-10 scale (1 being cash) then you would be at 10. However, do note the other comments about it being relative to the amount of cash you hold. £10,000 in invested in equities with £90k in cash means the risk is significantly diluted. Whereas 90k in equities is not.

Very helpful.

I'm going to look at increasing my allocation to cash (minimal at present) and fixed interest off the back of this.

dunstonh wrote: »

Ideally, you would have cash, fixed interest, property and equities and balance it out to risk profile but also capacity for loss (can you afford to take that risk.

By property I'm guessing you mean residential rather than any more allocation to commercial REITs? Having a mortgage free property means quite a bit of our assets are in residential already.

Thanks again.