Advice on ISA Holdings

Spurs_2015

I'm after a bit of advice on my investments in a stocks and shares ISA, I currently have a VLS60 Acc which I bought a few months ago with a £500 lump sum and I'm transferring £200 monthly. I am also looking to add some more funds which I wish to start with £500 and put between £150-£200 in monthly the ones I like the look of are JP Morgan US Smaller Companies Acc and Vanguard Emerging Markets Acc.

Please let me have your thoughts on adding these to my portfolio, thanks.

bigadaj

Investing is all about personal opinion and choice so it's up to you.

However this will make your portfolio (do you have savings or investments elsewhere?) very biased towards smaller companies. This would have a volatile and high risk feel to it, with smaller companies making up nearly half your investments, and most of this in the us.

The other problem is that lifestrategy is multi asset and auto rebalancing, which means that the other funds won't match this in terms of allocations or self correcting.

Best to determine the make up you want in terms of asset types, geography, comoany size and sector etc and then work out how you get there.

You can set up a fre account with typical sums and funds which will show you how your current or proposed investments look, should be illuminating.

Spurs_2015

That's a big help thanks! I have a small sum in a cash ISA (£3000) but no more than that as the interest is terrible however it is instant access so it's worth keeping. I think I need more exposure to larger companies possibly a FTSE 250 tracker.

Flobberchops

Good ol' Burton Malkiel (A Random Walk Down Wall Street) recommends whole-market tracker funds - not *just* S+P 500 / FTSE 100 / etc - to achieve easy diversification and almost guaranteed long-term gains. Something like a FTSE 250 tracker paired with the smaller markets tracker should achieve that nicely.

Eco_Miser

Spurs_2015 wrote: »

I have a small sum in a cash ISA (£3000) but no more than that as the interest is terrible however it is instant access so it's worth keeping.

Unless you've already got around £50k in current accounts, it's not worth keeping the ISA. Tesco would pay you 3% AER, TSB 5% AER on the first £2000 etc. https://forums.moneysavingexpert.com/discussion/5374614

Spurs_2015

Eco_Miser wrote: »

Unless you've already got around £50k in current accounts, it's not worth keeping the ISA. Tesco would pay you 3% AER, TSB 5% AER on the first £2000 etc. https://forums.moneysavingexpert.com/discussion/5374614

I have been thinking about this for while now due to the dismal interest rates on ISA's currently so I will do this also thanks.

Spurs_2015

Flobberchops wrote: »

Good ol' Burton Malkiel (A Random Walk Down Wall Street) recommends whole-market tracker funds - not *just* S+P 500 / FTSE 100 / etc - to achieve easy diversification and almost guaranteed long-term gains. Something like a FTSE 250 tracker paired with the smaller markets tracker should achieve that nicely.

Thanks, would a smaller companies fund from the US or UK be a good option for this?

bowlhead99

In post #1 you said you already had VLS60 at £200pm. VLS60 is 60% large companies from all over the world, including emerging markets, and 40% bonds. So £120pm into equities and £80 into bonds.

You said you were considering improving this by adding a new £200pm to include small companies just in the USA and more companies in emerging markets.

Obviously this increases risk - because if half your money was going to these pure equities funds you would be moving to 80% equities and 20% bonds instead of 60:40 as you are now.

It also makes your portfolio almost hilariously unbalanced because (assuming the new £200pm is equally split between the two new funds):

- you now have about a third of your £320 equities money going into emerging markets (£100 in the dedicated fund and about £8 in the VLS) which is a massive proportion compared to what most people are comfortable with for such markets;

- you will be piling on the exposure to North America (which at £50pm within the £200pm VLS was already the largest single component of your equities) without increasing the money to any other developed country; and

- of your North American exposure, two thirds of the money is small companies and one third large companies, while for the rest of the planet, zero is small companies and all is large companies.

So, that seems a good way to wreck the initially sensibly allocated and self-rebalancing allocations that you were going to get.

However as bigadaj says, it's all about personal choice and you might feel that the skewing to higher risk funds is what you want.

You then replied by saying you think you needed more exposure to larger companies possibly a FTSE250 tracker. A couple of things here.

Firstly, FTSE250 is single country, UK, and that country is less than a tenth of all available global equities. So it is not a very balanced thing to add to a portfolio that only has a few funds in it. If you had 20 funds to cover all size ranges in all major markets, then fine. For a £400pm portfolio with only two or three funds in it, it can only distort and skew your results away from the average that everyone else gets. But as bigadaj says, maybe you want that.

You say you would be adding it because you "need more exposure to larger companies". FTSE250 is usually thought of as mid size, perhaps "medium to large", so it is larger than the typical ones that you'd get in a smaller companies fund. A thought here is that if you don't wreck your allocations by putting so much in small companies fund in step 1, you perhaps don't need to buy another medium-to-large companies fund as step 2, because you won't need 'more exposure to large companies' because you already have 100% exposure to large companies.

But the idea of having your small companies fund be only USA and then your medium companies fund be only UK, when there are lots of other regions out there, is a little strange. What do you know that everyone else in the market doesn't?

Then Flobberchops mentions that a good recommendation is to try to cover 'whole of market' in a country rather than just the top sized companies that you're weighted towards in something like the VLS. In other words your portfolio is more rounded if you have medium and small companies in it across the countries in which you invest. That is the justification for using something like a 250 tracker and a small companies fund in some portfolios, which is something you had suggested.

But in the world, the main regions are North America, UK, Europe ex-UK, Japan, Asia ex-Japan, and Emerging. Your initial VLS fund put together by professionals covered large companies in all those areas. For you to then go around all those regions adding mid-size and small companies funds for each of them one at a time is going to require a lot of funds and a lot of ongoing monitoring and management to keep balancing them all up as they grow and shrink relative to each other. On a £400 pm portfolio it is not worth it. Use global funds. When flobberchops suggests to use a smaller companies tracker he/she is talking about a global one.

So, when you say "would a smaller companies fund from the US or the UK be a good option", the answer is neither. Either add US and UK and Europe and Asia, or do global. You might get a technically better return by using 4+ small companies funds run by specialist managers in individual regions but your portfolio is nowhere near large enough to bother with that.

richy999

My thoughts are that you are already have a reasonable diversification with the Vanguard Lifestyle fund and can't understand why you would want to skew that distribution towards small companies/emerging markets?

You already have exposure to large companies via your vanguard fund... if you want to increase your risk, why not switch to LS80 or LS100?

Spurs_2015

Thanks for the responses it's been a great help, as I kept reading about diversification all the time I think I had my mind set on trying to "diversify" even more without realising it would actually increase my risk by doubling up on sectors and countries.

Much appreciated.

Flobberchops

Spurs_2015 wrote: »

Thanks, would a smaller companies fund from the US or UK be a good option for this?

Yes, I believe so. For maximum diversification try to get some foreign exposure as well.