How to diversify / re-balance from a FTSE All-Share tracker fund?

MrMartyn

I have investments (within an ISA) in several different index tracker funds which cover the following regions & markets:

1) UK
2) US
3) Europe (ex UK)
4) Japan
5) Asia Pacific (ex Japan)
6) Emerging markets
7) Global small-cap

However, before I chose funds covering the above regions & markets, I was just investing in a FTSE All-share tracker. Consequently, about 80 percent of my total stockmarket investments are in the FTSE All-share. I'm now thinking that I should transfer some money out of that market and into my other funds to diversify ("re-balance" I suppose). But I'm not sure how/when is best to do it.

1) Should I wait until the FTSE All-share index is relatively high?
2) Should I do the whole transfer in one day or spread it via monthly drip-feed?
3) Is there anything else I should be considering that is relevant?

I tend to think that maybe I should do it in several stages (maybe quarterly for 2 years) to average out the good or bad luck I have in the relative levels of the various regions & markets I'm transferring from / to.

Part of me wants to keep the money in the FTSE All-share fund because when I started investing I was intending it to be "for the long term" (hopefully 20 years or more). Some of the money has been in that fund for 15 years but most of it I only invested in about the last 5 years.

I could just stop investing any new money into the FTSE All-share (except for dividends which are re-invested) and over the long term my other funds might catch up, but realistically I think it would take too long (I'm already in my 40's). Also, if the FTSE All-share happens to be relatively low and if I'm confident that it will rise in future, then it seems to make sense to keep investing in it. The one thing I like about the FTSE 100 & All-share is that they tend to have a reasonably good dividend yield (which I choose to re-invest). I know the FTSE 100 has had a pretty poor run since the peak of the dot-com boom (although maybe OK if dividends were re-invested), but then does that not make it more likely to have good performance in future (just based on the general cyclic nature of things)?

Is there any accepted wisdom about this sort of thing? I have done a quick search on the web for diversification but the info seemed more aimed at people who are just starting out (ie: they haven't got an existing investment that needs to be re-balanced). Perhaps I should be searching for "re-balancing" rather than "diversifying"?


Thanks.

Disclaimer: I am not an expert. My comments are my opinions only and should not be taken as advice. Any information I post may or may not be correct, and should therefore not be relied upon as fact. If you act on anything I post here you do so entirely at your own risk. I do not accept any liability.

AlanP_2

I can't definitively answer your question but I can understand it.

My initial thoughts are - Have you established what allocation you want across those sectors to give you a target as you diversify?

My second thought is based on a comment in a bool I read recently - Asset Allocation by Roger Gibson.

He is a US adviser, similar to an IFA over here I guess, and what he sets out is the process he uses as he takes his clients through their "investment journey".

One of the situations he considers is when a client has an existing portfolio when they come to him and it doesn't fit with the "going forward" portfolio he has developed with that client.

Despite the client seeing the logic of the diversified portfolio (which would include Bonds / Fixed Interest and Property in his usually) they are reluctant to sell what they have and buy something different.

In his experience they have an emotional (had these a long time, sorry to see them go) and / or a financial (don't want to sell a winner or lock in a loss) attachment to what they already have.

The way he addresses this is to ask:

If you had £xx (insert value of current portfolio) in CASH now would you buy what you currently hold?

If the answer is NO then why do you want to carry on with it when you wouldn't go and buy it today?

That might help frame your assessment of the best thing to do.

Final thought - Trying to judge when to move funds out of UK into EM sector for example is a skill few master as what you are trying to do is "time the market".

Linton

The individual world markets tend to rise and fall together as they are all exposed to the same global market. So I would simply go for the chosen allocation in one go. You may win, or you may lose. in the short term. Its impossible to tell. In the long term you should win it seems unlikely that the UK will be unusually successful compared with the US and the Far East.

My one caveat is Brexit. The markets could be jittery until that is resolved, and if the vote is to exit the FTSE could be badly hit, at least in the short term

weenie15

Or for real simplification, perhaps consider just one fund, ie the Vanguard 60% or 80% LifeStrategy Fund, which invests in:

Global Bond Index
Developed World ex-U.K Index
FTSE U.K. All Share Index
U.S Equity Index
U.K Government Bond Index
Developed Europe ex-U.K Equity Index
Emerging Markets Stock Index
U.K Investment Grade Bond Index
U.K. Inflation-Linked Gilt Index
Japan Stock Index

Small cap seems to be missing but all the others currently in your portfolio are covered and the allocation will pretty much sort out your 'home bias' for UK equities.

masonic

If you believe that your current allocation is flawed and your new allocation is more suitable, then retaining the imbalance for any length of time is equivalent to trying to time the market. You are essentially taking on additional risk in the hope the the FTSE all share will do relatively better than other markets in the short term, but the converse is about equally likely.

bushido1

I would just sell everything and buy only VWRL which will give you better diversification and you won't have to worry about rebalancing at all. While keeping the commisions low.

bowlhead99

masonic wrote: »

If you believe that your current allocation is flawed and your new allocation is more suitable, then retaining the imbalance for any length of time is equivalent to trying to time the market. You are essentially taking on additional risk in the hope the the FTSE all share will do relatively better than other markets in the short term, but the converse is about equally likely.

True.

Basically you have already decided for yourself that the better portfolio is the one that covers all the geographies and sectors rather than the current portfolio which is heavily concentrated in one area, even though from one day to the next the current portfolio might do badly or might do well compared to the proper balanced portfolio. In the long run it is not expected to be better than the balanced portfolio, and is expected to be more volatile. So, you don't want that portfolio, you want the balanced one. That is the whole reason you are getting a balanced one.

To decide you want a proper balanced portfolio but then keep the old stupid allocation for a few years just for old times sake while you gradually drip over into the new sensible allocation, is silly.

Throw the old portfolio away (turn it into cash) and spend the cash on the new portfolio tomorrow.

As another poster said. Imagine you didn't have a portfolio at all. Would you buy the crappy one and slowly drip into the good one over a period of years? Would you buy the crappy one and hope it went up faster than the good one so you could jump off and buy the good one after making a quick buck on the crappy one?

No of course you wouldn't.

You are already 'in the market'. You have realised that you have been shortsighted and accidentally sat yourself in just one bit of the market. You should move to spread yourself over all the rest of the market too. As you have realised this today, why not place the orders today?

It is like going to the theatre or a football match and having a free choice of seats but selecting one with a restricted view. When you realise you have been an idiot and could have selected much better seats, do you move? Or do you sit there for the first half on the off-chance there's a special bit of the show that looks much better from behind the pillar than it does from everywhere else?

Some people would be embarrassed that they chose poorly so would say to their friend 'hey, lets sit this out for a while, it might be OK!'. They don't want anyone else to notice they made a mistake. However, hopefully their friend who's sitting next to them would tell them 'shut up and grow a pair, we're moving'.