Thoughts and feedback on the ETF portfolio

pizza_lord

Hi, am an ETF newbie

My situation? No debt, no mortgage, no credit cards, no kids, no wife, no regular income (retired early), from UK but am non UK resident and have been for a long time.

Putting cash into passive / coach potato style ETF portfolio for the first time with a large cash lump sum from a property sale with the plan that I can live off it for the next few decades.

Dipping my toe with a 40% bonds and 60% shares mix and have come up with this:

Bonds
=====
10.00% - IGLT - iShares II PLC CORE UK GILTS UCITS ETF
10.00% - IBTM - iShares II PLC USD TREA BD 7-10YR UCIT GBP
20.00% - IBTS - iShares $ Treasury Bond 1-3yr UCITS ETF

Shares
=====
5.00% - IUKD - iShares UK Dividend UCITS ETF
5.00% - USDV - SPDR S&P US Dividend Aristocrats UCITS
20.00% - IUSA - iShares S&P 500 UCITS ETF
30.00% - SWDA - iShares CORE MSCI WORLD UCITS ETF

Am moderately risk tolerant and am looking for a return of 10% which this portfolio well exceeded in the last 3 years but am aware we might be on the back end of a 5 year bull market.

Money being using to buy the ETFs is all in GBP and will be in future to avoid FX costs.

Actively looking at interactivebrokers.co.uk as I heard you can get the spot rate through them and it's pretty much the only way of beating transferwise.com for transferring money to other currencies.

Reason for that is there are a couple of USD tech ETFs that look good to me and I spent 20 years working in tech so I am able to understand what I am buying in this realm.

Thoughts?

Constructive criticism?

bigfreddiel

First why don't you just buy a vanguard Lifestrategy 60?

Second, could you handle a drop in value of say 20%?

Third are you sure about the 10% return, I don't believe this is correct!

Fourth, generally you cannot reinvest divis automatically with ETFs, would that be a problem?

Cheers fj

Linton

I would also question your 10% annual claim. According to my calculations its a bit less than 8% annual over the past 3 years. The portfolio looks rather unbalanced to me with the equity being 2/3 allocated to the USA. USA large companies have done particularly well over the past 3 years, perhaps held up by Apple, Google, Facebook etal. This isnt guaranteed to continue. I suggest there is no point in the S&P ETF since this is well covered by the world fund. Why not something which isnt so well covered - eg small companies, EM, Far East.

All your bonds are gilts/US Treasury. Again the capital value has done well over the past few years, but since effective interest rates are close to zero that cant continue. What about corporate bonds or riskier government bonds?

BLB53

The biggest drawback would be the need to rebalance.

Maybe look at the additional equity/bond diversity provided by the buy-and-forget Vanguard LS60 with the added advantage of auto rebalance.

I am not sure whether Interactive Brokers would charge extra for holding funds compared to ETFs.

masonic

pizza_lord wrote: »

20.00% - IUSA - iShares S&P 500 UCITS ETF

Why pick an expensive fund like IUSA (TER: 0.4%) when you can opt for CSP1 at a cost of 0.07%?

pizza_lord

bigfreddiel wrote: »

First why don't you just buy a vanguard Lifestrategy 60?

I called them and they said it's only open to UK residents so that rules me out. Also that would only give me access to Vanguard offerings, no?

bigfreddiel wrote: »

Second, could you handle a drop in value of say 20%?

That would be painful but drops like this have been followed by solid recoveries so yeah.

bigfreddiel wrote: »

Third are you sure about the 10% return, I don't believe this is correct!

What online tools are you using to lead you to that conclusion?

Did you see what IBTS, SWDA, IBTM and IUSA did in the last 3 years?

bigfreddiel wrote: »

Fourth, generally you cannot reinvest divis automatically with ETFs, would that be a problem?
Cheers fj

I need more understanding of how divs and ETFs work really. Am still a newbie. I have 2 dividend plays in this portfolio representing 10% of the portfolio. I will just get paid the dividend then I guess?

I would like an ETF where I get dividends and I have the option of re-investing them in the same ETF without the cost of doing a new transaction. Is that possible?

pizza_lord

Linton wrote: »

I would also question your 10% annual claim.

Again what tools are you using? Am using Quantext. The QPP tool assume re-balance happening once per year and dividends getting re-invested so my results will differ from your but I am curious as to what tools you are using.

Linton wrote: »

According to my calculations its a bit less than 8% annual over the past 3 years. The portfolio looks rather unbalanced to me with the equity being 2/3 allocated to the USA.

This is deliberate.

Linton wrote: »

All your bonds are gilts/US Treasury. Again the capital value has done well over the past few years, but since effective interest rates are close to zero that cant continue. What about corporate bonds or riskier government bonds?

Am investing in bonds to offset the risk of shares so risky bonds make no sense really.

pizza_lord

BLB53 wrote: »

The biggest drawback would be the need to rebalance.

Am only planning to rebalance once a year so not really a drawback.

BLB53 wrote: »

Maybe look at the additional equity/bond diversity provided by the buy-and-forget Vanguard LS60 with the added advantage of auto rebalance.

Not an option for a non uk resident Brit. They said I can go to a broker and relatively easily re-create their strategy myself though so no great loss.

BLB53 wrote: »

I am not sure whether Interactive Brokers would charge extra for holding funds compared to ETFs.

I was only planning on using my account to convert GBP to USD at the spot rate. Nothing else.

I heard you can do that with them. Have never done it though so perhaps someone who has an account with them might comment.

pizza_lord

masonic wrote: »

Why pick an expensive fund like IUSA (TER: 0.4%) when you can opt for CSP1 at a cost of 0.07%?

What is the difference between the two other than the cost?

masonic

pizza_lord wrote: »

Again what tools are you using? Am using Quantext. The QPP tool assume re-balance happening once per year and dividends getting re-invested so my results will differ from your but I am curious as to what tools you are using.

I'd hoped our thorough debunking of this "tool" in your last thread would have put you off using it.

No doubt Linton was using actual performance data from the last 3 years to determine the return over the last 3 years, which is what most people would do. Your tool uses monte carlo simulation using a narrow dataset, which is why it "predicted" the past performance of your last portfolio as being 10% when it was actually less than 3%.

Perhaps it is finally time to look for another tool? I would recommend Trustnet's portfolio tool, which is free.

masonic

pizza_lord wrote: »

What is the difference between the two other than the cost?

One pays out dividends and the other one reinvests them within the fund. Other than that, I don't think there is any meaningful difference other than the cost.