Am I well balanced?

masonic

MatthewAinsworth wrote: »

I think world economics come into this and there might've been breakthroughs back then

The same argument can be made for any market. That's why people diversify. Past performance is no guide to the future. What has done well over the past period may not do so well over the next period. The US has beaten most other markets in growth recently and if you look over the long term you'd see a similar trend, but does that mean investors should shun other markets?

masonic

MatthewAinsworth wrote: »

I suppose, it looks like a slightly magnified version of the others.

Coming back to this point, at the weekend you were thinking about "speculating the small amount in my sipp on some futures, due to the leverage ability", but you were thinking of all sorts of creative ways to prevent yourself from losing more than you invest.

So perhaps an investment with magnified returns is right up your street. Your returns would be magnified, but the loss potential would be somewhat less than 100%.

jimjames

enthusiasticsaver wrote: »

What rate are you paying on your mortgage? Paying that down early is also an option and may save you more in interest than you gain in your s and s isa.

I'd think there are probably not many current mortgage rates that are more than you'd expect to get as the return from a well balanced S&S ISA over the longer term. Mine is just over 2% and at that I cannot see any reason for me to pay down the mortgage when I can invest instead.

System

Jim - completely agree, mine is 2.39, I'd sooner fill cash than pay that down, and then investing tempts me...

Masonic - I will find a place for emerging meerkats in my sipp, next time I pay in

I think certainly have your feet wet in the less performing markets but don't expect conditions next year to be wildly different than conditions today. There's more domestic bias advantage in america, that's not changing soon

bowlhead99

MatthewAinsworth wrote: »

Jim - completely agree, mine is 2.39, I'd sooner fill cash than pay that down, and then investing tempts me...

[Warning long post]
Right, you say you would sooner fill cash at low rates than pay down the mortgage at low rates.

A pot of cash gives very valuable flexibility to your personal financial well-being ; whereas if you pay off the mortgage faster instead, then you'd have to remortgage to get your hands on the money in a hurry. Getting credit in some emergency when you need it most is the most expensive and challenging way to get it. So, many people would be with you on the concept of "sooner fill cash".

However, you have then ignored that bit of common sense because it's too boring, and skipped straight to the "investing tempts me". Then you have come on here and started a thread about whether your small investment portfolio is balanced, which it isn't, and used 10+ posts to defend it from the people who say it isn't.

The pension which you can't access for years is not balanced. And it is currently very small compared to its eventual size and your lifetime earnings, so if you manage to eke out an extra percent or two over the next year by holding the highest risk asset class you can find (small cap equities), the premium you earned is virtually nothing. And if the small cap equities take a tumble you have no other asset classes in the pot which could be sold to help top them up, as you have no diversification.

The global small cap index fund offered by Vanguard covers $5 trillion of company value, but that is under 15% of free float market cap in the 23 developed countries in which it invests. So it is missing the other $30 trillion of global large companies. And emerging markets. And apart from those massive missing public equity opportunity sets, it is missing anything plucked from unlisted private equity, government and corporate bonds, direct commercial property and infrastructure etc; together, these would amount to tens of trillions of dollars of opportunity. There are also more complex and speculative things like commodities. Small caps are a drop in the ocean.

And your excuse for this crazy unbalanced allocation in your pension is that you have £100 a month in your ISA of which 15% (£15 a month) is international developed large cap, so you thought it would make sense for £300pm to be international developed small cap. Some would say that's ballsy, others would just say it's flawed.

Clearly it's not appropriate to try to capture *all* of what I just listed with the £300pm - there is no point getting too scientific when amounts are small - but just focusing on a paltry $5tn from one end of the equity scale leaves plenty of room for improvement.

If you are building a long term nest egg from a £300pm "invest and forget" strategy it make sense for this to be a multi-asset nest egg. And with a balance of £0-£10k over the next three years there is no point trying to be clever and making it anything other than invest and forget. It is not worth your time, in terms of returns per hour of fiddling, to do anything else.

You mentioned:

"There's more domestic bias advantage in america, that's not changing soon"

If what you mean is that Americans may choose to invest a greater portion of their wealth in their home market than abroad... because it is cheap and easy and offers access to a very broad set of industries and a large number of global leading businesses in all sectors... and their currency is recognised as one of the world's "safe havens" - I would agree. The Americans can invest a good portion of their wealth at home and add a few other countries to round it out, and they're done.

The flip side of "more advantage to home bias in America" is that it must follow that there's minimal advantage -really, a disadvantage- to heavy home bias in other countries such as the UK. Our stock market is less than 10% of the world's stock market by value, and the FTSE is very heavily weighted to certain industries while missing others almost entirely. So, don't invest with a heavy UK bias unless you have some sixth sense about our position in the world improving over next couple of decades.

But wait, you've said that 60/85ths of the equities in your ISA is UK, and the ISA is the only investment you can access in the next decade or two (because the pension money is locked up). So that does not seem to stack up with the view that there is more advantage to invest domestically when your an American than if you're a Brit.

Your small but liquid, accessible investment -the ISA- is heavily UK (apart from £150 now plus £15pm) and your pretty illiquid house investment is entirely UK, so your only real global outlook is in your entirely illiquid pension investment; and is focused on one end of the investible market (smallcaps).

So to answer the question posed in your first post and answered in Dunstonh's initial reply: no there is no real balance found here.

You seem to like making things difficult for yourself, judging by your other threads about wanting to get involved with leverage and futures etc with your scant capital and low pay. Seems like trying to run before you can walk. You could get 4-5% guaranteed on cash in a bank account with zero risk on several thousand more than you currently have. That seems eminently more sensible than trying to get 7 or 8% by investing in an equities-heavy ISA that could lose 40% of its value in a year, before you even have an emergency fund.

You mention that your uninsured wife passing on would be a financial disaster. Does she know you officially see her as the breadwinner keeping the family afloat with her salary so you can gamble yours: preferring high risk investments to building a savings pot? Sometimes financial planning is best approached as a team.

You seem to be relatively dismissive of suggestions that your portfolio isn't well constructed, calling it a "calculated risk". But, apologies if this sounds patronising - in reality I suspect you haven't done any conventional risk calculations and haven't bothered to do your due diligence on investment markets or individual funds by reviewing anything more complex than five-year charts over a period in which global markets rebounded from the depths of a global financial crisis. Can you hand on heart say your plan is a *calculated* risk?

If you insist on investing- rather than saving any more first - maybe it would be worth a bit more research into markets and portfolio construction. You don't really need it now while the pot size is low, as any old multi-asset fund will do - but could put you on a better footing for the future.

Interesting comments about your work. You mention they can't recruit easily, that nobody else was interested in being a supervisor and that it is hard work when other easier jobs are in abundance for more pay, or easier jobs for the same pay. And you are desperate for financial freedom, being pushed hard for that by the difficulty of the work. There are a few things which jump out from that:

One, if the difficulty of the work is such that you want its cash rewards to keep you sane - then why not find an easier one for the same money? Or another difficult one for more money? Sounds like your employer is underpaying, no? It could be in your interests to look elsewhere, to help your financial freedom much more than a few quid profit on an ISA.

Two, it may be misguided to feel your job is safe because you're part of the furniture, being the only sucker who is willing to stick around in your section. If your section is now pretty much empty and no fellow employees were minded to go for the extra money and responsibility of being a supervisor, what does that say about the enthusiasm and motivation of the workforce? Does not seem like an inspiring place to work or full of high calibre people who aspire to greater things.

Management do not care about the problem - they were able to get you to step up to a supervisor role for no more money than easier jobs elsewhere. For them this is certainly a better result than having to pay market rate to bring someone in from the outside world who would command a market rate for the difficult, complex or stressful role. Of course, we know nothing about your firm, but doesn't necessarily sound like a high performing growing company that will always have a steady flow of work? If so, why are the management scrimping on staff costs, and creating a stressful environment and unmotivated staff and an inability to recruit?

If they were my employer I would want more than a month's pay in my bank account for emergencies and a reliance on tax credits going up an a spouse's handout to help me out if I lost my job.

You mention your peers are not too bright, hard working or investment-smart. But being the smartest richest hardest-working man in town, when judged against a town populated by your mates who have no aspirations or financial security, is not much of a "win", IMHO.

Consider instead that the world runs on supply and demand and the prices of things you want to buy are set at a global level by all the other people who want things and can afford things, including someone who earns £sixfigures more than you.

So, you should be commended for having some sort of a plan -making you financially better off than the slackers at your work - but you are not just trying to keep up with your idiot schoolfriends any more, you are trying to compete with the grownups nationwide or worldwide who are building plans for whatever life throws at them.

Some of them have an enviable portfolio which includes a Porsche in the garage and a microcap fund in the ISA. Good for them. But you will not catch them by trying to stuff a microcap fund into your own portfolio and some leveraged ETFs into your SIPP before you even have a few months of cash in a high interest bank account. Slow and boring is fine.

bigadaj

Bowlhead why the 'warning long post' you're not known for your frugality in words in normal circumstances anyway?

System

Bowlhead - I appreciate the in depth input and it deserves a response

-Fair enough about holding more cash, I will get there
-the pension isn't really necessary (have a dB one too) - but its an early retirement pot, and I will get about 41% back in extra tax credits on top of the normal tax relief, which is why I put more into the sipp, so I feel like now is the best time (while I'm on tax credits) and I have a discounted shot at great gains. I could take it slower, though I feel its safer for being a long term thing and safer compared to the people I know who work for micro caps and rely 100% on them for their wages - with a fund at least its more diverse, though I accept that that's no excuse not to further diversify. Its my view of the sipp being discretionary which is why I feel I can afford a higher risk on that, and with the tax credit rebate I could lose half and still be Quid's in
- international large cap is in my isa, commercial property is supposed to be in that fund, and was, but they dumped it, I expect they'll bring it back
- I will add emerging markets of all caps on this advice, to the sipp as my isa is not self select

And apart from those massive missing public equity opportunity sets, it is missing anything plucked from unlisted private equity

How would I get that and what asset class is this?

-have read negative things about commodities
- there are corporate bonds in the isa fund, but while my mortgage dominates this is my primary 'bond' - which the repayment part is £140 a month at the moment

there is no point getting too scientific when amounts are small

Its good that I'm learning early before it gets too involved, I've come a long way in a couple of months I think

. So, don't invest with a heavy UK bias unless you have some sixth sense about our position in the world improving over next couple of decades.

This is another reason why I'm putting more into the sipp and making that international. The isa isn't self select so I can't easily tweak it without switching, so I'm controlling relative amounts between them to rebalance, but I do like having UK exposure, especially with the currency. Nobody knows the position of any of the world, and the best we can do is diversify

. So that does not seem to stack up with the view that there is more advantage to invest domestically when your an American than if you're a Brit.

I was citing home bias more to explain why I think developed world does better than emerging without intense outside speculation, like what happened before. Im trying to be in everything I can be

Your small but liquid, accessible investment -the ISA- is heavily UK (apart from £150 now plus £15pm) and your pretty illiquid house investment is entirely UK, so your only real global outlook is in your entirely illiquid pension investment; and is focused on one end of the investible market (smallcaps).

Due to the isa not being self select this is how I had to do it, unless I switched isas. There is big cap international. I have a long term view on the isa and don't expect domestic focus to make it loss making. I will build up cash

.That seems eminently more sensible than trying to get 7 or 8% by investing in an equities-heavy ISA that could lose 40% of its value in a year, before you even have an emergency fund

With a long term view volatility doesn't worry me, I'm not trying to time the market and I won't sell when its dropping, if anything I'll buy and wait until it appreciates again, like you would if a house went into negative equity. I don't think its good to value it every day for what should be a long term asset - that's why most people are better property investors than equity investors, they're forced to be long term

.You mention that your uninsured wife passing on would be a financial disaster. Does she know you officially see her as the breadwinner keeping the family afloat with her salary so you can gamble yours: preferring high risk investments to building a savings pot? Sometimes financial planning is best approached as a team.

Its her childcare that prevents disaster, not her job, if either of us died I couldn't do my job that pays the bills. If we did things get way we'd be renting and spending it all, we wouldn't have the shot at achieving more that we have now. Life is a gamble, even stepping put the door and driving, and I hope equities will actually reduce our overall risk by giving us an alternative income

Research will cone over time, as you say at the moment its too small an amount to really worry about

More later as I get time

System

One, if the difficulty of the work is such that you want its cash rewards to keep you sane - then why not find an easier one for the same money? Or another difficult one for more money?

The difficulty adds security to me that I'm not facing serious competition. Earning more wouldn't be anywhere near as tax (or tax credit) efficient, I realised that work itself is a lousy way to make money and that tax favours investment and pensions

But I will keep my eyes open, though any other job must be close with favourable hours so I see as much of my son as possible

.Does not seem like an inspiring place to work or full of high calibre people who aspire to greater things.

The job (and entire section) demands patience and calm under pressure, the demands of the job are almost a personality test and having aspirational people won't help with the relevant skills, we want someone who wants to stay, not move on

.If they were my employer I would want more than a month's pay in my bank account for emergencies and a reliance on tax credits going up an a spouse's handout to help me out if I lost my job.

You probably have higher costs of living than I do, and that benefits bailout kind of suppresses the gain of preparing

But being the smartest richest hardest-working man in town, when judged against a town populated by your mates who have no aspirations or financial security, is not much of a "win", IMHO.

That's true but my point was that in order for the economy to harm me it'd gave to harm a lot of other people first who are less prepared, and in doing so that'd be politically explosive. They're not going to crash benefits because there will always be unprepared people who they won't let starve

By the way, my town was paid by London to take all of London's riff raff lol

.but you are not just trying to keep up with your idiot schoolfriends any more, you are trying to compete with the grownups nationwide or worldwide who are building plans for whatever life throws at them.

I wouldn't say compete, just follow. I reckon do what the rich people do. Admittedly my finances aren't a nuclear bunker yet... But then I think I'm more likely to die in a horrible car crash or cancer than see that degree of catastrophe, and you can't get ahead if you're too risk adverse

.But you will not catch them by trying to stuff a microcap fund into your own portfolio and some leveraged ETFs into your SIPP before you even have a few months of cash in a high interest bank account. Slow and boring is fine.

Not catch them up but learn from them and I will build up cash, I don't feel tremendous danger but I have £100 a month spare to do that, or to fund a loan if I had to

coyrls

The suggestions you are getting are not complicated but you seem to be missing the point, so to summarise:

Concentrate on building up a sufficient cash buffer in high interest current accounts

When you invest, choose one of the available multi-asset funds, rather than try to balance your investments yourself with relatively small amounts. Once you have built up a meaningful sum you can then look to invest in individual assets according to an asset allocation that you have both researched and understood.

System

I'd like to add that richer people need lower risk portfolios because the portfolio is a larger part of their net worth, its not so dominated by their house. As I get better off I may feel more need for bonds than I do now