How much home bias?

darkidoe

dunstonh wrote: »

Until you get to £10,000 on a regular contribution, it really doesnt matter too much where you invest. The differences in the return lead to just very small amounts in monetary value.

All the time and effort spent in trying to work out your own asset allocation in the belief that you are a better fund manager than the professionals is futile. You are not. Most of them are highly qualified and have sophisticated software and do research you could only dream about doing and they still dont outperform.

There really isnt a point building a portfolio of single sector funds until you get to around £50k plus. Use this time to learn about the subject if you really do fancy being a fund manager.

Well put! I have similar thoughts myself. Get in the market, get in early and young, be widely diversified. Be well buffered with cash reserves. Make mistakes, and learn on the journey and tweak here and there along the way.

Gadfium

bowlhead99 wrote: »

Not very. He posted on 1 August that he had a small ISA with a fund (£100pm into 60% UK tracker, 25% ex-uk largecap tracker, 15% non equity) and had just started a SIPP at £300pm which was going to be invested 100% in global smallcap.

So we're talking about a few £hundred?? Making a mountain out of a molehill.

dunstonh wrote: »

Until you get to £10,000 on a regular contribution, it really doesnt matter too much where you invest. The differences in the return lead to just very small amounts in monetary value.

All the time and effort spent in trying to work out your own asset allocation in the belief that you are a better fund manager than the professionals is futile. You are not. Most of them are highly qualified and have sophisticated software and do research you could only dream about doing and they still dont outperform.

There really isnt a point building a portfolio of single sector funds until you get to around £50k plus. Use this time to learn about the subject if you really do fancy being a fund manager.

^^This^^
Worrying about allocation when you are talking about such small sums is a bit bit like those boy-racers that put fart-cans on the exhausts of some crappy old 1.1 litre banger. All it does is make a lot of noise, annoys everyone else and generates no difference in actual performance.

System

As a % growtg on a small fund, though a smaller number, is the same proportion of your wealth that the same % on a larger fund would've been

System

Even with small balances its best to do my learning now

mollycat

MatthewAinsworth wrote: »

Even with small balances its best to do my learning now

Except that you're not!

Try listening to the advice given; that is if you're serious of course.

System

I don't feel anyone has convinced me that taking it slower would lead to a better outcome, I'm a few decades away from drawing it, and the more I gain now the less risk of making a loss, and the more chance of good profit. The odds of a good return are actually damaged by holding more bonds or large cap, and my small cap fund has been less volatile than VLS100, and vaguely better performing

bowlhead99

MatthewAinsworth wrote: »

I don't feel anyone has convinced me that taking it slower would lead to a better outcome

I don't doubt you're unconvinced. However, when many of your threads end up with lots of experienced posters trying to convince you of some better way to invest, and you remain unconvinced, perhaps consider whether it is they that are bad at laying down the concepts or you that is bad at understanding them due to being inexperienced or inattentive.

The odds of a good return are actually damaged by holding more bonds or large cap

Held in isolation, less volatile assets held on their own will typically produce lower long term returns than the more risky and volatile sectors.

However, a diversified set of assets periodically rebalanced as part of a portfolio can be returns-enhancing, allowing an overall result that has lower volatility but does not "average down" the overall performance result as far as you might have expected it to.

You could search for my thread "the power of the rebalance" for an example which is too long to repeat here (post of the month, about 18 months back). As you're considering the merits of investing home or away, and also concerned that including something with a lower total return might hurt overall returns too much, it could be worth a read.

The example in that post was for a simple 3 fund portfolio US/UK/EM, but you could substitute other sectors which do not always move entirely in sync and have differing volatility levels.

my small cap fund has been less volatile than VLS100, and vaguely better performing

Are you using the time period for which VLS100 has existed (only five years), or some shorter period over which you've been an investor, or looking at the global markets as a whole for the last 50-100 years?

If you are saying either of the first two time periods, that's too short for any meaningful analysis. In your threads you've been explaining that you are going all out for small cap because you believe it will perform better in the long long term as it did historically. But over the long term it was also much more volatile, so looking at it over a short period and saying it's less volatile than global largecap with a UK bias (like VLS100) does not stand up, statistically.

All it does show is that over any given time period it is quite possible to get results for any sector or asset class that don't look like the long term average that we got last century. Which is perhaps a reason not to construct your portfolio based on "what worked out well last time out".

System

Bowl - I will introduce bonds near drawdown for sure, I can see how they react positively when people flee equities, but is there any point in holding them long in advance? Because does volatility really matter until drawdown?

On small cap its more what I've read than what I've seen, I think over 30 years say, but I've looked at 15 year charts for the index I'm tracking and those of vls100 and I think global definitely helps against things like 2008 and my fund has a larger spread of holdings than many large caps do, which in my mind explains why I've seen less volatility. In my mind as pong as large cap indecies are heavily biassed towards the biggest companies they will be more shakey

Also the compounding effect of any small improved return I'm getting, I believe will outweigh any volatility way down the line

bowlhead99

MatthewAinsworth wrote: »

Bowl - I will introduce bonds near drawdown for sure, I can see how they react positively when people flee equities, but is there any point in holding them long in advance? Because does volatility really matter until drawdown?

One step to help make returns is don't lose the money you've got. If you can use bond or cash holdings to give you the funds to top up equities when they have crashed, you can get a more reliable level of return, rather than getting one with wilder swings of boom to bust.

However, as others have pointed out, when you only have a few hundred quid per month starting from close to nothing, it perhaps doesn't really matter what you invest in for the first five to ten years, because it's not possible to guess what will perform best anyway; so you might as well go for something reliable and in the middle, rather than trying to shoot the lights out with a stunning performance taking the risk that it will crash horribly.

On small cap its more what I've read than what I've seen, I think over 30 years say, but I've looked at 15 year charts for the index I'm tracking and those of vls100 and I think global definitely helps against things like 2008 and my fund has a larger spread of holdings than many large caps do, which in my mind explains why I've seen less volatility.

In 2007-9 the msci world small cap index had a larger fall, or 'drawdown', than the large cap indices, losing over 60% in USD terms. Is that what you mean by "global definitely helps"?!

I agree a Global mix is better than a regional mix just like a mix of industries and company sizes is better than one industry or one size range.

In my mind as pong as large cap indecies are heavily biassed towards the biggest companies they will be more shakey

Well, the historic long term stats don't bear that out. I don't have the volatility stats in front of me for the last 5 years but the indexes haven't changed how they work overnight and any short term results can be attributed to luck. As mentioned, drawdown in 2007-9 was larger for small cap indices.

The biggest companies aren't more shaky than smaller ones. More small companies or new companies fail than large ones and they are less equipped to ride out the lean parts of the economic cycle because they typically have worse access to capital markets, don't have billions in the bank, and have a higher risk profile; in bear markets, this can help investor confidence to plunge and demand for their shares to drop off significantly compared to largecaps, delivering a much worse result.

edinburgher

The IFAs posting in this thread have the patience of saints!