How much home bias?

System

Bowl -

If you can use bond or cash holdings to give you the funds to top up equities when they have crashed,

Good idea, at this early stage I was just thinking of using cash or a loan for opportunities

Though I wouldn't want to be less in the market than I could be, because crashing indecies recover

Global just for the diversity you mention, for non exceptional circumstances. Global small cap is steadier than UK small cap I think
2007-9 was an ignorable blip, or an opportunity

Admittedly one on one a small company is riskier, I'm hoping diversity of small caps negates that? If one of my small caps busts it'll only knock me for 0.15%

bowlhead99

MatthewAinsworth wrote: »

Good idea, at this early stage I was just thinking of using cash or a loan for opportunities

Well, you chose to have a larger pension fund rather than a decent size ISA or substantial cash savings, because it got you tax credits on top of the basic rate tax break.

While pension contributions undoubtedly are good value for money (especially when you are in tax credit territory) your pension contributions have a significant cost to you, and that cost comes in the form of a lack of liquidity in the rest of your life: a low emergency fund for essentials, relatively low medium term investment ISA and low cash savings available to deploy in the markets when they are cheap.

For someone bringing up a family on a single salary below median household income, you likely don't have the ability to use piles of cash (or loans) to dive in to depressed equities markets inside your pension in the hope you catch the bottom and get a good 30-yr return out of it, rather than painfully catching a falling knife and screwing up your family finances.

Though I wouldn't want to be less in the market than I could be, because crashing indecies recover

The idea of a balanced un-correlated portfolio is that you can use the ups(or relatively lower losses) from one area to allow you to buy back into the crashed indices that are down in the other areas, rather than having all your money in the crashed indices while they are crashing with nothing left over to come and save the day.

Global small cap is steadier than UK small cap I think

It is very linked to the US market as US is much bigger than UK. So is based on a much larger pool of assets. Advantages of being internationally diversified but of course with all the currency risk etc that brings, which sometimes gives you large unfavourable swings even if underlying assets are sound.

2007-9 was an ignorable blip, or an opportunity

A 60% crash is hard to ignore.

And would not have been an opportunity for you, given you would have been fully invested in it without any spare cash because you went single asset class in your SIPP and didn't have a pile of family savings.

And the credit crunch was all about lack of availability of credit, together with economic recession. So good luck getting a loan for stock speculation when people around you are losing their jobs and banks are tightening their wallets.

Admittedly one on one a small company is riskier, I'm hoping diversity of small caps negates that? If one of my small caps busts it'll only knock me for 0.15%

A representative sample of companies which would each be 0.15% of an MSCI ACWI index fund (basically the all companies world index across developed and developing markets, allocated on market cap):

Johnson Controls
BNP Paribas
Unilever
Fedex
ADP
BHP Biliton
Adidas
Raytheon
Kraft Heinz
Reckitt Benckiser
Honda Motor
Netflix
Imperial Brands
ANZ Bank

These are all $40-50 billion companies, many with decades of operating history (Netflix being the obvious newbie). And they are each only about a seventh of a percent of a global largecap index. So, the index would not suffer too heavily if one of them keeled over, but they don't often keel over anyway.

By contrast some of the companies in your fund maybe only have a fiftieth or sixtieth or seventieth of the assets and incomes of any one of them. So it is unlikely that your fund will be "less volatile" in times of market uncertainty, even though it contains a lot of companies.

System

I might have to reign in my sipp contributions a tad to be honest, we're starting nursery and work might potentially redeploy me to another department for being a health hazard, which could mean not being able to work lucrative weekends

Anyway liquidity is really the thing. I will consider the bond point, maybe have my isa as bondage seems like a good solution

I would just wait out a crash, buy buying into it better of course

Its good to know some large companies are small %s, but I'm sure I've seen some companies at near 4% of some funds...

System

The thing is though, crashes are not very frequent, and in the meantime there's a compounded loss of opportunity in holding bonds.

Crucial question: does the opportunity bonds give you to buy crashing equities outweigh their long term compounded lost gains?

If a fund doubles every 5 years would you theoretically need a 50% crash every 2 1/2 years (neglecting bond yield) to justify keeping some out of equities?

bigfreddiel

If you can't figure out your best strategy just buy a VLS 60/80/100, whichever you think will do.

Good luck fj