Opinions on my portfolio

Novice_investor101

I'm a very new investor. I have a decent but basic understanding of funds as I work for a pension company, and I've already built up my emergency funds to a cover a years worth of essential bills etc which is currently in a Virgin Isa paying 1%. As I would have nowhere to turn to for help if the worst happened then I need to keep this easily accessible and protected. But, with interest rates pitiful (and dreams of an early retirement) I want to invest any future savings in funds, rather than my pension in case I do ever need to get at the money.

I opened a Fidelity S&S Isa and have so far put £500 lump into Aviva international index tracker S2, £160 each (being drip fed) into:
Blackrock North American Equity tracker H, L&G European index tracker I, L&G Japan Index tracker I, L&G Pacific index tracker I, L&G UK Index tracker I.
I also have a monthly saving plan set up that pays £25 each into L&G Global Tech Index tracker and L&G Global health and Pharma Index tracker. I like the L&G trackers as they are pretty low fees and seem to have performed well over the past 5 years.


I have a decent appetite to risk, I'm 35, so intend to be in this for the next 20-25 years and after I re-mortgage next year (everything crossed interest rates on best buys stay as low...) I will be adding £200 a month to my monthly saving plan as well as fairly regular lump sums, drip fed.


So, do I need to be thinking about getting some bonds in there? or wait until I have a much larger amount of money? I will be looking to put more into the Aviva fund (20%) and the US equity fund (20%) then equal amounts of 10% between the other regional trackers and leave the L&G tech/pharma on the monthly savings plan, increase to £50 each next year - the final 10%.
I keep reading about different asset types being the key to diversification but at the moment I want to go for growth and am trying to diversify by region rather than asset type. With the Pharma and Tech funds being my little long term punt on the markets.

What are your thoughts, guys? Too many funds when I could just pick a Vanguard life strategy 80% or 100% or a global shares tracker and just forget about it?

BLB53

What are your thoughts, guys? Too many funds when I could just pick a Vanguard life strategy 80% or 100% or a global shares tracker and just forget about it

Yep, you have summed up my thoughts as I read your post. By all means have a small punt on tech/pharma but keep it simple and go for VLS80 as a core holding.

AnotherJoe

Novice_investor101 wrote: »

I'm a very new investor. I have a decent but basic understanding of funds as I work for a pension company, and I've already built up my emergency funds to a cover a years worth of essential bills etc which is currently in a Virgin Isa paying 1%.

You could get more by putting that money in savings and higher rate current accounts. Doesnt need to be in an ISA.

As I would have nowhere to turn to for help if the worst happened then I need to keep this easily accessible and protected. But, with interest rates pitiful (and dreams of an early retirement) I want to invest any future savings in funds, rather than my pension in case I do ever need to get at the money.


I opened a Fidelity S&S Isa and have so far put £500 lump into Aviva international index tracker S2, £160 each (being drip fed) into:
Blackrock North American Equity tracker H, L&G European index tracker I, L&G Japan Index tracker I, L&G Pacific index tracker I, L&G UK Index tracker I.

What do you mean £160 being drip fed? Do you mean you have £160 that you are paying in in installments, or £160 a month every month thats being paid in?


I also have a monthly saving plan set up that pays £25 each into L&G Global Tech Index tracker and L&G Global health and Pharma Index tracker. I like the L&G trackers as they are pretty low fees and seem to have performed well over the past 5 years.

You seem to have created a global fund with a few variances around specialist areas.


I have a decent appetite to risk, I'm 35, so intend to be in this for the next 20-25 years and after I re-mortgage next year (everything crossed interest rates on best buys stay as low...) I will be adding £200 a month to my monthly saving plan as well as fairly regular lump sums, drip fed.


So, do I need to be thinking about getting some bonds in there?

I'm not a fan of bonds, and at the moment from what i read they dont look good.

or wait until I have a much larger amount of money? I will be looking to put more into the Aviva fund (20%) and the US equity fund (20%) then equal amounts of 10% between the other regional trackers and leave the L&G tech/pharma on the monthly savings plan, increase to £50 each next year.
I keep reading about different asset types being the key to diversification but at the moment I want to go for growth and am trying to diversify by region rather than asset type. With the Pharma and Tech funds being my little long term punt on the markets.

What are your thoughts, guys? Too many funds when I could just pick a Vanguard life strategy 80% or 100% or a global shares tracker and just forget about it?

Pretty much IMNSHO. I think you might as well pick a global fund (there are others apart from Vangguard, that has 25% in UK, is that where you want to be? If so fine.) and then tweak with additional biotech and technology and far east.

Novice_investor101

£160 per fund, being drip fed over 6 months (about £25 a month). As I only opened the ISA last month I am experimenting a little and trying to figure out what my strategy should be before I start committing larger sums of money..
I was wondering if I would achieve the same (or similar) results by just going for a global equity tracker, like the Aviva fund?, and the Tech/Pharma funds, with a bit of far east or emerging markets.
I did look at all those funds and think it's way too complicated for one month into my Isa journey....!

bowlhead99

Novice_investor101 wrote: »

I was wondering if I would achieve the same (or similar) results by just going for a global equity tracker, like the Aviva fund?, and the Tech/Pharma funds, with a bit of far east or emerging markets.
I did look at all those funds and think it's way too complicated for one month into my Isa journey....!

You have made it needlessly overcomplicated being 1 month into your ISA journey with so many different funds, trying to create something totally bespoke on what is, no offence intended, a small amount of money.

Say you have a 40 year career with career average earnings of £25k (in real terms accounting for inflation etc). That's a million quid. With career average earnings of £50k it's two million. The £2000 or whatever you are messing around with at the moment with your drip feeds, is one thousandth of that. The £25 you are putting into a pharma fund this month is one hundred-thousandth of that.

1) The Aviva fund you are talking about is not a global equity tracker. It follows FTSE World ex-UK, so it is missing all companies listed in the UK and all companies listed in 20-30 emerging markets.

So if you wanted to create a balanced portfolio you would need at a minimum to consider adding UK and emerging markets in whatever respective proportions you see fit. So that's minimum three funds if you are going 100% equity and no bonds, property etc.

2) As the 3 funds will all grow or contract at different relative rates based on the whim of the market, you would need to sell and buy between the funds to maintain your target allocations.

Obviously you can try to do this as you go along with your monthly contributions but you mentioned you are going to be doing £200pm monthly contributions next year once your initial drip feed is complete? Even if you have £200pm free, it's going to be impossible to maintain the allocations effectively (for example, say you decide 10% in Emerging markets is what you want, there is no ISA provider that will cost-effectively sell you £20 a month of a specialist emerging markets fund).

3) The obvious thing to do (if you feel you must have an ongoing 'theme' based on certain industries, overlaid onto general global stuff) is for you to get a general - properly global - fund (i.e. including UK and other developed markets and emerging markets too) where the fund manager handles the allocations. Then have a small amount of money on a monthly savings plan to your 'theme' of tech or pharma or whatever... but put most of the monthly savings plan, and all of the occasional lump sums, into the generalist fund which is your long term engine for growth. If you are right about the tech and pharma funds you will get a useful boost from them and if you are wrong you will not lose your shirt.

Once you have £20k in the pot, you can stop and look at it again. Once you have £50k in the pot, look at it again.

4) You say you like the L&G trackers for Tech and Health&Pharma because they have performed well in the last 5 years of bull markets. There are thousands of funds that have performed well in the last 5 years of bull markets. I expect L&G's trackers will do pretty much just as well as everyone else's trackers for those sectors which are available at a low running cost. However, I wouldn't be too reliant on a couple of sectors just because you think they will be good for the future. Do you seriously think that nobody else has come up with the idea that technology and health will be important sectors in the future? And that they haven't bothered to price that concept into the amount you currently have to pay for shares in those sectors or what price companies in the sector cost your trackers to buy in, when they newly IPO?

If you believe in trackers you probably believe that things are fairly priced for their risks. So allocating money into one or two highly specific sectors will only elicit rewards commensurate with the risks. You say you don't mind risks but I would be mindful of piling into a sector that has just done really well, because at some point it will do really badly and most or all of your extra gains will get given back. A fund that only holds one industry sector gives an incredibly bumpy ride. So, following a theme means tilting the portfolio slightly towards that theme, rather than putting substantial amounts of your wealth into it.

For example if you are doing £200pm dripfeed of which £50pm is sector specialist and £150pm is global generalist, *and* on top of that you do at least five other £1000 ad hoc lump sums over the course of the year which all go into the global generalist fund, you will end up having put £7400 into investments of which £600 is your high risk single sector tech and/or health bias. 8% total in those high risk hyper-specialist funds is easily enough to bias your portfolio over a 'normal' globally allocated portfolio.

If you do the sensible thing and have your global generalist fund hold things that are not just equities, but include for example 20% of bonds and property or whatever so that only 75-80% of that fund is equities, then the above example of £50pm into your specialists would leave you with 10%+ (rather than 8%) of your equities in those industry-specific areas. Again, more than enough to add a 'tilt' or 'theme' to your portfolio over and above what the rest of the market is doing.

Novice_investor101

well, I've had another look through all the funds I short listed and have decided to plump for:
70 % in L&G International index Trust (exUK) as its performance is pretty much the exact same as the Aviva International tracker, but half the fees. 15% in a Blackrock UK equity tracker (FTSE all share). 5% in L&G Japan Index tracker and then 5% each in the L&G Tech and Pharma trackers.


Having just read the above reply, (your insight is much appreciated) I think, for now I'll be better off sticking to the trackers mentioned above? I appreciate the L&G International is probably just the same as the Aviva fund in terms of not being "Global" in the true sense, and I want to put a bit in the UK. Most of the money I will put in will be lump sums every couple of months, with the small amounts (£50pm to each fund) drip fed with the monthly savings plan to ensure I always put something in every month. I think i'll stick with these funds for now and re-assess in a year.
Added to these, of course, is my pension where a fair amount of my money is already invested in global funds (Artemis Global Growth, HSBC Amanah, Emerging markets) and a bit of property.


You've all been very helpful. I did think I'd massively over complicated something that didn't warrant it. Certainly not this early on, anyway

bowlhead99

What is it about the prospects of largecap Japanese companies when converted back to pounds that make them so compelling that you want to have more of them that you get in the world index at the expense of the rest of Asia, Europe and North America?

And I still don't see why you are shunning emerging markets? Is it that the growth from the billions of people in those countries over the next 20 years or so is going to be really low and risky so you are going to ignore it entirely to focus on developed stuff and tech/pharma companies? Seems a ballsy call.

Novice_investor101

It's more the fact that I have quite a large pension fund that already has emerging markets, Asia (ex Japan) and Europe equity funds as well as two Global Equity funds (which are USA equity heavy). But nothing particularly specialised or very much in the UK. The L&G and Aviva International Trackers are also both over 58% USA Equities.


This foray into investing isn't for my retirement, or any serious future commitment. I already have a DB pension lined up and a well established DC pension that has another 30 years or so of putting in 25% of my salary each year, and my mortgage is small.
This is for me to do a bit of playing around and hopefully maximise the money I would have otherwise stuffed into a low interest paying savings account. With a potential long term view to going part time at work about 5 years before I actually retire. The idea to invest came when Natwest paid me £0.11p interest on a £7500 rainy day savings account I had with them! So at the minute I'm just looking to get started in investing with a lean towards 100% Equities for growth (for now) and a bit of a gamble on a couple of sectors or a region. I certainly do not want to emulate my pension funds (worst case, this is a safety net for that).

AnotherJoe

Dripfeeding £160 over 6 months makes no sense because if you are that cautious I am amazed you are investing at all, especially as some of your investments are so high risk (no criticism implied but the two actions don't go together at all)

Novice_investor101

Maybe i should have explained a little better, i only drip fed £160 into each of those 5 funds because i had a £1300 lump sum to invest in my first month. So i put £500 into the Aviva fund & hit the "phasing" button on the remaining £800 just to see how it all works. I'll have a £250 a month savings plan set up & will be making similar sized lump sum investments as the first every couple of months. I don't want to pile it all in at once & besides, this is the long game.
Is drip feeding a major drawback? I kinda like the idea of pound cost averaging over the 20-30 years I'll be doing this?
No matter, you've all helped me get some sensibility back into it. I'll probably be switching into a global index tracker (ex-UK) as a core fund, a UK all share tracker, an Asia/Pacific tracker, and the Tech & Pharma trackers for my punts (& maybe Japan, i know about the lost decade/score & i want to put a little of my money in with the belief that over the next 20/30 years Japan recovers. If not, it was only 5% of what i put in over that time...) Maybe in 5-10 years, once it's built up, I'll look at dropping from 100% equity & adding some bonds & property.

masonic

Drip feeding is not a major drawback, but it will tend to give rise to a lower return than investing a lump sum on the same start date. When you are drip feeding from your income, which is being drip-fed to you, then it makes complete sense because you are investing as soon as the money becomes available.