Should we Invest in only one fund?

enthusiasticsaver

Thanks everyone for some very detailed and useful responses. I agree with Coodiron and bowlhead about not committing to regular drawdown from our investments and we will instead keep a large cash buffer to subsidise our pensions. I have decided against managed income funds.

I must admit I freaked a bit when people mentioned the £50k Fscs limit re fraud as we have 3 times that with Vanguard. i like however the fact that the Vanguard LS60 is already well diversified but for my peace of mind I am going to look at another fund manager offering a similar product to invest in going forward as we will have a further £100k to drip feed in over next year and I feel that is too much for one fund house. We have never kept our banking all with one bank so I see no reason to not use the same philosophy with our investments.

I am thinking a good aim eventually is 15-20% cash and 80-85% invested.

enthusiasticsaver

Stirfry wrote: »

I also have money in VLS60 acc, but have just started investing in Investment Trusts primarily for income. The funds are in S&S isa's. I have 4 IT's and as I invest further I intend to add some Bonds 20/40% and possibly unit trusts. I will look to rebalance Funds on a yearly basis. BTW I have no appetite for individual shares and I am a total newbie but will eventually have around 550k invested.

I will not be drawing on the income until my investments are fully in place in the next 3 years (funds currently in fixed term savings) so have the dividends paid to the isa a/c and will use that to rebalance the portfolio.

You have said that you do not need to draw a regular income. When reinvesting income remember you will incur charges, whereas if the money is automatically reinvested you could still sell off part of the investment if you needed the money.

If you have the appetite to manage your income without panicking too much when investments fall, why not start reading up on Unit Trusts and Investment Trusts in order to devise a strategy. Diversity seems to be the key, whether it be geographically or through different types of investments.

That is useful thanks. As you have a large amount invested do you have an upper limit you will invest in any one fund house? Do you keep to the FSCs limit of £50k or do you not worry about that?

Noted about charges and I have now decided against income funds.

The only strategy I have decided on is we will keep to well diversified low cost multi asset funds like the Vanguard LS60 but have reached our upper limit for that fund house now and will go for either Legal and General or Blackrock Consensus for the £100k we intend investing over the next year. 80% eventually invested in the multi asset funds (60% equities) and 20% cash buffer for regular drawdown over next 7-10 years until state pension age reached.

Audaxer

bowlhead99 wrote: »

Any portfolio that is mostly equity-based and whose non-equity bits are high yield bonds (whose values may be more correlated with equities than other types of bonds) is considered higher risk.

Especially where the investment trusts use borrowing (gearing) to enhance potential returns by 10% or more, that's an 'enhancement' to downside risk too.

As is the potential for the 'discount to NAV' that the trust is currently bought or sold at, to increase, increasing potential losses compared to holding the underlying shares individually.

However, a portfolio should not be viewed in isolation if it is not your entire plan. If that's only half of what you are doing and the other half includes a much greater broad bond component alongside its generalist largecap equity index piece, then you should consider the allocation in the context of an entire cohesive plan, rather than looking at one bit and saying it's maybe too risky and complicated and the other bit and saying it's lacking something or too boring and not complicated enough.

But it all needs to be seen in the context of what sort of risks you want / what range of outcomes you'd be willing to accept, and what you understand about investing (or are capable of understanding).

For example you are slapping together some UK and international investment trusts (because you like the historic yields) with some equity indexes and some bond indexes (because you think you understand them as being straightforward but you want to generate more natural income than they are capable of); you are not using some of the other traditional income generators such as property funds; and you think it could be too complicated to try to control how much income/capital you draw from the assets yourself. There are several ways to skin a cat and different people would be suited to different approaches, getting different outcomes.

Thanks again bowlhead, I was going for a cautious VLS40 for 50% of my portfolio as I see myself coping okay with a large fall in the price at some time. I was concerned that if the IT half is nearly all equities that would mean my overall exposure to equities would be about 70%, and at nearly 60 years of age I was thinking that might be a bit too risky. On the other hand the reason I thought the IT half was less risky was because picking ITs like City of London that has about 50 consecutive years of increasing dividends, I wouldn't need to touch the capital value and consistent dividend amounts would keep rolling in, even in falling markets - so I could cope with the volatility. I was also thinking of adding in a property IT for some diversification.

In view of what you have said I'm not sure it is the right option for me, but ITs had just seemed to me a better option than putting the other 50% in income generating funds, as not sure fund income is as reliable in falling markets?

So far I've only gone down the VLS route and still not sure whether ITs would be the right choice for me for the other half of my portfolio, so I do welcome and appreciate your comments and any further advice. Thanks.

enthusiasticsaver

Audaxer wrote: »

Thanks again bowlhead, I was going for a cautious VLS40 for 50% of my portfolio as I see myself coping okay with a large fall in the price at some time. I was concerned that if the IT half is nearly all equities that would mean my overall exposure to equities would be about 70%, and at nearly 60 years of age I was thinking that might be a bit too risky. On the other hand the reason I thought the IT half was less risky was because picking ITs like City of London that has about 50 consecutive years of increasing dividends, I wouldn't need to touch the capital value and consistent dividend amounts would keep rolling in, even in falling markets - so I could cope with the volatility. I was also thinking of adding in a property IT for some diversification.

In view of what you have said I'm not sure it is the right option for me, but ITs had just seemed to me a better option than putting the other 50% in income generating funds, as not sure fund income is as reliable in falling markets?

So far I've only gone down the VLS route and still not sure whether ITs would be the right choice for me for the other half of my portfolio, so I do welcome and appreciate your comments and any further advice. Thanks.

If you have gone for the VLS40 you are even more risk averse than me as we have VLS60. Would ITs then be too risky for you as not as well diversified? I must admit doing more and more reading around this I have decided to keep to multi asset funds of funds.

We have decided to go for bucket approach to our retirement funding as it sounds like you are in similar position. First bucket is our pensions. 1 main occupational for my husband which he already takes, my occupational LGPS one which I will take next January (looked at deferring it but not really worth it) and my GMP one which kicks in at 2020. State pensions paid in 2024 and 2026. The second bucket will be a large cash buffer to subsidise pensions. The third bucket will be 2 multi asset funds, the Vanguard LS60 and either Legal and General multi asset 4 or Blackrock Consensus (not decided which level yet). When we drawdown on these will be up to market conditions and rate of depletion of bucket 2.

bostonerimus

Audaxer wrote: »

One of the things that concerns me about that is that in the 30 year period there will mostly likely be years when there will be losses. So do you still drawdown the 4% when the share price has dropped, or do you draw out more that 4% in years when there are large gains? Not sure that would be as straightforward as it sounds.

That initial 4% includes sequence of returns risk so includes all the ups and downs of the markets and gives a 95% chance of having some money left after 30 years. It drops out of a Monte Carlo analysis of US historical market returns. There are studies that suggest that for the UK a safer withdrawal rate might be 3.5%. Google "Trinity Study".

AnotherJoe

enthusiasticsaver wrote: »

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We have decided to go for bucket approach to our retirement funding as it sounds like you are in similar position. First bucket is our pensions. 1 main occupational for my husband which he already takes, my occupational LGPS one which I will take next January (looked at deferring it but not really worth it) and my GMP one which kicks in at 2020. State pensions paid in 2024 and 2026. The second bucket will be a large cash buffer to subsidise pensions. The third bucket will be 2 multi asset funds, the Vanguard LS60 and either Legal and General multi asset 4 or Blackrock Consensus (not decided which level yet). When we drawdown on these will be up to market conditions and rate of depletion of bucket 2.

I dont see any harm in splitting those 50/50 if it makes you feel better and makes no financial difference which you choose. If they both cover the same territory and have similar fees, theres really no difference to picking one or splitting between the two and even if there is a small difference then you are diversifying which is generally thought to be a good thing.

I had a similar choice a couple of years ago, i was struggling to choose between two almost identical funds and rather than keep prevaricating i just went 50/50. So far they have had identical performance so in retrospect i could have picked either but there's no harm done and i made a decsion quicker, which was the main thing.

bostonerimus

bowlhead99 wrote: »

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There are some decent posts around sequence of returns risk and some of the modelling tools to see how 'survivable' your proposed level of withdrawals might be, by poster jamesd on the pensions and retirement board. Planning tools from the Financial Independence / Retire Early movement (e.g. cFIREsim) can help you simulate potential events.

But even without getting too technical about it, the issue that you have is that if you agree that pulling out a fixed amount of your money every month even if the fund you're pulling it from is looking really low is probably a bad thing... then you realise that it might be more appropriate to take a variable amount of income and less in the 'bad times'.

Changing from "4% of my original value or current value, whichever is higher" to "4% of my original value or current value, whichever is lower" is a safer way to do it. Or just 4% of current value, year in year out is still better than saying you are going to belligerently take 4% of £100k if there is only actually £70k in the account. But on a practical level it can be disconcerting to be taking £333 a month one year and then only be allowed £250 a month the next year when your shopping bills haven't changed.

So a relatively safer way to do it is to have a large holding account with a couple of years income in it at the best interest rates you can get, and then draw your preferred fixed level of income out of the holding account while only drawing a variable level of income out of the investment funds into that holding account. In the 'lean years' the holding account will only be getting £250 a month into it while paying out your £333 to your current account, but it can sustain that for a while if the buffer is nice and big. Then in the better years, the holding account will naturally get topped up because you can take more money out of the investments than you need for the spending.

If you are drawing fixed amounts and don't mind manually selling capital to get income (rather than accepting the pretty low level of natural income you get in world trackers) then it is best to focus on total return and not just the yield. Investment trusts or other funds which are actively managed to achieve sustainable yield and/ or low volatility, rather than just taking the rollercoaster of the index, can be perfectly useful. You might expect 'equity income' funds or ITs to outperform an overall index in the long run anyway, as they are not so linked to largecap stocks and particular industries. But that is a whole other debate.

There's lots written about withdrawal strategies. The most basic is based on results form the Trinity Study. This indicates that with a 60/40 asset allocation you can withdraw 4% in the first year and increase that amount by inflation each year and have a 95% chance of having money left after 30 years. There is a large probability that you'll end up with a substantial sum to pass on to your heirs. Then we get into some subtleties like having a cash buffer so that you don't have to sell during down times....of course large amounts in cash rather than equites in good times will limit your returns too.

An interesting approach is that of Guyton and Klinger which is a constant percentage with a ceiling and floor.

Studies also show that 3.5% is a safer number for the UK. Of course if you expect to have a 20 year retirement the withdrawal rate goes up.

bostonerimus

enthusiasticsaver wrote: »

If you have gone for the VLS40 you are even more risk averse than me as we have VLS60. Would ITs then be too risky for you as not as well diversified? I must admit doing more and more reading around this I have decided to keep to multi asset funds of funds.

We have decided to go for bucket approach to our retirement funding as it sounds like you are in similar position. First bucket is our pensions. 1 main occupational for my husband which he already takes, my occupational LGPS one which I will take next January (looked at deferring it but not really worth it) and my GMP one which kicks in at 2020. State pensions paid in 2024 and 2026. The second bucket will be a large cash buffer to subsidise pensions. The third bucket will be 2 multi asset funds, the Vanguard LS60 and either Legal and General multi asset 4 or Blackrock Consensus (not decided which level yet). When we drawdown on these will be up to market conditions and rate of depletion of bucket 2.

Buckets is just another way at looking at asset allocation and many people seen as a bit of a gimmick. With a 60/40 well diversified portfolio you will be just fine. If you are thinking about adding funds to Vanguard LS60 I would stick with trackers (avoid actively managed funds as on average they do worse than trackers) and buy a fund that compliments LS60 ie has a different asset mix.If you are ok with the asset mix in Vanguard LS60 there's no need to buy another fund.

Stirfry

enthusiasticsaver wrote: »

That is useful thanks. As you have a large amount invested do you have an upper limit you will invest in any one fund house? Do you keep to the FSCs limit of £50k or do you not worry about that?

Noted about charges and I have now decided against income funds.

The only strategy I have decided on is we will keep to well diversified low cost multi asset funds like the Vanguard LS60 but have reached our upper limit for that fund house now and will go for either Legal and General or Blackrock Consensus for the £100k we intend investing over the next year. 80% eventually invested in the multi asset funds (60% equities) and 20% cash buffer for regular drawdown over next 7-10 years until state pension age reached.

I have only just started investing and most of my funds are tied up in fixed term savings.I did a money ladder so funds were freed up year on year. I effectively tied my hands behind my back so that I did not make any rash decisions. I am more concerned about the investment decisions I am currently making, rather than the FSCs 50k limit. But I still think diversification is a must.

I am working towards the tiered approach, different horses for different courses. Will have some in VLS60 acc and try to not peek for 10 years, then might have a nice surprise or not? But mainly ITs for regular income, am trying to get the balance of overall portfolio right and have just put money in Fundsmith LLP, also Artemis Strategic Bond and Royal London Extra Yield Bond. I hope I am not fashion investing.

Once this years S&S isa is full will open a fund and share a/c when further funds become available in October. This will have given me a little time in the Market and the chance to see how the total investment of 55k has gone so far.

Even at 59 years of age I guess I should be taking some risk as I should have the next 30 years of investing ahead of me. At least my OH has faith in me!

bostonerimus

Stirfry wrote: »

I have only just started investing and most of my funds are tied up in fixed term savings.I did a money ladder so funds were freed up year on year. I effectively tied my hands behind my back so that I did not make any rash decisions. I am more concerned about the investment decisions I am currently making, rather than the FSCs 50k limit. But I still think diversification is a must.

I am working towards the tiered approach, different horses for different courses. Will have some in VLS60 acc and try to not peek for 10 years, then might have a nice surprise or not? But mainly ITs for regular income, am trying to get the balance of overall portfolio right and have just put money in Fundsmith LLP, also Artemis Strategic Bond and Royal London Extra Yield Bond. I hope I am not fashion investing.

Once this years S&S isa is full will open a fund and share a/c when further funds become available in October. This will have given me a little time in the Market and the chance to see how the total investment of 55k has gone so far.

Even at 59 years of age I guess I should be taking some risk as I should have the next 30 years of investing ahead of me. At least my OH has faith in me!

So what asset allocation are you looking for? How much equity and how much fixed income? and why? Do you know the charges of Artemis Strategic Bond? Personally I would never buy that fund. If you want a bit more fixed income why not just buy VLS40 or VLS20? Keep it simple and low cost!