How do self investors decide on asset/fund allocation?

Retired_Minky

If I go SIP or self managed what's the best way to decide on fund/asset allocation?

Are there sites that offer examples of allocations and changes to make.

What do other SIP managers do to decide on asset allocation? Not everybody with a SIP can be a stock market expert can they?

ermine

binning wrote: »

If I go SIP or self managed what's the best way to decide on fund/asset allocation?

There is no best way. It all depends on you, your stage of life, your attitude to risk, and any other resources you may have.

Start with Monevator, read these forums, read the thread The Number in this forum which helps you rough out how much people need at retirement. It's a big life decision, and you can't get it right for you without learning about the subject. And if you do want to ask others for help, an idea of your age, existing pension savings and commitments will help people point you in the right direction.

But you have to do the work yourself. You are trying to do forward planning in the face of significant uncertainly. Not everybody is up for that.

quotememiserable

I go self select on my workplace pension. I looked at the funds available, looked through performance and risk information at Trusnet and choose some that fit my appetite. I split the money three ways. I've come to like the Ethical and Amanah funds, not for any ethics or religious reason, but because they are consistent long term good performers.

BLB53

Asset allocation is one of the most important aspects of investing ..especially for those who want to diy. Your mix of equities, bonds, property and cash in a portfolio could make the difference between staying the couse for the long haul or bailing out when the markets take a tumble - which is quite often.

Are there sites that offer examples of allocations and changes to make.

One of the best articles I have read is on the diy Investor site http://diyinvestoruk.blogspot.co.uk/2016/05/asset-allocation-revisited.html

bostonerimus

Most allocations emphasize equities over bonds when young and gradually increase the bond and fixed income percentage as retirement approaches. Having said that I was basically 60/40 equity to bonds when I was working and now that I've retired I've drifted up to 70% equities as I have a pension and can take the risk.

A 60/40 allocation is the starting point for many people and in the UK you could do that with a global equity tracker and a global bond tracker or just buy VLS60. I live in the USA and I have a US equity biased portfolio in just 3 funds

Vanguard Total US Stock Market 50%
Vanguard Total International Stock Market 20%
Vanguard Total Bond Index 30%.

Don't worry too much about getting the "perfect" allocation.....it doesn't exist. There'll be times when you lose money and times when you are ahead and times when you'll hear people saying what great gains they made in their portfolios. Ignore all that and continue to rebalance and save regularly.

jamesd

Safe withdrawal rate research has examined this a lot. In general:

1. Stay below 40% in bonds on average because more starts to seriously cut the safe withdrawal rate.
2. High equity allocations usually do well but not when equity prices are as high as they are now.

The research has found significant improvements are possible, one being a rising equity glidepath that starts relatively high in bonds to protect against a crash in the early years then increases equities over time.

Highest safe withdrawal rates come from combining more modern drawdown rules like Guyton-Klinger with Guyton's sequence of return risk reduction method that cuts equity percentage at high prices and increases it at low ones. These approaches are ideal for those who can vary their income during retirement, accepting cuts if they happen to live through a bad time.

ianthy

I have been wrestling with the same issue for the last few months - where to allocate my funds and the appropriate distribution. I have already allocated 50% of my pot to my IFA to manage and the remaining half I am doing it myself. There is so much to read ... almost too much really. As previously mentioned, DIY investor and Trustnet are really good for research and testing a portfolio - adding some funds and then removing them to see the overall impact on my portfolio.

I already have some property investments, cash and OH has a DB pension too. I rated as dynamic investor but I decided to invest based on a balanced profile with 60% equities, 30% bonds and 10% fixed. My IFA will manage part of my portfolio split between balanced to dynamic. I have selected 21 funds - maybe too many based on some of the comments I have read but I am happy with the number and will re-visit them over time.

My advice as a amateur would be to do as much research as you possibly can and review the funds before investing. I checked my funds against performance, volatility, mix, rating, geography and if they would sit within a cautious/balanced portfolio. Volatile funds/investments may not suit, until you are more experienced and comfortable with the ups/downs of the markets. Therefore you might be happy with a lower rate of return but less risk.

Best of luck and keep posting q's as you will also get lots of great advice from this forum too.

bostonerimus

ianthy wrote: »

I have selected 21 funds - maybe too many based on some of the comments I have read but I am happy with the number and will re-visit them over time.

What is the percentage of each fund and do you have a rebalancing strategy? I'd go mad trying to manage 21 funds.....5 or 6 would be my limit.

ianthy

bostonerimus wrote: »

What is the percentage of each fund and do you have a rebalancing strategy? I'd go mad trying to manage 21 funds.....5 or 6 would be my limit.

I have a min of 3% in each fund. As I am not too concerned about drawdown for at least 5+ years, I am not too concerned about absolutely rebalancing the portfolio and keeping it perfectly aligned. Also, I am going to try to resist the itch to fiddle with things. Having said that I don't want equities to occupy more than 70-75% max and I will review annually. I think this may mean moving into cash/fixed for a short period, until I find a more suitable fund in the right category. I like the info/presentation format from Trustnet and will use this to help monitor and identify if any of the funds/investments need to change.

All my investments are with AJ Bell You Invest, so at least I only have to work across 1 platform. Interestingly, the other half of the portfolio managed by my IFA has 21 funds too but held on a different platform and different funds too.

I am definitely not an expert but I am enjoying the research and challenge of managing my own SIPP.

bostonerimus

ianthy......so 41 different funds in total. you'll probably have a lot of overlap. I think this excessive slicing and dicing approach will be difficult to manage and will create more work for you than is necessary.

TBC15

jamesd wrote: »

Safe withdrawal rate research has examined this a lot. In general:

1. Stay below 40% in bonds on average because more starts to seriously cut the safe withdrawal rate.
2. High equity allocations usually do well but not when equity prices are as high as they are now.

The research has found significant improvements are possible, one being a rising equity glidepath that starts relatively high in bonds to protect against a crash in the early years then increases equities over time.

Highest safe withdrawal rates come from combining more modern drawdown rules like Guyton-Klinger with Guyton's sequence of return risk reduction method that cuts equity percentage at high prices and increases it at low ones. These approaches are ideal for those who can vary their income during retirement, accepting cuts if they happen to live through a bad time.

Is there an idiots guide/worked through example to these rules based on say £1,000,000 pot and £40,000 draw down.