Portfolio Allocation: Critique Welcome

bostonerimus

Audaxer wrote: »

bostonerimus, just wondering, do you regularly rebalance your 3 fund portfolio? If not I assume that the percentage of equities has crept up over the years as you have made good total returns?

I rebalanced when I was working. I was 60/40 then and kept the allocation stable in a +/- 5% band. In retirement I've let it float and it's now just above 70% equities. I feel ok doing this because I have income from other sources and I look at the papers on a rising equity glide path in retirement and like the results of the analysis.....more equities, more risk, but the possibility of bigger returns. Also as my portfolio has grown I've become more sanguine about losses as, frankly, I can afford them more than when I was starting out.

bostonerimus

Audaxer wrote: »

But I think that is only if you don't have a cash buffer to cover lean years. So if in the first year of retirement there is an equity crash and your retirement fund suffers a big loss, its best to be in a position not to need to withdraw anything until it gets back to profit. Accordingly whenever the crashes come in retirement, as long as you have sufficient cash to cover your income needs, the impact would be the same.

That cash buffer will reduce portfolio return, but it's insurance against having to sell low to get income. It's still worse if the crash happens early on because your chances of having it happen again are greater than if it happens half way through retirement and you also won't have seen any significant growth in your portfolio, The small number of scenarios when drawdown plans fail are usually due to big market down turns early on with an unmodified drawdown rate.

The_Doc

DairyQueen wrote: »

Please bear in mind that I am aware that a little knowledge can be dangerous and that I am in the 'little knowledge' category, but I am learning more every day.

@DQ: Why not go on a course and get a qualification? I have gained a Diploma in Regulated Financial Planning. It took me just over a year and I was working full time during that period. It's an excellent way to increase your knowledge.
http://www.cii.co.uk/qualifications/diploma-in-regulated-financial-planning-qualification/

I don't plan to use that qualification by becoming an IFA, but I enjoyed it enormously. It cost over £1K (can't remember exact cost), but I have since saved that money many times over on my personal investments and family and friends now come to me for "guidance".

Investments are a hobby for me too. So my portfolio is more complicated than it could be, but that's part of the fun for me. I have a good DB too, I can be as cautious or whacky as I like. But I have structured my families investments to meet our particular requirements.

DairyQueen

The_Doc wrote: »

@DQ: Why not go on a course and get a qualification? I have gained a Diploma in Regulated Financial Planning. It took me just over a year and I was working full time during that period. It's an excellent way to increase your knowledge.
http://www.cii.co.uk/qualifications/diploma-in-regulated-financial-planning-qualification/

I don't plan to use that qualification by becoming an IFA, but I enjoyed it enormously. It cost over £1K (can't remember exact cost), but I have since saved that money many times over on my personal investments and family and friends now come to me for "guidance".

Investments are a hobby for me too. So my portfolio is more complicated than it could be, but that's part of the fun for me. I have a good DB too, I can be as cautious or whacky as I like. But I have structured my families investments to meet our particular requirements.

What a brilliant idea! This had never occurred to me. Many congrats on successfully completing the course and I shall take a good look at that link.

It would definitely be a £1000 well-invested but I think I would also enjoy it.

The suggestion is very much appreciated. Thankyou.

badger09

DairyQueen wrote: »

What a brilliant idea! This had never occurred to me. Many congrats on successfully completing the course and I shall take a good look at that link.

It would definitely be a £1000 well-invested but I think I would also enjoy it.

The suggestion is very much appreciated. Thankyou.

There are also free courses available.

https://www.futurelearn.com/courses/managing-my-money

Several regular posters (including colsten IIRC) have done this one and spoken well of it. Apologies if this is too basic for you.

Thrugelmir

IanSt wrote: »

As per Voyager2002 the NAV and the share price of an investment trust can and usually does diverge. My worry with some investment trusts is that over the last ten years a lot of the divergence may be mainly mainly to the huge amounts of cash that governments around the world have being throwing around.

Much of the divergence is historical. Historically large fund managers used to use IT's as a way of obtaining exposure / diverfisying risk. As fund managers created in house operations that covered same. Then the holdings they held became redundant. Offloading 3 million shares over an extended period without any major buyers in the market place can only depress a share price. Hence why more recently IT's have evolved mechanisms to control discounts.

Thrugelmir

bostonerimus wrote: »

Yes, but the market correction can be amplified in an IT because of borrowing and premium/discount pricing. But if you just live on yield that shouldn't bother you much.

Premium/discount is a reflection of supply/demand not NAV. No different to buying Facebook shares. Holding a tracker fund simply means your money moves with the herd. The ability to trade on premium/discounts can be extremely profitable if one is happy to be patient.

Audaxer

Thrugelmir wrote: »

Premium/discount is a reflection of supply/demand not NAV. No different to buying Facebook shares. Holding a tracker fund simply means your money moves with the herd. The ability to trade on premium/discounts can be extremely profitable if one is happy to be patient.

Thrugelmir, I've a couple of questions about premiums/discounts which hopefully you or others can answer for me:
If you invested say 5k in an IT when it was at a premium and if the share price then rose by say 50% in 5 years to be worth £7.5k would it matter whether it was then at a 10% premium or 10% discount if you were going to sell it?

If you are trading on premium/discounts like you say, is that not the same as trying to time the market?

Thrugelmir

Audaxer wrote: »

Thrugelmir, I've a couple of questions about premiums/discounts which hopefully you or others can answer for me:
If you invested say 5k in an IT when it was at a premium and if the share price then rose by say 50% in 5 years to be worth £7.5k would it matter whether it was then at a 10% premium or 10% discount if you were going to sell it?

If you are trading on premium/discounts like you say, is that not the same as trying to time the market?

I've never bought an IT at a premium. Other than for new issues. Nor do I buy at a discount purely because there is one. Likewise I sell\top slice a holding at a premium, if I've identified what I consider to be a better opportunity elsewhere. Media coverage has a major influence on IT's. Investors tending to act in a herd like nature.

Trading discounts is a bonus not a reason to buy the IT in the first place. I maintain a watch list of IT's that catch my eye. Discounts can widen and narrow very rapidly. Offering an opportunity to lock into a good yield.

bostonerimus

Thrugelmir wrote: »

Premium/discount is a reflection of supply/demand not NAV. No different to buying Facebook shares. Holding a tracker fund simply means your money moves with the herd. The ability to trade on premium/discounts can be extremely profitable if one is happy to be patient.

I agree, premium/discount is a different (and extra) risk over and above the NAV. As is obvious from recent IT returns there's lots of money to be made, but also lots to be lost. I expect many people will be patient and will profit form selling ITs at both higher NAVs and higher premiums than when they were purchased. But the converse is also true. I have a friend who bought PHK a while back.....right now he's in a big hole and I wonder how it will keep paying 12%, but if he's patient maybe it will come back.

Holding trackers does mean you move with the herd, and so your chances of getting picked off by a lion are reduced - it's a good survival strategy for most of the antelope that don't have the consistent speed to beat the lion every time.