Mainly Passive ETF portfolio

capital0ne

bostonerimus wrote: »

There's an infinite number of paths to an investment goal and you can choose a direct one or a more convoluted one. Once you have the basics of saving aggressively,.using tax efficient accounts, keeping costs down and have an appropriate balance between equities and fixed income you have done 99% of the stuff. Using portfolio models to slice and dice further is diminishing returns for the amount of effort. It does take experience and an understanding of statistics and mathematical modelling to develop more complicated portfolios, but actions that the investor takes along the way are more important that the nuances of asset allocation. Therefore, most people are best served by simple portfolios that are easily rebalanced or multi-asset funds that do the job for you. The OPs portfolio might maximize returns for a set volatility using historical data, but will they take the time to managed it correctly and without a buy/sell plan and the commitment and time to follow it things could go pear shaped quickly.

Good summary :T

pip895

My reasoning in looking at this mainly passive portfolio is firstly to reduce fees and secondly to reduce work. My Isa, fund and share account and a much smaller SIPP use active funds, actively managed using a combination of momentum and value. It has been reasonably successful and my returns have been better than any of the passive portfolios I have been looking at here - and my average volatility/risk value has been under 60. It's quite a bit of work though and I am quite prepared to believe that I have just been lucky, which is why I decided on doing something different with this new portfolio.

Incidentally one thing I think the purist passive brigade might have overlooked is that many active funds are managed to moderat volatility and give downside protection and are willing to sacrifice returns to achieve it. Claiming that they don't work based on average returns may be a little unfair.

It will be interesting to see how my two portfolios fair through the next correction/crash.;)

Linton

bostonerimus wrote: »

...
(A) Using portfolio models to slice and dice further is diminishing returns for the amount of effort. It does take experience and an understanding of statistics and mathematical modelling to develop more complicated portfolios.

(B)but actions that the investor takes along the way are more important that the nuances of asset allocation....

(A) You dont need that level of analysis to get benefit from overweighting Small Companies and Value as advocated by French/Fama. You have previously agreed that there are good arguments for these. As to diminishing returns - yes if you have an N X £1K portfolio its not worth the effort. However with an N X £100K portfolio there is not much more effort than for the small portfolio but 100 times the gain.

(B) Agreed - such actions are also far more important than a fraction of a % in charges.

chucknorris

Alexland wrote: »

I spent ages trying to devise an ETF mix that I was happy with and in the end determined that the differences between my mix and a multi asset fund were not significant enough (and I had no greater certainty of outcome) to be worth the trade costs of setting up and rebalancing.

I'm not there yet, as I need to sell property and switch from VUKE, but my retirement portfolio is hopefully going to look like this, at the moment I am locked into the ftse 100 (VUKE), due to CGT it will take a few years to switch to VHYL:

35% equities, mainly VHYL with a little VCT
23% fixed pension (DB/SP)
22% investment property (hold 1.5 properties for at least a decade longer)
15% bonds (try and find a bond(s) paying near net inflation)
5% cash (regular savers, NSI cert, savings accounts)

The above is a moving target which is constantly under consideration, feel free to comment.

Glen_Clark

Linton wrote: »

To have more than 50% of your investments denominated in a single foreign currency seems an unnecessary risk. Better to have a more even spread.

I think you made good points and rather spoilt it when you said that. Since much of these companies earnings will be in other currencies.

bostonerimus

Linton wrote: »

(A) You dont need that level of analysis to get benefit from overweighting Small Companies and Value as advocated by French/Fama. You have previously agreed that there are good arguments for these. As to diminishing returns - yes if you have an N X £1K portfolio its not worth the effort. However with an N X £100K portfolio there is not much more effort than for the small portfolio but 100 times the gain.

(B) Agreed - such actions are also far more important than a fraction of a % in charges.

Yes you don't need to understand the 3 or 5 factor models to get the conclusion in the executive summary that over weighting small cap might juice return a bit. So have 10 or 20% of the portfolio in small caps. But these portfolios with double digit numbers of funds seem to me to be dubious attempts at perfection at the cost of practicality. The added complexity might not be an advantage as far as return is concerned and also probably makes management choices more difficult.

pip895

I have to say I am a little puzzled about all the concerns about practicality and complexity! It will take all of ten minuets a couple of times a year to rebalance. What am I missing?

bostonerimus

pip895 wrote: »

I have to say I am a little puzzled about all the concerns about practicality and complexity! It will take all of ten minuets a couple of times a year to rebalance. What am I missing?

Well relative complexity maybe. How closely are you going to rebalance......what's the threshold, when are you going to look at things? at the end of each quarter? If you are ok with 10 funds then go for it. I think most people are better served with fewer funds.

Glen_Clark

pip895 wrote: »

I have to say I am a little puzzled about all the concerns about practicality and complexity! It will take all of ten minuets a couple of times a year to rebalance. What am I missing?

Cost of all that buying and selling? Every time you put money in, take money out, or sell something to use up CGT allowance, its going to upset your allocations again?

pip895

Glen_Clark wrote: »

Cost of all that buying and selling? Every time you put money in, take money out, or sell something to use up CGT allowance, its going to upset your allocations again?

It's a SIPP so no cgt to worry about, no more money going in and probably nothing coming out for a few years either. Actually I would have thought if you have flows in and out rebalancing would be easier.

With my active portfolio I rebalance when the misbalance reaches 10%. I assumed I would do the same with this portfolio.