Portfolio Fund Assistance

Alexland

Prism wrote: »

You beginning to see the problem? We all have different goals and attitudes to risk. Alexland is worried about a fund with a PE over 20 - I don't lose any sleep about a fund with PE over 40 (btw your Japan fund is 40).

How can you not be concerned about a P/E of 40? Sure some companies don't pay dividends as they reinvest into growth but there should still be earnings on the income statement. Earnings are the measure of the economic viability of the business. If we loose track of earnings we might as well be swapping bitcoins or magic beans. Sure it's nice to have high asset valuations but it's nicer to know there's an underpinning logic acting as a foundation.

Alex.

Prism

Alexland wrote: »

How can you not be concerned about a P/E of 40? Sure some companies don't pay dividends as they reinvest into growth but there should still be earnings on the income statement. Earnings are the measure of the economic viability of the business. If we loose track of earnings we might as well be swapping bitcoins or magic beans. Sure it's nice to have high asset valuations but it's nicer to know there's an underpinning logic acting as a foundation.

Alex.

Well not all my funds have that PE, but the growth ones tend to have something around that. PE is a view of the history of that company but not where they are going. In some ways a high PE is a confirmation that others also believe in the future of that company. Take Amazon - its got a current PE of 315. Is that too high? Lots of people seem to disagree. Ocado is 237, Boohoo is 86, Paypal is 62, Tesla is off the scale. I would rather hold funds with those companies than look for a value fund with a bunch of out of favour companies around the 15-20 mark.

I didnt go looking for high PE funds - its just the ones I like happen to hold expensive companies. It may or may not be the correct price, i have no idea. Maybe some of those companies will crash and never come back like the UK banks. I have plenty of time to find out - well about 15 years or so. Like I said, it doesn't worry me at this point

DennisTenus

bowlhead99 wrote: »

Yes, silly question. that's exactly why he listed them...


Emerging markets ; as opposed to countries with developed markets

If you don't really know what you're doing with this sort of stuff, there's no shame in recognising that and just putting more money into the VLS80 which covers the larger companies in broad global markets (including emerging markets). The emerging markets content of the equities within your VLS80 is about 7.5% of the equities you have in that fund. However, as you've added other funds such as Fundsmith and the Japan one on the side - which only have companies in developed markets - you will have diluted down the EM content of the overall portfolio. If you buy more VLS80, you will increase it again (as well as also increasing bond content, reducing volatility).

By having your money in a fund such as VLS80 which allocates it to equities in all major regions (US, UK, Europe, Japan, other developed Asia-Pacific, emerging markets) and across asset classes (equities, government bonds, index linked government bonds, corporate bonds) it is like a ready-made portfolio all within one holding, right off the shelf. It covers the basic major areas you would want, and is far better than not investing at all.

If you are going to decide that instead of VLS80 being your whole portfolio, you are going to leave space in the £70k total to add other things on top of that (i.e., dilute the VLS80 holding with other stuff), you should probably aim for that 'other stuff' to be areas that VLS80 does not cover. Rather than duplicating the stuff it already covers, or giving more exposure to a particular country or company type.

The only reason really to add extra funds around the side of the VLS80 in a 'core and satellite' or 'hub and spoke' style, would be if you decide there are other asset classes or global regions or company types which are particularly under-bought by your generalist VLS80 fund, compared to what you want. If that is your goal, you could leave room in the £70k to accommodate them while having VLS80 be the core of your holdings, with the additional holdings just providing little tweaks to tilt the overall portfolio to whatever you like.

However, to be frank, it sounds like you don't really know what portfolio you want to create and are just reaching out to us for ideas of what you might like to use to create a portfolio you might like. That is a bonkers way of allocating capital. You are just as likely to do harm than good, when messing with the allocations Vanguard gave you.

The VLS series of funds is designed to be a whole portfolio of developed and emerging markets equities and bonds right off the shelf ; you could use it for an entire portfolio, or more experienced investors might want to complement it with something and add their own slant, if they know what it is they want to do and why they want to slant the portfolio in a particular direction. Likewise, the Fundsmith fund is designed to be a general global developed markets100% equities fund, leaving you to just add a few other things to balance out your overall asset allocation to what you want. The idea of buying VLS80, but then also adding Fundsmith, and then adding more Japan, and then going online and asking everyone around what extra funds they would fancy adding, seems like a mess.

You don't need a portfolio designed by a committee of forum members with their own tastes and preferences and no vested interest in your actual goals and needs. You just need to buy something simple that isn't too risky/volatile for what you can handle. You can do that by buying VLS or one of their rivals, or by doing a lot more research and creating something uniquely custom just for you.

With your level of experience it's unlikely you need something uniquely custom just for you. Following that path will just tempt you into doing things you should avoid - like trying to copy what other people with different levels of experience or risk tolerance have done, or just buying funds to stuff into your portfolio because they look nice in the performance charts due to having a high return in the last five to eight years when markets were rising rapidly.

I'm sure I said at the start of this that I'm no expert BUT I am trying to learn, reading lots, asking on forums such as this, getting other advice etc.

I understand what you are saying but I don't want to put all my eggs in one basket with VLS (like I have seen other people have recommended against in other threads). You can't possibly be telling me that VLS is perfect one solution fits all and will definitely be ok come rain or shine?!? Tell me, what would be a good alternative to VLS that's similar in that it's "simple that isn't too risky/volatile for me"? Baillie Gifford Managed??

I want to mix it up a bit and some risk. I'm not putting all my money in this either, so I have safety net of probably over 6 months in the very unlikely event I lost my job or something else bad happened, obviously don't know when I might need it but all being well I should be able to leave it for years.

Yes I am reaching out for ideas, it would have been nice instead of criticising me, to give me some suggestions or pointers like other people have, I'm not going to hold you to it, I may not do it, I'm taking all the information, research and opinions on board.

So in a nutshell is there really any problem in maybe putting 50% in VLS80 and then the rest in other funds and mixing it up a bit?

I've been doing the other approach in HL that you mention - buying LOTS of funds I like the look of, some up some down, up at the minute, may not be in crash no, who knows... it's interesting though. How else am I supposed to learn this and become an expert like you (while working full time plus doing many other things)?

DennisTenus

Prism wrote: »

You beginning to see the problem? We all have different goals and attitudes to risk. Alexland is worried about a fund with a PE over 20 - I don't lose any sleep about a fund with PE over 40 (btw your Japan fund is 40). Some people like bonds - I don't have any place for them at all right now since they provide such a small return. Some people need their money within 5 years and are concerned about a crash - others are looking for a 30 year + investment and will likely see a few crashes during that time.

Until you can be sure I would follow Bowlhead99's advice and stick to VLS80 and maybe add a small amount into a diverse fund if you want to assess your own risk level. But have a plan for your goal with it. Saying that, I am assuming you are coping with your Legg Mason IF Japan fund? Did you hold it at the end of 2016 when it dropped around 25% in little over a month? How did or would that make you feel? Since then it is up 55% but that's the easy part.

Yes I am! That's why I like all the opinions on here and will formulate my own opinion/decision in time (rightly or wrongly).

I haven't had Legg Mason IF Japan that long.... would you recommend I sell some of it when I'm UP on it? Like now....

TAMB

greatkingrat wrote: »

The S&P500 P/E is currently 26.5, so unless you avoid equities altogether, whatever fund you choose to invest in will likely have a high P/E ratio.

Terry Smith has a much greater focus on Return on Capital than he does on P/E ratios. Something to think about, this is a quote from Charlie Munger (one half of Berkshire Hathaway).

"Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over forty years and you hold it for that forty years, you're not going to make much different than a six percent return - even if you originally buy it at a huge discount.

"Conversely, if a business earns 18% on capital over twenty or thirty years, even if you pay an expensive looking price, you'll end up with one hell of a result."

Eco_Miser

DennisTenus wrote: »

You can't possibly be telling me that VLS is perfect one solution fits all and will definitely be ok come rain or shine?!?

It's not perfect and there are no guarantees, but it's close, and easy to use with little understanding needed. It may be one big basket, but there's loads of little baskets inside.
There will always be funds that do better, and always be funds that do worse. When the (global) market goes down, VLS will go down, when the market goes up, VLS will go up.


Alternatives are L&G MI series, Blackrock Consensus, HSBC global.

Or you could do a lot of studying and roll your own.

k6chris

DennisTenus wrote: »

So in a nutshell is there really any problem in maybe putting 50% in VLS80 and then the rest in other funds and mixing it up a bit?

No none whatsoever. The reason no-one gives an absolute answer is because there is no absolute answer. Some of that is based on your timescales and risk appetite, much is based on second guessing what will happen in the world over the next 10 years (and good luck with that!).

I am going for 50%(ish) in VLS80 and 50% in smaller managed funds that cover disperate sectors, markets and investement types. Probably more art than science but I will sleep soundly at night.

Prism

DennisTenus wrote: »

Yes I am! That's why I like all the opinions on here and will formulate my own opinion/decision in time (rightly or wrongly).

I haven't had Legg Mason IF Japan that long.... would you recommend I sell some of it when I'm UP on it? Like now....

I'll leave that up to you . I have around 10% of my portfolio in Legg Mason Japan which satifies my 10% Japan rough guideline. I'm not selling any unless it gets to about 15% when I will probably consider it. Its my best performing fund. I also like it because its high conviction in few companies and rarely changes. This is partly what makes it a bit volatile.

DennisTenus

Eco_Miser wrote: »

It's not perfect and there are no guarantees, but it's close, and easy to use with little understanding needed. It may be one big basket, but there's loads of little baskets inside.
There will always be funds that do better, and always be funds that do worse. When the (global) market goes down, VLS will go down, when the market goes up, VLS will go up.

Alternatives are L&G MI series, Blackrock Consensus, HSBC global.

Or you could do a lot of studying and roll your own.

Thanks, going to put some in HSBC Global.

k6chris wrote: »

No none whatsoever. The reason no-one gives an absolute answer is because there is no absolute answer. Some of that is based on your timescales and risk appetite, much is based on second guessing what will happen in the world over the next 10 years (and good luck with that!).

I am going for 50%(ish) in VLS80 and 50% in smaller managed funds that cover disperate sectors, markets and investement types. Probably more art than science but I will sleep soundly at night.

Exactly, thanks

Prism wrote: »

I'll leave that up to you . I have around 10% of my portfolio in Legg Mason Japan which satifies my 10% Japan rough guideline. I'm not selling any unless it gets to about 15% when I will probably consider it. Its my best performing fund. I also like it because its high conviction in few companies and rarely changes. This is partly what makes it a bit volatile.

Well I'll have 7% ish so thats probably ok for me I think, probably will keep it as my most risky fund.

DennisTenus

I've noticed that some funds have a lower selling price than than the buy price. Why is this?

I guess this means for at least a while you are at a loss straight away. Is it to dissuade people from selling quickly?