Passive Investing

Tom99

[FONT=Verdana, sans-serif]My own approach to passive investing is a FTSE100 and FTSE250 tracker split 50/50.

[/FONT] [FONT=Verdana, sans-serif]This is a long way short of a worldwide equity/bond/other spread but its simple, I understand it better than world markets, I spend in UK£ and the FTSE100 does give exposure to other countries although admittedly bias towards the US$.[/FONT]

bowlhead99

Tom99 wrote: »

[FONT=Verdana, sans-serif]My own approach to passive investing is a FTSE100 and FTSE250 tracker split 50/50.

[/FONT] [FONT=Verdana, sans-serif]This is a long way short of a worldwide equity/bond/other spread but its simple, I understand it better than world markets, I spend in UK£ and the FTSE100 does give exposure to other countries although admittedly bias towards the US$.[/FONT]

Each to their own, though if I was in your position looking for a two-fund portfolio would swap out the FTSE100 for the FTSE Global All Cap. Then you are exchanging 100 companies (weighted very heavily to the ten or twenty biggest, so focussed on a small number of industry sectors) for about 7000 companies across the world, including those 100. Covering $50 trillion of investible company value instead of $2.5 trillion. Moving beyond the fortunes of companies listed on a single stockmarket is key to diversification.

I get the idea that the FTSE100 is 'simple' because you hear a value for it every morning on the news, but you are probably not an expert in the minutiae of detail of business operations and valuation drivers of all its constituent holdings such as Shell and British American Tobacco and HSBC etc. The Global All Cap is similarly simple in its construction, just a lot more widely invested. Meanwhile the 50% in the UK FTSE250 would keep you 'grounded' in the UK as the businesses within that index do have more 'UK-centric' operations than the behemoths of the FTSE100.

Just my two cents. I do not actually have my investments structured like that but would consider it many times better than just 50:50ing the FTSE100:FTSE250

stphnstevey

Tom99 wrote: »

[FONT=Verdana, sans-serif]My own approach to passive investing is a FTSE100 and FTSE250 tracker split 50/50.

[/FONT] [FONT=Verdana, sans-serif]This is a long way short of a worldwide equity/bond/other spread but its simple, I understand it better than world markets, I spend in UK£ and the FTSE100 does give exposure to other countries although admittedly bias towards the US$.[/FONT]

Thanks for your input, that is what this is for after all

I understand wanting to stick to your home market

One thing that I saw was that investing in the FTSE links all your other investments (mortgage, insurance, inheritance, tax rate, job etc) to the UK, so when the UK does badly, all your investments do badly. Wit Brexit, it might be something worth considering

Although downturns can be global as well

Fatbritabroad

economic wrote: »

75% of my equities portfolio is in US stocks. I don’t think I’m gambling. I’m just investing according to my views on the markets. The US has many great companies compared to the rest of the world. Long term imo the US will outperform. You make your own luck in life and I’ve positioned myself accordingly to hopefully take advantage in what I believe in.

I also strongly believe that diversification such as a VLS100 fund is for dummies.

Quite Happy to be a dummy

economic

IanManc wrote: »

Sadly that blanket insult to VLS100 investors tells us all far more about you than it does about them.

And no, I'm not a VLS100 investor.

If the opinion you expressed really is your opinion then perhaps you need to learn a lot more about investing.

VLS and other multi-asset funds are good, and appropriate, investment vehicles for many investors. And they're not "dummies" for investing in them.

I probably should have clarified that by dummies i mean people who don't have a view or simply dont know or have time for investing. It wasnt meant to be an insult in anyway. Many fund managers are worse then dummies as they have underperformed the market.

bowlhead99

economic wrote: »

Many fund managers are worse then dummies

With an "English language and grammar for dummies" book you might have avoided that one.



Then, suddenly: Dummies!

It does seem reasonable IMHO that if a technique like investing in an index or generalist fund is what they put in the "investing for dummies" books aimed at beginners, one could refer to that as a way of investing for dummies without meaning it was a terrible technique nor that its users were actually dummies.

economic

bowlhead99 wrote: »

It does seem reasonable IMHO that if a technique like investing in an index or generalist fund is what they put in the "investing for dummies" books aimed at beginners, one could refer to that as a way of investing for dummies without meaning it was a terrible technique nor that its users were actually dummies.

exactly this is the point i was trying to get across.

stphnstevey

I was looking into the different index's and was wondering what would be considered the major ones (whilst still keeping things simple)?

For the USA I see there is the NASDAQ Composite, Dow Jones Industrial Average, and S&P 500

UK FTSE 100, 250 and 350

Japan Nikkei 225

Are there others?

bowlhead99

stphnstevey wrote: »

I was looking into the different index's and was wondering what would be considered the major ones (whilst still keeping things simple)?

The way to keep things simple is to just do what you suggested in your opening post and buy one of those 'lifestrategy' funds where you buy into a fund and the fund manager of that fund uses the fund's money to buy and hold a variety of underlying index funds and periodically rebalances them.

Lifestrategy is just a brand name from Vanguard and there are plenty of other funds which invest in a mixed set of assets around the world, some investing via index tracker funds and some using more active management.

For the USA I see there is the NASDAQ Composite, Dow Jones Industrial Average, and S&P 500

The USA has three main markets (NYSE, NASDAQ, AMEX). The NASDAQ index has a lot of technology firms like Apple and Intel and Microsoft, but only includes NASDAQ stocks so is missing the ones that trade on NYSE for example like General Electric or Bank of America or Twitter or Citigroup.

The S&P500 is around 500 of the largest companies by value regardless of exchange. So it includes all the above named companies, and its 500 constituents do make up the majority of the US market by value (maybe 80% of total market), but misses a few thousand smaller stocks.

The Dow Jones Industrial Average is just 30 companies (giants such as Apple and GE and Intel mentioned above and other similar calibre businesses across industries like McDonalds and Exxon and CocaCola and Boeing etc). Somewhat unusually for an index the weightings are based on share price rather than company value and there are not many companies included. It is still considered a barometer of the stock markets' health so you hear about it daily on the news even though it would not be a particularly great thing to invest in.

Some people will invest in a S&P500 tracker as a shortcut to investing in all of the US listed companies, although it only gets them the large and medium-sized companies and not the smaller ones with less than a few billion dollars of value. A more comprehensive index would be the Russell 3000, with 3000 companies, or FTSE North America - which is a couple of thousand companies, 95% US and 5% Canada, weighted by value.

UK FTSE 100, 250 and 350

The FTSE 100 is the biggest 100 companies listed in London and the 250 is the next biggest and the 350 is those added together weighted by value so that the 100 is more than 4x the weight of the 250.

None of them include the FTSE small-cap companies (the ones that don't get into the 250 because they're valued less than about £800 million or so) and neither do they include companies listed on AIM (the smaller London market), although there are only about 20 AIM companies which would be big enough to be included in the FTSE250 if they had chosen to list on the main market.

The 'main' UK index is the FTSE All-Share which includes smalller companies that don't make it into the 350. At the end of February it covered £2.33 trillion of market capitalisation while FTSE100 was £1.86 trn. So most of the value is still the '100' but those 100 companies by value are mostly multinational giants in a limited set of industries, so the all-share is a bit more UK-focused because it has more companies which aren't multinational giants like BP and Shell and HSBC etc.

Japan Nikkei 225

The Nikkei is a bit like the Dow in the USA in that it is 225 companies decided by committee and is price-weighted rather than value-weighted. A 'better' index is the TOPIX (Tokyo price index). Or FTSE Japan (~500 largest companies) or FTSE Japan All Cap (~1300 companies).

Are there others?

Here are the ones that FTSE Russell produces:
http://www.ftse.com/analytics/factsheets?allproducts=GEISAC&Index=Go

MSCI is a rival index provider with their own versions.

D503

In relation to the OP, I was in a similar situation with H&L ISA + SIPP, I had between 14 - 17 different funds on the go and not really getting anywhere in terms of growth (some doing well...some not so).

I started researching Passive Investment and came across Lars Kroijer (I am not allowed to post links so Google him), which (for me) is some of the most sane and transparent investment strategy 'advice' I have yet to see (along with John Bogle and Benjamin Graham).

My ISA portfolio (now on Vanguards direct platform)*, is roughly:

70% Vanguard Global All-Cap Index
10% Vanguard Life Strategy 20** (for diversified bond exposure with an effective 2% increase in equities)
15% Vanguard UK Index Linked Gilts Index
5% Cash in the general account

My SIPP remains on HL until Vanguard start a SIPP (and if I can let go of the Alpha funds that are currently performing) is roughly:

50% Vanguard Global All-Cap
10% Vanguard Life Strategy 20** (for diversified bond exposure with an effective 2% increase in equities)
10% Vanguard UK Index Linked Gilts
25% in funds seeking Alpha
5% Cash

*I'm not trying to advertise Vanguard in favour of others, I just find Vanguard transparent and cheap. (Blackrock, HSBC, L&G all offer similar)
**Using the Life Strategy 20 could, strictly speaking be seen as seeking Alpha

My Asset Allocation is in relation to my age (39) and my intention to hold for >20yrs, so far it works for me, but only time will tell.

Google Lars Kroijer, see what he has to say...