Is my Portfolio too high risk?

grey_gym_sock

8% growth, measured in £, not making any adjustment for inflation, is plausible from 100% equities.

inflation + 8% would be very optimistic, considering that the long-term average from equities is more like inflation + 5% or 6%, and that valuations look a bit high, so one might expect somewhat lower returns starting from here.

those are just averages. 12 years is not very long in shares - the actual result over that time could differ wildly from the median expectation (positively or negatively).

it's hard to see the overall allocations of your portfolio at a glance, without digging into what all those global funds actually hold. however, excluding global funds, i make it something like 30% in asia pacific ex-japan + emerging markets (those 2 areas are not the same thing, but can behave similarly), which is quite a lot. i don't know how much you have in other world regions.

does putting more in emerging markets increase your expected returns? in some ways it may seem logical that it should, but it turns out that there is no sign of this in the long term, i.e. over c. 100 years of returns from developed and emerging markets. (see the study in the credit suisse global investment returns yearbook 2014.) certainly over relatively short periods, such as 12 years, it's entirely possible for either developed or emerging markets to come out ahead. you can't extrapolate from the last few years' relative returns.

how to get higher returns from equities, assuming you're prepared to increase the risk level, in the hope of higher returns (and you do need to be sure that you really are prepared for for that higher risk - bowlhead has covered this point), is a tricky one. some people do favour over-weighting emerging markets. others would over-weight small-cap shares (you have c. 2% in a small companies fund; other funds may also include small companies). others would favour "value" shares.

RichestoRetire

Thank you all for taking the time to read and make comment.

You've given me lots to consider.

RichestoRetire

Having reflected on some of the comments, in particular my levels of comfort around losses etc.

I think I'd be prepared to put up with a circa 25%-30% drop in the hope that the portfolio would recover over the timescale mentioned.

However, if there is a potential downside of 60% (as mentioned in one of the first posts) then I'd obviously fear that the length of time to recover would be in excess of the time I'd want to have the cash tied up.

With that said, what would be the best way to re-gear this to a lower risk profile?

Prism

The typical way to lower your risk is to put a percentage of your allocation into bond funds. However the returns are lower and doing this will almost certainly mean that you will struggle to meet your other target of £1m in 12 years. If you really don't need your investment for at least 12 years then you could always continue as you are with 100% equities and then introduce bonds into the mix gradually over the years.

For reference it took about 2 and a half years to recover from the 2008 crash and about 6 years from the dot .com bubble.

JohnRo

Assign an allocation quota and reduce exposure to the sectors / regions that have the greatest potential to impact the bottom line, the tricky part is ensuring those allocations are aligned with your goals and tolerance for losses that may or may not happen.

I don't know how interested you are in the finer details, this might just look like a wall of meaningless numbers and squiggly lines to you, it is however fascinating to see what might happen to your EM exposure when compared with developed markets, if another GFC event were to occur.

30 Year Drawdown Charts

This is US centric but what happens in the US tends to affect everywhere else to some extent, the themes discussed are universal.

bostonerimus

I would start by deciding on an equity/bond/cash allocation. Given your comments about risk you should be looking at somewhere between 20% and 40% in fixed income and cash as those will limit your losses in a crash. You also need to do some serious pruning and consolidation of your equity portfolio. You might consider a single global equity fund and then augment it with some sector or geographical funds. I have just 3 funds because I stick with large global or US indexes, but even if you want to DIY a portfolio using individual funds with greater sector/geography resolution there's no reason for the DIY investor to have more than 10.

A_T

Looks like a very complicated portfolio of equity funds. To simplify things you could just switch the whole lot into HSBC FTSE All-World Index fund, Fidelity Index World fund and/or Vanguard FTSE Global All Cap Index fund. The outcome in 12 years will probably be the same as if you just leave them as they are.

Thrugelmir

RichestoRetire wrote: »

Again for further context, I invested with an aspiration that I could achieve circa 8% growth per annum and not for short term income;

Investing is like the weather. Full of uncertainty. Majority of investment return comes from reinvesting income, i.e. the effects of compounding. Build a diversified portfolio for the long term. With a wide range of uncorrelated assets. Set reasonable expectations. Better to be pleasantly surprised than extremely disappointed. As in the fable of the hare and the tortoise. Speed isn't everything.