Easy two fund portfolio

xylophone

Consider Vanguard ISA?

https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-isa

http://monevator.com/using-vanguard-lifestrategy-funds-life/

bostonerimus

A global index, a bond index and a bit of UK index if you want some home bias seems like a sensible way to invest for most people....or you could just do VLSxx. My portfolio is now 50% US equity index, 25% global equity index ex US and 25% US bonds (I'm in the US). Simple inexpensive and has given an average annual return of 8.5% over 30 years.

aroominyork

geeovana wrote: »

Is this not a little misleading? The OP clearly doesn't have a lot of insight and I was trying to steer them towards an understanding of global market capitalisation. What benefit would a home bias of 30% give? Perhaps reduced volatility due to currency fluctuation, however they should really be understanding why they want a home bias, rather than just on a whim because its their money.

And you think your one and a half lines ("Why would you want to skew your portfolio 30% towards the UK, when in reality the UK makes up only around 6% of the total global market cap?") provided a concise insight into global market caps and the issues that drive diversification? I don't think either of us would get a gold star. But maybe there's a lesson here: when I look at the board, see an issue raised and think I can say something useful - and, maybe more to the point, feel like posting something quickly before logging off - it's easy to write something which risks confusing by leaving as much of the issue in the shade as it throws light on another part. It's something I will take more care about in future.

Prism

If I was to do this with two passive funds I would go for an all world tracker plus a FTSE 250 tracker for home bias.

Thrugelmir

geeovana wrote: »

Why would you want to skew your portfolio 30% towards the UK, when in reality the UK makes up only around 6% of the total global market cap?

How much of HSBC's revenue is generated from within the UK?

Tom99

geeovana wrote: »

Why would you want to skew your portfolio 30% towards the UK, when in reality the UK makes up only around 6% of the total global market cap?

[FONT=Verdana, sans-serif]If you live, work and spend your money in the UK, why would you want to invest 94% in other countries? Particularly 40%+ in the US just because the US market is a large one.[/FONT]
[FONT=Verdana, sans-serif]I would split your equity investment into three rather than two to avoid too much bias towards the top FTSE100 companies:[/FONT]
[FONT=Verdana, sans-serif]FTSE100[/FONT]
[FONT=Verdana, sans-serif]FTSE250[/FONT]
[FONT=Verdana, sans-serif]World Ex UK[/FONT]

System

Prism wrote: »

If I was to do this with two passive funds I would go for an all world tracker plus a FTSE 250 tracker for home bias.

Tom99 wrote: »

[FONT=Verdana, sans-serif]If you live, work and spend your money in the UK, why would you want to invest 94% in other countries? Particularly 40%+ in the US just because the US market is a large one.[/FONT]
[FONT=Verdana, sans-serif]I would split your equity investment into three rather than two to avoid too much bias towards the top FTSE100 companies:[/FONT]
[FONT=Verdana, sans-serif]FTSE100[/FONT]
[FONT=Verdana, sans-serif]FTSE250[/FONT]
[FONT=Verdana, sans-serif]World Ex UK[/FONT]

You avoid home bias to get international diversification (you do not choose funds for home bias!). In simple terms, you do not want all your eggs in one basket.
Anyway, I think that I have discovered an explanation for the equity home bias puzzle:
https://en.wikipedia.org/wiki/Equity_home_bias_puzzle
Stupidity!

bowlhead99

Economic wrote: »

You avoid home bias to get international diversification (you do not choose funds for home bias!).

I expect that rather depends on which end of the scale you start and what your preferences are.

If you started with exclusively UK funds, "I know and trust domestically listed companies" then it makes sense to realise that more international diversification is useful and you should try to wean yourself off some of your natural bias and prejudices.

If you started with the allocation of a globally cap-weighted index (>96% not in the UK) - which is perhaps a more reasonable place to start - then you may start looking at the reasons that other people choose to reduce their foreign allocation and thereby deliberately create some bias.

Such as, some of the assets being a hedge to future expected liabilities in your home economy; a more well-understood regulatory and corporate governance framework; slightly improved tax efficiency (avoidance of withholding taxes) etc

In simple terms, you do not want all your eggs in one basket.

Yes, if you had all your eggs in the UK you should try to ship some of them out.

Still, if you have already pushed x percent of your assets out to foreign stock and bond markets, you may not need to keep pushing to 94 or 95 just because 94-95% of the world's investors' money is ex-UK. Your personal investing needs are not the needs of the 'average' individual or corporate on the planet, nor do you necessarily have their respective time horizons.

henryandmay

Tom99 wrote: »

[FONT=Verdana, sans-serif]If you live, work and spend your money in the UK, why would you want to invest 94% in other countries? Particularly 40%+ in the US just because the US market is a large one.[/FONT]
[FONT=Verdana, sans-serif]I would split your equity investment into three rather than two to avoid too much bias towards the top FTSE100 companies:[/FONT]
[FONT=Verdana, sans-serif]FTSE100[/FONT]
[FONT=Verdana, sans-serif]FTSE250[/FONT]
[FONT=Verdana, sans-serif]World Ex UK[/FONT]

Many thanks Tom. I hear what you are saying. So what would your allocation be to each fund?

Tom99

henryandmay wrote: »

Many thanks Tom. I hear what you are saying. So what would your allocation be to each fund?

[FONT=Verdana, sans-serif]I split my UK holding between FTSE100/250 on a 50/50 basis.[/FONT]
[FONT=Verdana, sans-serif]HSBC is 7.12% of the FTSE100 index but it is still 5.65% of the FTSE All Share index so investing in a UK all share tracker does not avoid putting a lot into HSBC/Shell/BP etc.[/FONT]
[FONT=Verdana, sans-serif]Splitting 50/50 puts only 3.56% of the UK part in HSBC.[/FONT]
[FONT=Verdana, sans-serif]My World Ex UK allocation is very low compared with most recommendations on this forum but that is a personal choice.[/FONT]
[FONT=Verdana, sans-serif]Part of the problem with any index tracker is that they are based on market cap. So for example Vanguard World Ex-UK puts 58% into the US of which 7.26% is in just four stocks Apple/Microsoft/Amazon/Facebook, that does not really seem like the best way of diversifying and spreading risk to me.[/FONT]