Portfolio sanity check

JMP88

Hi,

We are first-time investors based in the Channel Islands - we are in our mid/late 20s and are now looking to invest for the long term (25-30 years). In terms of amount, this will be around £3-5k per month and we have quite high risk appetite.

As we live in the Channel Islands, we have been struggling to get access to the usual fund platforms (as they only allow UK residents) and were considering the ETF route - however, we've managed to open an account with Interactive Investors which seems fine and gives us access to the wider market.

We've spent quite a bit of time over the past few weeks researching and have came to the following conclusion:

• 75% in VLS 80
• 25% for active managed equity/sector specific

The thought process behind this is to put the bulk of the investment in VLS80 as a "leave and forget", with the 25% being used to (hopefully) boost overall growth and to reduce the 20% VLS80 bond allocation slightly.

The things we would be looking at in the 25% bucket would be things like the following:

• Fundsmith Equity
• Lindsell Train Global Equity
• Scottish Mortgage
• Polar Capital Technology Fund

Just wanted to check this seems a sensible approach before we go ahead and implement this :j

Many thanks

J

AnotherJoe

Isnt there a big overlap between the last two ?
And I think an overlap if not as big between the first two ?

I would guess that all 4 together are nowhere near as diversified as you might think.
You could pick one of the first two one of the last two and then add in an EM and a smaller companies.

JMP88

Sorry should have been clearer - those were just examples, would look to diversify the 25% by sector also (i.e. probably wouldn't buy all of those).

Thanks for your input though it was helpful

Linton

Given it is only 25% of your portfolio I would say it is high risk but overall a more sensible set of funds than may first appear since the 4 funds focus on different sectors. However I think you are missing a trick by apparently ignoring Small Companies. Possibly polar tech is redundant since you will have lots of tech elsewhere and the fund is less “conviction” than the other 3.
For your 20-30 year timescale I do not see why you are not 100% equity. I assume your contributions will be ongoing and so you will see major falls in price as an opportunity rather than some thing be reduced. Not that the 15% devoted to bonds will help a lot with that.

JMP88

Thanks - we did consider 100% equity but in the end we wanted the comfort of having a small percentage of bonds.

AnotherJoe

JMP88 wrote: »

Sorry should have been clearer - those were just examples, would look to diversify the 25% by sector also (i.e. probably wouldn't buy all of those).

Thanks for your input though it was helpful

But why pick those out and list them? There are 30,000 investments you could choose from.
To list those implied to me those were the ones you were thinking of.

Not trying to be argumentative, just precise.

So to summarise, your plan is 80% VLS80 and then 4 x 5% in "other funds/ETFs" ?

OK, then my follow up comment is, I wouldnt choose VLS80 as its (a) too concentrated in a very few UK sectors*, and (b) as someone else said, with your timespan and also some "high risk" funds as examples, VLS100 seems more appropriate.

Notwithstanding your other comment on this subject, you'll see little difference between VLS80 and 100 and over a 25 year timespan all you'll have at the end of that is lower performance for the illusion of safety. OK, so it might fall 28% instead of 31% in a crash. Are you really going to notice that? (especially as your Lindsell Train and Polar tech probably fell 50% anyway, and the smaller companies and EM 60%)


* one of which is finance, so if the Jersey economy catches a cold, so do you. Double whammy.

poppy10_2

JMP88 wrote: »

Thanks - we did consider 100% equity but in the end we wanted the comfort of having a small percentage of bonds.

With the timescale you have, you should really be 100% in equities. Bonds will only drag down your long term returns. If you aren't planning to withdraw within the next 20 years, then you don't need the 'comfort' that the bond protection against stock market crashes provides

Audaxer

poppy10 wrote: »

With the timescale you have, you should really be 100% in equities. Bonds will only drag down your long term returns. If you aren't planning to withdraw within the next 20 years, then you don't need the 'comfort' that the bond protection against stock market crashes provides

It really depends on the OP's risk tolerance.

short_butt_sweet

i seriously don't think we should be talking people out of holding 15% in bonds. that's very low to start with.

if things go reasonably well, the likely returns from 85% equities + 15% bonds will be very similar to 100% equities. (because rebalancing will automatically do a bit of buying equities when they're cheap, and selling them when they're expensive.)

but things may not go so well. there could be 10 or 20 years of poor returns from equities, with no clear sign about when it will get better. and then having a bit in bonds will help.

it's easy to say that equities will bounce back after perhaps 2 or 3 years. that's what happened in recent decades. but it may take much longer. and the bounce back could even then be so feeble that 100% equities doesn't give the best returns.

Linton

Audaxer wrote: »

It really depends on the OP's risk tolerance.

Sure, but if the OP had some significant level of risk aversion, there should be a much higher non equity % than 15% and that tranch should be more diversified. Also the example side investments would seem inappropriate.

Linton

short_butt_sweet wrote: »

....

but things may not go so well. there could be 10 or 20 years of poor returns from equities, with no clear sign about when it will get better. and then having a bit in bonds will help.

it's easy to say that equities will bounce back after perhaps 2 or 3 years. that's what happened in recent decades. but it may take much longer. and the bounce back could even then be so feeble that 100% equities doesn't give the best returns.

Yes but....
1) In the past long term down turns have generally affected individual markets or geographies. Now sensible people can and do invest globally. With a 20 year period of global economic collapse what non equity investments would be safe?
2) Since the OP is seemingly planning to be contributing steadily over the very long term rather than investing a lump sum now the risks are much reduced since a significant part of the purchases could be at the reduced price. Price crashes in the next say 10 years could be to his advantage. Once the OP has amassed a significant sum and gets within perhaps 10 years of needing the money reducing the equity % would make more sense.