Allocation re-balancing strategies?

rathernot

I have a reasonable amount split equally between Lindsell Train Global Equity and Fundsmith.

Both good funds which I have no intention of selling.

However, after the last couple of weeks it's occurred to me that with hindsight I may be too highly concentrated even though I've 20 years ahead of me - first time I've seen a market "blip" and it tends to focus the mind

One simple solution seems to be to introduce a multi-asset into the mix.

I'm interested if you've done this how you went about it.

• Did you swap out holdings?
• Did you simply start to slowly rebalance through your future contributions?

I'm still in the black and this is money I don't need to access for many years, just considering dialling down the risk dial a little and maybe sacrificing some returns for less risk when there's a blip/correction/whatever kind of downturn.

Alexland

If those are your only equities then yes you are very concentrated into a small number of growth/quality stocks and sectors.

Now being concentrated can go well or badly and it really falls down to your own judgement on what proportion is acceptable but, as an absolute upper limit, I wouldn't allow those types of funds to exceed 25% of your equity portfolio.

I am not against these funds (hold them both myself) but sometimes the wind changes - read up about how the US Nifty 50 blue chip quality 'buy and hold' shares propelled the US stock market in the 1970s only to crash into the 1980s. Some of those companies still exit and others are now worthless.

Alex

masonic

I've gone from individual funds to a multi-asset core and then back to individual funds, but maintained broadly the same asset allocation during the transitions.

If you've determined that an improvement to your asset allocation is required, then it would seem sensible to act in the short term and simply rebalance to that allocation using the money you currently have invested (and anything extra you want to contribute). If you determine that an adjustment is needed, why would you delay? Because you are hoping your current investments will recover some of their losses? If that's worth the risk of seeing them fall further perhaps no change is needed after all.

rathernot

In one ISA I can simply dump some new money and it's done.

With the other ISA (which holds the bulk of the holdings) I can't add new money so that would be a sell/switch.

Of course another school of thought is that LT Global has dumped 9% so this week could be a buying opportunity...

Again, I don't intend to do anything in a mad panic, this is one week.

Alexland

It's interesting you are only talking about ISAs. Do you not have a broader portfolio of pensions, etc?

rathernot

Yes, but that's totally separate via a (good) work pension scheme so it's only the ISA's I'm looking at with this query.

Alexland

rathernot wrote: »

Yes, but that's totally separate via a (good) work pension scheme so it's only the ISA's I'm looking at with this query.

In which case you are less concentrated that you first appeared.

rathernot

Alexland wrote: »

In which case you are less concentrated that you first appeared.

Ah now I'm with you yes, well, put it this way, debt free, pension in hand, and I have around 2.5x the amount in the equities pot in direct cash in the bank (six figures without getting into exact amounts).

When you put it in that context I see where you're coming from - I'm certainly not on here having put all of my life savings into something that could screw my life up in a downturn etc.

masonic

rathernot wrote: »

Yes, but that's totally separate via a (good) work pension scheme so it's only the ISA's I'm looking at with this query.

While you might not make any changes to the pension, as Alex alludes to, examining the asset allocation and performance as a whole could be useful. Perhaps your overall percentage loss this past week is lower when you take the pension and other assets into account as well?

Edit: crossed with your latest post, it seems the above is correct.

rathernot

masonic wrote: »

While you might not make any changes to the pension, as Alex alludes to, examining the asset allocation and performance as a whole could be useful. Perhaps your overall percentage loss this past week is lower when you take the pension into account as well?

The pension is what I'd consider out of sight as money goes in at source etc.
I track it (loosely) and I know what funds the scheme is allocating to but it's pretty hands off whilst my ISA's are hands-on.
I totally take the point, I guess it's a psychology thing that I see the ISA pots differently and that way of thinking takes some adjustment

masonic

rathernot wrote: »

I totally take the point, I guess it's a psychology thing that I see the ISA pots differently and that way of thinking takes some adjustment

Risk tolerance is also a psychology thing. It's obviously for you to decide the significance of your ISA pots in your overall strategy, but if you come to the conclusion it's more appropriate to take a more holistic view, that may steer you away from making the change you are considering.