Allocation re-balancing strategies?

rathernot

Alexland wrote: »

Hmm a stock market correction isn't great timing to decide you want to reduce your ISA from 100% to circa 60% equities. In addition to investing more I have been increasing my equity allocations as there is now less downside risk.

No that's quite right and I'm certainly not planning on selling any of what I hold, as I said a week over 20 years should be neither here nor there.

Part of me is tempted to drip more into Lindsell Train Global and/or Fundsmith once we've a bit better idea which way this week has started.

That comes down to the previous point about having quite a lot of cash on the sidelines if required.

I do have a small general investment account with around £10K in it but I have "only" £5K left in this years ISA allowance.

rathernot

Alexland wrote: »

Unlike VLS fixed allocations the HSBC GS funds use tactical asset allocation (slightly active) but you really need to consider the L&G MI funds if you want risk management across the economic cycle.

Could you expand on that a little please?

I looked at the L&G MI series and they looked very UK heavy.

I know that with some funds when you X-Ray them they can show a global bond fund as being a UK holding but the L&G looked overweight on UK at a glance?

aroominyork

Prism wrote: »

It can be hard to tell how much turnover there is when the manager doesn't make it a bit of a sellign point like Nick Train and Terry Smith do. The 6 month reports typically give fuller detail. So I have Legg Mason Japan which has barely changed the top 10 holdings in 2 years. Old Mutual mid cap seems more variable.
My two passive funds over the last 3 years have also been very high conviction at the top end and very low turnover (L&G tech and health index funds)

Do we have different understandings of what high conviction means, because i don't see how the term is relevant to passive funds. To me, high conviction relates to active funds where the manager either holds a small number of funds, say under 40, and/or he intends to hold them as good as indefinitely. (See post #17 for discussion of and/or.)

I don't see how conviction investing relate to passive funds. If you buy the S&P, for example, in two years time Apple is likely to still be top, followed by Microsoft, Amazon etc. There is no manager exerting his conviction on this.

seacaitch

rathernot wrote: »

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

rathernot wrote: »

Part of me is tempted to drip more into Lindsell Train Global and/or Fundsmith once we've a bit better idea which way this week has started.

On the one hand, your initial post suggested the recent volatility was unsettling you, such that you were questioning your portfolio concentration or asset allocation.

On the other hand, you're now considering putting more money into your existing concentrated positions.

There's an inconsistency here that perhaps you should consider. What exactly are you trying to achieve?

And, your last phrase about potentially buying more LTGE, "once we've a bit better idea which way this week has started", suggests to me your purchasing decision is predicated on whether you think stocks have ceased falling and are shortly about to recover.

Re the latter, you're unlikely to be able to judge this. Markets don't decline in straight lines. Large declines comprise falls, then sharp rallies, then further falls, etc. Each of the sharp rallies may look to you like a recovery has begun, only for it to subsequently be revealed that the relief they provided was only temporary.

Note, I'm not predicting that stocks will head lower, merely pointing out that stable or higher prices this week or next week in no way negate the possibility of them being significantly lower next month or the month after.

It looks to me from the above that you don't really have an investment strategy. Your portfolio comprises two funds that have sat near the top of past performance tables, so are "easy picks" for someone to make. It's very possible that their prior performance may give someone new to investing the impression that growing your money is a fairly easy process. However, after experiencing some heightened (but normal) volatility, with markets falling somewhat, you're now vacillating between two quite different courses of action.

I think you'd benefit from giving some thought as to what you're trying to achieve from these ISA investments (and the general investment account you mention), and how/if they fit with your work pension scheme. Perhaps they have different investment horizons? Or perhaps you purposefully wish for them to employ different approaches as a diversification step?

I've the impression, though, that you're primarily interested in buying things that go up (strongly), which is understandable, but which in itself may not be the basis for a sound strategy able to weather different market conditions (or allow you to emotionally weather volatile conditions). For example, what if LTGE is 10% lower in November, and then a further 10% lower in December? You mentioned in your OP that "I'm still in the black", as if that's relevant and important to you. If markets dumped another 10 or 20%, you certainly wouldn't be in the black then. Would you be more unsettled or even keener to buy more? And if you'd already invested more money into them this past week, would you even have any new money to throw at them?

The above may sound a bit harsh, but I think it's important to put good and genuine thought into your own investment strategy. If you don't, there's a good chance that markets will eventually draw you into doing unwise and costly things. Best to think this stuff through when you've a clear head. And to reiterate, I'm making no predictions on imminent market direction. Equity markets will, though, at some point fall 20, 30, maybe 40% or more, so you need to be clear in your mind and in your plan how you'll respond (if at all) should that occur, and not become reactive in the heat of the moment when emotions may be running high.

Alexland

rathernot wrote: »

I looked at the L&G MI series and they looked very UK heavy.

Yes the stocks are currently almost 20% UK possibly because, on a strictly fundamental basis, the market is looking better value than the US and therefore lower risk. It also has an overweight on Japan for probably the same reason.

Alex.

rathernot

seacaitch, lots of truth in that I have a surplus of cash that I don't anticipate needing for 10-20 years.

I'd like to grow what I put in, and of course I'd prefer not to lose it.

I've no hesitation about the funds I've chosen, but as I said I do think I may have underestimated myself in starting to think "Hmm would I really sit on my hands if this blip turned into something worse" and whilst I think I would, I can't be sure (and hope not to find out).

So what I anticipate is a gradual move towards something more balanced as a "core" with the concentrated funds making up some percentage (probably 20-30%) of things.

The comment about whether the current dip is a buying opportunity is the dilemma, if I'm collecting hamburgers for the future do I want to be paying more or less for them?

I guess the question here is whether a diet consisting solely of hamburgers is healthy

rathernot

Alexland wrote: »

Yes the stocks are currently almost 20% UK possibly because, on a strictly fundamental basis, the market is looking better value than the US and therefore lower risk. It also has an overweight on Japan for probably the same reason.

Alex.

Do you know how actively are L&G funds are managed please?

Presumably they're still massively passive with the occasional review but I don't spot anything on the L&G website that seems to mention this.

Alexland

L&G are certainly not stock picking as the MI series contains tracker funds so they are just making decisions on the weightings of different assets types and geographies to meet their target risk profile.

coastline

rathernot wrote: »

seacaitch, lots of truth in that I have a surplus of cash that I don't anticipate needing for 10-20 years.

I'd like to grow what I put in, and of course I'd prefer not to lose it.

I've no hesitation about the funds I've chosen, but as I said I do think I may have underestimated myself in starting to think "Hmm would I really sit on my hands if this blip turned into something worse" and whilst I think I would, I can't be sure (and hope not to find out).

So what I anticipate is a gradual move towards something more balanced as a "core" with the concentrated funds making up some percentage (probably 20-30%) of things.

The comment about whether the current dip is a buying opportunity is the dilemma, if I'm collecting hamburgers for the future do I want to be paying more or less for them?

I guess the question here is whether a diet consisting solely of hamburgers is healthy

When I read about funds I normally go straight to the following link to get a good idea about performance. The MSCI World Index is as good as any for comparison although its Large Cap. Then you can ask yourself is it worth the effort ?
If you are considering a different way forward then maybe go 50% world tracker and 25% each in two funds that's assuming you are 100% equity for 20 plus years.

https://www2.trustnet.com/Tools/Charting.aspx?typeCode=NM990100

seacaitch

rathernot wrote: »

I've no hesitation about the funds I've chosen, but as I said I do think I may have underestimated myself in starting to think "Hmm would I really sit on my hands if this blip turned into something worse" and whilst I think I would, I can't be sure (and hope not to find out).

You really need to think about this aspect because you will find out one day.

If you've an investment horizon of 20 years as suggested, then it's almost 100% certain you'll see some very significant declines in equities over that period, multiples of what you've experienced in the past couple of weeks; declines that last a year or so, with ever more pessimistic news reports and ever more grim forecasts for the future.

If you panic sell when it gets grim, you're f*.

That's one reason why people don't just include in their portfolios the things they hope will go up the most, but also other things that may dampen volatility by behaving differently when some markets are stressed, so they don't experience as much angst from watching (feeling) their portfolio decline quite so rapidly.

It's also why longer investment horizons are important.

When starting out investing, it's easy to say things like "I'm investing for the long term" or "I have high risk tolerance" but subsequent events (volatility) may reveal to you that those those things aren't actually true, or you've not really internalised or appreciated what they mean in practice.

Here's a quote I've mentioned before:

"Most investors underestimate the stress of a high-risk portfolio on the way down.


My suggestions:

- be honest with yourself about your investment time horizon; is this money really locked up for a decade or two, such that you can leave it alone, untouched, without you being shaken out of your positions if (when) it gets grim and your investments tank?

- think about whether you would prefer greater diversification (which may quite possibly lead to lesser theoretical long term returns, but may increase the probability of you actually achieving decent long term returns by reducing the likelihood of you panic selling during severe market declines)

- if you do desire greater diversification (across asset classes and investment styles), I don't see a huge problem with you having chosen to focus on buying the riskier assets first; this is because long duration assets like equities are better suited to long investment horizons. However, this is caveated by the two preceding points above, so you must be honest with yourself about your time horizon and be sure you can tolerate the portfolio's intervening volatility prior to it becoming more diversified.


It's good that you're beginning to think about this stuff. It's natural for volatility to feel unsettling. What's important is if or how you respond to it. Over time, and assuming an appropriate portfolio, it'll become easier as you get desensitised. The important thing, I think, is ensuring you remain involved for the long term so as to be able to enjoy the long term returns that risk assets can deliver, avoiding being unseated by normal periodic turbulence.

Investing successfully isn't that easy and perhaps doesn't come naturally. Unlike many other activities, the closer you get involved with it (the more hands-on you become) the trickier it can get due to emotions that may be brought into play. As a result, it can often be a benefit to keep things at an arm's length distance, recognising that we ourselves are often the weakest link in the chain. I personally think that sensibly constructed/managed multi-asset funds are a great way of achieving this.