Tracker fund investment for retirement

Tom99

geeovana wrote: »

Why do you think this?

[FONT=Verdana, sans-serif]Bear in mind this is my view, I am not asking anyone to agree.[/FONT]
[FONT=Verdana, sans-serif]I live, work, play, spend and retire in the UK. Why would I want to invest 6x as much in the US as I do in the UK, just because its easy to do and the US market is 6x larger than the UK market. That does not seem a sound basis on which to achieve a spread of risk to me.[/FONT]
[FONT=Verdana, sans-serif]If, for example, I chose to invest in individual shares and say picked HSBC and Royal Mail as two, I would be very unlikely to invest 38x as much in HSBC as in Royal Mail just because HSBC is worth £128bn and Royal Mail £3.4bn. I am far more likely to invest equally in each share.[/FONT]
[FONT=Verdana, sans-serif]I appreciate that the three trackers I use suffer this bias between individual shares. [/FONT]

jaybeetoo

OldMusicGuy wrote: »

What Alex said. I have built a defensive approach using three of the four multi-asset funds he mentions (don't forget their are different risk levels within each provider).

I’m sure there is a large overlap between these funds so I’m not sure what is gained from investing in 3 of them.

System

geeovana wrote: »

Why do you think this?

A good question. The UK stock market is about 5-6% of the world market capitalisation, and UK GDP is 2-3% of World GDP.

System

Tom99 wrote: »

[FONT=Verdana, sans-serif]Bear in mind this is my view, I am not asking anyone to agree.[/FONT]
[FONT=Verdana, sans-serif]I live, work, play, spend and retire in the UK. Why would I want to invest 6x as much in the US as I do in the UK, just because its easy to do and the US market is 6x larger than the UK market. That does not seem a sound basis on which to achieve a spread of risk to me.[/FONT]
[FONT=Verdana, sans-serif]If, for example, I chose to invest in individual shares and say picked HSBC and Royal Mail as two, I would be very unlikely to invest 38x as much in HSBC as in Royal Mail just because HSBC is worth £128bn and Royal Mail £3.4bn. I am far more likely to invest equally in each share.[/FONT]
[FONT=Verdana, sans-serif]I appreciate that the three trackers I use suffer this bias between individual shares. [/FONT]

You should have a globally diversified portfolio because you live, work, play, spend and retire in the UK! You do not want all your eggs in the same basket. This is a common error when investing: https://en.wikipedia.org/wiki/Equity_home_bias_puzzle

masonic

Tom99 wrote: »

I live, work, play, spend and retire in the UK. Why would I want to invest 6x as much in the US as I do in the UK, just because its easy to do and the US market is 6x larger than the UK market. That does not seem a sound basis on which to achieve a spread of risk to me.

On that basis, you should probably rule out most FTSE100 companies from your investments as most of their earnings come from abroad.

Single sector (country) investing is bad. I don't think there is any general disagreement there. If you invest in more than one market, you have to pick weightings for each market and those weightings could either be driven by market capitalisation of each underlying company, or you take some active decisions in the hope you will get a better outcome than that.

If, for example, I chose to invest in individual shares and say picked HSBC and Royal Mail as two, I would be very unlikely to invest 38x as much in HSBC as in Royal Mail just because HSBC is worth £128bn and Royal Mail £3.4bn. I am far more likely to invest equally in each share.

Well that would be an active investment decision. Clearly just those two funds would be a poor quality portfolio. But if you were to pick 20 such companies and measure your portfolio against the appropriate index benchmark, you would be more likely than not to underperform it save for luck or exceptional skill.

I appreciate that the three trackers I use suffer this bias between individual shares.

Do they? Or do they buy an equal proportion (by value) of the available share capital of each company?

Tom99

Economic wrote: »

You should have a globally diversified portfolio because you live, work, play, spend and retire in the UK! You do not want all your eggs in the same basket. This is a common error when investing: https://en.wikipedia.org/wiki/Equity_home_bias_puzzle

[FONT=Verdana, sans-serif]Yes exactly my point. Why would I want 6 US eggs in my basket but only 1 UK egg. Are US eggs 6x safer, stronger, tastier?[/FONT]

System

Tom99 wrote: »

[FONT=Verdana, sans-serif]Yes exactly my point. Why would I want 6 US eggs in my basket but only 1 UK egg. Are US eggs 6x safer, stronger, tastier?[/FONT]

Amazing, you really do not have a clue about diversification!

Tom99

masonic wrote: »

Do they? Or do they buy an equal proportion (by value) of the available share capital of each company?

[FONT=Verdana, sans-serif]I think they are weighted by market capitalisation rather than share capital? So your FTSE100 tracker will have about c38x more invested in HSBC than Royal Mail.[/FONT]

Tom99

Economic wrote: »

Amazing, you really do not have a clue about diversification!

[FONT=Verdana, sans-serif]I am happy to learn. How would you justify investing 6x as much in the US as in that UK? Would not a ratio of 1:1 be a more diverse spread than 6:1?[/FONT]

masonic

Tom99 wrote: »

[FONT=Verdana, sans-serif]I think they are weighted by market capitalisation rather than share capital? So your FTSE100 tracker will have about c38x more invested in HSBC than Royal Mail.[/FONT]

Yes, available share capital x value = market capitalisation. If HSBC shares fell in value by 90% and royal mail shares doubled in value, a tracker would hold the same number of shares of each company in relation to its total holding, but by value, it would have c1.9x more invested in HSBC than Royal Mail.

Or putting it another way, the tracker will buy up the same percentage of the shares in issue from both companies. It just so happens that right now, say, 0.001% of HSBC costs about 38x more than 0.001% of Royal Mail.