When to diversify from a single multi-asset fund

AlphaWaves

Hi

I hope you can help me, having done some reading around investment i generally understand the importance of diversification. However my query is at what point would you generally look to diversify your holdings away from all being held in a single multi asset fund?

From what i read online most people seem to suggest a single fund for low value pots but then to split as the pot value increases. What is the main motivator? is it because you expect better performance and exposure risk from holding additional funds in different sectors, or it is primarily to split the assets between different funds to benefit from fscs protection from each provider?

I ask because at present I have my pension in a Scottish Widows Personal Pension account, all in a single multi asset fund, circa £55k. I'm 32 years old and investing circa £1500/month at preset so am currently trying to work out at what stage to diversify, and the best method of doing so...My current through is that i'm over the FSCS cap (albeit this is increasing soon) and as such it would not benefit in the long term to simply keep this pension and diversify by buying other SW funds, rather I am better to transfer at some stage this year to a SIPP for greater fund selection and lower charges since SW have scrapped their exit fees.

tacpot12

The motivation should be better performance, or possibly low risk through greater diversification. You could start by examining the asset classes and geographical areas that your existing fund invests in to see if there are any that are missing; small companies and property would be the most likely asset classes to be unrepresented. Consider funds to fill these gaps. Smaller company funds tend to have greater returns but at more risk. Property funds don't tend outperform equities, but their value can change out of sync with equities which gives a useful buffer at certain times.

Your existing fund may have all its bond exposure in corporate bonds, or all in government bonds. Either way, consider investing in a fund that fills the missing area.

You don't really need to unbundle a good multi-asset fund, just supplement it around the edges. But do keep an eye on the performance of the multi-asset fund, incase it has got its investment strategy wrong.

Prism

I did it at around 100k, but it was more because I took an active interest in my investments rather than because it was this value.

You can still keep it fairly simple. I have a couple of global equity funds, a few smaller company funds (which you could easily do globally) and an emerging markets fund. You would also need to consider bonds.

Alexland

Once you get towards six digits there can be a small fee advantage to buying your equities and bonds separately. Even then there's no real harm keeping a single multi asset fund as it is still much cheaper than paying an advisor to build and service a portfolio of funds. I know some advisors hint at higher performance but none of them are offering to refund the fees if that doesn't happen. That's extremely rare with fund managers too.

I have getting on towards £300k in my 3 pension funds - the 0.16% HSBC FTSE All World in my fixed fee SIPP, a 0.32% equities (with UK bias) and a 0.20% bond fund in my workplace pension (for which there is no platform fee). I recently decided to keep all my bonds in the workplace pension as it would be cheaper and there are no trading fees to rebalance. In isolation the heavy bonds would look like an inappropriate asset allocation for my age. In both cases the pensions run at under 0.30% total fees.

Alex

bostonerimus

For large amounts you might save something on fees with a portfolio of individual low cost funds, you also might want to overweight some sectors, but why having more money would make your portfolio choices any better than the people designing multi-asset funds escapes me. You also might want to do some tax planning if you hav slots of money.

Linton

The main driver is you, the investor, rather than any absolute criterion. The time to split is when you feel that your single fund portfolio is not meeting your objectives and you have a clear view on what to do to improve the situation.


A further factor is control. If your investments are essential to your future well-being you may be happier to accept higher risk knowing that you are able to manage the portfolio at a detailed level.

dunstonh

at what point would you generally look to diversify your holdings away from all being held in a single multi asset fund?

When your knowledge, understanding and research capability is at a level that is high enough. And you can give it the time needed and when you have a large enough an amount to make it viable.

Thrugelmir

AlphaWaves wrote: »

What is the main motivator? is it because you expect better performance and exposure risk from holding additional funds in different sectors, or it is primarily to split the assets between different funds to benefit from fscs protection from each provider?

How much control do you wish to take over your own investments?

Are you able to withstand the impact making potentially disastrous financial decisions?

Are you able to stick to your opinion in the face of many others saying or thinking differently?

Not such so much about risk exposure. But identifying opportunities and exploiting them. Risk comes in many many forms.