Asset allocation ideas?

Aidanmc

I'm trying to create a more balanced and diversified portfolio mainly based on index trackers, 25-30% bonds and 70-75% equities.

Here's my ideas-
Bonds 30% - Rathbone ethical bond fund (as I currently have this and seems good performer) Or else change this for Vanguard global Index Fund and Vanguard Investment grade Bond Index fund equal split 15% each.

Equities:
Global 40% - Fidelity Index World P
Uk 10% - Fidelity Index UK
Emerging Mkts 10% - Fidelity Emerging Markets Index
Property 10% - L&G Global Real Estate Div Index
All above are funds.

Other idea is to add in 10% Physical Gold ETC and reduce bonds by 5% and Global equity by 5%. Something like Ishares Physical Gold ETC.
There are also hedged Physical Gold ETC's and i don't know which would be best to choose as i don't quite understand but something to do with currency movements.
Maybe someone could explain a little better?
I appreciate any views on above asset allocations.

Thanks
Aidan

dunstonh

Bonds 30% - Rathbone ethical bond fund (as I currently have this and seems good performer) Or else change this for Vanguard global Index Fund and Vanguard Investment grade Bond Index fund equal split 15% each.

Your objective says you want to use trackers. Do you plan to stick to your objective?

The fixed interest sector is similar to equities in the need for diversification. Global Bonds, UK investment grade bonds, high yield bonds, index linked gilts, gilts. So, why are you only including two areas?

Property 10% - L&G Global Real Estate Div Index

Property comes in bricks and mortar versions (lower risk) and property share (high risk). You have chosen property share. Have you accounted for this extra risk in your overall spread?

Are you using a proper allocation model based on data or are your allocations random?
If random, this means you would be comfortable making investment management decisions. So, why are you sticking to trackers?

AnotherJoe

Aidanmc wrote: »

I'm trying to create a more balanced and diversified portfolio mainly based on index trackers, 25-30% bonds and 70-75% equities.

Here's my ideas-
Bonds 30% - Rathbone ethical bond fund (as I currently have this and seems good performer) Or else change this for Vanguard global Index Fund and Vanguard Investment grade Bond Index fund equal split 15% each.

Equities:
Global 40% - Fidelity Index World P
Uk 10% - Fidelity Index UK
Emerging Mkts 10% - Fidelity Emerging Markets Index
Property 10% - L&G Global Real Estate Div Index
All above are funds.

Other idea is to add in 10% Physical Gold ETC and reduce bonds by 5% and Global equity by 5%. Something like Ishares Physical Gold ETC.
There are also hedged Physical Gold ETC's and i don't know which would be best to choose as i don't quite understand but something to do with currency movements.
Maybe someone could explain a little better?
I appreciate any views on above asset allocations.

Thanks
Aidan

Aidanmc

Thanks Dunstonh for your comments.
For the asset allocation i used it was based upon some research online via Monevator and then adapted it a little. I choose the actual funds myself though.

I'm choosing index trackers because i research that a lot of managed funds under perform the indexes and index trackers are inexpensive.

The property allocation idea i got from one of the Monevator asset allocation models for balanced portfolio. The Fidelity Index world fund also has 2.5% exposure to property in that portfolio makeup.
Maybe i could drop the L&G one.

I get your point about the bonds needing diversification also, i guess i was just trying to keep the number of funds to a minimum.

dunstonh

I'm choosing index trackers because i research that a lot of managed funds under perform the indexes and index trackers are inexpensive.

But you are making management decisions yourself. So, if you believe that a professional making management decisions is futile, why are you doing it as an amateur?

The property allocation idea i got from one of the Monevator asset allocation models for balanced portfolio.

Property is there as a diversifier. However, typically it is bricks and mortar funds as they reduce volatility. Property share funds increase volatility as they are higher risk than normal equity funds. By using the high risk versions, you are increasing the overall risk. So, you should increase your bond allocation to compensate. Or use bricks and mortar funds instead.

I get your point about the bonds needing diversification also, i guess i was just trying to keep the number of funds to a minimum.

You won't have all sub-sectors at the same time. For example, we currently have no index linked gilts, or global bonds in our weightings as the economic data doesnt support it. That will change at some point. That said, if you are using a static allocation model, you should hold them as you are not making changes throughout the economic cycle.

bostonerimus

What about just buying a global bond index and a global equity index in the percentages you like or even simpler, buy a multi-asset fund. Why make things complicated when they can be easy? If you want to invest in property then I feel that buying a home with a repayment mortgage is hard to beat. It's isn't exactly diversified, but it's forced saving and usually comes with capital gains.

Aidanmc

I would consider myself an amateur in investment management decisions but i would like to learn more. Do you mean investing in index funds is being amateur?
Many of the multi asset or life strategy funds available contain many index tracking funds.

Aidanmc

"What about just buying a global bond index and a global equity index"

Yes, i have considered this but i don't know if its diversified enough!! The multi asset funds i also considered but i would like to create my own multi-asset fund version.
Thanks for your views

AnotherJoe

You don't know if a global equity index and a global bond index is diversified enough?
Perhaps ask Elon Musk what opportunities there are on Mars?

dunstonh

I would consider myself an amateur in investment management decisions but i would like to learn more. Do you mean investing in index funds is being amateur?

You are building a portfolio of single sector funds. That is a method used by experienced investors with larger sized portfolios typically. For example, there is no point doing it for say £30k as its just a waste of time.

A portfolio needs ongoing reviews and weightings adapted over the cycle. It needs you to understand more about what you are doing.

Whether you use passive or managed for that does not matter. We use a hybrid of passive and managed in ours (where a managed fund is best, we use that. Where there is no managed fund that we feel offers increased potential we use a passive). You could build a portfolio of single sector funds in all managed funds, all passive or a combination.

You have said that you do not believe that management adds value. However, by building a portfolio of single sector funds and deciding what sectors to include and what to leave out and how much to place in each are management decisions. So, you said you don't believe in management but that is exactly what you are doing. I want to invest in A but not invest in B or wanting to put x% into A or y% into B are all management decisions.

So, the bottom line is that if you believe that doesn't add value, why are you doing it instead of buying a multi-asset fund?

Aidanmc

Thanks Dunstonh, I'm getting now what you're saying....its really making me think! Maybe a multi asset fund would be more suitable for my needs.
I appreciate this enquiry,