New to investing advice required

eskbanker

patch9495 wrote: »

For the equity fund I have viewed the 100% equity fund operated by Vanguard as it gives a good split for equities in each region of the world

Out of curiosity, what's your thinking behind wanting your equities spread around the world (generally viewed as sensible) but all your bonds to be UK-based?

Going back to your theme of running before you walk, you've definitely slowed down but still seem to be jogging....

patch9495

eskbanker wrote: »

Out of curiosity, what's your thinking behind wanting your equities spread around the world (generally viewed as sensible) but all your bonds to be UK-based?

Going back to your theme of running before you walk, you've definitely slowed down but still seem to be jogging....

Like my excercise haha.


The rationale behind this was contained in the investing demytified video that suggested that all bonds should be local currency based, and living in the UK this would be UK government bonds? As these are linked to inflation my thinking would be that as inflation increases so do the bonds increasing returns, and vice versa.




Would anything alternative be a sensible suggestion?

patch9495

ColdIron wrote: »

So why not use Vanguard's Lifestrategy 80 and have the whole thing, including rebalancing, handled under one roof? At £1,000 or so it's not that important. I doubt that only a 'VLS70' will do and a VLS80 is unacceptable

I had looked at this however was unsure about 23% being invested in the UK with all the uncertainty at the moment around Brexit

Malthusian

eskbanker wrote: »

Out of curiosity, what's your thinking behind wanting your equities spread around the world (generally viewed as sensible) but all your bonds to be UK-based?

Can't speak for the OP, but going UK-only for bonds is not unreasonable. Holding overseas bonds doesn't add much in the way of yield and all it mostly achieves is to add currency risk. Nothing wrong with currency risk in the equity part, but if the objective is growth, the point of holding fixed interest is to reduce volatility, and adding currency risk somewhat defeats the point.

Put it another way, why hold non-Sterling bonds when Sterling is near a 25-year low?

Yes, if Sterling rises and your overseas bonds fall in Sterling terms, it doesn't matter so much because your Sterling will still buy more of anything made overseas, i.e. almost everything... but the point of holding fixed interest in a growth portfolio is to not have to look at falls so much. Perception matters, if it didn't you'd be 100% in equities.

eskbanker

Yes, wouldn't necessarily disagree with any of that - the overall point remains that for most new low-value investors the global multi-asset products listed at #4 are a cheap, simple and low-maintenance (no rebalancing needed) option for achieving a decent diversified portfolio with a single purchase but they're obviously not the only show in town.

They'll include corporate bonds as well as government ones and do so over a range of markets in the same way as equities, but that isn't inherently better (or worse) than the approach outlined above....

NoMore

@eskbanker its basically what Lars Kroijer (author of investing demystified) advises and his website was linked to in the thread earlier, so guess thats where the OP is getting it from.

EDIT: And just to clear this is neither endorsement or criticism of said strategy by me.

dunstonh

Bonds are usually used to lower volatility. If you use Global bonds, you actually increase the volatility compared to UK bonds. So, if you are targetting a volatility range, you would have to reduce your equity content if you included global bonds. That is usually counterproductive most of the time.

We have fluid allocations and global bonds do sometimes appear from time to time but most of the time, the weightings are zero across the risk profiles.

Of course, that all assumes you are structuring your portfolio with analysis and data to hit target volatility. If you are just picking random numbers like 70%/30% then it really doesn't matter.

londoninvestor

Malthusian wrote: »

Can't speak for the OP, but going UK-only for bonds is not unreasonable. Holding overseas bonds doesn't add much in the way of yield and all it mostly achieves is to add currency risk. Nothing wrong with currency risk in the equity part, but if the objective is growth, the point of holding fixed interest is to reduce volatility, and adding currency risk somewhat defeats the point..

There's a case to be made that if you hedge the currency exposure, you end up with a portfolio that has a similar return to a domestic bond portfolio, with lower variance:
https://advisors.vanguard.com/VGApp/iip/site/advisor/researchcommentary/article/IWE_InvComStblzrGlblHgdBnds

(I'm not expert enough to assess how strongly the evidence supports the conclusion.)

As you say though, your exact choice of low-risk fixed income vehicle will make much less difference to your overall investment outcomes than will your decision about how much to invest in equities, and what equity funds you invest in.

Alz1986

patch9495 wrote: »

Morning All,


I am new to investing and have setup a S&S ISA through Cavendish online. Not having a great deal of knowledge in the industry I have invested a small amount (1K) and decided to opt for managed funds opposed to individual stocks.
I am willing to take a little risk however don't wish for this to be a great deal.


My current portfolio includes 40% cyclical 28% Sensitive and 30% defensive stocks whilst being 50% active dividend focused stocks and 50% passively managed tracker stocks. I will be increasing the passively managed funds in due course.


Can anyone offer any further advice to each sector type allocation ratio I should go for along with active/passively managed fund split ratio

Use a passive index tracker e.g. global / s&p500.

Malthusian

londoninvestor wrote: »

There's a case to be made that if you hedge the currency exposure, you end up with a portfolio that has a similar return to a domestic bond portfolio, with lower variance:
https://advisors.vanguard.com/VGApp/iip/site/advisor/researchcommentary/article/IWE_InvComStblzrGlblHgdBnds

Is it lower variance because it's more expensive?

Hedging is financial mindfulness, it's doing nothing, only more expensive.