Investing advice and guidance - rebalancing

DairyQueen

Just read the second part of your post.

Another vote for a too complex fund mix for the size of portfolio. Unless that '5-figure sum' is north of £80k? or you are a very experienced investor?, One or two funds will do a decent job with far less effort, time and angst (and little/zero rebalancing). A global passive as the core fund (optionally) spiced with a couple of actively-managed sidelines into market areas not covered by the passive (e.g. small caps, India, whatever).

As bond prices are not behaving according to their historic norm (i.e. no inverse correlation to equities) I am avoiding bonds for any investment that I may need to access within the next 5 years. I `am holding that %age in cash. My only reason for holding bonds in the children's investments is to manage volatility as the older child's 18th birthday approaches. That will be at a cost to performance but he has had a good equity run over the last decade.

I was extraordinarily lucky with market timing of the children's investments. Chances are that the next 10 years will see lower annual returns than the last decade. An 8% return since December is not indicative of anything except lucky timing. The entire market has risen over that period. It dropped 11% in the preceding few months. These are just points two points on a very long graph.

Thrugelmir

DairyQueen wrote: »

As bond prices are not behaving according to their historic norm (i.e. no inverse correlation to equities) I am avoiding bonds for any investment that I may need to access within the next 5 years.

In essence a false market. As the BOE's policy is to maintain it's holdings of £445bn of gilts and £9.5 bn of blue chip corporate bonds. It buys with with no regards to current market price as held investments mature.

Prism

I like your approach. I absolutely think that an active fund like LT or Fundsmith can serve as a global core fund and is reasonably diversified with their 20+ holdings. The only things they don't invest in are not any loss in my book.

The Standard Life fund is actually a mid cap fund with a bit of small company holdings thrown in.

scarlettsmith694

I am a long term investor and for that I am taking this article as a advice.
And yes there are so many investors misunderstand on point about lithium stocks/dividend/ penny stocks etc and for those investors every bit of advice can be helpful.

Flobberchops

Although by no means an expert I have experienced the same kind of "beginner's over enthusiasm" that compels me to watch the daily movements of my investments, spreadsheet EVERYTHING, micromanage, and basically fuss and tinker with my money in the mistaken belief that expending time and energy on my portfolio is that same thing as adding value to it.


I think OP should make their peace with the fact that most of the factors that will determine the eventual value of the savings pot are outside of their control. If you want to ensure the pot continues to grow, keep feeding it! The 8% growth over 6 months could be just as easily explained by currency fluctuations as the underlying fund's performance, let alone any particular strokes of genius or failures on the part of the fund managers. Saving for a child is a long term project so cultivate a relaxed, passive, long term outlook. Crucially, don't panic when you make your first "paper" losses, the market has many years to bounce back and none of your gains or losses are real until they're crystallised, and that will be in 10+ years at the earliest. Relax! Watching the kettle won't make it boil any faster. If you have the time to fritter away reviewing your investments, that's time you could be using to work some overtime or develop another income stream, i.e. actions that will 100% put money in your (kids') pocket.


Best of luck to you and your growing family!

Seraphi

DairyQueen wrote: »

The children' investments.

This resonates with me. I invest similarly with the savings I make on behalf of my two nephews.

I was 100% equities until I recently de-risked down to 60/40 for nephew number 1 (now age 14).

I understand the choice of active management for the small caps. I believe this is one area where a good manager can add real value and the addition of small caps adds diversification to a core fund.

I also believe that you only need one (core, highly diversified, global) fund in order to diversify across a decent spectrum of global markets and companies. However, your choice of LT as this core fund is perplexing.

LT's strategy is to focus on a concentration of large caps. It only holds around 50 shares. All of these are global players and those listed in the UK have benefited from the weak pound. Large caps have performed especially well in recent years. Thus LT's sterling performance (no pun intended). Fundsmith operates a similar strategy.

Brexit may dominate our political lives but it's a pimple on the backside of global market performance - assuming that you have sufficient exposure to the global market.

IMHO you are not sufficiently diversified and Brexit should not be a consideration in your strategy. You have small caps plus some large caps. You are missing the middle bulk.

I add my voice to those who suggest that you pick a different core fund: a highly diversified, low-charge, global tracker would save you the job of rebalancing. The usual culprits: Vanguard, Blackrock, HSBC, L&G, etc. all provide a good selection. Check the regional weightings and pick whichever 100% equity fund fits your regional preference, or which tracks your favoured global index.

I have just switched from VLS 100 to VLS 60 (older child) and from VLS 100 to Vanguard Global All Cap (younger child). I will keep an open mind about de-risking child 2's investment. Having said that, if the markets crunch concurrent with each child's 18th then I have a back-up plan.

These ISAs are held in my father's name as he wasn't using his ISA allowance. If he dies they will transfer to my mother. If she dies then the children's father and I will inherit anyway. IHT isn't an issue.

So, if we are in the midst of a stock market downer on those key birthdays the investments won't be accessed. The children will have to wait until the market recovers. Better a decent sum at, hopefully, 20-something than a much-reduced sum at age 18.

Thanks for your reply

I had read that the Standard Life fund covered some of the "middling companies" like Prism said. That's partly why I chose it over others.

So in essence, choosing just two funds for the junior ISA is appropriate. But the concern is sufficient global and companies size diversity and therefore one active and one passive fund should be sufficient.

DairyQueen wrote: »

Just read the second part of your post.

Another vote for a too complex fund mix for the size of portfolio. Unless that '5-figure sum' is north of £80k? or you are a very experienced investor?, One or two funds will do a decent job with far less effort, time and angst (and little/zero rebalancing). A global passive as the core fund (optionally) spiced with a couple of actively-managed sidelines into market areas not covered by the passive (e.g. small caps, India, whatever).

As bond prices are not behaving according to their historic norm (i.e. no inverse correlation to equities) I am avoiding bonds for any investment that I may need to access within the next 5 years. I `am holding that %age in cash. My only reason for holding bonds in the children's investments is to manage volatility as the older child's 18th birthday approaches. That will be at a cost to performance but he has had a good equity run over the last decade.

I was extraordinarily lucky with market timing of the children's investments. Chances are that the next 10 years will see lower annual returns than the last decade. An 8% return since December is not indicative of anything except lucky timing. The entire market has risen over that period. It dropped 11% in the preceding few months. These are just points two points on a very long graph.

The insurance payoff isn't far off that sum but it is spread across two different ISAs (one not in my name - similar to the set up with your Grandfather actually...) to maximise the annual allowances from last year that I and the party didn't use. We then put the rest in once the new tax year started.

I'm clearly not experienced and I'm well aware that I could well end up down in a few months time from where I am now. I keep reading that everyone expects a crash in next few years and discipline will be important. It's interesting that you don't feel bonds are appropriate at the moment for even a five year period. Any good news articles or reviews on their current behaviour?

Seraphi

Flobberchops wrote: »

Although by no means an expert I have experienced the same kind of "beginner's over enthusiasm" that compels me to watch the daily movements of my investments, spreadsheet EVERYTHING, micromanage, and basically fuss and tinker with my money in the mistaken belief that expending time and energy on my portfolio is that same thing as adding value to it.


I think OP should make their peace with the fact that most of the factors that will determine the eventual value of the savings pot are outside of their control. If you want to ensure the pot continues to grow, keep feeding it! The 8% growth over 6 months could be just as easily explained by currency fluctuations as the underlying fund's performance, let alone any particular strokes of genius or failures on the part of the fund managers. Saving for a child is a long term project so cultivate a relaxed, passive, long term outlook. Crucially, don't panic when you make your first "paper" losses, the market has many years to bounce back and none of your gains or losses are real until they're crystallised, and that will be in 10+ years at the earliest. Relax! Watching the kettle won't make it boil any faster. If you have the time to fritter away reviewing your investments, that's time you could be using to work some overtime or develop another income stream, i.e. actions that will 100% put money in your (kids') pocket.


Best of luck to you and your growing family!

Thanks for all the advice.

This is actually the first time I've looked at the respective investments since I put them in. It was the second child which made me think it would be sensible to seek advice about the underlying principles of my choices and what I should be doing at the yearly review.

General vibe is less is more, and nothing wrong with just using a tracker.

DairyQueen

Seraphi wrote: »

It's interesting that you don't feel bonds are appropriate at the moment for even a five year period. Any good news articles or reviews on their current behaviour?

Good news articles? 'Fraid not. Blame the QE response to the financial crisis.

BBC news: quick overview of the impact on bond prices wrought by QE:
https://www.bbc.co.uk/news/business-15198789

This from the NY Times. Written from a US perspective. Assume that the outlook for investment-grade bonds is worse elsewhere across the globe.
https://www.nytimes.com/2019/05/30/business/bond-yield-curve-recession.html.

This from Bloomberg:
https://www.bloomberg.com/news/articles/2019-06-21/europe-s-biggest-economy-is-looking-at-world-without-bond-yields

https://edition.cnn.com/2019/06/20/investing/10-year-treasury-yield/index.html

https://www.telegraph.co.uk/business/2019/05/30/german-bond-yields-plumb-700-year-lows-deflation-stalks-eurozone/

https://www.theguardian.com/business/2019/mar/08/the-verdict-on-10-years-of-quantitative-easing

Bond prices are no longer inversely correlated to equities. Indeed, corporate bonds are behaving similarly to equities. Investment-grade bond prices are on the floor. US Treasury yield curve has inverted (i.e. expect better returns on short-dated than long-dated - absurd). Some are returning negative yields. Yes, you read that correctly. Investors are paying the German government for the privilege of holding Bunds.

As bonds aren't behaving 'normally' they aren't able to undertake their usual function within a diversified portfolio.

I have just rebalanced our portfolio (we are 2 years from retirement). The 'fixed asset' allocation is mostly in cash. It will stay there (exposed to inflation risk) until bonds are more predictable.

Seraphi

Seraphi wrote: »

I'm using Bestinvest (0.4%) for the Junior ISA and Cavendish/Fidelity (0.25%) for my own as the platforms. Bestinvest seemed a good choice at the time due the advice they provide, though I'm aware after reading around some more that using them was an error - which is why Cavendish was used later on. I am planning on moving the Bestinvest ISA at the time of rebalancing, I assumed that that was a good time to do it. Account closure is free but it's not clear to me if stock transfers are charged when I looked at a key facts sheet.

Following on from this, just found out that the Fidelity platform doesn't allow transfers of JISAs

For the sake of £10 a year, is it worth the hassle of converting everything to cash, closing the account and opening a new one? Do platform fees change as often as interest rates of regular saver? And therefore just stay where I am until another platform is cheaper?

Seraphi

UPDATE: Found my answer. In case anyone reads this in future there is a website that is really helpful for calculating costs of platforms over time: Comparefundplatforms.com