Where to Start?

Alexland

iglad wrote: »

For someone young like yourself who's got about 40 years of investing ahead of themselves go for an active fund.

So you seriously expect an active stock picker to outperform for 40 years despite all the evidence suggesting otherwise? The longer you stick with an active fund the less likely it will outperform a tracker. Going active over such a long time period is like continually hopping between frying pans praying not to get burnt.

Audaxer

FUNDSS wrote: »

Hello, I know this is a late reply, i do have a quick question here about the Vanguard LifeStrategy funds. Can I please ask why they are particularly recommended?

One reason is that the Vanguard LifeStrategy are very well diversified multi asset funds, and are a one stop portfolio. Most active funds are single sector funds, so rather than pick one fund, you would have to select a number of active funds for your portfolio. The next difficult task for the inexperienced investor putting together an active portfolio, is to get the asset allocation correct - i.e. what percentage do you put in each country, and what percentages in large and small companies and emerging markets etc. By choosing Vanguard LifeStrategy, HSBC Global Strategy or L&G Multi Index funds with the risk profile most suitable to you, this is all done for you, so less chance of getting it wrong by trying to put together, monitor and rebalance a portfolio of active funds.

Thrugelmir

Audaxer wrote: »

One reason is that the Vanguard LifeStrategy are very well diversified multi asset funds, and are a one stop portfolio. Most active funds are single sector funds, so rather than pick one fund, you would have to select a number of active funds for your portfolio. The next difficult task for the inexperienced investor putting together an active portfolio, is to get the asset allocation correct - i.e. what percentage do you put in each country, and what percentages in large and small companies and emerging markets etc. By choosing Vanguard LifeStrategy, HSBC Global Strategy or L&G Multi Index funds with the risk profile most suitable to you, this is all done for you, so less chance of getting it wrong by trying to put together, monitor and rebalance a portfolio of active funds.

Somewhat removed from Jack Bogle's original simple concept of passive index tracking investing.

Prism

Although I wouldn't phrase it with anywhere near the certainty of iglad I do feel that as soon as someone recommends active investing they tend to get a bit of a bashing. Sure, picking active funds like a casual shopping list isn't likely to produce great results but there are a number of good ones (both funds and trusts) out there with specific goals and styles which in my experience have produced better results than world trackers. I have also used sector and style passives for shorter time periods which have produced better results. While momentum investing is a thing you don't need to be there right at the start to do well.

System

Prism wrote: »

Although I wouldn't phrase it with anywhere near the certainty of iglad I do feel that as soon as someone recommends active investing they tend to get a bit of a bashing. Sure, picking active funds like a casual shopping list isn't likely to produce great results but there are a number of good ones (both funds and trusts) out there with specific goals and styles which in my experience have produced better results than world trackers. I have also used sector and style passives for shorter time periods which have produced better results. While momentum investing is a thing you don't need to be there right at the start to do well.

The excess returns of active funds do not persist. Active managers that outperform the market may just be lucky and when their luck changes their fund under performs. Or some active managers have above-average ability so their fund out performs the market for a while, which attracts additional in-flows of capital, but the returns become average as their compensation increases and decreasing returns to scale reduces their ability to out-perform the market. See: https://www.journals.uchicago.edu/doi/abs/10.1086/424739?journalCode=jpe

Alexland

Prism wrote: »

Sure, picking active funds like a casual shopping list isn't likely to produce great results but there are a number of good ones (both funds and trusts) out there with specific goals and styles which in my experience have produced better results than world trackers.

It's absolutely possible and almost likely for a well-positioned active manager to beat a tracker over short periods of time, it's less likely for them to sustain that when measured over multiple years and near impossible that they can sustain that over decades. Even some of the smart beta strategies such as value might be running out of puff.

It's a double layered problem. The active manager has the pressure of being a materially better stock picker than his colleagues despite no biological advantage using strategies which vary in effectiveness as the market changes. Then the active investor need to be a better fund manager picker than his peers.

Today we talk about Lindsell Train, Fundsmith, etc as they are in the current market sweet spot. Before that people talked about Templeton, Lynch, etc. It seems to be who has the right strategy at the right time enjoys a moment of performance.

Alex

DrSyn

Alexland wrote: »

Today we talk about Lindsell Train, Fundsmith, etc as they are in the current market sweet spot. Before that people talked about Templeton, Lynch, etc. It seems to be who has the right strategy at the right time enjoys a moment of performance.

Alex

Lets not forget Neil Woodford. Past sweet spot to current wrong strategy but he will not be the last!

Prism

DrSyn wrote: »

Lets not forget Neil Woodford. Past sweet spot to current wrong strategy but he will not be the last!

You could see that level of under performance and then the technical problems a mile off though. Anyway, even of you stayed invested with Woodford to the bitter end there is still a decent chance you did better than a UK tracker.

sendu

Prism wrote: »

You could see that level of under performance and then the technical problems a mile off though. Anyway, even of you stayed invested with Woodford to the bitter end there is still a decent chance you did better than a UK tracker.

Nonsense. That's 9% at best, vs 29% for an index.

And of course this style of investor wouldn't have been in from the start; they'd only have bought in after the first 2 or 3 years when it was at its peak and beating the index.

Sooner or later it will happen with virtually every actively managed fund: you buy at the peak, and it never recovers. It's a ticking time bomb. How many more years of luck will the fund have before it tanks? When do you pull out? Impossible to say!

Index investing is very different. Over time you can expect it to always just go up, so you only have to worry about pulling out when you actually want to spend the money,

Prism

sendu wrote: »

Nonsense. That's 9% at best, vs 29% for an index.

The sweet spot that we are referring to was around 2000/2001 although he had done pretty well for the 10 years before that.

And of course this style of investor wouldn't have been in from the start; they'd only have bought in after the first 2 or 3 years when it was at its peak and beating the index.

So maybe 2002 until 2016 then.

Sooner or later it will happen with virtually every actively managed fund: you buy at the peak, and it never recovers. It's a ticking time bomb. How many more years of luck will the fund have before it tanks? When do you pull out? Impossible to say!

That assumes it is luck of course. As to when you pull out, then often its when the manager retires or the situation changes significantly. In Woodfords case there were plenty of indicators that things had changed when he set up his own fund house. With Terry Smith its when he tried to embrace emerging markets. (still unsure about this one)

Index investing is very different. Over time you can expect it to always just go up, so you only have to worry about pulling out when you actually want to spend the money,

Nonsense yourself!. You certainly cannot pull money out whenever you like unless you don't mind taking some major losses. Just like active investing