Beginning my investment journey

savingsguy

So about 2 months ago I decided to get my finances into order. I have been meaning to do it for ages and I’ve dreaded it. I was lucky enough to receive a lump sum gift and wanted to invest it properly which pushed me to get things sorted.

I read ‘Own the world’ - an excellent book to give a newbie an interest in finance and some basic pointers on how to get going. The gist of the book being building up a diverse portfolio using cheap tracking funds exposed to a wide range of sectors and assets.

I also watched many youtube videos. PensionCraft was excellent with very clear, rational explanations. Lars Kroijer’s video were brilliant and actually got me to buy his ‘Investment demystified’ book.

Generally all the information has aligned very well and I’m surprisingly interested in finance - even now reading MoneyWeek!

I do wish I got on board earlier, but I’ve still got at 30 years of investment ahead and my position at the moment isn’t bad.

So having taken on lots of information, I’ve boiled it all down to:

Define your plan:
Be honest about your character and appetite for risk and stick to it.
Mine being long-term growth for now, moderately adventurous
As I’m looking long-term, the upcoming market crash won’t matter if I consistently invest and hold on. I can ignore the media and get on with my life.
It’s also got me thinking about budgeting.

Diversify:
Different asset classes, sectors and geography. This helps you weather financial storms, protect against inflation and benefit from emerging markets.
Own equities, bonds, property, commodities.
I plan to have rainy-day fund (in case I lose my job to cover a few months) - keep in NS&I premium bonds
10% or less in cash
20% commodities (gold - Bullionvault) - I get controversial opinions about this.
70% (equities - 0.7 , bonds - 0.3 and other)
I’ve been reviewing my pension to see if there are tax benefits to additional contributions.

Keep your portfolio simple
Lars Kroijer say buy a World equity tracker.

PensionCraft often allocates to a selection of Vanguard Bonds funds and Vanguard World funds.

How to own the world - is not specific, but mentions owning cheap, quality funds such as 7 Investment, Fundsmith and Vanguard.

There are excellent ideas on the forum - Vantage Life Strategy, HSBC Global Strategy, L&G Multi Index Funds, Blackrock Consensus, Architas Passive

Some people own many funds, which to me seems more work and cost and unsure the long terms is any more effective than simpler strategies. I want fewest I can get away with. Preferable one or two.

Figuring out which fund has been tricky. There are too many to choose from. Many will provide growth across geography, sectors, assets - but which is the best or most appropriate in my circumstance is tricky.

I’m considering the ever popular Vanguard LS - although HSBC Global Strategy seems slightly more diversified.
VT PEF Global Multi Asset is certainly the diversification ideal, but I struggle to justify to 1.4%

Keep it cheap
I’ve decided to average in my lump sum over a year.
I’m probably going with iWeb S&S ISA - as I’ll have more than £50k and it’s cheap flat rate would work for me.
Vanguard LifeStratey - 0.22% OCF
HSBC Global Strategy - 0.19% OCF
These seem to be quite cheap.

I hope my experience might be useful for others. The more I learn, the more I realise I don't know. I think I have the basics reasonably in order. It would be great to get feedback and thoughts.

Best regards

NoMore

savingsguy wrote: »

I’m probably going with iWeb S&S ISA - as I’ll have more than £50k and it’s cheap flat rate would work for me.

What's your pension situation like? For the tax benefits, using pension for long term investments is usually a good strategy.

ColdIron

savingsguy wrote: »

Generally all the information has aligned very well and I’m surprisingly interested in finance - even now reading MoneyWeek!

Don't take it too seriously, they are prone to speculation and exaggeration. They make their money from sales, not from being right

20% commodities (gold - Bullionvault) - I get controversial opinions about this.

Far too much. I would consider this only after getting all my other finances squared away (e.g. pension)

seacaitch

savingsguy wrote: »

Define your plan:
Be honest about your character and appetite for risk and stick to it.
Mine being long-term growth for now, moderately adventurous
As I’m looking long-term, the upcoming market crash won’t matter if I consistently invest and hold on. I can ignore the media and get on with my life.

Hold onto those thoughts and try to cement them. Good to have a written down plan (eg. in a actual document kept alongside your savings/investment monitoring spreadsheet, if you have one) which states this stuff explicitly, and review/revisit this plan from time to time, eg. once per year.

savingsguy wrote: »

I plan to have rainy-day fund (in case I lose my job to cover a few months) - keep in NS&I premium bonds
10% or less in cash
20% commodities (gold - Bullionvault) - I get controversial opinions about this.
70% (equities - 0.7 , bonds - 0.3 and other)

Not clear if this 10% cash is the emergency/rainy-day fund?

Yes, 20% in gold is "too much", and a 10% max would still be very significant but more prudent IMO. I would still hold to this view even if in the near future gold gold was to enter a very lengthy bull market (which it might well do should fiscal and central bank policies embark upon a secular shift where the bias becomes towards tolerating higher inflation than has been the case in recent decades).

Equities as 70% of 70% (ie. ~50% overall) looks low to me, but if you are new to investing it's better (more prudent) to start out with a portfolio having less volatility than your risk/volatility tolerance than the other way around (with consequent chance of being panicked into selling low...), until you've had some exposure to the volatility and drawdowns that markets will serve up from time to time.

Nearly everyone underestimates the stress of holding an overly risky portfolio on the way down, so all else equal better to err a little on the side of caution until you've got some experience of volatility/drawdowns under your belt, experience which should then allow you to better calibrate your portfolio to your tolerances.

You've said "30 years of investment ahead", but what do you mean?

Do you actually mean 30 years of accumulation phase? If so, then (with the caveats re risk tolerance noted above) that potentially becomes a 50+ year total investment time horizon when considering the drawdown stage in addition. And a 30 year accumulation phase signals you've a great deal of human capital to draw upon and thus a very long time to ride out (and benefit from!) bear markets along the way via ongoing regular investment month after month, year after year, decade after decade. That being the case, then your theoretical risk-tolerance would be extremely high, and higher equity allocations would be warranted, even if your actual risk tolerance is fairly low due to you being new to investment (again, see the caveats above!). Something to think on...

AnotherJoe

Concur, 20% gold far too much. Even half that far too much.

Especially for someone just starting investing.

Albermarle

Equities as 70% of 70% (ie. ~50% overall) looks low to me, but if you are new to investing it's better (more prudent) to start out with a portfolio having less volatility than your risk/volatility tolerance than the other way around (with consequent chance of being panicked into selling low...)

Also if you were just starting to invest a lump sum now, after a few years of a bull run , then keeping the equity level to 50% might not be such a bad move to begin with. If it was regular saving then it should be higher due to the young age ( maybe swop some of the gold for shares)

Thrugelmir

savingsguy wrote: »

As I’m looking long-term, the upcoming market crash won’t matter if I consistently invest and hold on. I can ignore the media and get on with my life.

Which market is going to crash though? The term market is a broad generalisation. Then there's currency movements to be considered not just indices.

londoninvestor

savingsguy wrote: »

20% commodities (gold - Bullionvault) - I get controversial opinions about this.

Agree with others that this is high - I'd also suggest that gold should be thought of as a separate asset class from other commodities (i.e. those that are eaten, or used as fuel, or used in making stuff).

bostonerimus

Most of the OPs post strikes me as very sensible, apart from the commodities/gold bit.

But the OP is on a good track and all they need to do is now use ISAs and pensions to implement it in a tax efficient way.

savingsguy

- I have a work pension with USS. I do need to do a bit more research. My employer doesn’t add additional contributions anymore. From a tax perspective it still might be worth investigating.

- Thanks for the tip about MoneyWeek, I’ll read it with a healthy dose of skepticism!

- As for Gold, I’ve read strong arguments for owning a fair chunk and yet I get a very cautious response from the forum about buying gold. Thank you for the strong comments about this, it has made me reconsider - I’ll do more research.

- The 10% cash allocation doesn’t include my rainy day fund. It’s still a few thousand pounds, perhaps it should be included in the 10% and reduce my cash

- By 30 years of investing ahead (I’m in my early 40s) I’m thinking roughly 20 years accumulation and 10 years more income.

- I may reconsider increasing my 70% equity and go for a stronger growth fund if I can weather future storms. I’m moderately adventurous, so a higher equity allocation may be suitable for my risk appetite

- By upcoming market crash, I mean generally riding out bear markets over time by consistently investing for the long-term

Thank you for your comment and helping me identify holes in my thinking. Much appreciated.