How many funds in a portfolio?

Apodemus

OldMusicGuy wrote: »

I don't like to reveal them online because I don't want loads of "why did you do that" or "you must be mad" type posts. You need to make your own decisions about the funds you will use.

I therefore make my cash a specific percentage of my assets. The funds had all done so well recently (due largely to the falling pound) that I moved a chunk into cash to maintain my percentage split.

Hope this isn’t a “why did you do that” question...;)

Would I be correct in assuming that you mean that you have a minimum percentage that you don’t let the cash fall below, so that when funds are doing well there is a one-way transfer to cash? Or do you envisage cash reserves moving the other way when fund value drops? I’m currently trying to work out my own approach to this, so would value your insight.

OldMusicGuy

Apodemus wrote: »

Hope this isn’t a “why did you do that” question...;)

Would I be correct in assuming that you mean that you have a minimum percentage that you don’t let the cash fall below, so that when funds are doing well there is a one-way transfer to cash? Or do you envisage cash reserves moving the other way when fund value drops? I’m currently trying to work out my own approach to this, so would value your insight.

A bit of background. I am very risk averse, almost as bad as our friend Choi. So although I have a large DC pot, I am worried about the impact of falling markets (if they happen) in the early years of retirement.

So yes, I am basically keeping a fixed percentage of my DC pot as cash and as all my funds had done better than anticipated over the last year, that percentage had dropped so I moved some into cash. However, it won't automatically go back the other way. Until we are both drawing SP (five years time), I want plenty of cash available to drawdown if needed, or even take as TFLS. I will review the situation over the coming years and see how we are getting on. I can see money going back into funds if we are too cash heavy.

What I did would not be a good strategy for someone accumulating but as we are in the decumulation phase, it made sense to me and gave me a feeling of security. Although the funds overall are down a bit from where they were, it's not impacted the allocation significantly.

I am happy holding lots of cash right now as our personal inflation rate is significantly negative because we are downsizing, so inflation at 2% is irrelevant to us.

iglad

I have 4 which I trimmed down from about 10 or so.

Apodemus

OldMusicGuy wrote: »

What I did would not be a good strategy for someone accumulating but as we are in the decumulation phase, it made sense to me and gave me a feeling of security...

Yes, I am a couple of years behind you in the process and want to factor in a “sequence of returns risk” cash buffer to cover the portion of post-retirement income that will come from investments. I am currently thinking of keeping the equivalent of two years worth of investment drawings as cash. Since I am modelling on the basis of 2.5% drawdown per year, it makes sense to me to set the cash buffer at 5% of retirement-day investment fund value. I would then simply inflation-link that cash buffer sum and lose the future link to percentage of investment fund value.

bd10

When I was fully invested in equities, i had 5-6 funds. If you hold 20 funds on the assumption that you are better diversified, you might potentially be mistaken. I say potentially as it all depends on the underlyings. If you go through all funds you might well find that some funds hold similar or same stocks to some degrees. Take for example: Fundsmith and Lindsell Train, both the global funds. Holding both at the same time make little sense as they are highly correlated, so holding both is not diversifying at all. What you can do is to calculate a correlation matrix of all 20 funds. Also, you can write down the top 20 holdings of each and see which fund holds what. Personally, I find 20 funds a bit much, so I would hold a handful of funds which do not hold the same underlyings and the rest for direct stock holdings, to take specific bets. Just a thought

Prism

I am ok holding funds with a similar style to a degree. For example Fundsmith and Lindsell Train GE have about a 25% overlap, mainly with consumer staples and financial software. Then they diversify quite widely with Fundsmith focusing on software, medical devices and industrials - LTGE likes consumer discretionary brands like Disney, Prada, Nintendo and WWE.

Both of my global smaller company funds share a number of holdings but have quite different goals and regional bias.

If you diversify with equities too much you end up back with an expensive tracker

itwasntme001

There is an argument to be made to spread across a number of funds if you have a large total portfolio value - in case something really goes wrong with the fund manager (fraud etc). Then at least you limit your exposure above any FSCS protection that you would be eligible for.

Also for very large portfolio it makes sense to have a mixture of passive funds and active funds in order to diversify away from fund manager risk and limit annual fees somewhat. With a 7 figure portfolio, i am certainly quite vary of having an all active fund portfolio, which is why i have both passive and active. Passive is just 1 fund whereas active is about 8 different funds. I also own single name stocks.

I am in my mid-30s so have potentially a 40 year time horizon, which is an even bigger reason to not be all in in active funds.

bearshare

If you use active funds, it can make sense to invest in e.g. 2 funds with the same focus. You think the area is worth investing in, but the manager might underperform. With 2 funds, one manager underperforming would not matter so much (although of course you are twice as likely to have an underperforming manager.....).

Oh course, this does not provide diversification, so you need funds ( x2) in each area you want to cover. And you may want a passive tracker fund in the same (or wider) area, as your base holding.

This can lead to holding a lot of funds: trust me, I know..

Linton

bearshare wrote: »

If you use active funds, it can make sense to invest in e.g. 2 funds with the same focus. You think the area is worth investing in, but the manager might underperform. With 2 funds, one manager underperforming would not matter so much (although of course you are twice as likely to have an underperforming manager.....).

Oh course, this does not provide diversification, so you need funds ( x2) in each area you want to cover. And you may want a passive tracker fund in the same (or wider) area, as your base holding.

This can lead to holding a lot of funds: trust me, I know..

I dont see this need to spread fund risk by having multiple funds per sector. Sure, one fund may underperform its sector, but another one in a different sector may outperform. If you want to average everything you may as well use a tracker.


The only reason I would have for multiple funds in a sector is if the funds invest in very different assets. Many of the official sectors are very broad.

enthusiasticsaver

We have eleven funds in our relatively low to medium risk portfolio. Strategic bonds, short term credit bonds, equities in UK, USA, Japan, Asia, Europe and Emerging Markets and commercial property. 6 figure portfolio and all active funds. Managed by an IFA.