Passive Investing ie Trackers

bungleberg

I have a considerable sum I would like to invest, circa 200k. I’m aware that trackers are very good in comparison to actively managed funds and also much cheaper charges. I’m also aware of compounding gains and pound cost averaging.

What I would really like to know is how to diversify the tracker funds so all my eggs are not in one basket. Also I’m worried about investing too much at once. But if I invest too little it will take a long time to get it invested, meaning low gains in the bank.

I’m mortgage and debt free, have couple of final salary pensions which I believe will be quite nice when I retire, I’m fifty years old.

I am looking for how to invest this windfall. I guess on a scale of one to ten I’m a six to seven on the risk scale.

Any advice would be appreciated.

pip895

A single multi asset fund such as LS60 is actually well diversified on its own and could be quite suitable for you. The argument on active v passive is still ongoing. Many of us have a foot firmly in both camps.

One possible solution could be to have most of your cash in say LS60 but add satellite funds in areas you think could outperform - such as small companies or emerging markets - some of these areas may be better served with an active fund than a passive one however.

Audaxer

bungleberg wrote: »

What I would really like to know is how to diversify the tracker funds so all my eggs are not in one basket.

The easiest way is to invest in a low-cost globally diversified multi asset fund. Each fund contain a number of different trackers to give you a fully diversified portfolio. Good examples of the funds, discussed a lot on this forum are Vanguard LifeStrategy funds, HSBC Global Strategy funds and L&G Multi Index funds. They come in versions with different equity/bond percentages to suit your risk tolerance.

It would be useful to research these type of funds on this forum and sites like Monevator.

JohnWinder

You’re clear about your issues, so I guess you’ll be able to come to a clear conclusion.
When to invest it? Read up on ‘dollar cost averaging’. It’s a way of assuaging your fears of investing all as the market(s) peak. You can trickle it in regularly or put half in now, then 20% of it in 3 months, or any of infinite variations which make you comfortable. No one will know ahead of time which approach will give the best return, so it’s what makes you comfortable.
If you can dabble in maths read up on ‘dollar value averaging’, a variation which (can’t remember) ? gives slightly better returns. Most don’t bother.

One egg basket risk? It costs nothing (?little) to be diversified by country, so that’s protection worth having unless you want to gamble on one country out-performing the others. You want global equities, not just uk, surely. Few are brave enough not to hold another asset class as well. Despite the convenience of one company‘s ‘hold-all’ fund, no one knows if it will be better to have spread your investments across two companies, two computer systems, two custodians etc.
Would take you a few days to read Tim Hale’s book. You’ve got that long.

The active/passive argument continues for some folk, but it needn’t for you:
Index funds (following decent indices, closely - read Hale) will give you market returns less costs/taxes etc.
Active investors, taken as a whole, can’t do better as they are the rest of the market (and usually at higher cost). But some do at the expense of others that must then under-perform the market; unfortunately the out-performing usually doesn’t go beyond about 5 years (read the SPIVA reports), and you (or anyone) don’t know which funds they’ll be. Choosing active over passive is a gamble on beating the market at a greater risk of losing against it because fees, trading turnover cost, taxes etc are higher. There’s nothing wrong with taking that risk, but the argument is over until we get new evidence or explanation to the contrary. You choose.
Yes, you could “add satellite funds in areas you think could outperform (now you’re drifting away from a ‘global index’ to favour some higher risk higher return areas!) - such as small companies or emerging markets”.
“ some of these areas may be better served with an active fund than a passive one however”. They may be, but we can say something more definite than that: the evidence is clear that they probably won’t be (see the SPIVA reports). Take the gamble to likely lose out, but first be sure you’ve got the courage and the time to hold that position until the out-performance manifests, and it has been many years in the past.

shinytop

I'm in similar situation and am also in the process of investing a substantial amount. What I'm doing with most of it:

(1) choose a low cost platform - in my case II but there are others (2) Split between 2 well known multi-asset funds - HSBC balance and VSL60 (3) Invest in 3 monthly chunks (4) forget about it.

This might not be completely by the book and other approaches may or may not do better. But it fits my needs and won't keep me awake at night.

arwain

Does the OP only need to consider something like LS60 or the other multi asset funds or can he/she take on more risk?

The reasons I am asking this question is
He/she is mortgage and debt free
He/she has two final salary pensions which they believe will be quite nice when they retire.

For people who do not have final salary pensions then Multi asset (Vanguard LS etc) is a sensible approach but for people that do I wonder if a higher risk, but possible higher return could be worth considering.

MK62

Could be......though it'll come down how much the OP wants/needs that potential extra return, and how much extra risk the OP is prepared to take on to try to get it - it's an investor's constant conundrum though tbh!

arwain

OP I forgot to mention in my previous post, what age do you intend to retire? Your 50 now so if you intend to retire at say 55 then that would probably mean taking much less risk with the 200k than if you intend to retire at 67. At that age you will have three pensions coming in, and your 200k will have had 15 years exposure to the markets and hopefully grown a great deal.

Many people probably would not think 200k is a big enough sum to go and see an IFA, but if I suddenly came into that kind of money I think I probably would. You don't have to take the IFA advice, and I would certainly read a couple of the investing books available together with forums such as this, just so that I could better understand what the IFA was saying to me.

green_man

arwain wrote: »

Does the OP only need to consider something like LS60 or the other multi asset funds or can he/she take on more risk?.

You don’t have to depart from the multi asset arena to increase your risk, a range of alternatives are available at different risk/reward levels.

Thrugelmir

arwain wrote: »

Does the OP only need to consider something like LS60 or the other multi asset funds or can he/she take on more risk?

What is the OP's objective? Without taking a "risk" overall returns in such a fund could be disappointing. Potential return on "Bonds" is well documented. Days of easy profits may well be over for a while.

Albermarle

I have a considerable sum I would like to invest, circa 200k

Due to the amount involved only a small % of it can be held in S& S ISA's with a max of £20K to be added each year . Also maybe some could be added to a SIPP , depending on income etc .
However the majority will have to be in unwrapped investments so you will have to be prepared to keep records of dividends , capital gains etc to report to HMRC . Obviously the more funds, the more records.
Probably you were already aware of this but just thought I would mention it just in case .