Vanguard LS vs buying the underlying funds

Thrugelmir

Alexland wrote: »

I am genuinely interested in why he thinks 6 is better?

Diversification? A global equity fund has a very high weighting to a very small number of stocks.

sebtomato

I think the point of passive investment is...passive investment.

If you want to replicate LS80 yourself, you will probably end up not replicating it completely, changing the structure, deciding a different balance etc. and then it becomes more an active investment, with the associated drawbacks: you may or may not make the best decisions, those might be based on emotions, reactions etc.

Rich1976

One fund for each of the main sectors

UK 25%
US 45%
Europe 13%
Japan 7%
Pacific excl Japan 3%
Emerging Markets 7%

poppy10_2

Rich1976 wrote: »

One fund for each of the main sectors

UK 25%
US 45%
Europe 13%
Japan 7%
Pacific excl Japan 3%
Emerging Markets 7%

Why would you want to invest 25% of your portfolio in a country that only makes up 5% of the global stock market

bowlhead99

poppy10 wrote: »

Why would you want to invest 25% of your portfolio in a country that only makes up 5% of the global stock market

Yes, on the face of it, clearly the wrong move because over 95% of the world's investible investor equity capital is outside the UK, so you should invest mostly outside the UK.

Likewise, 99% of the people live outside the UK, so you should live mostly outside the UK.

But wait! You chose not to live mostly outside the UK, so perhaps it is reasonable not to choose where to invest based purely on where other people choose to live or put their money.

bostonerimus

Rich1976 wrote: »

One fund for each of the main sectors

UK 25%
US 45%
Europe 13%
Japan 7%
Pacific excl Japan 3%
Emerging Markets 7%

Global equity fund and buy others to overweight sectors or regions if that floats your boat. Then think about fixed income.

aroominyork

bowlhead99 wrote: »

Yes, on the face of it, clearly the wrong move because over 95% of the world's investible investor equity capital is outside the UK, so you should invest mostly outside the UK.

Likewise, 99% of the people live outside the UK, so you should live mostly outside the UK.

But wait! You chose not to live mostly outside the UK, so perhaps it is reasonable not to choose where to invest based purely on where other people choose to live or put their money.

Bowlhead's on fire this month (or maybe just channelling Prince Harry)!

[FONT=&quot]I see four reasons why some people choose to have home country bias:[/FONT]

[FONT=&quot] - it feels more natural to be invested close to home; there is no financial rationale for this but it is understandable[/FONT]
[FONT=&quot] - they think the UK markets will do well in future years[/FONT]
[FONT=&quot] - it reduces the forex risk: if Sterling strengthens or weakens it has less impact on the value of their holdings compared to holdings denominated in dollars, yen etc.[/FONT]
[FONT=&quot] - even if you are overweight to the UK, you are not exposed to the UK economy to the degree of your overweightedness because a lot of your money will be in FTSE 100 companies which generate their earnings globally (Shell, HSBC, Diageo etc.).[/FONT]

[Deleted User]

Why not just buy from the underlying stocks that are the bedrock of the underlying Vanguard funds, and save yourself two sets of management fees?

For example, the biggest holder of Apple stocks is Vanguard. You, as fundholders, aggregate $76b of their stock.

Alexland

ZingPowZing wrote: »

Why not just buy from the underlying stocks that are the bedrock of the underlying Vanguard funds, and save yourself two sets of management fees?

Because to perform the trades required to maintain such a diverse portfolio (in terms of initial setup, further contributions and re-balancing) would be prohibitively expensive. The low cost fund manager adds value and earns a profit by pooling these costs across all their customers. Everyone wins.

SonOf

Why not just buy from the underlying stocks that are the bedrock of the underlying Vanguard funds, and save yourself two sets of management fees?

but incur hundreds, possibly thousands of dealing costs on purchase and then again on rebalancing. It would be horrendous.