Squeaky bum time!

[Deleted User]

Before you get into specific vehicles, you need to decide on your asset allocation. Needs to be evaluated very carefully and today might not be the best time. Better when its a bit calmer.
For near term drawdown (a couple of years?) you need either cash (outside pension wrapper) or cash-like investment (Short term government bonds). Vanguard 20/80 can be volatile. Has a lot of foreign bonds and lots of corporate bonds. Both have been supported and have done well, both could be in trouble even in the near future.
I am a passive investor so can’t comment on your fund choices, but the way you are going about your choices does not seem right. You need to decide how much equity you want in the UK, US, EM... then any factors you want to consider (growth/value/quality/small/momentum...) Only then would I look for specific vehicles matching my objectives. Picking brand names seems a bit arbitrary. Past performance of a particular fund manager tells us little about fund’s future performance. 

ffacoffipawb

Deleted_User said:

Before you get into specific vehicles, you need to decide on your asset allocation. Needs to be evaluated very carefully and today might not be the best time. Better when its a bit calmer.
For near term drawdown (a couple of years?) you need either cash (outside pension wrapper) or cash-like investment (Short term government bonds). Vanguard 20/80 can be volatile. Has a lot of foreign bonds and lots of corporate bonds. Both have been supported and have done well, both could be in trouble even in the near future.
I am a passive investor so can’t comment on your fund choices, but the way you are going about your choices does not seem right. You need to decide how much equity you want in the UK, US, EM... then any factors you want to consider (growth/value/quality/small/momentum...) Only then would I look for specific vehicles matching my objectives. Picking brand names seems a bit arbitrary. Past performance of a particular fund manager tells us little about fund’s future performance. 

Fair comment. Thanks.

I do have a fair bit of cash outside the pension, invested in NSI Income Bonds but I have withdrawn all of this bar £500 and it is going to Hargreaves Lansdown Active Savings in the hope that I can get some sort of 1, 2 and 3 year rate worth having.

DairyQueen

ffacoffipawb said:

How about:

Vanguard Global Equity 50%
Fundsmith 10%
Lindsell Train Global 10%
Rathbone Global Opps 10%
Blue Whale 10%
Vanguard LS 20/80 10% - for near term drawdown.

Or is this too racy?

Possible 3% drawdown rate required, age 56.

NB Funds fully crystallised.

That's a pretty radical change of strategy. Is this a whole-of-life portfolio? Also, what is your idea of 'racy'? Could you stand a 50% drop in equities? 40%? 20%?

Fundsmith/Lindsell Train/Blue Whale are all concentrated, mega-cap funds. High US. High tech.There is likely a lot of overlap.

I would choose cash over VLS 20/80 for near-term (i.e. within 5 years) drawdown despite the inflation risk. Bonds are no longer following historic pricing behaviour and are not the hedge against stock market falls that they once were - massive QE applies. However, they still reduce volatility and I include them just for that reason.

Vanguard Global Equity is a good core fund IMO (depending on your strategy) but also likely some overlap with the above-mentioned.

Perhaps you may consider going back to the drawing board and look at the overall strategy? Core plus satellites for diversification? Wealth preservation? A specific drawdown strategy akin to McClung?

[Deleted User]

Tend to agree with DQ.
Perhaps a good time to do some reading. I am a big fan of Bernstein’s 4-book series on risk e.g. https://www.amazon.ca/Deep-Risk-History-Portfolio-Investing-ebook/dp/B00EV25GAM.  Then re-evaluate your objectives and the overall policy. Then proceed. Making fundamental changes requires some learning and thinking.  Everyone questions themselves and we all feel bad when portfolio underperforms but a bad day is  usually the worst time to make fundamental changes.  

cfw1994

Deleted_User said:

Tend to agree with DQ.
Perhaps a good time to do some reading. I am a big fan of Bernstein’s 4-book series on risk e.g. https://www.amazon.ca/Deep-Risk-History-Portfolio-Investing-ebook/dp/B00EV25GAM.  Then re-evaluate your objectives and the overall policy. Then proceed. Making fundamental changes requires some learning and thinking.  Everyone questions themselves and we all feel bad when portfolio underperforms but a bad day is  usually the worst time to make fundamental changes.  

Yup....I bet many are questioning their choices this year, & plenty wringing their hands in angst.
You don’t mention amounts.  A “fair bit of cash” perhaps means you have little need to draw on the investments for some time, should the markets dip and remain low for a while.  That’s a good position to be in.  If I’m brutally honest, I’m not sure what your original funds & strategy were, so take this with the proverbial seasoning.

For me, the logic is keep things low cost, broadly globally spread (the Lars Kroijer approach - I wimpier when I see people with a huge home bias - we are but 5-6% of GDP!).  I also like some degree of risk on a certain percent of our funds (for growth & fun).  In your shoes, perhaps an LS60 fund for 60-75% for that low cost element.  Similar to the Global Equity Fund, although from what I see, that has slightly less track record.  Not sure of the costs, but if we have a few years of low growth, I think containing them is key: every fraction of a percent in costs is a fraction of a percent you need your funds to grow at before breaking even....
For the growth and fun part, I suspect DQ is right suggestion you may have some overlap, but I can also get the “eggs and baskets” thinking behind it.

I always find it interesting that we all understand “Past performance of a particular fund manager tells us little about fund’s future performance”.....& yet that is often all that mere mortals have to go on.  The fallout from Woodford indicates to me that many professionals don’t know much better either.....
For me, examining fact sheets to compare things is a useful exercise: did that around 15 or more years back, and the funds I changed to have served me well, with a few minor tweaks and adjustments along the way.   Many will see me as naive.   Working in IT & not the finance sector, as I do, I won’t argue with that....   

ffacoffipawb

cfw1994 said:

Deleted_User said:

Tend to agree with DQ.
Perhaps a good time to do some reading. I am a big fan of Bernstein’s 4-book series on risk e.g. https://www.amazon.ca/Deep-Risk-History-Portfolio-Investing-ebook/dp/B00EV25GAM.  Then re-evaluate your objectives and the overall policy. Then proceed. Making fundamental changes requires some learning and thinking.  Everyone questions themselves and we all feel bad when portfolio underperforms but a bad day is  usually the worst time to make fundamental changes.  

Yup....I bet many are questioning their choices this year, & plenty wringing their hands in angst.
You don’t mention amounts.  A “fair bit of cash” perhaps means you have little need to draw on the investments for some time, should the markets dip and remain low for a while.  That’s a good position to be in.  If I’m brutally honest, I’m not sure what your original funds & strategy were, so take this with the proverbial seasoning.

For me, the logic is keep things low cost, broadly globally spread (the Lars Kroijer approach - I wimpier when I see people with a huge home bias - we are but 5-6% of GDP!).  I also like some degree of risk on a certain percent of our funds (for growth & fun).  In your shoes, perhaps an LS60 fund for 60-75% for that low cost element.  Similar to the Global Equity Fund, although from what I see, that has slightly less track record.  Not sure of the costs, but if we have a few years of low growth, I think containing them is key: every fraction of a percent in costs is a fraction of a percent you need your funds to grow at before breaking even....
For the growth and fun part, I suspect DQ is right suggestion you may have some overlap, but I can also get the “eggs and baskets” thinking behind it.

I always find it interesting that we all understand “Past performance of a particular fund manager tells us little about fund’s future performance”.....& yet that is often all that mere mortals have to go on.  The fallout from Woodford indicates to me that many professionals don’t know much better either.....
For me, examining fact sheets to compare things is a useful exercise: did that around 15 or more years back, and the funds I changed to have served me well, with a few minor tweaks and adjustments along the way.   Many will see me as naive.   Working in IT & not the finance sector, as I do, I won’t argue with that....   

The original strategy was to build a portfolio of investment trusts (because platform charges are capped) with a regular monthly income so that the dividend income could be drawn down to provide a pension income with the capital being left to grow in line with the dividend growth (as reasonably expected).

My ISA, the same but with more ITs and smaller holdings thereof.

Both have come a cropper this year. However looking at how some individual FTSE 100 UK shares have performed I think I have come off lightly and grateful that I ditched HYP as a concept a few years ago.

I have enough cash outside pension for 5 years income (may as well use it as it is yielding naff all( but obviously want to make use of my tax free personal allowance as far as the pension income is concerned - use it or lose it!

DairyQueen

Deleted_User said:

Everyone questions themselves and we all feel bad when portfolio underperforms but a bad day is  usually the worst time to make fundamental changes.  

Agree with Mordko. It's easy to lose confidence.

I get your current strategy but divi cuts, the impact of QE on bonds and the UK overweighting have worked against you. Historically, good divis have balanced the lack of growth in the UK's major markets. Historically, bonds have been inversely correlated to stocks. Historically, your lack of geographic diversification wouldn't have been such an issue. Perhaps the fundamentals on which you built your strategy have changed?

DIY-investing is a life-long learning curve. I have completely changed my portfolio 3 times in the last 5 years in response to underperformance/research/reading/information-gathering and refining objectives and income plans. I feel more confident now but the comments of MSE sages frequently catalyses further research and helps refine the portfolio. In perhaps the next 40 years of retirement your strategy may be reviewed several times. 

I am one of those who considers the US overvalued and the UK undervalued so my weightings reflect that. My/our portfolio/s are aimed at flexible drawdown (Mr DQ) and time-specific withdrawals (me) so our objectives are likely different from your's. Our asset allocation reflects our specific circumstances. Not just the timing and amount of withdrawals but also tax (income and IHT), life expectancy and LTA. 

The performance of Mr DQ's very 'racy' portfolio is interesting from the diversification perspective. Last year his core funds (global ex UK passives) were the outperformers and his satellite portfolio mediocre. So far this year his satellite portfolio (mostly actively managed) has outperformed the core. The satellites include a smidge of Fundsmith (an anomaly in his portfolio which I am likely to sell at the next rebalance) but are mostly small cap/regional funds: Japan, China, UK, US small caps have all performed well. His smidge of bonds has held-up although an equal smidge of wealth preservation is down. The latter two funds are the next line of drawdown defence after cash but are also included to diversify a little from high equities and cash. 

A highly diversified equity allocation is working for us at the moment. Overweight cash cushioned the big drop in March. But who knows what the next year will bring. Negative rates on UK gilts? (ouch). Inflation rising? Covid still wreaking havoc? 

ffacoffipawb

DairyQueen said:

Deleted_User said:

Everyone questions themselves and we all feel bad when portfolio underperforms but a bad day is  usually the worst time to make fundamental changes.  

Agree with Mordko. It's easy to lose confidence.

I get your current strategy but divi cuts, the impact of QE on bonds and the UK overweighting have worked against you. Historically, good divis have balanced the lack of growth in the UK's major markets. Historically, bonds have been inversely correlated to stocks. Historically, your lack of geographic diversification wouldn't have been such an issue. Perhaps the fundamentals on which you built your strategy have changed?

DIY-investing is a life-long learning curve. I have completely changed my portfolio 3 times in the last 5 years in response to underperformance/research/reading/information-gathering and refining objectives and income plans. I feel more confident now but the comments of MSE sages frequently catalyses further research and helps refine the portfolio. In perhaps the next 40 years of retirement your strategy may be reviewed several times. 

I am one of those who considers the US overvalued and the UK undervalued so my weightings reflect that. My/our portfolio/s are aimed at flexible drawdown (Mr DQ) and time-specific withdrawals (me) so our objectives are likely different from your's. Our asset allocation reflects our specific circumstances. Not just the timing and amount of withdrawals but also tax (income and IHT), life expectancy and LTA. 

The performance of Mr DQ's very 'racy' portfolio is interesting from the diversification perspective. Last year his core funds (global ex UK passives) were the outperformers and his satellite portfolio mediocre. So far this year his satellite portfolio (mostly actively managed) has outperformed the core. The satellites include a smidge of Fundsmith (an anomaly in his portfolio which I am likely to sell at the next rebalance) but are mostly small cap/regional funds: Japan, China, UK, US small caps have all performed well. His smidge of bonds has held-up although an equal smidge of wealth preservation is down. The latter two funds are the next line of drawdown defence after cash but are also included to diversify a little from high equities and cash. 

A highly diversified equity allocation is working for us at the moment. Overweight cash cushioned the big drop in March. But who knows what the next year will bring. Negative rates on UK gilts? (ouch). Inflation rising? Covid still wreaking havoc? 

Thanks

Could you show your portfolio split by approx percentage, e.g. Fundsmith 10% etc?

Prism

ffacoffipawb said:

Both have come a cropper this year. However looking at how some individual FTSE 100 UK shares have performed I think I have come off lightly and grateful that I ditched HYP as a concept a few years ago.

I think it is possible to get both growth and dividends out of large UK stocks from the FTSE 100 but its a very cyclical index and when there is an economic downturn it gets hit pretty hard. This time round that has been compounded by not have enough tech exposure which is the only thing that has done really well this year. If you take some of those UK defensive stocks that Lindsell Train and Fundsmith to a lesser extent invest in, they have just about held things up YTD. The problem is that UK funds need to find more than just 5-10 stocks to invest in so also tend to pick some of the cyclical stuff. 

My rough calculation of Fundsmith's UK stocks have it on a +0.5% total return YTD. That includes Diageo and Intercontinental Hotels which are both down over 20%, but also Unilever and Intertek which are up 10% and Reckitt up 23%. When you only need to select 5-6 UK stocks in a fund you can afford to go much more defensive than a full UK fund that typically needs to have 20+ holdings. Fundsmith's UK holdings rarely make the top 10 list and are hardly mentioned but it kind of goes to show that they can do a quiet job when you are really selective. 

I moved away from all UK only large cap funds and trusts several years ago for this reason. I do have a UK only fund but its microcap and therefore has a pretty different performance (still down 9% YTD)

LHW99

ffacoffipawb said:

cfw1994 said:

Deleted_User said:

Tend to agree with DQ.
Perhaps a good time to do some reading. I am a big fan of Bernstein’s 4-book series on risk e.g. https://www.amazon.ca/Deep-Risk-History-Portfolio-Investing-ebook/dp/B00EV25GAM.  Then re-evaluate your objectives and the overall policy. Then proceed. Making fundamental changes requires some learning and thinking.  Everyone questions themselves and we all feel bad when portfolio underperforms but a bad day is  usually the worst time to make fundamental changes.  

Yup....I bet many are questioning their choices this year, & plenty wringing their hands in angst.
You don’t mention amounts.  A “fair bit of cash” perhaps means you have little need to draw on the investments for some time, should the markets dip and remain low for a while.  That’s a good position to be in.  If I’m brutally honest, I’m not sure what your original funds & strategy were, so take this with the proverbial seasoning.

For me, the logic is keep things low cost, broadly globally spread (the Lars Kroijer approach - I wimpier when I see people with a huge home bias - we are but 5-6% of GDP!).  I also like some degree of risk on a certain percent of our funds (for growth & fun).  In your shoes, perhaps an LS60 fund for 60-75% for that low cost element.  Similar to the Global Equity Fund, although from what I see, that has slightly less track record.  Not sure of the costs, but if we have a few years of low growth, I think containing them is key: every fraction of a percent in costs is a fraction of a percent you need your funds to grow at before breaking even....
For the growth and fun part, I suspect DQ is right suggestion you may have some overlap, but I can also get the “eggs and baskets” thinking behind it.

I always find it interesting that we all understand “Past performance of a particular fund manager tells us little about fund’s future performance”.....& yet that is often all that mere mortals have to go on.  The fallout from Woodford indicates to me that many professionals don’t know much better either.....
For me, examining fact sheets to compare things is a useful exercise: did that around 15 or more years back, and the funds I changed to have served me well, with a few minor tweaks and adjustments along the way.   Many will see me as naive.   Working in IT & not the finance sector, as I do, I won’t argue with that....   

The original strategy was to build a portfolio of investment trusts (because platform charges are capped) with a regular monthly income so that the dividend income could be drawn down to provide a pension income with the capital being left to grow in line with the dividend growth (as reasonably expected).

My ISA, the same but with more ITs and smaller holdings thereof.

Both have come a cropper this year. However looking at how some individual FTSE 100 UK shares have performed I think I have come off lightly and grateful that I ditched HYP as a concept a few years ago.

I have enough cash outside pension for 5 years income (may as well use it as it is yielding naff all( but obviously want to make use of my tax free personal allowance as far as the pension income is concerned - use it or lose it!

That does seem particularly UK heavy - we are overweight UK according to many, but only to around 1/2 the level you have. Also our US is around 2-3x yours. Otherwise we have a little more in Europe, and less in emerging Asia.

There are headwinds everywhere just now, but I still feel I don't want to catch a falling knife, so although we are down still since the peak (but up considerably since the bottom) I have generally sat on my hands, except for a couple of small buy / sells which were semi-planned anyway.