having a dabble

MaxiRobriguez

dd95 said:

just for expediency, currently contributing 375 per month to VLS 80 and 200 p, into a HTB ISA

my rationale for looking at those sector funds were because i believe tech will continue to grow and grow and grow, and healthcare will always be in demand (obviously). Also the companies in those indexes are strong and well established and likely to be around for a long time.

there is also a fund i was looking into that had a few of the major companies in the US contained in it (coca cola, mcdonalds, apple etc). Again these are leading companies and in my opinion would be low risk as they are likely to be around for a long long time - of course the indexes invested will be high risk as they are pretty much 100% equity.

as mentioned, just trying to absorb as much as possible, research funds that people mention on here etc

Your additional £50 into tech/healthcare would be 12% of your monthly contribution. Not insignificant for sector investing.

Tech and healthcare are typically quite volatile sectors too, so you're taking on more risk. If you're happy with that, how about considering moving to VLS100 and using the £50 all in that? You'd still get an increase in allocation to tech by default, as a handful of tech companies make up c.25% of global markets, but you'd also have some additional diversification you wouldn't have if investing in a single sector. 

Food for thought on your options, rather than a suggestion. 

bowlhead99

dd95 said:

just for expediency, currently contributing 375 per month to VLS 80 

I would tend to agree with the others that it's probably not really worth having these extra 'little dabbles' at only a max of £50pm. Over the course of the year you would put £600 in, so your invested balance in the 'dabble' would start at £0 and go to £600 over a year, on average you have about £300 invested in the first year. 

Let's say you are right and healthcare is 'always in demand' so it does better than the average of everything else and returns you 8% a year instead of 6%. At this point we could of course challenge that and say that if everyone knows that healthcare companies will always be in demand as a great 'theme' for investing, then their shares will be priced accordingly and be more expensive than airlines and restaurants and manufacturing and construction and banks etc, so that there is less profit to be made from them, other than from the new up and coming companies in the industry that people haven't cottoned on to yet. And if you are using an market-cap weighted index to do your healthcare investing, then you will likely have a lot less allocated to those smaller nimble up and coming companies, and more allocated to the giants, so you won't necessarily get much of a boost from them. And all those other industries which might not sound as reliable as healthcare have new up and coming companies too, where good profits can be made. So it's perhaps a faulty premise to think that a healthcare index is a better long term bet than everything else.

But pressing on, let's say you are right that healthcare gets you an extra 2% per year compared to the average of everything else. The amount allocated in your 'side pot' over the next year that earns the extra 2%, is going to be averaging £300 for this first year, so that's only £6 of extra profits. It's nothing really, because by the end of the year after  doing £375pm mainstream + £50pm specialist you will have £5k invested, plus whatever you already have invested up to now. When £5k+ is invested, your portfolio will be moving up and down by more than £6 every single hour you look at it. So trying to branch out into these extra 'themes' with a token amount of money each month just doesn't seem like it will make a difference right now.

When the £5k has become £20k, £50k, £100k, then yes it could make a more useful difference, because if you have £100k and you allocate £10k of it to a clever specialist theme, and the £10k in that theme does 1% better than it would have done if it were in the rest of your more mainstream portfolio, you will make that extra 1% on the £10k which you wouldn't have otherwise made... which is £100. And £100 is something that can be spent on something nice in your life, or left to compound. 

In reality, the healthcare theme won't get you an extra £100 every year, instead it will get you (e.g.) £1000 extra one year and £900 less the next year; this gives an opportunity to rebalance your allocations among specialist funds and your core investments from time to time, and properly benefit from the diversification as the £10k healthcare waxes and wanes in size compared to the rest of your £100k generalist portfolio - you can top it up when it has done badly or take profits out to top up the mainstream holdings when it has done well.  That's fine with £50-100k invested. But with £50 a month starting from nothing, it's simply not worth the time and effort.

The £6 mentioned earlier is not guaranteed - it is subject to risk - and £6 is less than minimum wage for the time it would take you to formulate questions on here, research investment platforms and investment products, create an account and buy a product, remember the password, log in to check it from time to time, etc etc.

YellowStarling

bowlhead99 said:

dd95 said:

just for expediency, currently contributing 375 per month to VLS 80 

I would tend to agree with the others that it's probably not really worth having these extra 'little dabbles' at only a max of £50pm. Over the course of the year you would put £600 in, so your invested balance in the 'dabble' would start at £0 and go to £600 over a year, on average you have about £300 invested in the first year. 

Let's say you are right and healthcare is 'always in demand' so it does better than the average of everything else and returns you 8% a year instead of 6%. At this point we could of course challenge that and say that if everyone knows that healthcare companies will always be in demand as a great 'theme' for investing, then their shares will be priced accordingly and be more expensive than airlines and restaurants and manufacturing and construction and banks etc, so that there is less profit to be made from them, other than from the new up and coming companies in the industry that people haven't cottoned on to yet. And if you are using an market-cap weighted index to do your healthcare investing, then you will likely have a lot less allocated to those smaller nimble up and coming companies, and more allocated to the giants, so you won't necessarily get much of a boost from them. And all those other industries which might not sound as reliable as healthcare have new up and coming companies too, where good profits can be made. So it's perhaps a faulty premise to think that a healthcare index is a better long term bet than everything else.

But pressing on, let's say you are right that healthcare gets you an extra 2% per year compared to the average of everything else. The amount allocated in your 'side pot' over the next year that earns the extra 2%, is going to be averaging £300 for this first year, so that's only £6 of extra profits. It's nothing really, because by the end of the year after  doing £375pm mainstream + £50pm specialist you will have £5k invested, plus whatever you already have invested up to now. When £5k+ is invested, your portfolio will be moving up and down by more than £6 every single hour you look at it. So trying to branch out into these extra 'themes' with a token amount of money each month just doesn't seem like it will make a difference right now.

When the £5k has become £20k, £50k, £100k, then yes it could make a more useful difference, because if you have £100k and you allocate £10k of it to a clever specialist theme, and the £10k in that theme does 1% better than it would have done if it were in the rest of your more mainstream portfolio, you will make that extra 1% on the £10k which you wouldn't have otherwise made... which is £100. And £100 is something that can be spent on something nice in your life, or left to compound. 

In reality, the healthcare theme won't get you an extra £100 every year, instead it will get you (e.g.) £1000 extra one year and £900 less the next year; this gives an opportunity to rebalance your allocations among specialist funds and your core investments from time to time, and properly benefit from the diversification as the £10k healthcare waxes and wanes in size compared to the rest of your £100k generalist portfolio - you can top it up when it has done badly or take profits out to top up the mainstream holdings when it has done well.  That's fine with £50-100k invested. But with £50 a month starting from nothing, it's simply not worth the time and effort.

The £6 mentioned earlier is not guaranteed - it is subject to risk - and £6 is less than minimum wage for the time it would take you to formulate questions on here, research investment platforms and investment products, create an account and buy a product, remember the password, log in to check it from time to time, etc etc.

But it would also be £6 closer in the first year to the arbitrary threshold where you're suggesting satellite/theme investing is considered permissible.  Note - I would concur (if the point were made) that this approach would not be advisable in a sharedealing setting, where there are minimum costs per deal, etc. that would quickly overwhelm smaller amounts.  But if £50 of a monthly £425 contribution (i.e. 12%) were to be allocated to areas the OP believes may outperform what would otherwise be a global allocation, then I'm interested why £12k on £100k (built up over years investing in an allocation that the OP believes is underweight on certain on themes) is different to £50 on £425, or £600 on £5.1k after the first year, etc. 

In essence, if the OP has decided on an allocation that is different from a global/multi-fund, then why wait to reach a certain amount at a slightly slower rate (£6 in the first year, to use the same illustration for ease) before pivoting/rebalancing to that?  Why not start from the off and - if the themes do perform as well as hoped for - rebalance away slightly from them each year rather than wait to rebalance into them?  Is it more that the above is advising caution against DIY allocations with small amounts, in case the anticipated £6 lead it builds up over the single global fund does not materialise, or slightly higher costs if constructing a DIY portfolio?  I agree that these would need to be considered so that you don't end up with a more expensive version of the same global/multi-asset fund but, with one or two themes like the OP is saying, the balance may be struck?

Edit to add: In summary, I'm playing devil's advocate because I'm interested in why a certain % overweighting in a reasonable number of themes (a reasonable number so as to protect against a higher overall cost of merely replicating a more inexpensive, more passive fund) is considered advisable only at certain portfolio valuations - if the themes do not come off then, provided the % overweighting is maintained through rebalancing, the impact on the portfolio is the same at whatever value of the overall portfolio and why not therefore target the catching of earlier growth in said themes by contributing monthly to a DIY allocation, as opposed to rebalancing into the DIY/preferred allocation once a certain threshold has been reached (and whereby the value of the themes has increased at a quicker rate anyway, supposing for the sake of argument that the OP predicted this correctly).

MaxiRobriguez

£6 can be found in a number of ways rather than outperformance in markets. Sacrificing £4 of salary into a pension for example. A little harder to achieve if the numbers are much bigger.

The problem here isn't the money, it's the ingraining of bad habits early on which aren't punished because £6 isn't missed. Overweighting certain sectors isn't necessarily a bad thing, but "because people need healthcare" is profound enough to warrant overweighting. For example, US healthcare spending has actually gone down this year, because people are being laid off and can't afford the insurance. Tech may be fine but they're already quite expensive and dominate markets, there's no guarantees that P/E's can continued to be stretched and for it to go the other way then these companies are going to have to grow revenues even more when they're already dominating global markets.

Ultimately I just think for new investors trying to understand lots of new concepts, its far easier to stick with it if you're just in one global fund. It'll also mean your less likely to take money out when the markets are crashing, because it's easier to have faith in capitalism than it is in a certain sector.

dd95

agree with the last para

how did you begin your investment portfolio? Funds similar to a lifestrategy?

also, how would you suggest moving forwards in the future? invest a decent sum (circa 50-75k) in VLS and leave it grow while then focusing investments in other funds?

im hoping to leave it grow for the best part of 40 years so have time on my side - vls80 is reasonably high risk - would you suggest something with more risk and hopefully more return when VLS is at a decent sum?

Sailtheworld

The crux of the matter is that you should only invest in concentrated funds if you think that concentration will give better returns and you're happy with the higher associated risk.

There's a very strong possibility that you don't (and never will) have the skill to be determine that sector x, y or z will outperform before the rest of the market catches on. This isn't a dig - very few people do have this skill and given only a handful of funds outperform the market it's a skill that's not particularly prevalent in the industry.

Per a post above. If you just fancy taking a bit more market risk why not look at VLS100?

In the meantime why not set up a virtual portfolio and test your healthcare theory and see how that goes?

bartelbe

Invest the majority in trackers, low costs and they match average market performance by definition. Trying to pick funds that will outperform the market is a mugs game.

YellowStarling

MaxiRobriguez said:

... The problem here isn't the money, it's the ingraining of bad habits early on which aren't punished because £6 isn't missed...  Ultimately I just think for new investors trying to understand lots of new concepts, its far easier to stick with it if you're just in one global fund. It'll also mean your less likely to take money out when the markets are crashing, because it's easier to have faith in capitalism than it is in a certain sector.

Fair enough. 

Full disclaimer to the OP:  I personally do not disagree with the advice provided here by MR, bowlhead, STW and bartelbe.  I was intentionally being black and white with my line of questioning as the advice here is a slightly different point to the one I was making - which was, if you're convinced (and can tolerate the risk) that a certain weighting is more optimal than an out-the-box fund or index (and, importantly, you can achieve that weighting at not too much of an additional cost over the general/more passive approach), then why wait for a certain point to enact this. 

But the answer to this is possibly captured by MR's last paragraph above (as the OP themselves has heeded) - that is: the greater the portfolio size, the greater the likelihood that the investor has grown in their understanding of such things before deciding to be more active, and - because the size of the returns (or losses) stand to be larger, which is inferred by MR's opening line (although still the same % proportion) - then they would have a greater sympathy for the risk involved, as articulated well here by STW:

Sailtheworld said:

The crux of the matter is that you should only invest in concentrated funds if you think that concentration will give better returns and you're happy with the higher associated risk.

There's a very strong possibility that you don't (and never will) have the skill to be determine that sector x, y or z will outperform before the rest of the market catches on. This isn't a dig - very few people do have this skill and given only a handful of funds outperform the market it's a skill that's not particularly prevalent in the industry.

It is also true that, as various themes become more dominant (and others less so), market trackers will naturally shift to these allocations for you, as offered by bartelbe.

Thrugelmir

bargainhunter888 said:

ColdIron said:

On tiny amounts such as £50 I wouldn't bother, it really isn't going to make any difference. Probably not what you want to hear but it is the fact of the matter

Everyone has to start somewhere...is everyone saving thousands a month on this forum because it certainly sounds like it 

Portfolios start with humble beginnings. Mine started with £10 a month into a pension plan two months after I first started work. Compounding of returns isn't anything magical. Over the years it rolls like a snowball. Bigger and bigger. The longer you leave it untouched the better. 

Thrugelmir

dd95 said:

thanks coldiron, any feedback (positive or not) is more than welcomed. Would you therefore suggest putting the extra 50 in my vls80?

Until it's reasonable size then yes. Diversify once you've established a core to your portfolio.