Is this a reasonable plan?

MalachiK

I've been investing small amounts monthly for quite a few years. Now that the novelty has worn off, I've got bored of having too many funds and spending hours tweaking the weightings by a few % every few months. Luckily, it is only recently that I've had the income to invest significant sums and most of my learning curve occurred since 2013 and so it was easy avoiding expensive mistakes.

I'm not looking for the 'best' strategy, nor am I looking to beat the market. Instead, I just want to hold a well diversified portfolio that is likely to offer reasonable returns over the next 20 years. With this goal in mind, I've just finished selling off most of the funds that I previously held and chucking everything into a FTSE All World Index tracker. I have a simple plan which is to just invest into this tracker fund every month for the next two decades and, err... that's it. The only action that I plan to take in the next few years is to switch from an investment fund to an ETF when the platform fees for holding the fund get to be significant. I feel that simplicity is an advantage as most of the bright investment ideas that I've had over the last few years have profited me much in terms of increased wisdom but little in terms of cash.

I think I have a good appreciation of the potential volatility that comes with this 100% equities portfolio. I also understand that currency exchange rates will affect the value of the portfolio. I believe that I have an appropriate attitude to deal with large declines in equity valuations ('Great, everything is cheap and it's a good time to buy!') However, I also know that after a few years, when the portfolio is worth several years worth of salary my perspective may change.

Is this a reasonable plan? The usual advice here is to be as diversified as possible. Surely when it comes to equities, the FTSE All World does the job nicely. However, it is only diversified in a single asset class. I'm an expat and I'm not interested in buying property back in the UK to rent out (too much hassle) and my accommodation is provided abroad by my employer. As such, my living expenses are low but the only assets that I will hold upon retirement and return to the UK, whenever that happens, will be my investment portfolio along with (eventually) the UK state pension from voluntary NI contributions and a few grand from a DB pension.

A little knowledge is a dangerous thing. Where are my blind spots here? What don't I know? Where will it all go wrong? Aside from holding a substantial cash reserve as insurance against unemployment, what else should I plan for?

AnotherJoe

I think thats a very good plan. IMO too many go for a cautious 60/40 type equities / bond split when they have 20+ years of investing ahead of them at least, and as long as you can avoid the temptation to bail out every time theres a drop, you should, statistically, be golden. No refunds if I'm wrong if only because that's my attitude and i wont be able to afford to refund you.

Regards diversification into property, I understand your reluctance to be an ex pat landlord but houses here can be staggeringly expensive and owning one here can be a good hedge against out of control property inflation. So perhaps you should, in addition to "normal" savings,  be saving what you might otherwise be spending on a property in the UK, almost in an "earmarked for property" part of your savings even if its just a notional %?

 

MalachiK

AnotherJoe said:

 So perhaps you should, in addition to "normal" savings,  be saving what you might otherwise be spending on a property in the UK, almost in an "earmarked for property" part of your savings even if its just a notional %?

I see what you're getting at here, and I've considered this a few times. The problem as I see it is that as you say, UK property is expensive. So any meaningful house buying fund would involve a large amount of cash just sitting there doing nothing. 

I thought that maybe I could run the portfolio as a pension and then stick what I would be paying in for a house if I were living in the UK into cash savings. But that leaves me with just too much cash sloshing around I think. 

mollycat

What @AnotherJoe said! ^^^
Sounds like you've thought it through well and have insight into any potential downsides; can't see obvious "blind spots"....although maybe we're both wearing the same glasses.

Mr.Saver

MalachiK said:

AnotherJoe said:

 So perhaps you should, in addition to "normal" savings,  be saving what you might otherwise be spending on a property in the UK, almost in an "earmarked for property" part of your savings even if its just a notional %?

I see what you're getting at here, and I've considered this a few times. The problem as I see it is that as you say, UK property is expensive. So any meaningful house buying fund would involve a large amount of cash just sitting there doing nothing. 

I thought that maybe I could run the portfolio as a pension and then stick what I would be paying in for a house if I were living in the UK into cash savings. But that leaves me with just too much cash sloshing around I think. 

Will you consider investing some money in REITs?

But TBH, if the UK house price really becomes so expensive by the time you retire, you could just retire to another country, and the problem is gone.

Sailtheworld

Sounds like a good plan to me. You've considered the risks and have enough cash to hopefully ride out any periods of unemployment. It really is meant to be that simple.

Yours is a different case to someone in the UK with a house who then buys a another to let out. Unless they're particularly wealthy that's a concentration of risk. For you it might be a true divergence but who can be bothered being a landlord let alone from a distance. You'll have every man and his dog trying to take a piece (and they'll take their skim come rain or shine). I always think the best time to buy a house is when you need one or you really want one.

MalachiK

Mr.Saver said:
Will you consider investing some money in REITs?

But TBH, if the UK house price really becomes so expensive by the time you retire, you could just retire to another country, and the problem is gone.

I agree. If the UK is too expensive then I'll go somewhere else. Although there are plenty of good reasons to want to retire in the UK I think.

REITs would add extra complexity. I know enough about commercial property to know that I don't know much about investing in commercial property. Also, I'd have to think carefully about adding a significant concentration to UK property to the portfolio. Although, if I were living in the UK I'd own a house - but that would be residential property, so...?

MalachiK

Sailtheworld said:

Yours is a different case to someone in the UK with a house who then buys a another to let out. Unless they're particularly wealthy that's a concentration of risk. For you it might be a true divergence but who can be bothered being a landlord let alone from a distance. You'll have every man and his dog trying to take a piece (and they'll take their skim come rain or shine). I always think the best time to buy a house is when you need one or you really want one.

Yeah. This is what I've been thinking. Organising maintenance, paying tax and dealing with tenants just isn't worth the stress. In addition, getting a mortgage to finance this sort of thing is not simple. 

Mr.Saver

MalachiK said:

Mr.Saver said:
Will you consider investing some money in REITs?

But TBH, if the UK house price really becomes so expensive by the time you retire, you could just retire to another country, and the problem is gone.

I agree. If the UK is too expensive then I'll go somewhere else. Although there are plenty of good reasons to want to retire in the UK I think.

REITs would add extra complexity. I know enough about commercial property to know that I don't know much about investing in commercial property. Also, I'd have to think carefully about adding a significant concentration to UK property to the portfolio. Although, if I were living in the UK I'd own a house - but that would be residential property, so...?

Most REITs are in commercial and/or retail properties, but there's some REITs in other property types, such as health care, student accommodation, or private residential rentals. Although I have to admit that I have no experience in any of them. I'm saying is, if you happen to have the need, that is something you could think about and maybe do some researches.