Shocked at how much my pension lost last year - should I change?

jampot7us

I am also in the sw portfolio 2 ..I cant say its performance had worried me..There is a premium version of he fund with more diversification..But the com change goes from.0.1% to 0.4% Do you you guys think it worth it for the potential of better performance I am unable to find a table for comparison. I am 47 with currently 87k in the pot....

michaels

Deleted_User said:

There is no such thing as “consistently” in the markets. Large caps have periods of under- and-over performance vs small caps. These periods can be quite long. FTSE 100 struggled for ~20 years but that does not tell us a thing about the next 20 years.  If anything, mean reversal is more likely.  There have also been periods of UK large cap stocks outperformance. 

Having said this, historically “small” has been a factor worldwide, although you are getting a bit more return for taking on more risk. And questions are being raised whether this factor will keep its advantages going forward - certainly hasnt been the case in the US over the last little while. 

In general, you dont want to be anywhere near 50% in any particular market. Home bias makes sense but not to this extent. You want to diversify. This paper explains and provides some guidance on allocations that max potential returns for a given risk level https://www.vanguardcanada.ca/documents/home-bias-allocation.pdf

If you choose a fund that is outside the UK do you not take on a simultaneous currency risk making a decision to diversify internationally slightly more complicated than just spreading your risk over more equity assets as you then have an equity plus currency risk?

Thrugelmir

michaels said:

Deleted_User said:

There is no such thing as “consistently” in the markets. Large caps have periods of under- and-over performance vs small caps. These periods can be quite long. FTSE 100 struggled for ~20 years but that does not tell us a thing about the next 20 years.  If anything, mean reversal is more likely.  There have also been periods of UK large cap stocks outperformance. 

Having said this, historically “small” has been a factor worldwide, although you are getting a bit more return for taking on more risk. And questions are being raised whether this factor will keep its advantages going forward - certainly hasnt been the case in the US over the last little while. 

In general, you dont want to be anywhere near 50% in any particular market. Home bias makes sense but not to this extent. You want to diversify. This paper explains and provides some guidance on allocations that max potential returns for a given risk level https://www.vanguardcanada.ca/documents/home-bias-allocation.pdf

If you choose a fund that is outside the UK do you not take on a simultaneous currency risk making a decision to diversify internationally slightly more complicated than just spreading your risk over more equity assets as you then have an equity plus currency risk?

Reinvestment of dividends needs to be factored into any comparison too. Indexes in themselves aren't the full story. 

[Deleted User]

michaels said:

Deleted_User said:

There is no such thing as “consistently” in the markets. Large caps have periods of under- and-over performance vs small caps. These periods can be quite long. FTSE 100 struggled for ~20 years but that does not tell us a thing about the next 20 years.  If anything, mean reversal is more likely.  There have also been periods of UK large cap stocks outperformance. 

Having said this, historically “small” has been a factor worldwide, although you are getting a bit more return for taking on more risk. And questions are being raised whether this factor will keep its advantages going forward - certainly hasnt been the case in the US over the last little while. 

In general, you dont want to be anywhere near 50% in any particular market. Home bias makes sense but not to this extent. You want to diversify. This paper explains and provides some guidance on allocations that max potential returns for a given risk level https://www.vanguardcanada.ca/documents/home-bias-allocation.pdf

If you choose a fund that is outside the UK do you not take on a simultaneous currency risk making a decision to diversify internationally slightly more complicated than just spreading your risk over more equity assets as you then have an equity plus currency risk?

Are you talking about funds trading outside the UK (eg actual US mutual funds) or about funds registered and trading in in the UK but holding foreign assets? 

Assuming its the latter, yes you will be exposed to different currencies. However the currency is just your “measuring unit”. What really matters is the value of the underlying assets you are buying. What you should care about is the profitability of a particular company rather than the currency it chooses to report it in. 

As your measuring unit is GBP, if you own lots of US assets, you will feel rich when the pound tanks like it did after the Brexit vote. However the actual value of Apple didnt go up just because you needed more pounds to buy a share. 

All that aside, holding assets in different currencies actually reduces your long term risks by providing diversification.  Which is why you dont want to hedge your equity assets. https://www.vanguardcanada.ca/documents/portfolio-currency-hedging-decision.pdf

michaels

Deleted_User said:

michaels said:

Deleted_User said:

There is no such thing as “consistently” in the markets. Large caps have periods of under- and-over performance vs small caps. These periods can be quite long. FTSE 100 struggled for ~20 years but that does not tell us a thing about the next 20 years.  If anything, mean reversal is more likely.  There have also been periods of UK large cap stocks outperformance. 

Having said this, historically “small” has been a factor worldwide, although you are getting a bit more return for taking on more risk. And questions are being raised whether this factor will keep its advantages going forward - certainly hasnt been the case in the US over the last little while. 

In general, you dont want to be anywhere near 50% in any particular market. Home bias makes sense but not to this extent. You want to diversify. This paper explains and provides some guidance on allocations that max potential returns for a given risk level https://www.vanguardcanada.ca/documents/home-bias-allocation.pdf

If you choose a fund that is outside the UK do you not take on a simultaneous currency risk making a decision to diversify internationally slightly more complicated than just spreading your risk over more equity assets as you then have an equity plus currency risk?

Are you talking about funds trading outside the UK (eg actual US mutual funds) or about funds registered and trading in in the UK but holding foreign assets? 

Assuming its the latter, yes you will be exposed to different currencies. However the currency is just your “measuring unit”. What really matters is the value of the underlying assets you are buying. What you should care about is the profitability of a particular company rather than the currency it chooses to report it in. 

As your measuring unit is GBP, if you own lots of US assets, you will feel rich when the pound tanks like it did after the Brexit vote. However the actual value of Apple didnt go up just because you needed more pounds to buy a share. 

All that aside, holding assets in different currencies actually reduces your long term risks by providing diversification.  Which is why you dont want to hedge your equity assets. https://www.vanguardcanada.ca/documents/portfolio-currency-hedging-decision.pdf

But your apple or whatever share whether held in a UK US tracker fund or a US US tracker fund could go down in value by 10% without its USD price changing because the GBP appreciated by 10% and if your spending is in GBP then that is a real impact.

Like I said, 2 levels of risk with a non-GBP asset, asset price and exchange rate, unless the fund you are using to purchase the non GBP asset hedges the exchange rate risk.

Thus the SW fund we are talking about is less diversified than an international market weighted fund but it seems to me, as a result, will have lower volatility resulting form currency movements.

[Deleted User]

michaels said:

Deleted_User said:

michaels said:

Deleted_User said:

There is no such thing as “consistently” in the markets. Large caps have periods of under- and-over performance vs small caps. These periods can be quite long. FTSE 100 struggled for ~20 years but that does not tell us a thing about the next 20 years.  If anything, mean reversal is more likely.  There have also been periods of UK large cap stocks outperformance. 

Having said this, historically “small” has been a factor worldwide, although you are getting a bit more return for taking on more risk. And questions are being raised whether this factor will keep its advantages going forward - certainly hasnt been the case in the US over the last little while. 

In general, you dont want to be anywhere near 50% in any particular market. Home bias makes sense but not to this extent. You want to diversify. This paper explains and provides some guidance on allocations that max potential returns for a given risk level https://www.vanguardcanada.ca/documents/home-bias-allocation.pdf

If you choose a fund that is outside the UK do you not take on a simultaneous currency risk making a decision to diversify internationally slightly more complicated than just spreading your risk over more equity assets as you then have an equity plus currency risk?

Are you talking about funds trading outside the UK (eg actual US mutual funds) or about funds registered and trading in in the UK but holding foreign assets? 

Assuming its the latter, yes you will be exposed to different currencies. However the currency is just your “measuring unit”. What really matters is the value of the underlying assets you are buying. What you should care about is the profitability of a particular company rather than the currency it chooses to report it in. 

As your measuring unit is GBP, if you own lots of US assets, you will feel rich when the pound tanks like it did after the Brexit vote. However the actual value of Apple didnt go up just because you needed more pounds to buy a share. 

All that aside, holding assets in different currencies actually reduces your long term risks by providing diversification.  Which is why you dont want to hedge your equity assets. https://www.vanguardcanada.ca/documents/portfolio-currency-hedging-decision.pdf

But your apple or whatever share whether held in a UK US tracker fund or a US US tracker fund could go down in value by 10% without its USD price changing because the GBP appreciated by 10% and if your spending is in GBP then that is a real impact.

Like I said, 2 levels of risk with a non-GBP asset, asset price and exchange rate, unless the fund you are using to purchase the non GBP asset hedges the exchange rate risk.

Thus the SW fund we are talking about is less diversified than an international market weighted fund but it seems to me, as a result, will have lower volatility resulting form currency movements.

If GBP appreciates vs other currencies then yes, an Apple share will be worth fewer GBPs.  However, everything produced abroad, including Apple phones, will also cost you fewer GBPs. So, if you sell an Apple share you can still buy the same number of Apple phones in Britain and your level of life isnt impacted. 

OK, its a bit more complicated and price changes dont happen as fast as currencies (or share prices) fluctuate. 

Bottom line - you are actually reducing your overall portfolio risk by holding unhedged stocks in different currencies.