Portfolio Reassessment - Critique

StellaN

OP, I seem to remember there was a thread sometime last year from a person in similar circumstances to you. A new ISA/SIPP portfolio, didn't really need the income so would settle for average annual returns of something like 4-5%, therefore could take less risk to achieve this. I can't seem to find the thread but I do remember that instead of the proposed high risk portfolio with some WP funds it was suggested (from memory) that he/she should consider something like the following options:-
ISA                                                                       SIPP
Trojan X - 25%                                                     Capital Gearing - 25%
HSBC GS Balanced - 25%                                  World Tracker ETF or OEIC - 25% (or less risk stick with a multi asset fund)
Nothing wrong with your portfolio and it is quite well diversified. However, if you don't need to take the extra risk this is another option for you to consider.  

AngieP61

StellaN said:

OP, I seem to remember there was a thread sometime last year from a person in similar circumstances to you. A new ISA/SIPP portfolio, didn't really need the income so would settle for average annual returns of something like 4-5%, therefore could take less risk to achieve this. I can't seem to find the thread but I do remember that instead of the proposed high risk portfolio with some WP funds it was suggested (from memory) that he/she should consider something like the following options:-
ISA                                                                       SIPP
Trojan X - 25%                                                     Capital Gearing - 25%
HSBC GS Balanced - 25%                                  World Tracker ETF or OEIC - 25% (or less risk stick with a multi asset fund)
Nothing wrong with your portfolio and it is quite well diversified. However, if you don't need to take the extra risk this is another option for you to consider.  

Thank you Stella for your suggestion/other option and everybody else who has offered their opinions. I have now discussed this further with my husband and in general we feel happy with the new portfolio. We realise it is quite high risk but we have been used to volatility over the years. We have held these IT's/funds in our previous 100% equity portfolio, the only additions in the past 12/18 months have been Baillie Gifford Positive Change & Smithson. We may tweak the percentages slightly to increase the wealth preservation allocation from 42% to 50% of the portfolio but we're not sure if this would make such a big difference.   

bowlhead99

AngieP61 said:
We may tweak the percentages slightly to increase the wealth preservation allocation from 42% to 50% of the portfolio but we're not sure if this would make such a big difference.   

I suppose the problem in making that decision is that when some of the allocation is a little arbitrary and you are not going in for all sorts of volatility modelling to come up with a target percentage, just working on 'this feels like it would probably be OK' -  it may seem fine to have 42% in one area and then when you look at it some other day it may seem no less fine to have 50% in that area instead. 

To shake off the 'problem of small movements not seeming to make much difference' you could go to extremes and say to yourself, would I prefer closer to 30% or 60% in wealth preservation?.  If the answer is that both are a good distance away from what you want, but your gut instinct is that you'd rather be closer to 60% to protect the downside, then you could go with that 50% figure you thought of.  Whereas if you would rather be closer to only 30% in wealth preservation to give more chance of growth, then you would want 45% or less, and so your 42% seems fine...

Then try again with other numbers to fine tune.

AnotherJoe

AngieP61 said:

Linton said:

ISTM there are 2 rational reactions to having more money than you need:
1) You have spare money and so can afford to take extra risk.
2) You have no need for more money so you can afford to reduce your risk.
As I get older I am moving more towards (2)

If we moved towards 2, would we as AJ & StellaN suggested just increase the amount we have in the wealth preservation funds? At the moment its about 42% of the overall proposed portfolio. 

Given your higher risk tolerance, 5 years in cash and an income, why do that?  42% seems high enough to me (admittedly as said I'm high risk tolerance)

Linton said:

ISTM there are 2 rational reactions to having more money than you need:
1) You have spare money and so can afford to take extra risk.
2) You have no need for more money so you can afford to reduce your risk.
As I get older I am moving more towards (2)

LOL and I'm moving towards 1 as i think if it pans out the kids get more and if it doesnt, doesn't matter.

MPN

StellaN said:

OP, I seem to remember there was a thread sometime last year from a person in similar circumstances to you. A new ISA/SIPP portfolio, didn't really need the income so would settle for average annual returns of something like 4-5%, therefore could take less risk to achieve this. I can't seem to find the thread but I do remember that instead of the proposed high risk portfolio with some WP funds it was suggested (from memory) that he/she should consider something like the following options:-
ISA                                                                       SIPP
Trojan X - 25%                                                     Capital Gearing - 25%
HSBC GS Balanced - 25%                                  World Tracker ETF or OEIC - 25% (or less risk stick with a multi asset fund)
Nothing wrong with your portfolio and it is quite well diversified. However, if you don't need to take the extra risk this is another option for you to consider.  

It was my thread ‘SIPP/ISA Investment Strategy’. I said I would be happy with average annual returns of 3-5 per cent. In the end I decided to go with:
ISA - Trojan O & HSBC GS Balanced 25 per cent each
SIPP - Personal Assets 30 per cent and SWADA 20 per cent
Not to far off from what was suggested, a little higher risk but I’m comfortable with this.

StellaN

MPN said:

StellaN said:

OP, I seem to remember there was a thread sometime last year from a person in similar circumstances to you. A new ISA/SIPP portfolio, didn't really need the income so would settle for average annual returns of something like 4-5%, therefore could take less risk to achieve this. I can't seem to find the thread but I do remember that instead of the proposed high risk portfolio with some WP funds it was suggested (from memory) that he/she should consider something like the following options:-
ISA                                                                       SIPP
Trojan X - 25%                                                     Capital Gearing - 25%
HSBC GS Balanced - 25%                                  World Tracker ETF or OEIC - 25% (or less risk stick with a multi asset fund)
Nothing wrong with your portfolio and it is quite well diversified. However, if you don't need to take the extra risk this is another option for you to consider.  

It was my thread ‘ISA/SIPP Investment Strategy’. I said I would be happy with average annual returns if 3-5 per cent. In the end I decided to go with:
ISA - Trojan O & HSBC GS Balanced 25 per cent each
SIPP - Personal Assets 30 per cent and SWADA 20 per cent
Not to far off from what was suggested, a little higher risk but I’m comfortable with this.

Out of interest, how did you come to a final decision on the portfolio weightings/asset allocation or was it really quite random? 

MonroeM

AnotherJoe said:

AngieP61 said:

Linton said:

ISTM there are 2 rational reactions to having more money than you need:
1) You have spare money and so can afford to take extra risk.
2) You have no need for more money so you can afford to reduce your risk.
As I get older I am moving more towards (2)

If we moved towards 2, would we as AJ & StellaN suggested just increase the amount we have in the wealth preservation funds? At the moment its about 42% of the overall proposed portfolio. 

Given your higher risk tolerance, 5 years in cash and an income, why do that?  42% seems high enough to me (admittedly as said I'm high risk tolerance)

Linton said:

ISTM there are 2 rational reactions to having more money than you need:
1) You have spare money and so can afford to take extra risk.
2) You have no need for more money so you can afford to reduce your risk.
As I get older I am moving more towards (2)

LOL and I'm moving towards 1 as i think if it pans out the kids get more and if it doesnt, doesn't matter.

Got to agree with you there AJ, bearing in mind the OP has been invested in 100% equities up until now. Therefore, 42% in WP funds seems more than enough especially as you said given the OP's risk tolerance, 5 years cash and regular income. 

AngieP61

Decision made, we're sticking with the portfolio and the 42% in WP funds. Thanks everyone for your input. Now its just deciding how to get back into the market, slowly by drip feeding or all at once!

bowlhead99

AngieP61 said:

Decision made, we're sticking with the portfolio and the 42% in WP funds. Thanks everyone for your input. Now its just deciding how to get back into the market, slowly by drip feeding or all at once!

Well, it sounds like you have given it some thought, been decisive, and concluded that what you want is to own a portfolio of investments in ISA and pension accounts, including 42% in WP to provide some downside protection along with the 58% of equities funds that are volatile but known to offer good growth potential over long time periods. Good for you. It will probably be fine.

However, if that wasn't the end of the story and you've now had some further discussions and already changed your mind again, concluding that you don't want that portfolio at all, and instead what you would *really* prefer to be holding aside from the five year's of cash in savings and bond ladders cash, is 90% cash and 4% in WP funds and 6% of equities funds...

... but what you will want during July is 80% cash and 8% in WP and 12% equities, and what makes the most sense for middle of summer is 70% cash, 12% WP and 18%... but by September you'll be more comfortable with 60% cash, 16% WP,  24% equities, but as autumn kicks in, it will be better to have 50% in investments (29% equities, 21% WP funds) and 50% in cash, while by Christmas you'll want the ISAs and SIPPs to contain 35% equities, 25% wealth preservation, 40% cash.....

.... then by all means, 'drip feed' your cash back into investments at 10% a month!  And then by Easter next year you'll have it all 100% invested into a portfolio that blends higher volatility equity funds with more conservative wealth preservation funds which is a portfolio that you know today makes sense for your long term needs and with which you would be comfortable.

If you know you want that portfolio by this time next year, and have the money to buy it, and it's more conservative than what you had for the last several years, why not go out and buy it.

If you don't want that portfolio at all, and instead for the coming months you want something more conservative because you get nervous during market volatility (despite knowing that market volatility is an inevitable part of investing), then I would question whether your conclusion of 58% 'aggressive growth' /42% 'cautious mixed asset' is sufficiently conservative, and perhaps you should go back to the drawing board rather than starting a drip feed towards that portfolio.

Because if you are not truly comfortable with holding that portfolio today (which is why you are considering drip feeding towards it rather than simply buying it), then it doesn't sound like it is right for you. Are you saying it's wrong now but it would be right next year and the year after and the year after and the year after?

Drip feeding is a good psychological crutch when investing for the first time, and is sometimes forced upon us because new money we have available to invest only arrives monthly (e.g. through salary or business or investment income). However, if your ISA and SIPP accounts were already fully invested and you are only in cash because you paused to have a think about what you really want, it would make sense to go back to being fully invested, now that you know what you want.

If you buy this portfolio slowly by drip feeding it, because it's a portfolio that you don't want 'in all weathers', how many times per decade are you going to sell it all out to cash and then drip-feed back in? If that sounds like a silly question because it is a portfolio that you'll be fine with in all weathers, then it doesn't make a lot of sense to be thinking as you said in your last post, shall I "get back into the market slowly by drip feeding, or all at once".

Of course all at once, unless perhaps it is a portfolio that is not sufficiently conservative because you are fearful of (e.g.) having 5% of your money in Scottish Mortgage at 800p when you saw it at 500p three months ago and know it's something that has a track record of dropping 60-80% from time to time. If the allocations make you nervous, go back to the drawing board - don't just grit your teeth and slowly inch into a portfolio that you are not really going to be happy holding when you eventually get it.

Linton

A bit harsh Bowlhead!  But I agree with you.  If the 58/42 portfolio is not appropriate right now it is probably not going to be appropriate in the future.  An investor wshould assume that at some stage there will be shocks to the market of greater severity and construct their portfolio accordingly.  This is particularly important for a retirement portfolio as there is unlikely to be the opportunity for significant extra contributions to the pot.