How to move money from cash ISA into the stock market

masonic

FinancialIdiot said:

masonic said:

Nobody knows how holding an overweight to UK equities will impact performance. But one can put forward arguments concerning the wisdom of holding such an overweight, and take a view as to whether it is something one would want. If you don't agree with any of those arguments and don't really care about the subtleties of the asset allocations, then it won't matter which you pick. This is pretty much the opposite stance to picking multiple funds to precisely control your asset allocation (and diverge it from the allocation picked by the fund manager).

This must be a very subtle argument and I'm not sure I understand it.

In my simple-minded way my concern is just which portfolio to get - home-weighted or non-home-weighted? If there's no significant difference in performance then I'm probably not bothered which to get. If there IS significant difference but I don't know which will do better, then (assuming no cost to having both) if I do have both will the combined result be better than having chosen only the worse performing portfolio? That's it - those are the questions I want an answer to.

Of course, if there is a cost or downside to having both portfolios in the same ISA then that's a different matter but at present I'm not aware of one.

Historically, the difference has not been significant, but the UK market has consistently underperformed the global index as a whole, so a passive fund with a UK overweight will have had a tendency to have underperformed one that does not. But it isn't that simple, as there will be other differences between those funds which may reduce or even overcome that deficiency.

The argument might be too subtle for you to understand. but bowlhead has kindly developed the argument in the post above mine. You can always find another fund that might outperform the ones you hold, and therefore could improve your portfolio performance if only you held it.

Broadly, the process I would recommend for choosing investments is to first decide on a suitable asset allocation, then pick a fund or funds that deliver that asset allocation. If you can find a single fund that does the job, then it would make no sense to add a fund that does it less well. If you can't find a suitable single fund, then pick a fund that is very close to what you want and add a couple of 'satellite' funds that correct your overall allocations to the desired percentages (a good example of this is adding 10% of a property fund to a multi-asset fund with no property exposure). If you can't find a fund that is very close to what you want, pick a range of single sector funds in exactly the proportions you want.

As to the downsides of holding too many funds, there are a few:

- Complexity: making it difficult to understand the composition of your portfolio as a whole

- More hands-on: you'll need to periodically rebalance your holdings if they differ in performance

- Potentially more costly: when the value of your portfolio is high, you'll likely be better off with a provider who does not charge a platform fee, but does charge trading fees. More funds means more trades.

FinancialIdiot

masonic said:

Historically, the difference has not been significant, but the UK market has consistently underperformed the global index as a whole, so a passive fund with a UK overweight will have had a tendency to have underperformed one that does not. But it isn't that simple, as there will be other differences between those funds which may reduce or even overcome that deficiency.

..........

As to the downsides of holding too many funds, there are a few:

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For the sorts of portfolios I've been talking about I thought the 'internal workings' were taken care of for you. You just pay a flat fee and the portfolio sits in your ISA doing what it does without your further involvement (other than to check its performance periodically). So as I understood it there's no extra cost or effort (to the investor) in having both portfolios in an ISA compared to having just one, right?

Anyway, it sounds (from what you're saying) as if, on balance, you would favour choosing the non-home-biased (i.e. HSBC) portfolio rather than the home-biased Vanguard one when choosing between them?

masonic

FinancialIdiot said:

For the sorts of portfolios I've been talking about I thought the 'internal workings' were taken care of for you. You just pay a flat fee and the portfolio sits in your ISA doing what it does without your further involvement (other than to check its performance periodically). So as I understood it there's no extra cost or effort (to the investor) in having both portfolios in an ISA compared to having just one, right?

That's correct if you buy just one fund. If you spread your money around multiple funds and the performance of those fund is different, you would need to rebalance your portfolio back to its target allocations from time to time, which is additional effort over a single fund solution, and potentially additional cost.

FinancialIdiot said:

Anyway, it sounds (from what you're saying) as if, on balance, you would favour choosing the non-home-biased (i.e. HSBC) portfolio rather than the home-biased Vanguard one when choosing between them?

I don't have a strong view on home bias. My portfolio has no home bias. If you decide to go with a fund that has home bias, I think you should have a reason for choosing it over the more natural, global, allocation.