23M Newbie - Investment/Savings Portfolio Advice (GAC/FTSE 100/FTSE 250/ESG DWAC)

2unlimited91

There is no easy answer about what has most growth potential. Plenty of opinions.

When most investors think that index X has a lot of growth potential, what usually happens is that they all try to buy into index X, and few investors want to sell it, so the price of index X goes up very quickly, to persuade more holders to sell. As a result of this quick rise, the remaining potential for X to rise in the future is reduced.

Imagine that this has already happened for index X, and index Y, and every other equities index. If that is the case, the growth potential of all equities indexes will now be about the same. This is the sort of thing people mean when they say that markets are "efficient".

Now, I don't believe that markets are 100% efficient. But I think they are generally efficient enough that there is little point in trying to pick the market with the most growth potential, at least as an "amateur" investor. If you're prepared to quit on that quest, then sticking to GAC is a solid choice.

bogleboogle

2unlimited91 said:

There is no easy answer about what has most growth potential. Plenty of opinions.

When most investors think that index X has a lot of growth potential, what usually happens is that they all try to buy into index X, and few investors want to sell it, so the price of index X goes up very quickly, to persuade more holders to sell. As a result of this quick rise, the remaining potential for X to rise in the future is reduced.

Imagine that this has already happened for index X, and index Y, and every other equities index. If that is the case, the growth potential of all equities indexes will now be about the same. This is the sort of thing people mean when they say that markets are "efficient".

Now, I don't believe that markets are 100% efficient. But I think they are generally efficient enough that there is little point in trying to pick the market with the most growth potential, at least as an "amateur" investor. If you're prepared to quit on that quest, then sticking to GAC is a solid choice.

Good point. 
I think I will wait a few years to see if the FTSE 100 grows and then transfer it all into the GAC and just hold that. Thank you!

AnotherJoe

bogleboogle said:

AnotherJoe said:

Stay out of any FTSE fund that's UK based. FTSE100, 250 350 etc. Go global. Sell what you've bought,

Why? 

Because why invest in just 5% of the worlds GDP, omitting huge areas of industry sectors, and due to the way the indexes are constructed, a very restricted subset of those, principally mining / fossil fuels, finance and pharma. 

bogleboogle

Re: FTSE 100 vs FTSE 250, since the FTSE 100 companies get 70% of their income from overseas (in non-GBP currencies), I read that where the GBP does not do well the FTSE 100 typically outperforms the FTSE 250. Given the negative outlook for the GBP, wouldn't this be a strong factor to prefer the FTSE 100 over the FTSE 250?

2unlimited91

bogleboogle said:

Given the negative outlook for the GBP

Predicting which currencies will go up or down is as hard as predicting which stock markets will go up or down

bogleboogle

2unlimited91 said:

bogleboogle said:

Given the negative outlook for the GBP

Predicting which currencies will go up or down is as hard as predicting which stock markets will go up or down

Your logic works both ways - preferring the FTSE 250 over the FTSE 100 on the basis of the expected strength of the GBP would also be a prediction. Ultimately everything is a 'prediction' (e.g. preferring GAC over the FTSE is a 'prediction' that the world economy will outperform the UK), so - respectfully - I'd prefer a discussion of the underlying market factors that affect the prospects of the indices to trite comments. 

To that end, I don't think it's controversial to note the weakness of the GBP and that there are good reasons to think it seems likely to continue. The pound is still significantly below pre-Brexit levels (at its lowest level in decades), low interest rates are virtually guaranteed for the foreseeable future and the Brexit deadline is rapidly approaching with no deal in sight. With those factors in consideration, it's no surprise that most analysts expect the pound to continue to depreciate. If you think there is convincing evidence to the contrary, I would (genuinely) be interested in hearing it.  

AnotherJoe

bogleboogle said:

Re: FTSE 100 vs FTSE 250, since the FTSE 100 companies get 70% of their income from overseas (in non-GBP currencies), I read that where the GBP does not do well the FTSE 100 typically outperforms the FTSE 250. Given the negative outlook for the GBP, wouldn't this be a strong factor to prefer the FTSE 100 over the FTSE 250?

Thats like asking if you'd like to be punched in the face or the gut. Avoiding both is better.

The UK economy will not do well if the world economy is bad.

If the world economy is good, its a gutsy call that a fairly random selection of a few industries in one small country outside most major trade blocks, will do better.

You are already "invested" in the UK by working and owning a property here,  why not hedge your bets by investing your capital elsewhere rather than go all in? If the UK economy tanks, so possibly does your job and your house. If the UK economy does well, well thats good for your job/house, and the rest of the worlds economy will also do well.

2unlimited91

bogleboogle said:

2unlimited91 said:

bogleboogle said:

Given the negative outlook for the GBP

Predicting which currencies will go up or down is as hard as predicting which stock markets will go up or down

Your logic works both ways - preferring the FTSE 250 over the FTSE 100 on the basis of the expected strength of the GBP would also be a prediction. Ultimately everything is a 'prediction' (e.g. preferring GAC over the FTSE is a 'prediction' that the world economy will outperform the UK), so - respectfully - I'd prefer a discussion of the underlying market factors that affect the prospects of the indices to trite comments.

It's not trite to suggest that predicting exchange rate movements, or which equities index will do best, is not something that you or I, as random individuals without the assistance of teams of analysts and customized programs written by PhDs running on supercomputers to assist us, are in any position to do. We might as well toss a coin to decide.

Holding something like GAC is different: it is choosing not to play that game, and instead to go for the broadest possible diversification among equities. It's as near as is practical to holding a little bit of all the equities it's possible to invest in, from anywhere in the world. (It doesn't eliminate the risks of holding equities at all. They can still fall a long way in a crash, and take an unknown time to recover. But that risk can't be eliminated, and is the price of going for the higher returns we expect from equities.)

However, if pushed, I'd prefer the FTSE 250 to the FTSE 100, because I prefer the mix of market sectors in the 250; the 100 is too concentrated in a few sectors, most of which I don't like. The 250 will be more affected by Brexit, but that is known, so will be in the price already. Currency movements don't affect my decision, because I can't predict them.

To that end, I don't think it's controversial to note the weakness of the GBP and that there are good reasons to think it seems likely to continue. The pound is still significantly below pre-Brexit levels (at its lowest level in decades), low interest rates are virtually guaranteed for the foreseeable future and the Brexit deadline is rapidly approaching with no deal in sight. With those factors in consideration, it's no surprise that most analysts expect the pound to continue to depreciate. If you think there is convincing evidence to the contrary, I would (genuinely) be interested in hearing it.  

That isn't logical. Information that is already known, including about what is likely to happen in the future, has lead to the pound trading where it does today. If currency traders believed that information justified the pound falling even further, then it would already have fallen even further. It is new or unexpected information that will drive price moves in the future, not what we already know.

Of course Brexit has made the pound fall, but that is no reason for it to fall further. We know Brexit is really happening now, so it is not a question of it falling further if we really leave, or bouncing back if we don't after all. (And IMHO, it's pretty obvious now that we will have a "bare bones" trade deal with the EU, so there are no real surprises in store there either.)

"Analysts expect ..." is not a good basis for any prediction. Analysts have a dreadful record at making predictions. They put out opinions mainly as a marketing device to attract business to their employers. Just ignore them.