S&P 500 - sensible or silly?

steampowered

FloraandFauna said:

I'm not unhappy with the existing LS100 - am willing to take a punt on the UK element over the next 10 years. But I would ALSO like to take a punt on the US in case the UK is dismal 

The Vanguard VLS funds have about 35% in the US.

So if you have everything in those funds you still have a good amount of exposure to the US. Albeit, the US is a much larger market, so if you were tracking global asset allocations you would have a higher US allocation and lower UK allocation than the VLS provides.

FloraandFauna

Ok... so, as Steampowered helpfully pointed me towards, there is a Vanguard fund that has a 'better' global spread, with just 3.8% UK (so less than the kinda-5% the UK may be), which is a more accurate representation.

And the woolly bit is... that's great, but then I'm asking myself why exactly I would want to replicate global exactly? Lots of eggs in ever-diminishing sizes of baskets. OK, spreading risk. Am I trying to spread risk? Sort of, not really, a bit. As in, I don't mind having over-UK since there is a chance (god, flip a political coin) that BoJo/Cummings do in fact have a cunning plan to turn no-deal into investment-utopia. But they also may not. So do I want to counter-bet against that by also investing a bit in another region, and if so, do I want to edge closer to a global match, or do I think more weighting in the US (even with slight dilution of other regions) is more likely to give me good returns than a full global match.

I now have the impression I am just re-phrasing my non-understanding in a variety of different ways, not having grasped the point you're all trying patiently to explain to me 
 

Albermarle

 I don't mind having over-UK since there is a chance (god, flip a political coin) that BoJo/Cummings do in fact have a cunning plan to turn no-deal into investment-utopia. But they also may not. 

You are making a common mistake here by directly connecting the UK economy/political situation with the performance of the UK stock market . The FTSE 100 is largely made up of foreign companies, or UK companies that do a lot of their business in other countries. Brexit may have an effect , more on smaller companies that are outside the FTSE 100 , but probably not that much overall. 

The problem with the UK stock market and the FTSE 100 in particular is that a lot of the companies are not in very exciting areas that are the future . So oil companies, banks, mining companies etc . and virtually no tech companies .

This why some people prefer to only have 5% and why the FTSE has underperformed in recent years . Not because UK is going down the pan , which it isn't anyway ,

Thrugelmir

The greater your overseas exposure. The greater your portfolio will be subject to currency volatility.  There's not a simple trade-off in selecting different markets. 

FloraandFauna

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

... you do mean, don't you, that US dividends are converted into £s for the fund each and every quarter or whenever it is? It must be, mustn't it. Doh, I'm so slow. But then doesn't that work both ways? I've not checked any history, but £ is up and down against the $ quite a lot isn't it? (just had a quick google and doesn't seem to be that much progress either way in the last 30 odd years).

Albemarle, if you're saying that the UK 25% is 'largely' non-UK anyway, then is my entire question a bit pointless? As in, I'm not overweighted for the UK, because a lot of it is in fact elsewhere? I am, in fact, overweighted for dinosaur sectors? 

(get me, with my £4k - I know it's chump change, but it will be a larger amount at some point!)

csgohan4

careful choosing today's winners as well, alot of S+P funds have done well but today's winners could be tomorrow's losers, who knows.

Diversify your portfolio either by sectors or geography. A global index tracker is reasonable, there are ones that exclude UK that VG has as well

really personal preference what risk appetite you want

Albermarle

As in, I'm not overweighted for the UK, because a lot of it is in fact elsewhere? I am, in fact, overweighted for dinosaur sectors? 

This is partly true . What you have to be careful of though is the US markets are dong well but largely powered by a few very high value tech stocks - Apple, Amazon etc . Will that continue ? 

-. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

Over the long term it should even itself out but is one reason not everybody goes for a low % UK .

As you can see there is no absolute right or wrong answer, especially as we can not see the future .

FloraandFauna

I think I mistrust sectors. I don't understand what drives the enthusiasm if not underlying value - e.g. I feel like a peasant clutching a turnip watching Tesla's shares zoom up and down in noisy trails of dust and mystery.

Since I know I can't call it on sectors (I have a job, and it's not markets) then yes, I'm looking at geographic instead (which coincidentally will cover most sectors, right?). But if you're saying that geographic is also dependent on it's heaviest sectors (tech in US, oil etc in UK), then the same reasoning should apply, and I can't call it on geography either. Those sectors may raise or drag down a country's markets.

Ok, so after a few hours straining to understand what you're all telling me, I think I've got it! Go for a global tracker (weighted a bit for UK or not, because reasons) not because you're choosing to bet on any place/sector, but because you're not choosing any particular place or sector. That's the nice, calming, zen, 12-year frame of mind to be in. Some up, some down, overall plugging along.

If I wish to risk my turnip in a Tesla, by all means chuck some in S&P 500, but I am no longer investing strategically, just gambling, in a game I don't understand.

csgohan4

FloraandFauna said:

I think I mistrust sectors. I don't understand what drives the enthusiasm if not underlying value - e.g. I feel like a peasant clutching a turnip watching Tesla's shares zoom up and down in noisy trails of dust and mystery.

Since I know I can't call it on sectors (I have a job, and it's not markets) then yes, I'm looking at geographic instead (which coincidentally will cover most sectors, right?). But if you're saying that geographic is also dependent on it's heaviest sectors (tech in US, oil etc in UK), then the same reasoning should apply, and I can't call it on geography either. Those sectors may raise or drag down a country's markets.

Ok, so after a few hours straining to understand what you're all telling me, I think I've got it! Go for a global tracker (weighted a bit for UK or not, because reasons) not because you're choosing to bet on any place/sector, but because you're not choosing any particular place or sector. That's the nice, calming, zen, 12-year frame of mind to be in. Some up, some down, overall plugging along.

If I wish to risk my turnip in a Tesla, by all means chuck some in S&P 500, but I am no longer investing strategically, just gambling, in a game I don't understand.

a good thing to keep in mind, don't invest in something you don't understand. That's why i've not touched niche sectors such as mining, biotech e.t.c. At least at this time. 

Most global index trackers are heavy in US stocks anyways around 40%+but they generally stood the test of time over active funds. 

Thrugelmir

FloraandFauna said:

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

Passing no judgement on whether currency movements will have any impact on your portfolio. Merely pointing out that holding assets in foreign currencies adds another dimension to consider. Not just market prices to consider when allocating funds. Over time you may find swings too unpalatable to bear.