How to properly review your investments?

Thrugelmir

TheLittleSaver said:

Thrugelmir said:

Volatility isn't to be confused with risk. Volatility is the speed with which the direction of travel change due to the unpredicatable nature of the investments held. Portfolios ideally should be built on diversification. Quick rich ideas work for the lucky few,  the majority get left with the crumbs. Investing should be treated as a marathon not a sprint. 

What makes you think that I am after "quick rich ideas"? I only asked for suggestions on what I should consider while reviewing my investment.

Why did you choose this single investment at the outset ? 

Linton

BananaRepublic said:

Linton said:

To make a point, one thing I have deliberately not included is the performance of individual funds in absolute terms, against some possible replacements, or against an index were any to be relevent.  You need to accept that individual funds will behave differently at different times - that is why you bought them. If they dont follow the index it doesnt matter - if you wanted to follow the index you would have bought a tracker.  All that does really matter is the performance of the portfolio against your requirements.

This does relate to an earlier point you made, but if a fund does markedly underperform compared to the benchmark, or its peers, you should ask why, and if this is likely to continue. Most active funds do of course underperform relative to the index. Not all indexes have a tracker fund. 

You certainly should ask why a fund unexpectedly underperforms or outperforms a benchmark or its peers.  The answer in the majority of cases is that it is in some way significantly different, most likely in its underlying asset allocation.  If this is what you intended when you bought the fund the underperformance/outperformance is of little interest. Otherwise it may indicate an error in the construction of your portfolio.   It is also one reason why the assertion that most active funds underperform "The" Index is open to question.

As to indexes not having a tracker fund, yes that is often the case once you get below global trackers. But it would seem to me that knowing if a fund you chose underperforms a non-existant tracker is of zero practical use.

TheLittleSaver

Thrugelmir said:

Why did you choose this single investment at the outset ? 

It's my first investment, and I have chosen something that I believe is varied enough, at least to start with (although I may be wrong, as I don't have much experience).

I am thinking to invest in something else once I get the £1,000 bonus for this tax year. Then I would invest in another found the next tax year and so on. Would that make sense?

BananaRepublic

TheLittleSaver said:

BananaRepublic said:

You only have one fund, which leaves you little room for manoeuvre. Ideally over time you will build up a portfolio of funds, I have over 20 for example. That will allow you to diversify over many markets and sectors.

Yes, I you are right and I might add more funds overtime. What kind of approach would you suggest? Each year buy a different fund with the £4,000 I put into my LISA and use the £1,000 bonus to top up the previous one?

8) Look at the companies inside each fund. You don’t have to analyse their balance sheets, but at least look at the geographical distribution, the sectors covered, and the size of each company. Your global fund is an ideal example. I bet it has more than 50% in the US, and a large investment in tech stocks. People will say that is fine because the US is such a large market relative to the rest of the world but it does have undue exposure to one region.

You are right, it's 59.70% North America, 19.08% Europe, 21.21% Asia. So, what would you pick as the next fund? Although I guess this might be a question for next year, (or anyway in April, if I manage to put another £4,000 so soon).

£4,000 isn’t a huge amount and I would be tempted to do as you suggest ie put it all in a new fund each year. I won’t advise you what to buy, but I would recommend geographical diversification and avoid the FTSE 100. It used to be said that you should have decent amounts in the US, UK and Europe and a bit in Asia, these days people tend to put more in Asia due to Chinese growth. I’m underweight in the US, and avoid China. I like medium and small caps, which tend to be more volatile but I invest for the long term. You can research historical performance of markets, sectors, geographical areas and funds quite easily.

What I look for is consistency. So two funds with the same benchmark might average 8% growth per year over ten years, or 116% total growth. If fund A returned 8% +/- 1% each year, and fund B returned 30% one year, and 5.8% in the other years, I would reject fund B as that 30% looks more like luck than judgement. Obviously this example is simplistic, but I’m sure you see what I am getting at.

I am also wary of funds with stellar recent performance. People often see a fund with outstanding performance, and buy into it, but you’re not looking to buy high and sell low. Look at why it performed well. I recently added more US funds even though the US market might be a bit exuberant because historically the US performs well. I’m still not convinced it was wise. 

And be wary of experts. No-one can predict events eg corona virus. 

Linton

TheLittleSaver said:

Thrugelmir said:

Why did you choose this single investment at the outset ? 

It's my first investment, and I have chosen something that I believe is varied enough, at least to start with (although I may be wrong, as I don't have much experience).

I am thinking to invest in something else once I get the £1,000 bonus for this tax year. Then I would invest in another found the next tax year and so on. Would that make sense?

Choosing a new fund each year does not make sense to me. If the fund you chose last year was appropriate for £1K, which is a very small holding in the overall scheme of things, why is it not appropriate this year?  And if it isnt appropriate this year why dont you sell it?

In any case what you do in the early years of investing is not that important as long as it is not stupid.  For the next say 10 years the size of your holdings will be largely determined by your contributions, not your investment returns.  It takes time for the "magic" of compound interest to have more than a marginal effect.

A better strategy is to start off with a very broad global equity or multi-asset fund until you have a reasonable holding, say £20K-£50K and then begin to branch out into higher risk/return niche areas.

MACKEM99

Albermarle said:

In other words just leave it alone and do not be tempted to fiddle with it .

my mum used to say that to me a lot.

TheLittleSaver

BananaRepublic said:

£4,000 isn’t a huge amount and I would be tempted to do as you suggest ie put it all in a new fund each year. I won’t advise you what to buy, but I would recommend geographical diversification and avoid the FTSE 100. It used to be said that you should have decent amounts in the US, UK and Europe and a bit in Asia, these days people tend to put more in Asia due to Chinese growth. I’m underweight in the US, and avoid China. I like medium and small caps, which tend to be more volatile but I invest for the long term. You can research historical performance of markets, sectors, geographical areas and funds quite easily.

What I look for is consistency. So two funds with the same benchmark might average 8% growth per year over ten years, or 116% total growth. If fund A returned 8% +/- 1% each year, and fund B returned 30% one year, and 5.8% in the other years, I would reject fund B as that 30% looks more like luck than judgement. Obviously this example is simplistic, but I’m sure you see what I am getting at.

I am also wary of funds with stellar recent performance. People often see a fund with outstanding performance, and buy into it, but you’re not looking to buy high and sell low. Look at why it performed well. I recently added more US funds even though the US market might be a bit exuberant because historically the US performs well. I’m still not convinced it was wise. 

And be wary of experts. No-one can predict events eg corona virus. 

Thanks @BananaRepublic, I see what you mean and I will take note.

Linton said:

Choosing a new fund each year does not make sense to me. If the fund you chose last year was appropriate for £1K, which is a very small holding in the overall scheme of things, why is it not appropriate this year?  And if it isnt appropriate this year why dont you sell it?

I do this because I am restrained to £4000 (+£1000 bonus) a year in my LISA to invest. So, in order to get a wider portfolio, I will have to invest on a different fund each year (considering funds that would balance the one/s I already have at that point), while in the meantime the rest of the money is alreay invested with the other fund/s.

As I won't be able to judge whether a fund is worth keeping or selling only in one or two years time, I would use my first, let's say 10 years investing in different funds to get a larger portfolio, to then start making adjustments where needed, if that makes sense? But of course it's good to know NOW what I need to know to check my investments, in order to get the hang of it, getting more practice and experience overtime, since this is something that takes time.

In any case what you do in the early years of investing is not that important as long as it is not stupid.  For the next say 10 years the size of your holdings will be largely determined by your contributions, not your investment returns.  It takes time for the "magic" of compound interest to have more than a marginal effect.

Exactly.

A better strategy is to start off with a very broad global equity or multi-asset fund until you have a reasonable holding, say £20K-£50K and then begin to branch out into higher risk/return niche areas.

But since higher risk investments are better for the long term, wouldn't be better for me to invest in those as soon as possible, in order to get as much time to ride all the ups and downs?

Anyway the fund I've invested in is a Global acc fund with 59% shares in America, 19% Europe and 21% Asia. It might not be extremely broad as it is, but I suppose that's why I would need to invest in other funds that would compensate that?

NottinghamKnight

MACKEM99 said:

Albermarle said:

In other words just leave it alone and do not be tempted to fiddle with it .

my mum used to say that to me a lot.

...and you didn't listen to her did you?

Thrugelmir

TheLittleSaver said:

Thrugelmir said:

Why did you choose this single investment at the outset ? 

It's my first investment, and I have chosen something that I believe is varied enough, at least to start with (although I may be wrong, as I don't have much experience).

I am thinking to invest in something else once I get the £1,000 bonus for this tax year. Then I would invest in another found the next tax year and so on. Would that make sense?

Start with a broadly diversified investment fund to start with. Then add more esoteric holdings when the portfolio is of a significant value. 

BananaRepublic

Linton said:

Choosing a new fund each year does not make sense to me. If the fund you chose last year was appropriate for £1K, which is a very small holding in the overall scheme of things, why is it not appropriate this year?  And if it isnt appropriate this year why dont you sell it?

In any case what you do in the early years of investing is not that important as long as it is not stupid.  For the next say 10 years the size of your holdings will be largely determined by your contributions, not your investment returns.  It takes time for the "magic" of compound interest to have more than a marginal effect.

A better strategy is to start off with a very broad global equity or multi-asset fund until you have a reasonable holding, say £20K-£50K and then begin to branch out into higher risk/return niche areas.

There might be some misunderstanding. They propose to invest £4,000 each year in a LISA. They should diversify.