How to properly review your investments?

Albermarle

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?

Yes you are right ,and  the global equity index fund you have is at the higher risk end of the spectrum , as it is 100% equity. However it is not seen as very high risk as it is so well diversified and mainly in developed markets , so that is maybe what is causing some misunderstanding.

TheLittleSaver

Albermarle said:

Yes you are right ,and  the global equity index fund you have is at the higher risk end of the spectrum , as it is 100% equity. However it is not seen as very high risk as it is so well diversified and mainly in developed markets , so that is maybe what is causing some misunderstanding.

Sorry, I'm confused now. Are you saying that, considering the fact that I should go for a "riskier" investment as I have years ahead, I should then go for a more focused fund, for example more Asia focused? Or are we talking about investing in funds that include smaller companies which are higher risk, but potentially higher returns?

Also, do we agree on my idea of investing all my £4,000 in one fund at the time, or next time I should diversify more like for instance, invest £1,000 on 4 different funds?

I think it's been mentioned that I should stick to the only global fund I have for the time being, and keep putting money into it until I get to a reasonably high amount invested (around £25/30,000), to THEN start thinking to add more funds and enlarging my portfolio?

What would be the general consensus on this?

I would like to have a clear idea on what to do with my first £1,000 bonus as soon as I get it, so if the above is the best course of action, I would just top up my current fund. By the way, how long does it usually take to receive it?

Alexland

If you just stick to a global tracker for the next couple of decades you should do pretty well. Sure there are lots of other things you can play around with when you get more knowledge but it comes with greater risk of making investment selection, timing and behavioural mistakes.

thegentleway

Alexland said:

If you just stick to a global tracker for the next couple of decades you should do pretty well. Sure there are lots of other things you can play around with when you get more knowledge but it comes with greater risk of making investment selection, timing and behavioural mistakes.

Agreed. Stick to one global equities index tracker and enjoy the ride.

george4064

darkidoe said:

I do use Trustnet for charting and analysis and also Bogleheads sheets to calculate returns.

I look at Annual return, Dividends, plot a  YTD graph using trustnet. I compare my portfolio numbers to a benchmark (I use an All World index fund) and I try to comment and reflect on why I underperform or overperform. I also try to reflect on current trends. 

I write a blog post pretending I am writing a annual report for a big swanky fund and pretending to be a hotshot. The numbers are just numbers which doesn't mean much but it's more of a reflective practice and to record lessons learnt in the year. At the same time, it is a good way to measure my temperament and by writing about it, it probably makes it easier to understand risk and volatility.  

One thing I struggled with initially but I am understanding it better now after a few years. The difference between 'portfolio return' and 'investor return'. It is important to distinguish between the two and make sure you are comparing like for like. I calculate both for my spreadsheets.

I would be really interested to pick your brain on this, because I believe I am/have been in the same predicament as you have. 

My understanding of portfolio return is based on unitisation performance of the portfolio itself (i.e. just like a UT or OIEC) whilst the investor return calculates your personal return which takes into account cash flows; when you bought/sold units and at what price (I.e. the return of an investor in the OEIC, such as XIRR).

JohnWinder

2. Check that it's still tracking the index it's meant to, as well as is reasonable. Beware results better than the index, as unacceptable risks might be being taken.

Sorry for the silly question, but what do you mean by that? It can even change index overtime? And what do you mean by "results better than the index"? How do I check that?

3. Check that the managers haven't done anything undesirable, like changed their strategy to be a synthetic fund, or do extravagant securities lending to try to juice up the returns.

What managers? I only have a Global index fund, I din't invest in any package, like Vanguard LS, if that's what you mean?

5. Check that the number of units or other features of your investment is 'correct', as a check on whether anyone is defrauding you slowly.

How can I check that? And does this apply even if I am investing on an index fund by myself?

6. Check that the management charge is still reasonable.

it's 0.13%, I think it's good, right? But I guess you mean once I have so much money that a percentage fee would not be ideal?  In which case, are there funds that have fixed fees?

#2. I wrote badly, I meant check that it is continuing to track its index closely; that's fundamental for a good index fund. You don't want it underperforming the index by a much bigger amount than a comparable fund you could own from a different provider. One would imagine it's easy to accurately track an index, but there are costs involved for the fund in buying/selling its holdings, paying tax, possibly currency hedging etc. Some funds do it better than others, and i imagine the better ones could drop the ball and become the less better ones. Secondly, I didn't mean it, but yes, funds can and have changed the index they follow. Perhaps they can get a cheaper deal from a different index provider (MSCI instead of S&P), or perhaps the old index has not done as well over recent years as an alternative index so the fund decides to try for better returns.  Thirdly, ?all funds report the returns and the index return for the same periods, making checking easy.

#3. Index funds have managers I think; they don't run themselves, and even if they did someone would be writing the algorithms and monitoring the show. The good ones track the index closely at low cost.

#5. Last year you held 100 units. This year's dividends were 2%; you should now own about 102 shares. But if you own 95 you might want to find out why. Even if you're investing by yourself, you're unlikely to be holding physical share certificates in this digital era; your records will be on a computer screen  that you have no control over.

#6. Ideally fees should drop over time as the fund grows and productivity in the managers' offices improves. There's no absolute value for a 'good' fee unless it's zero which would raise a lot of questions. I don't think funds have fixed fees, or will.

BananaRepublic

thegentleway said:

Alexland said:

If you just stick to a global tracker for the next couple of decades you should do pretty well. Sure there are lots of other things you can play around with when you get more knowledge but it comes with greater risk of making investment selection, timing and behavioural mistakes.

Agreed. Stick to one global equities index tracker and enjoy the ride.

You and some others keep saying this, but a fund with ~60-70% US equities is not diversified. 

thegentleway

BananaRepublic said:

thegentleway said:

Alexland said:

If you just stick to a global tracker for the next couple of decades you should do pretty well. Sure there are lots of other things you can play around with when you get more knowledge but it comes with greater risk of making investment selection, timing and behavioural mistakes.

Agreed. Stick to one global equities index tracker and enjoy the ride.

You and some others keep saying this, but a fund with ~60-70% US equities is not diversified

it should be about 54%, that’s the market cap of US equities to global. so that the passive weighing for global diversification. If you want to actively bet a different weighting that’s fine but I would like to know what you know that the markets don’t?

BananaRepublic

thegentleway said:

BananaRepublic said:

thegentleway said:

Alexland said:

If you just stick to a global tracker for the next couple of decades you should do pretty well. Sure there are lots of other things you can play around with when you get more knowledge but it comes with greater risk of making investment selection, timing and behavioural mistakes.

Agreed. Stick to one global equities index tracker and enjoy the ride.

You and some others keep saying this, but a fund with ~60-70% US equities is not diversified

it should be about 54%, that’s the market cap of US equities to global. so that the passive weighing for global diversification. If you want to actively bet a different weighting that’s fine but I would like to know what you know that the markets don’t?

That’s not an answer. 

JohnWinder

It's a good point. A global fund of which 60% is US feels out of balance; and who knows, a heavier weighting to Europe and Asia might return more.

But the argument in favour of 60% US for a global fund is that that is exactly the way that investors on the whole have valued the equities assets around the world, taking risk into account. It represents the 'wisdom' of the market. If the market thought that a heavier weighting to Europe would produce better returns, then the money would shift to European stocks and the US% would fall. 

US is 60% because capitalisation weighting seems to represent the best 'I'm not taking a bet' choice. If you load up with Asian shares to reduce the global US% you are taking a bet on Asian shares - it could work out, it might not.

An obvious alternative to a cap weighted index is an equal weighted one: you hold as much in Apple shares as all the little companies you hold. As long as the latter includes the thousands of shares you'd hold with the former, you wouldn't go too far wrong. In fact, you might do better because you'd be 'overweight' in small company shares which carry more risk and thus likely more return. Under different economic conditions cap weighted or equal weighted indices perform a bit better or worse than the other.