How to properly review your investments?

Alexland

BananaRepublic said:

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

I believe the OP is considering the HSBC FTSE All World fund (mention of 0.13% ongoing charge earlier and discussed in their previous thread) which is 56% US listed companies but it's worth remembering that many of the companies operate globally and as I commented near the end of the previous thread I would be more concerned about the concentration of money in certain high proportion stocks and the current growth style of investing popular for where we are in the cycle. So it's not perfect but probably good enough for a beginner. They should still do very well over the long term.

https://forums.moneysavingexpert.com/discussion/6226848/cash-lisa-fund-investment-for-retirement#p7

darkidoe

george4064 said:

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).

Yes. Portfolio return ('Time Weighted' return) is the return you can use to compare to other Funds/OEIC/Index. This can be calculated by unitising the portfolio. Typically presented as annual return, 1, 2, 3, 5 year return. 

Investor return is as you described. This is typically different from the portfolio return due to cash inflows or outflows. This is actually the number that should really matter to you as if you affect your net worth. In the Boglesheads spreadsheet, this is presented as a Annual Return, equivalent to an 'APR' of a savings account. 

It gets curiously confusing as to which number matter to me sometimes. Most people compare the portfolio return because it is the standardized measure between funds. However, those number are not representative of what we are getting as it does not take into account investor behaviour (i.e. when they bought into the portfolio, or when they sold). I guess it gives us an idea of what we may be getting if we are invested throughout the portfolio timeframe compared. My guess is it is very easy for human behavior to get influence by portfolio returns and comparison between portfolios, and expect to get such a return when personal return is very different.

This Bogleheads post explains it well with examples.

BananaRepublic

JohnWinder said:

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.

That is an answer, and an argument for a global fund. But it highlights some issues. 

“ 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. “

The same argument could have been applied during the dot com boom. Investors often pile in because they see large gains have been made even when they are unsustainable. 

US is 60% because capitalisation weighting seems to represent the best 'I'm not taking a bet' choice. 

That is true, however in 2016 the US weighting was about 41%:

https://www.visualcapitalist.com/all-of-the-worlds-stock-exchanges-by-size/

Many people here rebalance. If a fund shows a large growth, they sell some units and buy other funds on the grounds that large gains are unlikely to continue, a form of taking profits. In this case the assumption is that it is not needed. Interestingly US GDP growth has lagged the world average despite the huge stock market growth. 

The attitude seems to be that the large caps US market is 100% guaranteed to perform well, and geographical or other forms of diversification are not needed. No doubt this is influenced by the long term gains that we have seen. I wonder if an IFA would recommend a large investment in a global fund alone? My guess is no but I am not an IFA so I might be wrong. 

eskbanker

BananaRepublic said:

Many people here rebalance. If a fund shows a large growth, they sell some units and buy other funds on the grounds that large gains are unlikely to continue, a form of taking profits.

That's not typically the rationale for rebalancing though, which is more about returning a portfolio to a target allocation than taking a view about sustainability of differential performance....

thegentleway

BananaRepublic said:

JohnWinder said:

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.

That is an answer, and an argument for a global fund. But it highlights some issues. 

“ 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. “

The same argument could have been applied during the dot com boom. Investors often pile in because they see large gains have been made even when they are unsustainable. 

US is 60% because capitalisation weighting seems to represent the best 'I'm not taking a bet' choice. 

That is true, however in 2016 the US weighting was about 41%:

https://www.visualcapitalist.com/all-of-the-worlds-stock-exchanges-by-size/

Many people here rebalance. If a fund shows a large growth, they sell some units and buy other funds on the grounds that large gains are unlikely to continue, a form of taking profits. In this case the assumption is that it is not needed. Interestingly US GDP growth has lagged the world average despite the huge stock market growth. 

The attitude seems to be that the large caps US market is 100% guaranteed to perform well, and geographical or other forms of diversification are not needed. No doubt this is influenced by the long term gains that we have seen. I wonder if an IFA would recommend a large investment in a global fund alone? My guess is no but I am not an IFA so I might be wrong. 

That’s not how rebalancing works. E.g. you rebalance when different asset classes have performed differently and you’re not at your target allocation. There’s is no rebalancing to do on a single global fund. It’s already “balanced” by the market!
You’re convinced US allocation is disproportionate and you’re welcomed to bet against the market if you want but a passive investor does not make these active decisions. They are not trying to beat the market like you are.

TheLittleSaver

@darkidoe

I've downloaded the spreadsheet you suggested, but when I change the dates it gets crazy, gives me a lot of errors/missing elements (in the "Missing+ Extra" columns) and the dates disappear? Did you experience this too the first time nad how do you solve it, please?

And yes @Alexland I am talking about the HSBC fund, that's the one I have invested in now.

So, I guess for now I will stick to it, and top it up with the £1,000 bonus I will get. Then I will just keep putting money into it, until I either find something "not right" in the fund (considering what has been said here, in terms of what to check), or anyway until I have enough experience to actually know what I am doing and take some informed decisions about my next step.

Anyway, expect some more threads from me! ahahah

Thanks everyone!

JohnWinder

BananaRepublic said:

“ 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. “

The same argument could have been applied during the dot com boom. Investors often pile in because they see large gains have been made even when they are unsustainable. 

US is 60% because capitalisation weighting seems to represent the best 'I'm not taking a bet' choice. 

That is true, however in 2016 the US weighting was about 41%:

https://www.visualcapitalist.com/all-of-the-worlds-stock-exchanges-by-size/

Many people here rebalance. If a fund shows a large growth, they sell some units and buy other funds on the grounds that large gains are unlikely to continue, a form of taking profits. In this case the assumption is that it is not needed. Interestingly US GDP growth has lagged the world average despite the huge stock market growth. 

The attitude seems to be that the large caps US market is 100% guaranteed to perform well, and geographical or other forms of diversification are not needed. No doubt this is influenced by the long term gains that we have seen. I wonder if an IFA would recommend a large investment in a global fund alone? My guess is no but I am not an IFA so I might be wrong. 

Yes, it was an argument for a global fund if one wants a simple to manage, decent investment option. Probably not the best you can do, but you won't know which one was the best until the last day of reckoning. And the global fund can be one of the cheapest.

Indeed my argument should be applied during the dot com boom. And yes, investors do pile in because they see large gains have been made - more fool them. Meanwhile, the global fund investors, like we are, purchased those overpriced stocks years ago when they first joined the index, cheaply, so no great loss there.

I do see the temptation, or even wisdom of 'taking profits' after large gains. It's an active management strategy, not a passive, market following strategy. Each year the evidence keeps rolling in that only a minority of the smartest, best resourced fund managers on the planet can stay ahead of an index fund over periods exceeding about 5-10 years, so why don't these easy wins result in better returns? Of course, the amateurs could be doing better; they're not systematically measured, so we don't know. But I doubt it.

Plenty have noticed the mystery of GDP growth not being correlated with stock prices, so, interesting but not out of the ordinary. https://www.bogleheads.org/forum/viewtopic.php?t=106252

Sorry if I mislead. My attitude is not the US large cap is a sure winner, especially arguing in favour of global all-cap which is much better diversified. Hopefully the IFA's amongst us will chime in, but I think some would recommend it as the only equities holding, surely?

Prism

thegentleway said:

That’s not how rebalancing works. E.g. you rebalance when different asset classes have performed differently and you’re not at your target allocation. There’s is no rebalancing to do on a single global fund. It’s already “balanced” by the market!
You’re convinced US allocation is disproportionate and you’re welcomed to bet against the market if you want but a passive investor does not make these active decisions. They are not trying to beat the market like you are.

There are a number of views on what a passive investor is. One is that they use index trackers but not necessarily a single global fund. I know of plenty of people who only invest in an S&P 500 tracker but would call themselves passive investors. A global tracker fund is simply another choice of fund and even then there are lots of alternates like the differences between FTSE and MCSI or decisions on large cap vs all cap.

thegentleway

Prism said:

thegentleway said:

That’s not how rebalancing works. E.g. you rebalance when different asset classes have performed differently and you’re not at your target allocation. There’s is no rebalancing to do on a single global fund. It’s already “balanced” by the market!
You’re convinced US allocation is disproportionate and you’re welcomed to bet against the market if you want but a passive investor does not make these active decisions. They are not trying to beat the market like you are.

There are a number of views on what a passive investor is. One is that they use index trackers but not necessarily a single global fund. I know of plenty of people who only invest in an S&P 500 tracker but would call themselves passive investors. A global tracker fund is simply another choice of fund and even then there are lots of alternates like the differences between FTSE and MCSI or decisions on large cap vs all cap.

Fair enough but it sounds like they've actively picked the S&P500 (over global) but are following it passively
Do they "rebalance" their index when a certain sector does well? That's what @BananaRepublic is suggesting

TheLittleSaver

I am writing the question again, before it gets covered by other comments.

@darkidoe

I've downloaded the spreadsheet you suggested, but when I change the dates it gets crazy, gives me a lot of errors/missing elements (in the "Missing+ Extra" columns) and the dates disappear? Did you experience this too the first time nad how do you solve it, please?

If anyone else knows how to fix this, that would be much appreciated.

Thanks