Building a core-satellite portfolio into ISA, first foray, advise welcome

pp556677

Hi
I am based in the UK. and I have been buying a S&P tracker for the past 6 months drip feeding 300GBP while trying to read more about investing.
From what I read I would like to implement a core-satellite strategy, upping my drip feed to about 800GBP/pm.
My research / personal view is that technology and biotech/pharma will continue to deliver, so I am trying to structure a portfolio that has these as satellite.

My goal is to get a 6/7% averaged over 20-30 years over the total portfolio. I don't mind going aggressive equity for 20-25 years and then switch to bonds to taper off depending on performance. I have cash so I am not planning to dip into the funds at any time for income or other reasons.

This would be the distributions

• HSBC All World Index Fund Acc 50%
• L&G Global Technology Index I Acc 20%
• Fundsmith Equity I Acc 20%
• AXA Framlington Biotech GBP Z Acc 10%

I understand the L&G has some overlap, I personally don't mind it because those are all companies I believe in + gives me exposure to some Asian companies. However if there was a better alternative I'd welcome it.

Fundsmith I like because of selecting quality stocks and stay long term and Terry Smith has proven to be good at what he does. That said I've also been looking at the Baillie Gifford Long Term Global Growth Investment Fund B Acc either as an alternative to Fundsmith or to offset L&G in part or totally as it has Tech but also Asia in bigger part, and lower cost. However I am a bit scared by Tesla as I think it is at the top? 

An alternative allocation for me would be  

• HSBC All World Index Fund Acc 50%
• Baillie Gifford Long Term Global Growth Investment Fund B Acc 10%
• Fundsmith Equity I Acc 20%
• AXA Framlington Biotech GBP Z Acc 20%

What are your thoughts / recommendation?

pp556677

I am also thinking of either

Baillie Gifford Pacific B Acc
Baillie Gifford Emerging Markets Growth (B) Acc

Instead of L&G

pp556677

@Alexland sorry to quote you hear but by lurking and reading I value your input When you have time

Alexland

pp556677 said:

@Alexland sorry to quote you hear but by lurking and reading I value your input When you have time

Very kind of you but others might be better to comment on the biotech and tech funds as they are too specialist and high risk for what I need to achieve but I agree your core holding of the HSBC FTSE All World fund looks sensible and my circa 10% emerging markets exposure has been doing very well in recent weeks. Fundsmith has been suffering since the rotation about 6 months ago but a long term strategy investing in strong companies at fair prices seems to work over long periods and if valuations are normalising that might be a good entry point but it's not only Fundsmith running this type of strategy and the most reasonable prices seem to be found here in the UK at the moment with less well reported fund managers that have lower costs. I know this is for an ISA but if this is for retirement have you considered using a Pension or Lifetime ISA as appropriate?

pp556677

Alexland said:

pp556677 said:

@Alexland sorry to quote you hear but by lurking and reading I value your input When you have time

Very kind of you but others might be better to comment on the biotech and tech funds as they are too specialist and high risk for what I need to achieve but I agree your core holding of the HSBC FTSE All World fund looks sensible and my circa 10% emerging markets exposure has been doing very well in recent weeks. Fundsmith has been suffering since the rotation about 6 months ago but a long term strategy investing in strong companies at fair prices seems to work over long periods and if valuations are normalising that might be a good entry point but it's not only Fundsmith running this type of strategy and the most reasonable prices seem to be found here in the UK at the moment with less well reported fund managers that have lower costs. I know this is for an ISA but if this is for retirement have you considered using a Pension or Lifetime ISA as appropriate?

Thanks

After some more consideration I feel biotech is just too risky to be worth it for what i want to achieve. In essence I would consider 7 percent after inflation a big win.

So, here's what I am thinking now

• Vanguard FTSE All-World ETF USD Acc GBP 50%

• Fundsmith Equity I Acc 20%

• Baillie Gifford Pacific B Acc 20%

• L&G Global Technology Index I Acc 10%

LISA I thought about but I can only contribute for 15 years (I am 35) and then have to leave it there for another 10. Contributing for 25 years straigth is more appealing to me.

The ISA would be circa half of my allowance, with the other half in P2P (Kuflink 5yr terms)

LMK any other thoughts on the above breakdown. I kind of want a set and forget with a bias to US but an eye to Asian companies.

grumiofoundation

Immediate thoughts - 50% allocation to P2P lending, let alone to one provider, seems very risky. 

If your aim is to save for retirement lifetime ISA and/or pension would be more tax efficient. 

Don’t understand the point about only being able to contribute to LISA for 15 years but stocks and shares ISA for 25. Why not LISA for 15 then an extra £4000 into stocks and shares ISA for the  remaining ten? 

Alexland

pp556677 said:

I would consider 7 percent after inflation a big win.

I think we all would - my plans are now based on our equities delivering just 2% above inflation and fees. The real return we have seen in the past decade has been abnormally high as the markets recovered, and made up lost ground, from the financial crisis. Asset prices have increased as a result of lowering interest rates leaving us with high fundamental valuations and speculation has caused some individual company share prices to almost completely detach from reality. So given where we start now I would have much lower expectations for at least the medium term next 10 years or so. What happens in the short term is almost impossible to predict.

pp556677 said:

LISA I thought about but I can only contribute for 15 years (I am 35) and then have to leave it there for another 10. Contributing for 25 years straigth is more appealing to me.

Mathematically you would get the same investment return contributing into a S&S ISA for 25 years as 2 accounts (a LISA then a S&S ISA) for 15 then a further 10 years. OK you might have marginally higher platform fees but then you would have had £15k of bonus plus investment returns on that bonus. Also worth considering if making additional contributions to a workplace pension might be better especially if your employer offers extra matching, operates salary sacrifice to save the national insurance or you can save higher rate tax.

pp556677 said:

The ISA would be circa half of my allowance, with the other half in P2P (Kuflink 5yr terms)

We did Kuflink for the bonus a few years ago but your risk appetite is clearly much higher than mine and these P2P investments can get very messy. They have been fortunate that the property market has held up reasonably well during this pandemic so far.

pp556677

grumiofoundation said:

Immediate thoughts - 50% allocation to P2P lending, let alone to one provider, seems very risky. 

If your aim is to save for retirement lifetime ISA and/or pension would be more tax efficient. 

Don’t understand the point about only being able to contribute to LISA for 15 years but stocks and shares ISA for 25. Why not LISA for 15 then an extra £4000 into stocks and shares ISA for the  remaining ten? 

My bad, I misread - the bonus is given until im 50 but I can still contribute :facepalm:

Then yes id probably max that out  I suppose with the same profile or a LifeStrategy 80 set and forget maybe

pp556677

Alexland said:

pp556677 said:

I would consider 7 percent after inflation a big win.

I think we all would - my plans are now based on our equities delivering just 2% above inflation and fees. The real return we have seen in the past decade has been abnormally high as the markets recovered, and made up lost ground, from the financial crisis. Asset prices have increased as a result of lowering interest rates leaving us with high fundamental valuations and speculation has caused some individual company share prices to almost completely detach from reality. So given where we start now I would have much lower expectations for at least the medium term next 10 years or so. What happens in the short term is almost impossible to predict.

pp556677 said:

LISA I thought about but I can only contribute for 15 years (I am 35) and then have to leave it there for another 10. Contributing for 25 years straigth is more appealing to me.

Mathematically you would get the same investment return contributing into a S&S ISA for 25 years as 2 accounts (a LISA then a S&S ISA) for 15 then a further 10 years. OK you might have marginally higher platform fees but then you would have had £15k of bonus plus investment returns on that bonus. Also worth considering if making additional contributions to a workplace pension might be better especially if your employer offers extra matching, operates salary sacrifice to save the national insurance or you can save higher rate tax.

pp556677 said:

The ISA would be circa half of my allowance, with the other half in P2P (Kuflink 5yr terms)

We did Kuflink for the bonus a few years ago but your risk appetite is clearly much higher than mine and these P2P investments can get very messy. They have been fortunate that the property market has held up reasonably well during this pandemic so far.

Alexland said:

pp556677 said:

I would consider 7 percent after inflation a big win.

I think we all would - my plans are now based on our equities delivering just 2% above inflation and fees. The real return we have seen in the past decade has been abnormally high as the markets recovered, and made up lost ground, from the financial crisis. Asset prices have increased as a result of lowering interest rates leaving us with high fundamental valuations and speculation has caused some individual company share prices to almost completely detach from reality. So given where we start now I would have much lower expectations for at least the medium term next 10 years or so. What happens in the short term is almost impossible to predict.

pp556677 said:

LISA I thought about but I can only contribute for 15 years (I am 35) and then have to leave it there for another 10. Contributing for 25 years straigth is more appealing to me.

Mathematically you would get the same investment return contributing into a S&S ISA for 25 years as 2 accounts (a LISA then a S&S ISA) for 15 then a further 10 years. OK you might have marginally higher platform fees but then you would have had £15k of bonus plus investment returns on that bonus. Also worth considering if making additional contributions to a workplace pension might be better especially if your employer offers extra matching, operates salary sacrifice to save the national insurance or you can save higher rate tax.

pp556677 said:

The ISA would be circa half of my allowance, with the other half in P2P (Kuflink 5yr terms)

We did Kuflink for the bonus a few years ago but your risk appetite is clearly much higher than mine and these P2P investments can get very messy. They have been fortunate that the property market has held up reasonably well during this pandemic so far.

correct, now that I re-read the LISA it makes sense to have both, so I woudl probably split to capitalise on the bonus, and reduce Kuflink exposure

Any thoughts on Gilts ETF or Vanguard UK or Global Bonds instead Index funds instead of the L&G Technology global index (there's some overlap there that might be not worth it?).
For the LISA I might just set Lifestrategy and stop looking, or I could just mirror the above strategy...not sure

What would be 2% above inflation and fees?

Alexland

pp556677 said:

My bad, I misread - the bonus is given until im 50 but I can still contribute :facepalm:

You can only contribute into a LISA until age 50 but you can still use your remaining ISA allowance against the other types of ISA. So for example you could spend 15 years contributng £4k per tax year into a S&S LISA and £16k into a S&S ISA then the rest of your life contributing £20k per tax year into a S&S ISA assuming you have the money available and the allowances and rules don't change which they probably will.

pp556677 said:

Any thoughts on Gilts ETF or Vanguard UK or Global Bonds instead Index funds instead of the L&G Technology global index (there's some overlap there that might be not worth it?).

Bonds will reduce the volatility in your portfolio but at the prices you would be buying in at would provide a low return to redemption. Barely enough to cover the fees over the long term.

pp556677 said:

What would be 2% above inflation and fees?

If the average level of inflation was around 2% and fees were around 0.5% on a small account around 4.5% pa. Once the accounts are big enough it's possible to get total fees under 0.2%.

pp556677

Alexland said:

pp556677 said:

My bad, I misread - the bonus is given until im 50 but I can still contribute :facepalm:

You can only contribute into a LISA until age 50 but you can still use your remaining ISA allowance against the other types of ISA. So for example you could spend 15 years contributng £4k per tax year into a S&S LISA and £16k into a S&S ISA then the rest of your life contributing £20k per tax year into a S&S ISA assuming you have the money available and the allowances and rules don't change which they probably will.

pp556677 said:

Any thoughts on Gilts ETF or Vanguard UK or Global Bonds instead Index funds instead of the L&G Technology global index (there's some overlap there that might be not worth it?).

Bonds will reduce the volatility in your portfolio but at the prices you would be buying in at would provide a low return to redemption. Barely enough to cover the fees over the long term.

pp556677 said:

What would be 2% above inflation and fees?

If the average level of inflation was around 2% and fees were around 0.5% on a small account around 4.5% pa. Once the accounts are big enough it's possible to get total fees under 0.2%.

Ok thanks again very helpful!

I think after so much reading I might edge to a more lazy and un-smart (because it's obvious I know NOTHING about investing ahha) approach with these

Vanguard FTSE All-World ETF USD (GBP) -- 50 %
Vanguard Global Aggt Bd ETF GBP -- 10 %
Vanguard Glb Small-Cp Idx -- 20 %
Baillie Gifford Pacific B Acc -- 20 %

This has a weighted average ongoing charge of 0.32%. I want to kind of set and forget

Regarding the LISA i am not sure -- maybe I want the funds in 25 years instead of 30 and it would be annoying to wait another 5 years to be able to withdraw