Advice on Investment Portfolio

five_o

Hi, I have been browsing this forum for a long time and have been interested to read the questions people post as well as the opinions and feedback provided. It has been very enlightening and has helped someone like me who was ignorant about investing to at least understand the basics and set me on the road to DIY investing. I would now like to take advantage of some of the knowledge and experience on here to review and hopefully change my ISA & Pension investment portfolio.

Some background info about me.

• 46 Years Old, Single.
• Annual take home pay of approx. £75,000
• Have 2 children of primary school age who live with their mother. Intention is for them to eventually go to fee paying secondary schools in about 7 years.
• Intend to continue maxing out ISA and Pension contributions until retirement.
• Aiming to retire at 55 but could push it to 57 if necessary.
• Expected outgoings in retirement at today’s prices will be £65,000 (this includes school fees, holidays, setting aside money to replace car every 5 years etc…). This will of  course drop significantly once my children finish schooling.
• Income in retirement expected to be rental income (see below) and income from ISA (see below). Full State Pension should kick in at 67 (but expect government to move goalposts again).
• Expect to have cash savings of round £150,000 when I retire that will allow me to supplement my rental income and won’t need to touch my ISA for 4/5 years after retirement.
• Intention is to leave Pensions untouched as an inheritance for my kids.

My assets are as follows:

Property

• Residential Home - Owned outright
• 2 BTL Properties - Annual Rental Income of £38,000 approx - Mortgage of £148,000 outstanding - Intend to have this paid off by the time I am 50.

Cash Savings of £140,000 spread across Premium Bonds and savings accounts -  This consists of my emergency fund and also the means to pay off my outstanding BTL mortgage. Only able to pay off 10% per year so waiting till the mortgage expires when I am 50 to pay it off completely. I am currently able to save an additional £12,000 approx per year.

 

Retirement Funds

• Standard Life Work Pension - £93,000 - Annual contribution is £20,000 - made up of a combination of salary sacrifice and employer contributions
• SIPP (Interactive Investor) - £147,000 - Currently drip feed £16,000 annually (plus tax relief) into this.

      Baillie Gifford Dev Asia - £13,500

      Scottish Mortgage - £39,000

      Blue Whale - £12,500

      Lindsell Train Global Equity - £20,500

      Fundsmith - £20,000 (intend to reallocate to Blue Whale, LT, Monks & FCRL)

      Vanguard LS 60 - £37,000 (intend to reallocate to Blue Whale, LT, Monks & FCRL)

• ISA (IWeb) - £266,000

      Vanguard LS 80 - £111,500

      Fundsmith - £36,000

      Rathbone Global - £23,000

      Smithson - £23,000

      HSBC Global - £30,000

      Lindsell Train UK Equity - £10,000 (intend to reallocate to Fundsmith)

      Liontrust Passive - £19,500 (intend to reallocate to Marlborough Small Caps)

      AXA Fund High Income - £5,250 (intend to reallocate to Smithson)

      TR Property - £3,300 (intend to reallocate to Smithson)

 

The reason for this post is to get some feedback about my SIPP and ISA allocations. Firstly, I need to make it clear that I only started saving into my S&S ISA and SIPP about 5 years ago. I previously had some cash ISAs which I transferred into my S&S. Up until 5 years ago I knew nothing about the stock market and to be honest I still don’t know a lot. Therefore, my current allocation is based upon my lack of experience and knowledge. I have gained some knowledge by reading a couple of books and browsing forums such as this. I now feel I have sufficient knowledge to identify some basic problems with my portfolio such as:

o   having Fundsmith and VLS in both my ISA and SIPP.

o   having a lot of overlaps between funds.

o   Having a Tech-heavy portfolio which needs diversification.

I have made around 30% growth on both my ISA and SIPP over the last year but realise that this return is flattering to deceive and would expect a significant drop sometime in the future.

As I intend to leave my Pensions untouched I am quite happy to leave this invested in risky funds as in theory I hope to have at least another 30 or more years for it to grow before it passes to my children. With my ISA on the other hand as I intend to retire within the next 10/11 years I need to reduce the risk as it won’t have much time to recover if it was to drop significantly in value.

Any input would be very welcome.

stuart746

Hi, given the size of the portfolio and your goals I think it might be wise to get some financial advice (IFA). I think you will find others on here will suggest similar.
A few observations: I'm not completely clear about why you are holding the SIPP for your children, but using the ISA to fund your retirement... I am missing something? Are you sure that your beneficiaries will receive the amount you pay in? You have a lot of cash, for intention of paying off BTL if necessary, but given the income you receive is that necessary, and what to do with rising interest rates? Cash savings do not fair well with inflation, so you should watch that. You could invest more of this into your ISA. Some of the funds have similar coverage of equities, so some diversification may be a good idea (US equities and tech is vastly over inflated and some growth stocks may have limited room for growth in the future.. past performance is no guarantee etc..). Some more defensive funds/bonds as you approach retirement will be important, as will switching the VL 80:20 allocation. Tax advice will also be important given your projected outgoings in retirement. 
However, I expect you will receive more astute advice than this. Good luck.

Thrugelmir

Perhaps a one off fixed fee consultation with an IFA would help you. Not least to structure your portfolio's to align with your personal objectives. 

JohnWinder

I think Blue Whale has won several performance awards recently; it's only about three years old so everything about it is recent. But before you start reallocating to Blue Whale you might want to consider the research suggesting outperformance is usually not sustained: 'Chasing returns by trying to ride past "hot" fund managers isn't likely to be a very successful investment strategy over the longer-term.'  https://www.ifa.com/articles/luck_skill_evidence_from_standard_poor_persistence_scorecard/

Perhaps also look at the 2003 report 'A Review of the Research on the Past Performance of Managed Funds' prepared by the Securities Industry Research Centre of the Asia Pacific. It says: '

• Good past performance seems to be, at best, a weak and unreliable predictor of future good performance over the medium to long term. About half the studies found no correlation at all between good past and good future performance. Where persistence was found, this was more frequently in the shorter-term, (one to two years) than in the longer term.'

That move you're contemplating is attributed to a cognitive bias called 'recency bias' by some people, by which I think they mean your decision might be being influenced unduly by the recent past. So be sure to take a broad enough vew.

It might actually be time to be getting out of Blue Whale.

five_o

" I'm not completely clear about why you are holding the SIPP for your children, but using the ISA to fund your retirement... Are you sure that your beneficiaries will receive the amount you pay in?"

As my Pensions would be outside my estate for IHT I decided it best to use the ISA funds for my retirement and leave the Pension untouched. My intention is in the next 15 years to move it into more defensive funds in order to preserve the value for my children.

"You have a lot of cash, for intention of paying off BTL if necessary, but given the income you receive is that necessary, and what to do with rising interest rates? Cash savings do not fair well with inflation, so you should watch that. You could invest more of this into your ISA.".....

I currently maximise my ISA and Pension contributions each year. As I am obviously taking a great deal of risk with those I would want the cash to be in a low risk format i.e. savings accounts as I intend to utilise it for paying off the mortgage in 4 years.

Linton

five_o said:

......I now feel I have sufficient knowledge to identify some basic problems with my portfolio such as:

o   having Fundsmith and VLS in both my ISA and SIPP.

o   having a lot of overlaps between funds.

o   Having a Tech-heavy portfolio which needs diversification.

.....

Any input would be very welcome.

Having the same funds in different accounts does not matter.  You should look at your investments as a whole and allocate funds accordingly.  Which fund is held in which account is a secondary matter.  If you balance your funds you may well end up with bits of every fund held in every account since you cant easily transfer money between SIPPs and ISAs and your employer pension.,

The problem with your portfolio is not the overlaps.  The overlaps are just a symptom.  You have too many funds doing much the same thing. eg you appear to have about 9 global funds.  You should be able to cut it down to 2-3 at most.  You could then add a small number of focussed funds if you want to adjust the sector allocations.  Your proposed reallocations are just adding in more noise.

You are very much focussed on the US and UK.  Dont forget Europe and Asia.  Yes you are very tech heavy.  So you definitely need to look at the allocations of your overall portfolio and ensure that it macthes your objectives in terms of timescales and risk.

PS I dont think you are tech heavy after all but it is very difficult to tell with so many funds. SOme of the funds one might thinks were tech heavy aren't - eg  B-G Asia and SMT.  Though Blue Whale is about 50% tech.  So yes you do need to simplify andf analyse what you have got.

solidpro

Linton said:
You have too many funds doing much the same thing. eg you appear to have about 9 global funds.  You should be able to cut it down to 2-3 at most.  

What is specifically wrong with this and are there any benefits?

Linton

solidpro said:

Linton said:
You have too many funds doing much the same thing. eg you appear to have about 9 global funds.  You should be able to cut it down to 2-3 at most.  

What is specifically wrong with this and are there any benefits?

Two issues with too many funds in a sector:
1) It makes it more difficult to understand and manage.  Do you rebalance ? If so, more hassle.  If you want to put more money into that sector which fund do you choose and why?  Yet more research. What are you really invested in at the sector and company level?  Can you easily see whether for example you are too high in tech?

2) In my view you should be designing your portfolio top down.  Say you need a global fund and so you research sector and region allocation, charges, peformance characteristics etc and decide on fund A.  Later you want some more global, why would you come to a different decision and buy fund B?  If A is no longer appropriate and B is better surely the logical decision is sell all your A and buy B.

It is possible that A and B both have desirable characteristics you need in your portfolio.  eg one is tech biased and another small companies biased.  OK buy both.  But can you really extend this to an indefinite number of funds in the same sector?  9 funds each with a unique desirable feature?  Well before then you have a portfolio with no particular theme, certainly not one you have chosen, and so you may just as well have bought one global index fund.

I dont see any redeeming benefits of having more funds in your portfolio than you can easily justify.

UpZord

I think you've done great. Dont see anything that jumps out and would increase Asia weight but that's a personal conviction.

You could also drop the emergency cash pool as funds are relatively liquid, but again that's just me.

I'm saving/pumping up pensions in preparation for senior school fees too. Have you accounted for fee inflation of at least 3.5%? And university? Will you be drawing down any pools or income will cover it?

Off topic here but can I ask how long ago you got into BTL? I'm interested but always feel it's not worthwhile these days.