Pension Reset - what your asset/geographic allocation be?

eskbanker

ZingPowZing said:

There is a common misconception that diversification generates gains by its own virtue.

Is there?  On what basis do you assert that?

ZingPowZing said:

Whereas -I believe - resetting or rebalancing to a formal allocation relationship on the anniversary of some arbitrary date generally acts as a drag on performance.

Not a surprise to see you saying that once again, but it's a complete strawman in the context of this thread, where there has been no mention of regular rebalancing....

[Deleted User]

eskbanker said:

ZingPowZing said:

There is a common misconception that diversification generates gains by its own virtue.

Is there?  On what basis do you assert that?

ZingPowZing said:

Whereas -I believe - resetting or rebalancing to a formal allocation relationship on the anniversary of some arbitrary date generally acts as a drag on performance.

Not a surprise to see you saying that once again, but it's a complete strawman in the context of this thread, where there has been no mention of regular rebalancing....

eskbanker said:

ZingPowZing said:

There is a common misconception that diversification generates gains by its own virtue.

Is there?  On what basis do you assert that?
1) On the basis of advice commonly doled out on this board, to the effect that investors should be diversified x times x, as if it were a winning strategy by its own virtue.
2) On the reaction to my suggestion that a poster could invest a SIPP in 4-stocks -
https://forums.moneysavingexpert.com/discussion/6036898/seeking-advice-on-hl-sipp-allocations/p1

3) Just by omission. Until yesterday, I had not seen any mention of the fact that diversification is a zero-sum game. You, for example, have posted over seventeen thousand times and I'll happily stand corrected on that point if you have made mention of it. Or it may be because everyone already realises..

ZingPowZing said:

Whereas -I believe - resetting or rebalancing to a formal allocation relationship on the anniversary of some arbitrary date generally acts as a drag on performance.

Not a surprise to see you saying that once again, but it's a complete strawman in the context of this thread, where there has been no mention of regular rebalancing....
Well the OP mentioned "neglect" and "resetting" so it may have been in his mind. There again, what would be the point to resetting to an idealised mix if not to maintain it? 

Perhaps the Dr would be the better judge of what is relevant to his/her concern.

DoctorStrange

Thanks everyone - to clarify a few points:

• I'm not fussed about short term drops/corrections and believe the 20 year horizon will iron those out;
• I'm not trying to replicate a global tracker per se; I just think global exposure is good diversification 
• I'm unsure which sectors / geographies will outperform the next 10/20 years (obviously none of us are sure, but folk here have opinions and those are what I'm after so I can see which I agree/disagree with and adjust accordingly)
• I know that "picking random numbers that sum to 100%" isn't how to build a portfolio - that's why I'm asking for people's opinions on how they would build theirs i.e. if random allocations are not how to build a portfolio, how should you build one?
• When I say "reset" I really mean I want to start again but with more thought going into it this time, rather than picking up random ETFs and companies I just liked the look of along the way.  I never used to bother with too much as it all seemed too far away, whereas now I realise that decisions taken today will have a very real impact in 20 years time.
• It's prob best to think of this as "What advice would you give someone who was just given a SIPP of £250k in cash and wanted to invest it all?"

I guess what I'm looking for is lots of "I think US tech will be the biggest winner as..." or "It's Chinese small caps for me, because..." alongside general musings like "I'd generally be 50% in the US, 30% Europe and 20% EM" etc. 

That way I've got useful starting points and a range of opinions, which I can then test against my own biases and risk tolerances and see what I end up with.

Thanks again, I do appreciate everyone taking the time to comment

eskbanker

ZingPowZing said:

eskbanker said:

ZingPowZing said:

There is a common misconception that diversification generates gains by its own virtue.

Is there?  On what basis do you assert that?
1) On the basis of advice commonly doled out on this board, to the effect that investors should be diversified x times x, as if it were a winning strategy by its own virtue.
2) On the reaction to my suggestion that a poster could invest a SIPP in 4-stocks -
https://forums.moneysavingexpert.com/discussion/6036898/seeking-advice-on-hl-sipp-allocations/p1

3) Just by omission. Until yesterday, I had not seen any mention of the fact that diversification is a zero-sum game. You, for example, have posted over seventeen thousand times and I'll happily stand corrected on that point if you have made mention of it. Or it may be because everyone already realises..

1. Diversification is undoubtedly the prevailing approach recommended on here, but I still don't see anyone saying it "generates gains by its own virtue".

2. Are you repeating your suggestion to OP here, i.e. that picking four stocks is a better idea than a diversified portfolio?  If so, on what basis are you contending that this would be more appropriate for them over the 40+ year term, i.e. which stocks do you believe will shoot the lights out on a very long term sustained basis?  Which do you think you'd have recommended in 1981?

3. I'm not convinced that it's particularly helpful or accurate to characterise diversification as a zero-sum game, but even if the opinion has merit, that doesn't make it a fact!

ZingPowZing said:

ZingPowZing said:

Whereas -I believe - resetting or rebalancing to a formal allocation relationship on the anniversary of some arbitrary date generally acts as a drag on performance.

Not a surprise to see you saying that once again, but it's a complete strawman in the context of this thread, where there has been no mention of regular rebalancing....
Well the OP mentioned "neglect" and "resetting" so it may have been in his mind. There again, what would be the point to resetting to an idealised mix if not to maintain it? 

Perhaps the Dr would be the better judge of what is relevant to his/her concern.

OP clearly wants to adjust their portfolio but makes no suggestion that this is to be a regular occurrence "on the anniversary of some arbitrary date".

[Deleted User]

Diversification is not a given "good" in terms of enhancing the value of your investments. I imagine a global tracker is about as diffuse as you can get, it would certainly dilute risk, if that's what you want to do.

A couple of points to consider, Dr Strange. Your SIPP will probably run for forty years, nearer than twenty. And, if you look at your situation in the round, you are already invested here in the UK via your house, salary etc. 

Purely my view - and very much a minority one on this board - start over with a handful of investments (you're bound to add to them as you go on), a couple of defensive ones, a couple for growth, nothing complicated nor obscure, and don't be concerned when they diverge in value.

MarkCarnage

• I'm unsure which sectors / geographies will outperform the next 10/20 years (obviously none of us are sure, but folk here have opinions and those are what I'm after so I can see which I agree/disagree with and adjust accordingly)

I guess what I'm looking for is lots of "I think US tech will be the biggest winner as..." or "It's Chinese small caps for me, because..." alongside general musings like "I'd generally be 50% in the US, 30% Europe and 20% EM" etc. 

• I'm not sure that a random poll of commentators on here is the best way, or even a good way, to go about this. For a start, this is a dynamic journey not a snapshot to be held for 20 years.

          I would re examine the question as to:
          -Do I think that I can successfully allocate between sectors and geographies and review these rigorously on a regular basis. If so, the portfolio construction would have specialist funds as a building block. 
If not, then I suggest allocating via generalist funds. As you seem disposed towards a high equity content, which I would tend to agree with, then your next questions are passive/active split, funds, ETFs or investment trusts, if active, what manager philosophy and style etc. 
My own approach is a slight hybrid, in that I have a small allocation to specialist funds, both geographically and niche asset classes, but the vast majority of my portfolio is in active global equity ITs, and wealth preservation ITs where the sector/geography/asset class allocation is done for me. I review it regularly, but change it infrequently, and generally to rebalance if a holding has become disproportionate to the original intention. That's a risk adjusted return view, not purely risk or return.....as my goals change over time. I have made 3 transactions in the last year. 

[Deleted User]

eskbanker said:

ZingPowZing said:

eskbanker said:

ZingPowZing said:

There is a common misconception that diversification generates gains by its own virtue.

Is there?  On what basis do you assert that?
1) On the basis of advice commonly doled out on this board, to the effect that investors should be diversified x times x, as if it were a winning strategy by its own virtue.
2) On the reaction to my suggestion that a poster could invest a SIPP in 4-stocks -
https://forums.moneysavingexpert.com/discussion/6036898/seeking-advice-on-hl-sipp-allocations/p1

3) Just by omission. Until yesterday, I had not seen any mention of the fact that diversification is a zero-sum game. You, for example, have posted over seventeen thousand times and I'll happily stand corrected on that point if you have made mention of it. Or it may be because everyone already realises..

1. Diversification is undoubtedly the prevailing approach recommended on here, but I still don't see anyone saying it "generates gains by its own virtue".

2. Are you repeating your suggestion to OP here, i.e. that picking four stocks is a better idea than a diversified portfolio?  If so, on what basis are you contending that this would be more appropriate for them over the 40+ year term, i.e. which stocks do you believe will shoot the lights out on a very long term sustained basis?  Which do you think you'd have recommended in 1981?
I am. See above. 

3. I'm not convinced that it's particularly helpful or accurate to characterise diversification as a zero-sum game, but even if the opinion has merit, that doesn't make it a fact!
It's a fact that if a hundred (or ten thousand) people, allocated one investment each, decided to pool their investments, it would make zero difference to the collective value of their investments.

ZingPowZing said:

ZingPowZing said:

Whereas -I believe - resetting or rebalancing to a formal allocation relationship on the anniversary of some arbitrary date generally acts as a drag on performance.

Not a surprise to see you saying that once again, but it's a complete strawman in the context of this thread, where there has been no mention of regular rebalancing....
Well the OP mentioned "neglect" and "resetting" so it may have been in his mind. There again, what would be the point to resetting to an idealised mix if not to maintain it? 

Perhaps the Dr would be the better judge of what is relevant to his/her concern.

I'm sure Dr Strange is capable of making up his mind.

MarkCarnage

It's a fact that if a hundred (or ten thousand) people, allocated one investment each, decided to pool their investments, it would make zero difference to the collective value of their investments.

It's a tautology in fact.....

However, it would significantly lessen the volatility of their portfolio, and risk of ruin, unless you rather unrealistically assume that all investments perform the same, and all have the same chance of going bust. Which is what portfolio construction should be about.

How you believe that a 4 stock portfolio is a more sensible idea than something more diversified is beyond me. I'm not talking about 'tracker' diversification either. 

Thrugelmir

El_Torro said:

As well as a global tracker I would consider maybe a global Smaller Companies fund too, since smaller companies aren’t well represented in a global tracker.

Smaller companies at a global level are still multi billion cap companies. A global tracker doesn't even scratch the surface of the number of listed companies on global stock market exchanges. 

Thrugelmir

ZingPowZing said:

eskbanker said:

george4064 said:

My pension is actually structured with a World ex-UK Equity Index Fund and UK Equity Index Fund, 95% in the overseas fund and 5% UK. Effectively the same thing as a global equity fund, just replicating that with the funds available.

ZingPowZing said:

Diversification is a zero-sum game; it will bring your investment outcome closer to the average; it won’t make you richer.

It should if your undiversified choices were below average! 

Well, yes, sure.

However, as discussed elsewhere, diversification isn't necessarily about maximising performance but managing risk....

Agreed again. So long as managing risk is the main concern of the OP. Given the probable forty year investment journey ahead of Dr Strange. 

Whereas -I believe - resetting or rebalancing to a formal allocation relationship on the anniversary of some arbitrary date generally acts as a drag on performance.

I'm in agreement with you for once. Though only for the reason that there isn't a formal allocation relationship.  Relationships are in a constant state of flux. Nor are boundaries rigid and confined, there'll be margins of flexibility.