Planning a portfolio

Nebulous2

I'd be grateful for some thoughts on where I should go, as I'm beginning to realise I'm out of my depth.


I find myself early retired with a six figure sum in cash to invest for the first time. Plan is to invest £80k in S and S ISAs. We put 2 x £20k in before the end of the financial year. 

I've put £10k each into a global tracker, one in HSBC and one in Vanguard. Plan was then to choose an additional 5 funds each to put £2k into - moving the weighting away from the 60% or so the global trackers have in the USA.  Some of these could be passive - ftse250 for instance and some could be active- possibly Japanese smaller companies. I've picked 2 funds each and don't know where to go from there.  I've invested 28 out of an available 80k and feel I have run out of steam.  Picking another 6 to conclude these 2 ISAs feels quite daunting, never mind the other £40k.

Maybe I should just put the other £40k in global trackers in a buy and forget strategy. Maybe £2k chunks is spreading it too thinly and I should be thinking £50k global trackers and £30k elsewhere in £5k blocks. 

Any thoughts / suggestions / tips for me?  

Alexland

I would forget your £2k chunks strategy and aim to keep the accounts as simple and low cost as possible to align to your objectives. Over the long term a global tracker or maybe VLS100 if you want some home bias should be fine if you are in pure compounding mode and comfortable with the likely volatility and current valuations.
Another option if you are retired would be to invest via an Investment Trust for a smoothed flow of dividends which might enhance your lifestyle.

WaywardDriver

Do you need regular income in your retirement? If so a fund or IT with a reliable track record of income from bonds is worth considering. For example, Royal London Sterling Extra Yield Bond.

JohnWinder

Perhaps a bit hard to be too specific with suggestions since we know little about what you want/need from this investing. Might it be to leave the maximum inheritance, or consume generously over the next 15 years? At least think that through for yourself.

I’d say you’re off to a good start with low cost, broadly diversified equity funds that tracks decent indexes.

Specific to what you’ve said: putting £2k in each, that would be <2% of your total??, into any fund would result in too trivial a difference in likely returns to bother with - unless it’s something wildly speculative like cryptocurrency (not suggesting it). 

Further, you’re considering picking out niche areas like Japanese small cap? Not a hanging crime, but with your experience (I’m guessing limited) or even if you were a wizard fund manager at your day job, do you really want to bet against the wisdom of the market by allocating more to such an asset subclass than the market thinks it’s worth? The most efficient risk adjusted return portfolio is market cap weighted; stray from that only when you know what you’re doing ie having a gamble and probably at greater cost than a tracker.

As a general suggestion: identify how much risk you can and are prepared to take, in terms of asset price fluctuations (including big drops for several years), and then buy the equity fund(s) and the bond fund(s) in the appropriate proportions eg 60/40. Choose funds which are well diversified, low cost, tracking decent indexes, unless you’re committed to active investing and are comfortable about getting below market returns - this has been the more likely result in past decades.

It doesn’t need to be multi-fund complicated to be successful, if successful means getting market returns less costs without taking any extra risks (beyond market risks). Lastly, stick with your choices through thick and thin, because only then can they deliver the outcome they have the potential to deliver; if you keep chopping and changing, you very much risk getting below market returns. This is what Dalbar find, anyway:

'The Dalbar Study changed my life. It changed the path that my career was on, because I thought it was all about trying to find the best investment. I thought that was my job, and most investors think that’s the adviser’s job. But what the Dalbar Study shows is that there’s a difference between the average investment return that an investment generates, and what the average investor in that investment receives. Often it’s because we’re trading, changing in and out. We’re looking for the next hot investment because that’s what we think our job is. That’s what the news tells us. The financial pornography circus tells us that’s our job!'

https://www.evidenceinvestor.com/tag/dalbar-study/

Nebulous2

WaywardDriver said:

Do you need regular income in your retirement? If so a fund or IT with a reliable track record of income from bonds is worth considering. For example, Royal London Sterling Extra Yield Bond.

Thanks - I don't anticipate having any need for money in retirement. I have a gap of 8 years from now until State Pension Age, but we have enough resources to cover that, in addition to our four ISAs. 

Nebulous2

JohnWinder said:

Perhaps a bit hard to be too specific with suggestions since we know little about what you want/need from this investing. Might it be to leave the maximum inheritance, or consume generously over the next 15 years? At least think that through for yourself.

I’d say you’re off to a good start with low cost, broadly diversified equity funds that tracks decent indexes.

Specific to what you’ve said: putting £2k in each, that would be <2% of your total??, into any fund would result in too trivial a difference in likely returns to bother with - unless it’s something wildly speculative like cryptocurrency (not suggesting it). 

Further, you’re considering picking out niche areas like Japanese small cap? Not a hanging crime, but with your experience (I’m guessing limited) or even if you were a wizard fund manager at your day job, do you really want to bet against the wisdom of the market by allocating more to such an asset subclass than the market thinks it’s worth? The most efficient risk adjusted return portfolio is market cap weighted; stray from that only when you know what you’re doing ie having a gamble and probably at greater cost than a tracker.

As a general suggestion: identify how much risk you can and are prepared to take, in terms of asset price fluctuations (including big drops for several years), and then buy the equity fund(s) and the bond fund(s) in the appropriate proportions eg 60/40. Choose funds which are well diversified, low cost, tracking decent indexes, unless you’re committed to active investing and are comfortable about getting below market returns - this has been the more likely result in past decades.

It doesn’t need to be multi-fund complicated to be successful, if successful means getting market returns less costs without taking any extra risks (beyond market risks). Lastly, stick with your choices through thick and thin, because only then can they deliver the outcome they have the potential to deliver; if you keep chopping and changing, you very much risk getting below market returns. This is what Dalbar find, anyway:

'The Dalbar Study changed my life. It changed the path that my career was on, because I thought it was all about trying to find the best investment. I thought that was my job, and most investors think that’s the adviser’s job. But what the Dalbar Study shows is that there’s a difference between the average investment return that an investment generates, and what the average investor in that investment receives. Often it’s because we’re trading, changing in and out. We’re looking for the next hot investment because that’s what we think our job is. That’s what the news tells us. The financial pornography circus tells us that’s our job!'

https://www.evidenceinvestor.com/tag/dalbar-study/

Thanks for the detailed response, that is very helpful.

I don't know that we will ever need this money. Possibly for care home fees. We don't have a lavish lifestyle, intend to travel, but even that is at the low-cost end of the market, caravanning in Europe rather than longhaul flights. I have a reasonable DB pension which will cover about 70% of our budget, and when state pension kicks in we will be self-sufficient, with a safety margin, from income.


We are going to have about the same amount £40k each in premium bonds. The attached flat is rundown and we need to negotiate with the owner on maintenance. He's friendly, but unwilling to spend anything on upkeeping the building. If the opportunity arose we would buy him out, that would be about £40k. We would also like to refurbish our house, but are slightly reluctant to do too much until we see whether we can get agreement from him and we work out what would actually improve our lives, especially if we are travelling a lot and using it as a base. Despite being older than us and in poor health, he could easily outlast us - so none of that is certain. We should have enough to do that and fund the gap until SPA without touching these ISAs. £2k represents about 1% of our liquid resources. 

Thinking on a graduated risk, not precise I know:  crypto -> individual shares -> funds (with considerable gradation within that)  -> bonds -> cash. I'm thinking because we are holding so much that we could need in cash and premium bonds, we don't need bonds at all, we can afford to go right to equity funds with the whole £80k.

I see Japan as a sleeping giant, and it fits in with my own hobbies. Shimano is a giant in cycling equipment and is currently unable to meet demand.  I have a Nikon mirrorless camera, they seem to finally have got their act together after some years in the doldrums and cant meet demand either. That semi-conductor factory fire has affected car manufacturers everywhere. I'm waking up to how much Japan contributes to us still - and think it would be worth a punt for the longterm. 

I'll read up on that Dalbar study. I've seen some stuff here before, showing that the best investors are dead. Estates that haven't been wound up do better than other investors, because nobody is chopping and changing them. 

csgohan4

I avoided in investing in Japan, their historical record is abysmal reading. I've put some in a pacific ex japan fund. If anything China is the way to go imo, but your risk tolerance is difference to mine

Nebulous2

csgohan4 said:

I avoided in investing in Japan, their historical record is abysmal reading. I've put some in a pacific ex japan fund. If anything China is the way to go imo, but your risk tolerance is difference to mine

I'm aware of that - It crashed a long time ago and has had several false dawns since. This time could be different however! 

That was partly why I was only looking at £2k, but the message I'm getting is that splitting it up into chunks that small isn't worth doing. 

dunstonh

What reason are you using the ISA allowance but not your pension allowance?  (pension tax wrapper is likely to be better than the ISA tax wrapper unless there are certain blockers) - it may not offer as much as an allowance but compounded to age 75 and as a couple, it will be.

Plan was then to choose an additional 5 funds each to put £2k into - moving the weighting away from the 60% or so the global trackers have in the USA.  Some of these could be passive - ftse250 for instance and some could be active- possibly Japanese smaller companies. I've picked 2 funds each and don't know where to go from there.  I've invested 28 out of an available 80k and feel I have run out of steam.  Picking another 6 to conclude these 2 ISAs feels quite daunting, never mind the other £40k.

What experience do you have with running a portfolio? 
What data and analysis are you using to decide your asset weightings? 
Why do you think you can do it better than a fund manager?

When you invest, you need to know your own knowledge, understanding and limits.

I avoided in investing in Japan, their historical record is abysmal reading. I've put some in a pacific ex japan fund. If anything China is the way to go imo, but your risk tolerance is difference to mine

Japan can be all of nothing.   On a rebalancing portfolio, that can be beneficial.  However, even then, our highest risk portfolio has under 5% in Japan.    If the op is planning to be a lazy investor (no research and no rebalancing) then it is probably best to avoid.  Not only for it being Japan but also because going single sector investing would not be a good idea either if you are just plucking numbers out of thin air.

csgohan4

dunstonh said:

What reason are you using the ISA allowance but not your pension allowance?  (pension tax wrapper is likely to be better than the ISA tax wrapper unless there are certain blockers) - it may not offer as much as an allowance but compounded to age 75 and as a couple, it will be.

Plan was then to choose an additional 5 funds each to put £2k into - moving the weighting away from the 60% or so the global trackers have in the USA.  Some of these could be passive - ftse250 for instance and some could be active- possibly Japanese smaller companies. I've picked 2 funds each and don't know where to go from there.  I've invested 28 out of an available 80k and feel I have run out of steam.  Picking another 6 to conclude these 2 ISAs feels quite daunting, never mind the other £40k.

What experience do you have with running a portfolio? 
What data and analysis are you using to decide your asset weightings? 
Why do you think you can do it better than a fund manager?

When you invest, you need to know your own knowledge, understanding and limits.

I avoided in investing in Japan, their historical record is abysmal reading. I've put some in a pacific ex japan fund. If anything China is the way to go imo, but your risk tolerance is difference to mine

Japan can be all of nothing.   On a rebalancing portfolio, that can be beneficial.  However, even then, our highest risk portfolio has under 5% in Japan.    If the op is planning to be a lazy investor (no research and no rebalancing) then it is probably best to avoid.  Not only for it being Japan but also because going single sector investing would not be a good idea either if you are just plucking numbers out of thin air.

to be fair some index trackers have some japan exposure, but a few % points, which is probably ok for some. But I didn't feel the need to overweight in it at this time. I did over weight in pacific and China though as well as USA to suit my own risk tolerance and portfolio to have a highish reward risk ratio

Nebulous2

dunstonh said:

What reason are you using the ISA allowance but not your pension allowance?  (pension tax wrapper is likely to be better than the ISA tax wrapper unless there are certain blockers) - it may not offer as much as an allowance but compounded to age 75 and as a couple, it will be.

Plan was then to choose an additional 5 funds each to put £2k into - moving the weighting away from the 60% or so the global trackers have in the USA.  Some of these could be passive - ftse250 for instance and some could be active- possibly Japanese smaller companies. I've picked 2 funds each and don't know where to go from there.  I've invested 28 out of an available 80k and feel I have run out of steam.  Picking another 6 to conclude these 2 ISAs feels quite daunting, never mind the other £40k.

What experience do you have with running a portfolio? 
What data and analysis are you using to decide your asset weightings? 
Why do you think you can do it better than a fund manager?

When you invest, you need to know your own knowledge, understanding and limits.

I avoided in investing in Japan, their historical record is abysmal reading. I've put some in a pacific ex japan fund. If anything China is the way to go imo, but your risk tolerance is difference to mine

Japan can be all of nothing.   On a rebalancing portfolio, that can be beneficial.  However, even then, our highest risk portfolio has under 5% in Japan.    If the op is planning to be a lazy investor (no research and no rebalancing) then it is probably best to avoid.  Not only for it being Japan but also because going single sector investing would not be a good idea either if you are just plucking numbers out of thin air.

Thanks DunstonH I appreciate it.

We bought a second home 3 years ago, with the intention of retiring to it. After becoming fedup of the machinations at work I made a decision at Christmas to hand in my notice and retire early (LGPS) I left at the end of the financial year.  I don't have my figures yet, they are running behind in the pension department, and I've heard anecdotally it may take 3 months to resolve my pension. I am inclined to take it, although I could defer it. We moved to the holiday home and sold our main home, which is where most of the cash has come from.

All that means I have no earned income, although I may do some adhoc bank work, but wouldn't expect to earn more than £6k. That means the pension isn't an option. I'll take the NHS pension if I do get some work. 

I don't have any experience of running a portfolio and am not using any analysis to decide weightings, other than reading a lot - fidelity, trustnet, here.  

I certainly don't think I can do better than a fund manager - although the intention is to put most of the money into passive funds.  The global trackers I have bought probably suit me well - but they are a blunt instrument which blindly buys everything there and I wanted to balance some of that out. I'm not convinced by 60% in the USA for instance and intended to buy some additional funds to reduce that.

The choice was then to add additional funds - FTSE, European ones etc.

These funds could be passive, buying another index, or active - picking some fund managers, rather than trying to do their job.  I'm prepared to go with either, with the most likely option being a bit of both.