Planning a portfolio

JohnWinder

I respect your ‘off-market’ choices about Japan investing. I wouldn’t respect them if you were making them blindly, but having made my point about the benefit of market cap weighting, low cost and diversification, your choices are yours and thus fine.

But a couple of observations about your reasons for Japan. Shimano and Nikon points are valid, but there are a thousand other considerations about how good or bad these are as investments, many of which you’re probably not even aware. Secondly, it can’t only be you who Shimano and Nikon not meeting demand; every professional investor and plenty of amateurs must know this, and as a consequence this information has already been factored into the current prices of those stocks. All new information almost immediately has an impact on a stock price as people buy or sell to get the benefit of any new information. For you to beat the market you have to have knowledge almost no one else has, or be lucky. For some of us investing is not about luck, but about getting our fair share of the prosperity that is reflected in the market returns.

dunstonh said:

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 wouldn’t say you need much experience; you can simulate plenty on paper before real money hits the table. If you're literate and not too dull it’s not hard to run a portfolio that you need do almost nothing to - and probably better if you don't do too much to it.

I’d use historical data of equity and bond market price movements and returns going back as far as was accurate, as you might find in Simba’s backtesting spreadsheets or the Ibbotson data or others found here https://www.bogleheads.org/wiki/Historical_and_expected_returns .

This would give me a sense of how those markets might move and what their returns might be. You get risk and return information that way.

Then I’d estimate the expected returns and price volatility of different stock and bond mixes eg 60/40. Select the highest equity (for the best expected returns) that you’re comfortable with accepting the risks of.

I don't think we're trying to replace a fund manager.  I wouldn’t be the fund manager, that's the job for the fella who chooses the individual stocks and bonds in the funds. I’d choose the funds, well diversified, low cost, global cap weighted (or something a bit similar), in the mix described above.

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

Yes, Nebulous will have that. And you don’t need a lot of the former two to execute this strategy. That's it's beauty: it can effortlessly get market returns less very modest costs, something not easily achieved by the professionals.

csgohan4

generally when you retire, some people like to have 3 pots, a growth, income and Wealth preservation pot.

putting it all into a growth pot is brave, but you mitigate that risk with the other two. 



But personal preference, but that will be strategy at retirement, unless things change, its simple and not overly complicated, 

Eyeful

Your post suggest you like a complex portfolio. You already read that those who tinker with them tend to do less well than those who do not. 
 Would you tell me
1. how often you tinker with them?
2. do you use a spread sheet to track your changes?
3. what is the max number of funds you have held at one time? 
4. how you decide on asset allocation?

Thrugelmir

Nebulous2 said:

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.

 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.

Over time the real growth in markets has been driven by fewer and fewer companies. Without the weighting to the US monoliths the remainder of the global large cap equity portfolio wouldn't have been such an attractive investment. 

dunstonh

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

That means the pension wrapper is an option.  As long as the LTA is not an issue.   The pension wrapper will be more tax efficient than the ISA wrapper.

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.

Passive investing still requires active management.   e.g. how much do you allocate to Japan, UK, etc.  And then how much to small, mid cap, large cap etc.  As you may have read on other current threads, some of those areas suit passive, some some active.  So, don't necessarily be wed to passive.

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.

That means you haven't really bought into passive investing.  That is not a bad thing.   However, if you are going to move away from that, then you do need to have a greater level of understanding with structure and process.  That means not picking x% equally across a half dozen areas.   Every % you put in one area is a % that is removed from another.  Tug at one string and it pulls another.

JohnWinder

Nebulous2 said:

 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.

I feel your pain; well, concern not pain, and share the view that the US market seems a poorer buying choice now. Is it the illusion of control, or the perhaps misguided view that we all have that we're better than average when it comes to these decisions, that leads us to act on these concerns about markets' prices?

The research, as flawed as it may be, simply doesn't support the view that we will reliably beat the market in this space. If the US is over-valued, perhaps because of some runaway stocks like Tesla, why is it that most the active fund managers in this space can't beat the market? And if they can't with their contacts, computers and expert analysts, how can little old you or I do it?

There seems to be no basis other than some psychological parts of our make-up that leads us to act the way you're proposing.

Thrugelmir

JohnWinder said:

Nebulous2 said:

 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.

If the US is over-valued, perhaps because of some runaway stocks like Tesla, why is it that most the active fund managers in this space can't beat the market? 

You've answered your own question. The US market speaks for itself but not for others. Which is where many trip up. 

bostonerimus

OP, I'm in a similar situation to you. I retired early 7 years ago and now my DB pension covers my spending and I don't need my invested money. So I have it in an aggressive 80/20 allocation, mostly in 3 inexpensive tracker funds and my 10 year average rate of return is 9% which is just fine with me.

I would simply forget about constructing a portfolio. Don't worry about Shimano or semi-conductor fab fires, that's not the way to be successful over what might be 30 years. Make sure you keep at least year's worth of spending in the bank and then put what remains into one of the many multi-asset funds that will give you an asset allocation designed for your age and circumstances. As you have DB pensions you can probably afford to take on a bit more risk than someone I imagine is around 60, so something like VLS60 or VLS80 would give you a great selection of passive funds at a low cost. The only active thing you will have to do is to make the decision to buy and then come up with a withdrawal strategy. Sit back and enjoy retirement. It really is not difficult if you follow a few simple rules and don't get drawn into a lot of the hype around portfolio construction.

JohnWinder

I'll concur with that. But to assist others with less certainty/experience than you or some of us might have, do you have any specific 'simple rules' that might guide us? Doesn't have to be a comprehensive list, just something for folk who are thinking 'yes, but what are they?'. And it doesn't matter if it repeats what's been written many times before; there's enough sub-optimal advice on offer repeatedly that needs countering - not saying in this forum.

Old_Lifer

I first invested in Japan over fifty years ago with investments in two unit trusts,  Save and Prosper  Japan Growth   and M & G  Japan & General     Both performed well and If I remember correctly,  I think I had  roughly doubled my money in about 18 months.

I avoided investing in Japan for a couple of decades but invested again in the world's third largest economy in 2012, shortly before the Election    The new Government soon brought- in sweeping changes.   Nowadays  there is an increasing  realisation that shareholders matter and there is a gradual move towards taking into account the views of shareholders and returning value.  Dividends are now becoming more common.

Japanese companies are good at adapting and are particularly good at embracing new technology.

In my view,  many investors look backwards at the 'lost decades' and fail to see the changes that are gradually taking place.

I hold several Japan ITs in my main portfolio and have perhaps approaching 10% of that portfolio invested in Japan.  Perhaps that may be too high a percentage for some investors but I am comfortable  with it.