SIPP investment - Japan...and China?

tichtich

Sorry, I should have read the whole thread before asking.  I see my questions have been partially addressed already, including by FeralHog, who wrote:
"If, for instance, you don't like the high weighting of US tech stocks in global trackers, it's practical and cheap to reduce that by buying about 6 regional trackers (instead of a global equities tracker, not as well as it) to cover global equities but in proportions which give the US a smaller weighting than the > 50% it currently has in global equities trackers. It's not practical to do it by buying about 10 sector funds in suitable proportions, when sector funds are more expensive, and some of those 10 funds don't exist."

older_and_no_wiser

tichtich said:

P.S. Along the same lines... As a passive investor,  are there any criteria that I can/should apply to my portfolio other than passiveness and diversification? I suppose there's also risk-tolerance, which I would address by choosing a stock/bond split. Anything else?

That's about the extent of my rules too. I'm torn a little with what the bond split ratio should be. If you're a long term investor (say 10+ years till retirement), I'm not really sure having any more than 10-20% in bonds is worthwhile. Maybe even as much as 90% equity. Over the long term, equities/indexes always grow more in value. I understand that when nearing and into retirement, it is important to ramp up the bond (and other lower level risk assets) ratio to lower risk while you are drawing out of the fund.

Thrugelmir

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Thrugelmir said:

Some people appear to have a wish to put their capital at risk.  The basics as set out by Warren a long time ago will always stand the test of time. 

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

Master that and your returns by default will increase considerably of your investing lifetime.. 

Sure. But then everybody loses money sometimes. Including the holy Warren. So this rule may sound good, but what does it even mean?

If you set out to protect your capital. Then by default your losses will be reduced. Even a chimp can select a portfolio by throwing darts at a list of names. Requires no thought at all. The danger is then that the portfolio becomes unstable and highly correlated which takes the risk exposure off the scale. 

OK, so now you're saying: maintain adequate diversification. I agree with that.

But I wouldn't mock methods that require "no thought at all". E.g. just buying a multi-asset fund requires very little thought, and yet is a great way to be well diversified. It's not just that trying to be too clever can go wrong - there also no need to try to be clever in investing.

No I didn't say that in the context of the comment I responded to. 

Portfolio construction is a little more in depth than merely throwing funds together. Multi asset funds are created for the mass consumption rather than being bespoke. With a more diverse asset mix. 

Thrugelmir

tichtich said:

As a new investor who accepts the wisdom of not actively managing, I'm inclined to keep my money in a global tracker. But I believe I'm right in saying that most (all?) global trackers are cap-weighted, which means 50+% in the US. That doesn't seem to be an optimally diversified solution. Wouldn't it make more sense to do something like putting 20% each in US, UK, Europe, Japan and China trackers? Or some other pseudo-random but well-diversified arrangement. By diversified I mean avoiding all sorts of correlations as much as possible,  not just regional ones. Does cap-weighting have any benefit apart from being passive?

Here's a link to 203 pages of reading for you as to how MSCI construct investable global indices. 

https://www.msci.com/eqb/methodology/meth_docs/MSCI_GIMIMethodology_Apr2021.pdf

As with many investment topics over time word of mouth can over simplify and as a result dilute knowledge. 

LHW99

tichtich said:

As a new investor who accepts the wisdom of not actively managing, I'm inclined to keep my money in a global tracker. But I believe I'm right in saying that most (all?) global trackers are cap-weighted, which means 50+% in the US. That doesn't seem to be an optimally diversified solution. Wouldn't it make more sense to do something like putting 20% each in US, UK, Europe, Japan and China trackers? Or some other pseudo-random but well-diversified arrangement. By diversified I mean avoiding all sorts of correlations as much as possible,  not just regional ones. Does cap-weighting have any benefit apart from being passive?

There are "equal weight" ETF's, rather than market cap weighted ones

https://money.usnews.com/investing/funds/slideshows/top-performing-equal-weight-etfs-to-buy

(Not a recommendation, but they exist if you want to DYOR)

bostonerimus

tichtich said:

P.S. Along the same lines... As a passive investor,  are there any criteria that I can/should apply to my portfolio other than passiveness and diversification? I suppose there's also risk-tolerance, which I would address by choosing a stock/bond split. Anything else?

You could just buy one of the many multi-asset funds that matches your appetite for risk and you'll get a well diversified set of equities and bonds and even the rebalancing will be done for you. I took a slightly different route and mostly used a 3 fund tracker approach of domestic equity, international equity and a domestic bond tracker funds and rebalanced every so often. I went with cap weighting in the equities as overweighting mid-cap/small cap either domestically or internationally will increase the risk as well as the potential return. There's a lot of numerology thrown around when it comes to portfolio building and my mantra has always been K.I.S.S.

Eco_Miser

swleventhal said:

Although these global funds are passive, they do get readjusted at regular intervals to take account of the markets....I think?

A cap-weighted fund automatically changes the percentage of each stock held as the stock changes its price. No buying or selling needed, it's just how percentages (or fractions) work.

A fund will buy or sell as money flows into or out of the fund from/to its investors, otherwise it only buys or sell when the constituents of the index it is following change.

ChilliBob

Linton said:

Looking at things the other way, why would you want to exclude Japan?  It's a major market. Japan Small Companies are worth looking at as they have performed well and have a relatively low correlation with other equity investments.

Thanks, the low correlation side of things is especially interesting, and not something I was aware of. On this thread, what other equities tend to have low correlations with 'general/global' type equities? Since the classic Gov Bond option for negative correlation isn't so attractive at the moment 

AnotherJoe

Deleted_User said:

AnotherJoe said:

instead of diversifying globally, why not into sectors?

Because global sector funds don't even exist for some sectors. And perhaps the sectors you can't find funds for are the ones you'd be best off buying, because the ones that exist partly reflect current investing fashion, and fashion investing rarely turns out well.

can you name a few?