Working out % Equity allocation

JohnWinder

Sorry if I was confusing/confused. Regarding CGT, it was not your mention of it that had me look more closely at it.

I wasn't trying to extol the virtues of VLS40 beyond picking up someone else's citing of it as a comparator to PNL. I wouldn't have suggested it otherwise.

pip895 said:

 Besides extolling the past performance of a fund including a high percentage of bonds also rather misses the point, as it’s the stellar past performance of bonds and there now, very low yields, that is making me concerned about holding them.

What I am really after is that holly grail of a fund that will protect me against falling equity, rising bond yields and inflation ☺️

If you mean 'besides (comma)', rather than 'besides extolling...', referring to the last 10 years for VLS40, the bond component probably returned about 3%/year, leaving the rest of the 7% for the stocks to do the heavy lifting (about 13%/year - check the maths!). That's using portfolio visualiser. Had bonds returned nothing for 10 years, we'd have been looking at about 5.2%/year for VLS40, not 7%.

I think everyone is concerned about holding bonds now with such low yields, but as you suggest there's no holy grail.

We work longer, save more or spend less, none ideal - did I miss any? Or do something contrary to good investing principles which might work or might not. One can't squeeze more out the market that it has to give, unless you want to risk getting less than it has to give rather than more; plenty of us take that option. It comes down to how much of a gambler you are.

Prism

JohnWinder said:

Thrugelmir said:

 The investment achieved it's set out goals. 

For the CGT you mention, 'to preserve, and over time to grow shareholders' real wealth'....'The Company does not have a formal benchmark'.
Cash achieved that goal over the last 50 years; it's not a very high standard to set yourself and expect investors to be pay whizz-bang managers higher fees for when we can get more for less.

Cash kept up with inflation over the last 50 years? 

Linton

JohnWinder said:

Linton said:

 perhaps Capital Gearing Trust's results will demonstrate the advantages of a WP fund during a wide range of market conditions. 

Yes it does. But how good is it? Using the same 10 year period as for VLS40 and PNL, I find from the Fidelity site that CGT had an annualised average return of 5.57%, with more variation in annual returns than either VLS40 or PNL. I've no idea how its cost compares, or even what its asset allocation is, but lower returns and more risk than a similar blended tracker fund won't win me over.

If we permanently lived under the circumstances of the last 10 years funds like CGT would not be necessary.  Sadly we dont as the period 1995-2007 shows.  We dopmt know how a blended tracker would have behaved during that period.  However one can add the FTSE UK Gilt index to the graph I gave above and see that CGT would have outperformed any combination of the global equity index fund and broad gilt fund.

In any case 5.57% is more than enough to meet my requirements, my retirement plan being based on a real return of 1%.

pip895

Prism said:

JohnWinder said:

Thrugelmir said:

 The investment achieved it's set out goals. 

For the CGT you mention, 'to preserve, and over time to grow shareholders' real wealth'....'The Company does not have a formal benchmark'.
Cash achieved that goal over the last 50 years; it's not a very high standard to set yourself and expect investors to be pay whizz-bang managers higher fees for when we can get more for less.

Cash kept up with inflation over the last 50 years? 

I haven’t checked but it might have over that period - It wasn’t that long ago that you could get a product that gave you inflation + 1.5%.  Rather a distant memory now though..

JohnWinder

I don't know if this link will preserve the cash portfolio I back tested. If not you can make your own 100% cash porfolio.

Starting value 1, final value 1.4, inflation adjusted from Dec 1971 to last week. That's USA; I don't know how to do UK, France, etc.

https://www.portfoliovisualizer.com/backtest-asset-class-allocation#analysisResults

Linton

pip895 said:

I don’t actually own CGT - I looked at it, but agree it is more of a multi asset fund than a bond replacement.  

I am not knocking VLS40, but that base is covered by my straight bond funds and the equity trackers I hold.  It wouldn’t add anything to my portfolio.  Besides extolling the past performance of a fund including a high percentage of bonds also rather misses the point, as it’s the stellar past performance of bonds and there now, very low yields, that is making me concerned about holding them.
What I am really after is that holly grail of a fund that will protect me against falling equity, rising bond yields and inflation ☺️

Sadly your holy grail does not exist, therefore one has to do something practical.  It seems obvious to me that with current high   prices and very low interest rates "safe"  bonds are not adequate.  Indexed equity has the added problem of a currently including a high "growth" content which is liable to major booms and busts.

That leaves the only option as very active management of all the assets that are available.  I do not have the skills, data, time or interest to manage this at the detailed level.  As we have seen on another thread (or was it this one?) something as simple as a gilt bond ladder where one can hold all one's bonds to maturity to remove the volatility risk is not straightforward.

The only funds with an interesting long term record in this area are the niche WP funds.  So that is what I go for as an intermediate between tranches of cash and 100% equity.  If they work like they did in the difficult times pre-2008, great.  If they fail they wont do so catastrophically.  In the meantime they continue to provide a useful return.

Linton

Prism said:

JohnWinder said:

Thrugelmir said:

 The investment achieved it's set out goals. 

For the CGT you mention, 'to preserve, and over time to grow shareholders' real wealth'....'The Company does not have a formal benchmark'.
Cash achieved that goal over the last 50 years; it's not a very high standard to set yourself and expect investors to be pay whizz-bang managers higher fees for when we can get more for less.

Cash kept up with inflation over the last 50 years? 

More importantly how confident are you that it will keep up with inflation in the next 10 years?  I am not so only hold cash for short term/emergency purposes for which current inflation levels can be ignored.

JohnWinder

Linton said:

If we permanently lived under the circumstances of the last 10 years funds like CGT would not be necessary.  ...

In any case 5.57% is more than enough to meet my requirements, my retirement plan being based on a real return of 1%.

It's good that your return requirements can probably be comfortably met without too much risk or concerns for expenses. Optimising all the moving parts is perhaps not as important for someone in your fortunate position financially.

But for others starting out and learning the ropes, statements like these following don't convey as informative a picture as we can manage when we put out heads together.

Linton said:

I dont rate PNL very highly but perhaps Capital Gearing Trust's results will demonstrate the advantages of a WP fund during a wide range of market conditions.

The only funds with an interesting long term record in this area are the niche WP funds.  So that is what I go for as an intermediate between tranches of cash and 100% equity.  If they work like they did in the difficult times pre-2008, great.  If they fail they wont do so catastrophically.

And so we should continue.

Prism

Linton said:

Prism said:

JohnWinder said:

Thrugelmir said:

 The investment achieved it's set out goals. 

For the CGT you mention, 'to preserve, and over time to grow shareholders' real wealth'....'The Company does not have a formal benchmark'.
Cash achieved that goal over the last 50 years; it's not a very high standard to set yourself and expect investors to be pay whizz-bang managers higher fees for when we can get more for less.

Cash kept up with inflation over the last 50 years? 

More importantly how confident are you that it will keep up with inflation in the next 10 years?  I am not so only hold cash for short term/emergency purposes for which current inflation levels can be ignored.

Er yes, not at all. From John's graph it looks like cash worked reasonably well with regards to inflation until 2008 and then hasn't since. Personally I use cash plus 1-3 year fixed term savings accounts/bonds plus a touch of a global bond index (8 year duration), although I am pretty sure both will struggle with inflation and rising interest rates. We shall have to see if the CGT focus on TIPS works out.

JohnWinder

Linton said:

Sadly we dont as the period 1995-2007 shows.  We dopmt know how a blended tracker would have behaved during that period. 

Did you mean 2007, as your chart doesn't seem to go that far? But we can have a pretty good guess how a blended tracker would have behaved during that period. A 40/60 (VLS40-type fund) portfolio, before costs would have returned 8.7% CAGR, worst year -5%, biggest fall -11.6%, and all but tripled its original value (nominally, not after inflation).