Why is asset allocation so hard...

fizio

Just retired a few months back so getting all my investments sorted out and have spent ages looking into asset allocation - there seems to be no shortage of options from super simple to super complex based on numerous factors inc risk tolerate, timeframe etc. Then, after deciding on the allocation, its not easy to then decide on which funds to go with (active/passive) and what overlaps there are and which providers to go with.
I found the Portfolio Charts website and MSE/Citywire/Bogleheads all very useful from an education perspective and have come up with a first pass allocation model that I thinks will work for me.
Obviously I am not expecting specific feedback without going into lots of details about my situation but more looking to see if there obvious flaws or missing areas.. the percentages may vary a few points as I learn more.. I have excluded REITS as I have some rental properties. Risk level is medium i.e can cope with market corrections.

Stocks	62%
Bonds	20%
Gold	6%
Cash	12%

For Stocks

Total WW exc uk	50%
UK	14%
EM	8%
Globa Small caps	10%
Global Value	8%
Wealth Preservation	10%

JohnWinder

Perhaps because it's a pursuit of perfection in the face of too many unknowns. But yours looks good, a bit complex for some, but different strokes for different folks.

NedS

Alternatively you could just pick a multi-asset fund that matches your risk tolerance / asset mix (combined with the gold/cash you want above) and let the fund manager(s) take care of the rest for you in the knowledge they have a wealth of experience doing just such things.

[Deleted User]

Nothing’s really wrong with it; its a matter of opinions. Imho:

1. Gold is a poor investment asset. I pick assets with positive long term return. Gold has a long history tracking inflation. In your case it will be minus cost.

2. Numbers like “6%” or “62%” look suspect.  Where is this level of accuracy coming from?  

3. “Wealth preservation” makes for good marketing but clashes with your asset allocation. Its not an asset class; nor a factor. 

4. “Cash” - I wouldn’t allocate percentage. I would keep it out of the pension wrapper at a constant level, say 3 years’ expenditure needs. 

Thrugelmir

All you can do is run with what you decide to do.  The greater challenge may be deciding which index to track. 

Marcon

Like so many things, it depends how much you know about it. If you aren't confident in your own level of knowledge and competence, that's the point at which paying for professional advice is well worth considering - or follow NedS's sensible suggestion above.

Audaxer

Wealth Preservation funds usually contain a fair percentage of bonds and maybe cash, so that would bring down your equity percentage.

One other consideration for the non-equity part of your portfolio, could be infrastructure ITs as they can be good for a rising income with decent yields.

bostonerimus

JohnWinder said:

Perhaps because it's a pursuit of perfection in the face of too many unknowns. But yours looks good, a bit complex for some, but different strokes for different folks.

Agreed. The financial industry has a vested interest in making it seem complicated and with the vast number of choices and the infinite way they can be combined it appears daunting. The trick is to realize that there is an enormous amount of duplication and you simply don't need to worry about getting the "perfect allocation" and you can ignore 99.9% of the products and funds on offer. If you open an account with UK Vanguard you will only be able to buy Vanguard funds. Many people see that as a disadvantage. I think of it as an advantage as it stops you freezing from too much choice and there are more than enough Vanguard funds to make a suitable portfolio for any regular long term investor. You can do the same with lots of other excellent funds on offer from BlackRock, Fidelity, iShares etc. Also if you give up the goal of beating the market and just ignore actively managed funds and stick with index trackers you will greatly simplify your life and while you will not maximize returns you will avoid the worst of the losses too. You'll miss out on the recent gains of Fundsmith, but will avoid the Woodfords. So I would take a look at some Boglehead lazy portfolios and choose the one that is ok for your circumstances or just buy a multi-asset fund. Think in broad strokes and strategy as any fiddling with asset allocation in the single digit percentages is going to be outweighed by economic events that you have no control over. Keep things simple and keep them inexpensive. 

https://www.bogleheads.org/wiki/Investing_from_the_UK#Sample_portfolios
https://monevator.com/9-lazy-portfolios-for-uk-passive-investors-2010/

Thrugelmir

bostonerimus said:

JohnWinder said:

Perhaps because it's a pursuit of perfection in the face of too many unknowns. But yours looks good, a bit complex for some, but different strokes for different folks.

 The financial industry has a vested interest in making it seem complicated and with the vast number of choices and the infinite way they can be combined it appears daunting. 

The finance industry will market and promote any product that an investor wishes to buy.  After all their objective is to make money for themselves. Vanguard is owned by it's investors. The investors vote to elect the board of directors. The board of directors sets it's own remuneration policies and keeps the information confidential.  Only one reason for a lack of transparency..........

Do the sums on the value of assets under management. 

bostonerimus

Thrugelmir said:

bostonerimus said:

JohnWinder said:

Perhaps because it's a pursuit of perfection in the face of too many unknowns. But yours looks good, a bit complex for some, but different strokes for different folks.

 The financial industry has a vested interest in making it seem complicated and with the vast number of choices and the infinite way they can be combined it appears daunting. 

The finance industry will market and promote any product that an investor wishes to buy.  After all their objective is to make money for themselves. Vanguard is owned by it's investors. The investors vote to elect the board of directors. The board of directors sets it's own remuneration policies and keeps the information confidential.  Only one reason for a lack of transparency..........

Do the sums on the value of assets under management. 

I think your first sentence could also be "The finance industry will market and promote any product that they wish to sell."

fizio

Deleted_User said:

Nothing’s really wrong with it; its a matter of opinions. Imho:

1. Gold is a poor investment asset. I pick assets with positive long term return. Gold has a long history tracking inflation. In your case it will be minus cost.

2. Numbers like “6%” or “62%” look suspect.  Where is this level of accuracy coming from?  

3. “Wealth preservation” makes for good marketing but clashes with your asset allocation. Its not an asset class; nor a factor. 

4. “Cash” - I wouldn’t allocate percentage. I would keep it out of the pension wrapper at a constant level, say 3 years’ expenditure needs. 

1. Gold is an interesting one and agree its more of a hedge - there seems to be equal views on whether o not to have some in a overall portfolio so I am on the fence and if I go for a wealth preservation fund then maybe won't need it separately..

2. Yes I was not scientific here and it was mainly a rough number to get the maths to add to a 100%

3. Agree and has to be factored in such that bonds/equity percentage will need to be added to other bonds/equity in the overall asset class percentage totals.. 

4. Thats a good point and I am basically using 2 x max N&SI premium bonds for this purpose