Why is asset allocation so hard...

fizio

NedS said:

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.

Part o fly challenge is the overall portfolio will be split over isa/sipp/drawdown/gia so having multiple funds seemed a good way to make things work - my non SIPP is mainly vanguard tracker/bonds via 4 vanguard funds

fizio

Audaxer said:

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.

Yes I will have to factor in the allocation within WP funds
Good point on infrastructure as I haven't really thought about that separately thinking my main ww tracker will catch the target companies.. 

fizio

bostonerimus said:

 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/

Agree and I have used these lazy portfolios as the basis for my own and am mainly using index trackers to keep it simple and low-cost - the wealth preservation bit is the only managed fund I am considering

MX5huggy

fizio said:

Deleted_User said:

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. 

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

I’m not sure how this works but if you don’t allocate a percentage then as assets change in value you won’t reflecting this in your holdings. 3 years cash in PB’s is fine but are you just going to take monthly money from other assets all the time, so you maintain the 3 years  in PB’s? 

If you maintain say 20% in cash (or PB’s) this forces you to sell when stocks (or any other asset) are high and hold on or even buy more stock with cash when low. 

dunstonh

Why is asset allocation so hard...

Technically, it isn't hard.   Whatever you pick, whether it is researched or random, is an asset allocation.    

Where it gets harder is knowing whether your asset allocation model is sensible and suitable.   There are many different ways to do it and opinions will vary.    One thing to avoid is using US based models.

Stocks62%Bonds20%Gold6%Cash12%

That is a  high cash content within the wrapper for a 62% equity holding.     

For Stocks<br><table><tbody><tr><td>Total WW exc uk</td><td class="post-text-align-right">50%</td></tr><tr><td>UK</td><td class="post-text-align-right">14%</td></tr><tr><td>EM</td><td class="post-text-align-right">8%</td></tr><tr><td>Globa Small caps</td><td class="post-text-align-right">10%</td></tr><tr><td>Global Value</td><td class="post-text-align-right">8%</td></tr><tr><td>Wealth Preservation</td><td class="post-text-align-right">10%<br><br><br></td></tr></tbody></table>

EM ratio is very high for a 62% equity content portfolio.  Small caps probably too.  Wealth Perservation is an interesting selection.  Why did you include it?

fizio

dunstonh said:

Why is asset allocation so hard...

Technically, it isn't hard.   Whatever you pick, whether it is researched or random, is an asset allocation.    

Where it gets harder is knowing whether your asset allocation model is sensible and suitable.   There are many different ways to do it and opinions will vary.    One thing to avoid is using US based models.

Stocks62%Bonds20%Gold6%Cash12%

That is a  high cash content within the wrapper for a 62% equity holding.     

For Stocks

EM ratio is very high for a 62% equity content portfolio.  Small caps probably too.  Wealth Perservation is an interesting selection.  Why did you include it?

Thanks for the feedback and I have revised the cash content so thats its basically fixed at 100k (10%) via 2 x premium bonds. 
My logic for WP is unusual and 2 fold
1. I have read a lot about 'all weather portfolio's in uncertain times and there are lots of articles and discussions suggesting its a reasonable way to go so I thought it could be a good addition.
2. I am nervous about putting a large sum in the markets in one go right now so WP is a way to reduce the risk of losses in case of a market correction in the short term. I am not 100% sure of the WP approach as it will be my only managed fund so am still pondering whether to go that way or stick with the tracker approach and drip feed over a few months.  

dunstonh

1. I have read a lot about 'all weather portfolio's in uncertain times and there are lots of articles and discussions suggesting its a reasonable way to go so I thought it could be a good addition.

Many of these underperform in positive periods (sometimes going down when everything else goes up) and some don't actually have that much downside protection.      I am not a particular fan of these.  Plus, they usually carry gilts, bonds, cash and gold.  Things that you will already have in your portfolio.  

2. I am nervous about putting a large sum in the markets in one go right now so WP is a way to reduce the risk of losses in case of a market correction in the short term. I am not 100% sure of the WP approach as it will be my only managed fund so am still pondering whether to go that way or stick with the tracker approach and drip feed over a few months.  

But you are only going 62% equities.  You are already putting downside protection in your portfolio.  

Statistically, phasing results in lower returns in the majority of cases can can create an increased loss when a drop comes because you missed the growth that occurred before it by moving to your target later rather than sooner.  It's largely pointless because you are going to be invested as per your target at some point.  So, phasing wont help you then.      If you cant handle the loss potential of your model, then reduce the volatility risk of your model.

JohnWinder

Here's a place to compare an all seasons portfolio with others, if you haven't seen it: https://portfoliocharts.com/portfolio/all-seasons-portfolio/

bostonerimus

fizio said:

dunstonh said:

Why is asset allocation so hard...

Technically, it isn't hard.   Whatever you pick, whether it is researched or random, is an asset allocation.    

Where it gets harder is knowing whether your asset allocation model is sensible and suitable.   There are many different ways to do it and opinions will vary.    One thing to avoid is using US based models.

Stocks62%Bonds20%Gold6%Cash12%

That is a  high cash content within the wrapper for a 62% equity holding.     

For Stocks

EM ratio is very high for a 62% equity content portfolio.  Small caps probably too.  Wealth Perservation is an interesting selection.  Why did you include it?

Thanks for the feedback and I have revised the cash content so thats its basically fixed at 100k (10%) via 2 x premium bonds. 
My logic for WP is unusual and 2 fold
1. I have read a lot about 'all weather portfolio's in uncertain times and there are lots of articles and discussions suggesting its a reasonable way to go so I thought it could be a good addition.
2. I am nervous about putting a large sum in the markets in one go right now so WP is a way to reduce the risk of losses in case of a market correction in the short term. I am not 100% sure of the WP approach as it will be my only managed fund so am still pondering whether to go that way or stick with the tracker approach and drip feed over a few months.  

I would stop reading so many articles and doing so much research. I think this is why you are finding asset allocation hard; it can be a bottomless pit of choices and opinions. You have to be comfortable with your choices, but don't second guess yourself and don't worry about the small details or the relative performance of your portfolio as long as it is doing what you want it to. You obviously have a good understanding of what you are doing and frankly your asset allocation seems ok right now.

It's good that you are looking at your asset allocation across all your accounts and there's nothing wrong in holding the same portfolio in all of them (always considering tax issues of course) or just the same multi-asset fund. I'm also retired and get income from a rental property and have a few years spending in cash and that allows me to feel ok with a high equity allocation and some market corrections...just like you. I think of the rental as "fixed income", but you obviously have to account for expenses and periods when it isn't rented. So I think you are ok and need to worry less and juts enjoy yourself.

fizio

Good and helpful posts from dunstonh and bostonerimus - and I think I have some ideas know on finalizing my portfolio - will simplify and tweak what I started with and that should do me for the foreseeable 

Appreciate all the feedback