Suggested portfolio

mears1

That's portfolio is scary! Apart from the VS L60, all the proponents are tiny. The posts on this forum seem to suggest large amounts in passive funds. Would £50k amounts in 6 funds and £30k to play with, be too simplistic?

BritishInvestor

tigerspill said:

I think my IFA was just lazy - as I mentioned above - he had a few fixed portfolios and he used one to match the risk level of the customer.

Many financial planners believe the vast majority of clients will be best served by a globally diversified, low-cost portfolio, and offer a range of portfolios (typically less than 10) with differing ratios of equities/bonds etc to meet client requirements. Each of these portfolios typically consists of a handful of funds, ranging from one (multi-asset) to around 6 (bonds, equities, property etc).

I'm not sure that there is anything lazy in offering a range of portfolios such as this - simple tends to work.

Those that offer complex portfolios with many funds tend to be the traditional IFAs, where the focus is on the product rather than the planning, the latter requiring a greater investment of time and resources.

A smorgasbord of funds can be used to give the impression of adding value, but if you look at who is typically taking a chunk out of your returns:

Adviser
DFM
Active funds managers

you have to wonder how much value is left for you.

Furthermore, you are introducing more variables/risk into the equation, ranging from performance chasing to investment style drift (both from the underlying funds and the DFM itself).

A portfolio containing lots of funds may give the illusion of diversification, but if you have a quick look at the holdings above, they seem to be filled with funds that are "working now" - typically large-cap growth - this is not really diversification.

I would also question the benefit of High yield bonds and Absolute return funds

IamWood

dunstonh said:

This looks like a a standard portfolio from the IFA - They trot one of a few different risk portfolios out to each customer.

I know a number of the models and strategies they recommend and it certainly doesn't tie in with any of those.

There are some DFM portfolios that go into dozens or even hundreds of funds but they are typically aimed at multi-million pound investors where diversification of funds and fund houses is as important as diversification of assets.    Howver, I have seen some wealth managers use them for smaller investors.

I would like to discuss the logic a little more if I may. At the end of the day, all funds are actually reduced to the allocation of various assets in different regions. I would appreciate it if the IFA works out the assets allocation and make its own fund. But this looks like a complete mess to me.

I wonder if this guy is a genius or an idiot and I wouldn't consult him/her for sure.

dunstonh

I would like to discuss the logic a little more if I may. At the end of the day, all funds are actually reduced to the allocation of various assets in different regions. I would appreciate it if the IFA works out the assets allocation and make its own fund. But this looks like a complete mess to me.

I think my two earlier posts answer that.

[Deleted User]

Looks like someone is trying to create something complex for the sake of it - and to justify his charges.  Created a complete mess n the process.  

Did they provide you with a written Investment Policy Statement?  You need: 

1. clear objectives
2. Evaluation of risks
3 asset allocation

Then you need to select fund(s) to meet item 3.   The vast majority of people would be best served with a single fund portfolio.  Portfolios with around 4 funds may make sense as well.  Anything more than that would need a bloody good reason for it, eg;

1. you have non-sheltered investments in taxable accounts and need to minimize taxation in those accounts or
2. You are investing in individual bonds and other fixed income assets to address specific concerns with bond funds.  

dunstonh

Then you need to select fund(s) to meet item 3.   The vast majority of people would be best served with a single fund portfolio.  Portfolios with around 4 funds may make sense as well.  Anything more than that would need a bloody good reason for it, eg;

That is your opinion but 4 funds can be equally unsuitable as having 40.    Generally speaking, around 8-15 tends to be the sweet spot when using a portfolio of single sector funds.

IamWood

dunstonh said:

Then you need to select fund(s) to meet item 3.   The vast majority of people would be best served with a single fund portfolio.  Portfolios with around 4 funds may make sense as well.  Anything more than that would need a bloody good reason for it, eg;

That is your opinion but 4 funds can be equally unsuitable as having 40.    Generally speaking, around 8-15 tends to be the sweet spot when using a portfolio of single sector funds.

Could you please share your in-depth knowledge of that number if you don't mind? I'm not afraid of math if I could throw some magic formula. Cheers

Audaxer

IamWood said:

dunstonh said:

Then you need to select fund(s) to meet item 3.   The vast majority of people would be best served with a single fund portfolio.  Portfolios with around 4 funds may make sense as well.  Anything more than that would need a bloody good reason for it, eg;

That is your opinion but 4 funds can be equally unsuitable as having 40.    Generally speaking, around 8-15 tends to be the sweet spot when using a portfolio of single sector funds.

Could you please share your in-depth knowledge of that number if you don't mind? I'm not afraid of math if I could throw some magic formula. Cheers

I think 8 to 15 single sector funds can cover a wide enough range of different asset classes and sectors etc. to give a globally diversified portfolio. Something similar could be achieved with a single multi asset fund like Vanguard LifeStrategy 60 or HSBC Global Strategy Balanced, although they do not include much of some sectors like for example small companies. There are various preferences for a globally diversified portfolio, but most people would consider 40 funds as far too many.

[Deleted User]

Here is a really good little book which has several principles ordinary investors should have tattooed on their brains:

http://www.efficientfrontier.com/ef/0adhoc/TIM.htm

dunstonh

Deleted_User said:

dunstonh said:

Then you need to select fund(s) to meet item 3.   The vast majority of people would be best served with a single fund portfolio.  Portfolios with around 4 funds may make sense as well.  Anything more than that would need a bloody good reason for it, eg;

That is your opinion but 4 funds can be equally unsuitable as having 40.    Generally speaking, around 8-15 tends to be the sweet spot when using a portfolio of single sector funds.

I am not going to persuade a self-serving IFA but single factor funds should not be used. Its bad investment advice. 

It is complete and utter rubbish to call it bad investment advice.   You are being completely unhelpful to the OP and anyone else reading.   You are also suggesting that most of the regular posters here are investing badly too as they will be using single sector funds.

That also means you need to eliminate the Vanguard Lifestrategy fund if your views are correct as that uses single sector funds as its underlying assets.  And 17 of them.     Nice to see your are claiming Vanguard are getting it wrong too.

Could you please share your in-depth knowledge of that number if you don't mind? I'm not afraid of math if I could throw some magic formula. Cheers

If you are going to build a portfolio of single sector funds then you need to have coverage of the various regions.  If you are not going 100% equities (which most people do not) then you also need to have the main fixed interest securities covered.  So, you end up with a list something along the lines of this:

UK equities
US equities
European (ex UK) equities
Japan equities
Asia equities
Emerging Market equities.
UK Gilts
UK index-linked gilts
UK investment-grade bonds
High yield bonds
Global bonds.
Property (potentially - some models include it as an allocation)

If you had one fund for each of those areas, it would be 11 funds (12 if you include property).   However, depending on your risk profile and timescale and your investment opinion, you may not have an amount allocated to some of those.

Some people operate a core and satellite approach in the major markets (UK, US and Europe). i.e. they may hold a passive fund for the core but allocate some to managed fund with a more focused investment area that a tracker cannot cover.  So, you could have another three there.  Some may split a bit more or have variations on that theme.  But that is typically the sort of ballpark expectation.

There is no one best model or strategy when it comes to investing.    There are bad ways to invest but nobody can say there is one best way.    Having a structure and process with your strategy is important.   Ad-hoc/almost random selections tend to result in lower returns over the long term.   There is no magic formula.

Someone with a small amount is usually best served with a multi-asset fund.   However, as your value gets higher, the use of single sector funds can be more attractive if you know what you are doing.    If you don't know what you are doing, you should stay away from them.