Suggested portfolio

[Deleted User]

Cus said:

Deleted_User said:

Cus said:

I think in the US they define sector funds as related to a particular industry or business (e.g. healthcare), where as in the UK a sector fund definitions seem a lot wider, including euro government bonds as an example.

And it does appear that lifestrategy funds in the UK do include these UK defined sectors, whereas the US versions do not include any sector funds, UK or US defined.

The devil is in the detail as they say.

I am not in the US. I am in Canada.  “Sector” generally means just that.   Like an industry sector.  You are slicing and dicing and betting on “sectors” if you buy sector funds.  

Its not really relevant though. VLS = the whole world.   Saying “VLS contains X, Y or Z under the bonnet” is a red herring.  These funds (and similar from HSBC and others) don’t try to slice and dice investments.  The mechanics of how the strategy is implemented is irrelevant.  Its a very simple one-fund solution which is nothing like the nonsensical hotchpotch in post #1. 

It is a hotchpotch in post #1, and agree that VLS (UK or US) is effectively a very simple one fund solution. In fact the UK version is very similar to the suggested 11 funds needed by Dunstonh.

An 11 fund portfolio isn’t similar to a single fund portfolio. 

[Deleted User]

VLS is a portfolio of 17 funds.   So, why is it that VLS with 17 funds is ok but a portfolio of 8-15 funds is not?

A portfolio which holds nothing except a VLS or another similar multi-asset fund is a single-fund portfolio. It owns the world via a single vehicle. 

Yes, it has thousands of individual stocks and bonds via various instruments  but its irrelevant to the investor.  All management, rebalancing, etc is done by the vendor of the fund for 0.2% to 0.25% annually.  

A portfolio with 10 separate funds has a number of disadvantages:

1. It requires management.  Either by investor or an IFA.  The latter isn’t a disadvantage to the IFA but it is to the investor. Jacks up costs.  Introduces another layer between your money and yourself. 

2. Psychologically it is much harder to avoid messing with such portfolios and introducing human-driven decisions.  That undermines long term returns.

3. Except in special circumstances, it’s redundant. 

Cus

Deleted_User said:

Cus said:

Deleted_User said:

Cus said:

I think in the US they define sector funds as related to a particular industry or business (e.g. healthcare), where as in the UK a sector fund definitions seem a lot wider, including euro government bonds as an example.

And it does appear that lifestrategy funds in the UK do include these UK defined sectors, whereas the US versions do not include any sector funds, UK or US defined.

The devil is in the detail as they say.

I am not in the US. I am in Canada.  “Sector” generally means just that.   Like an industry sector.  You are slicing and dicing and betting on “sectors” if you buy sector funds.  

Its not really relevant though. VLS = the whole world.   Saying “VLS contains X, Y or Z under the bonnet” is a red herring.  These funds (and similar from HSBC and others) don’t try to slice and dice investments.  The mechanics of how the strategy is implemented is irrelevant.  Its a very simple one-fund solution which is nothing like the nonsensical hotchpotch in post #1. 

It is a hotchpotch in post #1, and agree that VLS (UK or US) is effectively a very simple one fund solution. In fact the UK version is very similar to the suggested 11 funds needed by Dunstonh.

An 11 fund portfolio isn’t similar to a single fund portfolio. 

A single fund portfolio that is made up of 11 funds, like VLS, is very similar, if not identical to a portoflio of the same 11 individual funds. Why are you arguing the difference?

[Deleted User]

Cus said:

Deleted_User said:

Cus said:

Deleted_User said:

Cus said:

I think in the US they define sector funds as related to a particular industry or business (e.g. healthcare), where as in the UK a sector fund definitions seem a lot wider, including euro government bonds as an example.

And it does appear that lifestrategy funds in the UK do include these UK defined sectors, whereas the US versions do not include any sector funds, UK or US defined.

The devil is in the detail as they say.

I am not in the US. I am in Canada.  “Sector” generally means just that.   Like an industry sector.  You are slicing and dicing and betting on “sectors” if you buy sector funds.  

Its not really relevant though. VLS = the whole world.   Saying “VLS contains X, Y or Z under the bonnet” is a red herring.  These funds (and similar from HSBC and others) don’t try to slice and dice investments.  The mechanics of how the strategy is implemented is irrelevant.  Its a very simple one-fund solution which is nothing like the nonsensical hotchpotch in post #1. 

It is a hotchpotch in post #1, and agree that VLS (UK or US) is effectively a very simple one fund solution. In fact the UK version is very similar to the suggested 11 funds needed by Dunstonh.

An 11 fund portfolio isn’t similar to a single fund portfolio. 

A single fund portfolio that is made up of 11 funds, like VLS, is very similar, if not identical to a portoflio of the same 11 individual funds. Why are you arguing the difference?

See post above with three bullets answering your question. 

[Deleted User]

Cus said:

The 3 points have validity if it replicates a multi fund exactly but you said this

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

The fact that choosing a multi asset managed fund that does exactly the above in using single sector funds is ok, yet choosing a similar, but with perhaps tuned differences (e.g. choosing a different active provider or passive index, or a very slightly different sector perspective) is bad investment advice in my opinion is wrong.  No need to kvetch.

And yet it is bad investment advice.  You are either 

1. Reproducing a single fund but at a higher cost and with more complexity and charges or
2. Slicing and dicing the market and betting on sectors while reducing diversification (also at a higher cost).

Simple is beautiful.  

On a side note, Canadian version of this forum also has finance industry professionals posting but none of them promotes complexity and “sector funds”. Quite the contrary.   Not sure why.  They tend to be well known highly qualified individuals, authors of books, sometimes retired.  Their “Model Portfolios” are readily available for people to look at.  Some of the options are more complex but they actively advise to use simple versions.  

Here is an example: https://www.financialwisdomforum.org/forum/viewtopic.php?p=680821#p680821. Justin Bender works for PWL Capital, manages portfolios for wealthy clients with complex tax affairs.  But he promotes simplicity and publishes portfolio options for rank and file investors, which are completely transparent and open for peer review.

Norbert Schlenker is a retired advisor.  He is famous for inventing “Norbert’s Gambit”, a very cool way of exchanging currencies at almost no cost.   Also promotes simple, passive solutions: https://www.financialwisdomforum.org/forum/viewtopic.php?p=683592#p683592

Last but not least, Dan Bortolotti (author of popular books on investments) at Canadian Couch Potato also recommends simple model portfolios; not one of them gets anywhere near 10 funds.  Dan has a special section called “bad investment advice”, which debunks claims promoted by a British IFA in this thread: https://canadiancouchpotato.com/

In the US bogleheads also have renown financial industry professionals offering sound advice.  

dunstonh

And yet it is bad investment advice.  You are either 

1. Reproducing a single fund but at a higher cost and with more complexity and charges or
2. Slicing and dicing the market and betting on sectors while reducing diversification (also at a higher cost).

1 - costs may actually be lower on the underlying assets as Vanguard adds a charge with the VLS compared to holding the same 17 funds individually.
2 - You have not answered why you think Vanguard using single sector funds within VLS is a good thing but others doing it is not.

On a side note, Canadian version of this forum also has finance industry professionals posting but none of them promotes complexity and “sector funds”. Quite the contrary.   Not sure why.  They tend to be well known highly qualified individuals, authors of books, sometimes retired.  Their “Model Portfolios” are readily available for people to look at.  Some of the options are more complex but they actively advise to use simple versions.  

The use of single sector funds is not complex.  It requires more knowledge than a multi-asset fund but not much more.  It is how you achieve your target sector allocation.   The use of multiple multi-asset funds  can achieve it but it would be far harder and more complicated (especially if you use fund of funds like VLS or HSBC GS) than using single sector funds.

If you used a mix of VLS with its 17 underlying funds, HSBC GS with its similar number then you would have a portfolio of nearly 40 underlying funds.   You seem to think that is acceptable if the likes of Vanguard or a Canadian blogger is doing it but have issue with British IFAs doing it.           You are letting your biased opinion get in the way of logic.

Here is an example: https://www.financialwisdomforum.org/forum/viewtopic.php?p=680821#p680821. Justin Bender works for PWL Capital, manages portfolios for wealthy clients with complex tax affairs.  But he promotes simplicity and publishes portfolio options for rank and file investors, which are completely transparent and open for peer review.

Clearly, he is giving out bad advice if you follow your reasoning as he is using 6 funds which is more than you say he should be using.

Notepad_Phil

Deleted_User said:

Last but not least, Dan Bortolotti (author of popular books on investments) at Canadian Couch Potato also recommends simple model portfolios; not one of them gets anywhere near 10 funds.  Dan has a special section called “bad investment advice”, which debunks claims promoted by a British IFA in this thread: https://canadiancouchpotato.com/

Not sure if I am reading his portfolios wrong, but don't the first lot of portfolios have up to 7 funds in them, and the next set 8 funds.

[Deleted User]

dunstonh said:

And yet it is bad investment advice.  You are either 

1. Reproducing a single fund but at a higher cost and with more complexity and charges or
2. Slicing and dicing the market and betting on sectors while reducing diversification (also at a higher cost).

1 - costs may actually be lower on the underlying assets as Vanguard adds a charge with the VLS compared to holding the same 17 funds individually.
2 - You have not answered why you think Vanguard using single sector funds within VLS is a good thing but others doing it is not.

On a side note, Canadian version of this forum also has finance industry professionals posting but none of them promotes complexity and “sector funds”. Quite the contrary.   Not sure why.  They tend to be well known highly qualified individuals, authors of books, sometimes retired.  Their “Model Portfolios” are readily available for people to look at.  Some of the options are more complex but they actively advise to use simple versions.  

The use of single sector funds is not complex.  It requires more knowledge than a multi-asset fund but not much more.  It is how you achieve your target sector allocation.   The use of multiple multi-asset funds  can achieve it but it would be far harder and more complicated (especially if you use fund of funds like VLS or HSBC GS) than using single sector funds.

If you used a mix of VLS with its 17 underlying funds, HSBC GS with its similar number then you would have a portfolio of nearly 40 underlying funds.   You seem to think that is acceptable if the likes of Vanguard or a Canadian blogger is doing it but have issue with British IFAs doing it.           You are letting your biased opinion get in the way of logic.

Here is an example: https://www.financialwisdomforum.org/forum/viewtopic.php?p=680821#p680821. Justin Bender works for PWL Capital, manages portfolios for wealthy clients with complex tax affairs.  But he promotes simplicity and publishes portfolio options for rank and file investors, which are completely transparent and open for peer review.

Clearly, he is giving out bad advice if you follow your reasoning as he is using 6 funds which is more than you say he should be using.

I think the problem might be with your ability to comprehend a basic point. 

When Justin Bender is listing different asset allocation ETFs and compares them, he is not actually recommending to buy all of them, no. He is recommending to invest in 1 that is most suitable. 

Asset Allocation ETFs: Vanguard vs. iShares (VBAL, VGRO, VEQT, XBAL, XGRO, XEQT)

Elsewhere Justin Bender does provide more complex options for  large portfolios (in multiple millions) but he calls them “crazy” and does not recommend them.  

[Deleted User]

Notepad_Phil said:

Deleted_User said:

Last but not least, Dan Bortolotti (author of popular books on investments) at Canadian Couch Potato also recommends simple model portfolios; not one of them gets anywhere near 10 funds.  Dan has a special section called “bad investment advice”, which debunks claims promoted by a British IFA in this thread: https://canadiancouchpotato.com/

Not sure if I am reading his portfolios wrong, but don't the first lot of portfolios have up to 7 funds in them, and the next set 8 funds.

Where are you looking?  Are you looking at this link? https://cdn.canadiancouchpotato.com/wp-content/uploads/2021/02/CCP-Model-Portfolios-ETFs-Vanguard-Dec2020.pdf

As explained, greyed out funds are underlying holdings and are presented for information purposes only. You don’t buy these funds, you buy VAB and VEQT. That makes 2 funds rather than 7 or 8. 

[Deleted User]

The use of single sector funds is not complex.  It requires more knowledge than a multi-asset fund but not much more.  It is how you achieve your target sector allocation.   The use of multiple multi-asset funds  can achieve it but it would be far harder and more complicated (especially if you use fund of funds like VLS or HSBC GS) than using single sector funds.

What are you talking about?  Nobody should be buying multiple asset allocation funds. 

When determining investment policy, risk and asset allocation, the number one decision is equity vs fixed income.  

When you say “sectors”, do you mean “I want 40% in tech” or “I want 30% in Uruguay”?  This is a secondary, unimportant decision (unless you do something crazy or make a stupid bet). Over a reasonable period of time (like 20 years) such secondary decisions become negligible.   If you buy a multi-asset fund you delegate these secondary decisions to the vendor of the fund.  They are invariably more qualified and in a better position to make such decisions than a financial advisor.  

And yes, the cost will be lower.  All in, fund, platform and trading costs for a multi-asset fund would be around 25bp. (my guess, without looking).  Of course the cost of advice is zero, because for a basic retirement portfolio advice is redundant.  No IFA can beat that.