Suggested portfolio

[Deleted User]

DT2001 said:

Deleted_User said:

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.  

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/

Do you mind telling us how many funds you hold as your posts show you to be very well read?

In one of the couchpotato podcasts “the value of simple” they suggest that 3 ETFs creating an equivalent of the Canadian single Vanguard ETF 80/20 or 60/40 would be cheaper. Not sure if that is still true. Holding 3 will need manual rebalancing and if still contributing potentially trading costs.

Whilst I think I understand your point you do not like the look of bonds? So when do you decide to tinker with diversification and does that not then defeat the object of an almost invest and forget strategy?

I hold way too many. Just counted… Its 22 separate investment vehicles.  Hypocritical, yes.  Here are my excuses:
1. My portfolio is split between 3 countries.  I moved around with work. 

2. 10 different accounts in different currencies with varying tax status. 

3. I enjoy wasting time on managing investments. My magic Google sheet does the allocation for me. Tells when its time to rebalance or reinvest dividends. 

4. 30% is in fixed income which includes individual bonds, treasuries and prefs.  Not entirely happy with Bond index fund offerings in this environment. I am close to retirement (51) so have 30% in FI and the amount makes the effort worthwhile. 

5.  I get options which complicates it further. 
6. Crucially, its a legacy portfolio.  I’ve been investing for more than 2 decades. Changing now would trigger capital gains in parts of my portfolio.  If I started today, I would have picked a multi-asset fund and be done with it. At some point I will as I wouldn’t want for someone else to inherit something that is too complex to manage. 

Its true, you can still shave off a few basis points by splitting a multi-asset fund into 2 or 3 ETFs. Not sure its worth the loss of simplicity and the discipline imposed through owning the world in a single fund. 

Thrugelmir

Google auto balancing an investment portfolio. That's a new one to me. Didn't realise that they are regulated to undertake investment business. 

dunstonh

Is that because multi-asset funds like VLS effectively replace having an IFA on an ongoing basis?

Multi-asset funds have been around for generations.  I used to use VLS a lot (I have used a different multi-asset fund for about 5 years now where multi-asset is more suitable).  it doesn't replace an IFA.as an IFA is not an investment manager.

RogerIrvine

Would you need a VLS fund and an IFA on a yearly basis?

[Deleted User]

dunstonh said:

Deleted_User said:

This is another straw man. You buy your advice on “sector” allocation from someone else and resell it, congrats.  The point is its just another unnecessary layer of financial advisors and charges. 

So, it is ok for others to buy in that data and research and use it as long as they are not British IFAs.    Of course, we could just all make it up like Canadian bloggers and pretend that is the best option just as you are.

Are you struggling to answer why you think it is bad to use more than 4 single-sector funds unless your name is Vanguard or you are a Canadian blogger?

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

And going back to this point.  No it is not.  The percentage weighting between the two asset types should not be set until you know what the underlying assets are going to be.

You could have two portfolios split 50/50 between fixed interest and equities and have a very different risk level.   The overall risk of the portfolio is what matters.    So, how you split the asset classes comes after you decide the investment method.

 We are back to where I started. I am not going to be able persuade an advisor selling active portfolios that a second layer of investment decision-making and charges are unnecessary.  But surely you can see the difference between a single layer of research and charges which comes from the fund providers and having two layers of charges which come from advisors on top of that provided by the fund? 

Jack Bogle said that diversification means bonds and it does not need to mean anything more than that.  And when I am looking at long term returns of various portfolios (20 years), I am seeing that he was spot on.  

dunstonh

Would you need a VLS fund and an IFA on a yearly basis?

I tend to use multi-asset on smaller fund values on a transactional basis.   We have some with multi-asset funds on servicing though.  Annual use of CGT allowances, tax wrapper use and being a sounding board and keeping things within the comfort zone.     For larger portfolios, I use the model portfolio and it has outperformed VLS at every level net of charges.    

 am not going to be able persuade an advisor selling active portfolios that a second layer of investment decision-making and charges is unnecessary. 

VLS has a second layer of investment decision making.  So, again, you are letting your bias show.   VLS and HSBC GS and other multi-asset funds have active decisions in exactly the same way.     Any portfolio with index trackers where you choose (or a fund house or anyone else) the weightings is an active portfolio.

But surely you can see the difference between a single layer of research and charges which comes from the fund providers and having two layers of charges which come from advisors on top of that provided by the fund? 

VLS20 is 0.22%.  The model portfolio I use for that risk profile is 0.13%.    It is also using 100% passive funds.   The adviser charge is irrelevant as the adviser is being employed to do other jobs.  The portfolio selection is a secondary thing.     Very few consumers are interested in the investment side of things.  They want suitability, tax efficiency and someone doing the work for them so they don't have to.  

Jack Bogle said that diversification means bonds and it does not need to mean anything more than that.  And when I am looking at long term returns of various portfolios (20 years), I am seeing that he was spot on.  

He said that for the US market that Vanguard was catering for at the time and his selection for equity content was to only use US equity.   That is bad investing for those not in the US.       The US is very different to what it was in the majority of the 20th century where it spent much of the time as an emerging economy.       

[Deleted User]

VLS has a second layer of investment decision making.  So, again, you are letting your bias show.   VLS and HSBC GS and other multi-asset funds have active decisions in exactly the same way.   

This is extremely misleading.  And basically false.  Let me spell it out. 

VTI has $1.3 trillion in funds.  There is some management and costs involved in designing and tracking the index as well as the cost of buying and selling shares as they enter/leave the index.  These costs are 5 basis points, negligible compared to IFA charges.  

VTI makes up about 50% of equity allocation in VLS funds.  VLS includes a few other indices, some of them with higher charges, like EM. And yes, there is logic and research behind putting it together.  Total cost, including the cost of UK regulations, currency hedging, fee, etc comes to 22 basis points, or between 20 and 40% of typical IFA charges.  You want to call VLS active?  Not really but whatever. 

HSBC funds are smaller in terms of funds invested, so the costs are more concentrated but the fund covers fewer companies to keep the costs down.  It is more active as allocations are not stable. Still well diversified, very simple and cost efficient.  6 and two 3s, matter of preference.

When an advisor sets up and “manages” a portfolio for you using these funds, its another layer of costs and research.  You can argue semantics all you like but its another layer. And these costs overwhelm the costs of decent multi-asset funds. 

Of course you have to take on more risk and make it more complex to try and justify this layer. Thats fine. But be transparent about it.  Don’t pretend that costs are the same or there isn’t another layer in this.  That would be a lie. My total costs are 10bp and I am fairly certain UK investors can buy the world for under 25bp, all in.  And that your portfolios cost more. 

[Deleted User]

The US is very different to what it was in the majority of the 20th century where it spent much of the time as an emerging economy.    

Much of the 20th century?  Interesting interpretation of history.  US became world’s largest economy in 1890. Claiming that it was an “emerging economy” during Bogle’s time tells me that you know less about history than what I assumed. 

Other than that, you are picking on non-issues again.  Yes, Bogle was focusing on US.  Which had all economic sectors well covered then as it does now.  Comparing 20 year returns by a bunch of experienced investors, some of them 100% in US, others have no more than 30% US, I am seeing around 10% MWRR. Thats for an all-stock portfolio. Bogle was right, after all. 

The key point is that portfolio build up is about risk management and asset allocation is your number one decision, which overwhelms everything else in terms of importance.  In a well diversified portfolio you can increase your expected return by taking on more risk.   Risk-free Alpha is elusive, hardly ever long term and never ever predictable in advance.  Its not just Bogle. But I am sure you’ll find another straw man. 

IvanOpinion

If an IFA approached me with that portfolio I would run a mile.  To me it stinks of an amateur throwing as much mud around as possible in the hope that something sticks somewhere - making it look very complex and keeping themselves in a job.  Costs of buying/selling and rebalancing (if you believe in that) could make a significant dent in your profits.

Set yourself up 2-3 good quality multi-asset funds or a global equity fund.  Use that as a core and then build from there.  Once you start going beyond 10-15 products start looking at the overlap.

Thrugelmir

Deleted_User said:

dunstonh said:

Deleted_User said:

This is another straw man. You buy your advice on “sector” allocation from someone else and resell it, congrats.  The point is its just another unnecessary layer of financial advisors and charges. 

So, it is ok for others to buy in that data and research and use it as long as they are not British IFAs.    Of course, we could just all make it up like Canadian bloggers and pretend that is the best option just as you are.

Are you struggling to answer why you think it is bad to use more than 4 single-sector funds unless your name is Vanguard or you are a Canadian blogger?

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

And going back to this point.  No it is not.  The percentage weighting between the two asset types should not be set until you know what the underlying assets are going to be.

You could have two portfolios split 50/50 between fixed interest and equities and have a very different risk level.   The overall risk of the portfolio is what matters.    So, how you split the asset classes comes after you decide the investment method.

Jack Bogle said that diversification means bonds and it does not need to mean anything more than that.  And when I am looking at long term returns of various portfolios (20 years), I am seeing that he was spot on.  

Bonds were a very different beast in his investment heyday. Bogle left Vanguard a long long time ago.