Suggested portfolio

[Deleted User]

Advice charge doesn't change whether the person is in multi-asset or the model portfolio.  So, we can ignore that.

I am advising you that this ^ is funny.  That would be 10K GBP for my advice. The price does not change whether the advice is to take a hike or just bite it. Therefore the 10K charge can be ignored once I get the cheque. 

[Deleted User]

BritishInvestor said:

Deleted_User said:

Specialist finanial advice can be useful or essential in certain circumstances, eg in matters relating to complex taxation matters and/or inheritance planning.  

Hardly ever for building and maintaining a standard retirement portfolio. The exception would be if both of the following conditions are met:
1. You know nothing about investing and are unwilling to read a book or two
2. The advisor is good which is far from certain (as we see from post 1). 

There is another option. In his early days Buffett only charged if his fund returned more than risk-free investment (TIPS), which in those days payed 5%.  If you can find someone like that…

I'm still not sure why there is so much focus on IFAs and the investment side, especially in the retirement space which is about so much more than that.

As I've said before, most financial planners offer portfolios that you could broadly construct yourself - the value is elsewhere.

Because many IFAs are offering bad investment advice and are charging a lot for the pleasure. See post number one, as well as others. 

Thrugelmir

2nd_time_buyer said:

Must admit, the Circular discussion above is quite interesting. 

My take is. 

1) for most,
investing in a very small number of tracker funds via a good-value platform is cheaper and will meet their financial goals

2) IFAs can be useful for some, particularly in the wider context of financial planning. 

I like simplicity and appreciate the guaranteed return of low fees and not worrying whether I can beat the market. So I invest in a world tracker.

There's more than one market. Nor is there a global market as such. Just variations on a theme.  

2nd_time_buyer

Thrugelmir said:

2nd_time_buyer said:

Must admit, the Circular discussion above is quite interesting. 

My take is. 

1) for most,
investing in a very small number of tracker funds via a good-value platform is cheaper and will meet their financial goals

2) IFAs can be useful for some, particularly in the wider context of financial planning. 

I like simplicity and appreciate the guaranteed return of low fees and not worrying whether I can beat the market. So I invest in a world tracker.

There's more than one market. Nor is there a global market as such. Just variations on a theme.  

Don't tell me that! 😄
I thought I had it sorted.

Actually, there is only one world tracker available with my scheme (USS Investment builder). Hopefully one world tracker is not too much different from another!?

For me a world tracker works well, as I am a natural born tinkerer. Taking away the temptation of second guessing the markets eases my mind.

jamesd

mears1 said:

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?

Amounts and knowledge of people asking questions here tend to favour a small number of funds, often only one or two. So do the practicalities of what we can sensibly write.

Also, there are people with a religious attachment to low costs rather than performance after costs that cause them to want to recommend only passive funds. Typically evidence that UK funds for UK investors in most areas do better with active funds is also ignored and US studies delivering the opposite result favoured. It's somewhat understandable because cost is easy to measure (though future cost won't be exact)  while future performance isn't specified or specifiable. It also tends to be very simple and easy to manage and that has its attractions.

These effects mean that if I'm making in initial suggestions to someone new here it's very likely that I'll be suggesting one to three tracker funds. Not because that's best in all cases but rather because for low amounts or low knowledge and future time investment by the person it's likely to be the least bad way to go. To be really worthwhile active requires paying at least enough attention to notice and react to changes in manager and a few tens of thousands invested.

With a fairly similar amount to our questioner, I'm using 10 funds plus a few tens of Pounds in another couple for monitoring convenience. 27% is in a developed world tracker, while the rest is in a range of active funds, with a very high smaller companies weighting. 88% is in just six funds. The deviation from the developed world tracker is to get lower US and higher smaller companies weightings and unless you have a reason you shouldn't be deviating from a tracker or three. The adviser presumably does have reasons, and it's entirely possible that they are good. *

*Numbers here aren't quite current because they haven't been updated to reflect sales to facilitate pension withdrawals and recent market moves

jamesd

Deleted_User said:

I hold way too many. Just counted… Its 22 separate investment vehicles.  Hypocritical, yes.  Here are my excuses:

,,,
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. 

I wouldn't say it's hypocritical. You're an experienced investor with strong opinions about where you want money invested and why. That's a good picture of a person who can do lots of tweaking with more funds, active, passive or both. But that's different from what you might normally suggest here to people unlike you.

jamesd

Nosmo_King_2 said:

I have been provided with a suggested portfolio for my £380K pension pot, and whilst I have no reason to doubt the suggestions by the IFA but wondered whether any should be avoided for any reason?

Quite a lot of funds so the first thing that comes to mind is asking the IFA what strategy has driven the choice of the funds. Nothing necessarily wrong with a lot of funds provided the reason for it makes sense. Not hostile questioning, just seeking to understand the purpose.

jamesd

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

There isn't really a magic formula.

You might start off with one global equity tracker and one global bond tracker then siphon some money out of the equity one to get an overall equity allocation that you want, same for the bond one.

For example, I like smaller companies funds for their likely higher returns, at the cost of higher volatility, so I reduced my developed world tracker holding to favour that. I also reduced it to reduce my US holding percentage. For bonds the strategic and higher risk bond funds make more sense at the moment and perhaps cash does so I might reduce a global bond tracker percentage to favour those things. As it happens I've gone very heavily into cash vs bonds so have nothing in a bond tracker at present and I also think that bonds are an area where active management is a good idea.

Once you set that sort of objective you use as many extra funds as it takes to achieve your objective. It could be a couple of dozen but its likely to take less.

Someone might like to pick several funds that have good past performance in each area but use different investment styles and that can increase the fund count a fair bit. Different styles can do better or worse at different times so there can be some value in this.

jamesd

Deleted_User said:

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. 

Sector in the UK means countries and market caps, not industry categories.

While VLS has something of the whole world to it, it's active management component does vary that. Here's the currently disclosed split for VLS60. As you'll see from that, there are some very substantial deviations from being a global equity tracker plus a global bond tracker, notably the overweight to the UK. The splits given are actively managed within the 60:40 ratio so those weightings will change over time.

On bonds it goes for:

19.1% global bond index, hedged
5.4% UK government bond index
4.3% UK inflation-linked gilt index
3.6% UK investment grade bond index
3.2% global aggregate bond (maybe not index tracker)
1.2% US investment grade credit index hedged
1.2% Euro government bond index hedged
0.6% Japan government bond index hedged

So we can see that the active management in this fund has deviated from global bond weightings, chosen to use hedging and those choices involve using 8 funds instead of just their global bond index.

Similarly, in equities:

19.1% developed world excluding UK (a hint that it's not going to use the global weight of the UK)
14.3% US equity index (US is in global, so why separate US? Likely answer: desire for lower weighting)
14.9% UK FTSE all share (overweighting UK)
4.7% Emerging markets index
3.2% developed Europe excluding UK index
1.6% Japan index
0.8% Pacific excluding Japan index (so they are trying to adjust Japan/rest of Pacific weights vs global)

Again, changing in weights instead of using just their global equity tracker, which isn't even used in this mixture.

Nothing wrong with making those decisions to deviate from a plain tracker or purely tracking mixed asset allocation, it's just a case of picking what the active management decides is best then investing accordingly, using as many extra funds as it takes. In this case, that took deviating from two funds (global equity and global bond) to seventeen.

As dunstonh illustrates in a later post, the active management and perhaps weighting choices haven't been the best recently compared to at least one alternative approach.

Looking at what VLS active management chooses matters because it's not just a global equity tracker and a global bond tracker. There are real asset allocation choices being made under the hood. Someone who wants tracker should be skipping Lifestrategy and going for a combination of their global equity and global bond tracker funds, which are also likely to be cheaper as almost purely passive options.

Lifestrategy is handy and I quite often suggest it but it's worth being aware of its active management component and not focusing too much on the only slightly varying equity:bond ratio.

And now going back to the question that started this discussion, it's possible that the IFA has a strategy that results in a similar approach to using different funds to change the asset allocation from what Lifestrategy is using. Though using 40 extra funds to do it is quite a lot. But so long as there's a coherent and well thought out strategy for doing it, as I assume there is for Lifestrategy adding 16, that's fine.

Personally, I have reservations about the well thought out strategy aspect but until we know wat the IFA says about it that's hard to comment on sensibly.

Nosmo_King_2

dunstonh said:

I am not even going to try and work out what style of investment strategy that is meant to be.  Looks a complete mess.

Mixing the multi-asset funds with an excessive list of single sector funds seems pointless.  I know some people use a multi-asset fund as core and a couple of single sector funds as satellite funds but that isn't happening here.

If it was a mix of a single multi-asset fund for 40% and 60% with a DFM, it could explain the quantity of funds.

How has the IFA explained the investment strategy?

The IFA concluded that my risk profile was moderate and he discussed the benefits of an "asset allocation backed investment strategy" that I thought seemed reasonable. I also wished for an element of my portfolio to be invested ethically which apparently is why the portfolio seems to be larger than I had  expected. The IFA used Defaqto Engage for research and concluded that Fidelity Funds Network would be the most suitable provider. The Fund Selection Methodology was based on creating  diverse portfolio across multiple asset classes (?) and volatility figures from Moody's Analytics. doing this myself with 
Although I had contemplated sorting out a portfolio myself with a few trackers, but because I will be drawing a pension from it relatively soon in the upcoming tax year (UFPLS) and that I will need some sort of advice regarding other assets etc I figured that an IFA would have been the way forward (maybe not then?)   

Thank you to all  for all the contributions to this, It certainly helps to concentrate the mind!