Vanguard: funds or ETFs?

sebtomato

dunstonh said:

So, are you a US citizen subject to US taxation?  And do you use dollars as your primary currency?

Let me summarise:

• For the US market, my plan is to use a S&P500 ETF, because even Warren Buffet is recommending it
• Warren Buffet is a very well known and successful investor, so let's assume he knows what he is talking about
• There was then a debate on whether Warren Buffet was a "fund manager" or not
• Someone else said Warren Buffet actually never recommended a S&P500 tracker, some of his comments had been taken out of context
• I put the link to the YouTube video, where he exactly recommends a S&P500 (unless that video is a deep fake)

My portfolio won't be made uniquely of US equity, so not sure the relevant the me being a US tax payer or not. I suspect any of my investments in the US market are going to be on US dollars equities, unless I buy some complex fund which will charge a high fee for hedging.

GeoffTF

It makes no sense for a UK based passive investor to invest solely in one overseas country rather than all of them. That reduces diversification, increases risk and reduces risk adjusted return. Investing in our own market avoids withholding tax and potentially reduces volatility, so there is a case to be made for over weighting it relative to the global index. Nonetheless, 100% UK would increase your risk and reduce your risk adjusted return. The same applies to the more diversified US market, but to a lesser extent. Investing in the S&P 500 rather than a simple market weighted US tracker does not make sense unless you believe that the companies excluded from the S&P 500 will consistently under perform. That is an active management decision. Do you know more than the market?

sebtomato

GeoffTF said:

It makes no sense for a UK based passive investor to invest solely in one overseas country rather than all of them. That reduces diversification, increases risk and reduces risk adjusted return. Investing in our own market avoids withholding tax and potentially reduces volatility, so there is a case to be made for over weighting it relative to the global index. Nonetheless, 100% UK would increase your risk and reduce your risk adjusted return. The same applies to the more diversified US market, but to a lesser extent. Investing in the S&P 500 rather than a simple market weighted US tracker does not make sense unless you believe that the companies excluded from the S&P 500 will consistently under perform. That is an active management decision. Do you know more than the market?

Where did I say I was going to invest 100% in one country???

I said that, for my US investments, I am planning to use a S&P500 (and that's a choice compared to the whole US market).

I am planning for my portfolio to be global, and replicate broadly VLS100, but cheaper and less UK-focused. Yes, it will take a couple of hours per year more in management, but given the savings on fees, well worth it. Of course, VLS100 has got other advantages, such as not letting the investor influence its structure (so a true passive strategy).

If my data is correct, by using 7 ETFs or funds from Vanguard, I would have a fee of 0.11% and would invest in 8,938 companies, in all regions and in large and small companies. Good enough diversification for me!

Using something like VLS100 would also involve some active management decision, but not by me. Vanguard makes the decision, and charges more for it. So yes, my strategy is cheap investment, using a set of passive ETFs/funds.

Nebulous2

sebtomato said:

dunstonh said:

A fund that is made up of underlying funds is a fund of funds.  Not a tracker.     It is also a managed fund not passive as the fund house has to pick the weightings it wants to be allocated to each fund.  it also increases the cost.

I agree: if the fund manager is deciding on the weightings, it's not completely passive. Someone is still making some decisions/priorities. That's why VLS100 is probably 0.12% more expensive than the underlying ETFs/funds.

However, do you know a fund or ETF that is a world "tracker"? Even at the UK level, how would you create such UK all shares fund? One share per listed company? Number of shares proportional to the market cap? In which case, someone is again making a decision to put more weight on large caps...

Of course, you can have FTSE100 trackers etc. but what's supposed to be the weight of those in a global portfolio?

Have you seen this? 

A fairly simple breakdown of global trackers and the differences between them, including reliability, what they track (whether all world, or developed world only) and costs. 

Best global tracker funds – how to choose - Monevator

One which is often mentioned here is the HSBC one - which comes out well in that article. 

I started a year ago - from probably the other end of the spectrum from you. I was worried that the 60+% per cent weighting of the US in a global tracker was putting too many eggs in that one basket. It has outperformed for some time, but there is no guarantee that will continue.  I tried to select some funds to move away from that. Some UK mid and small caps, some Europe and some Japan. 

Early days, but our  trackers are doing better than the managed funds I selected and these of course are higher cost. 

GeoffTF

sebtomato said:

GeoffTF said:

It makes no sense for a UK based passive investor to invest solely in one overseas country rather than all of them. That reduces diversification, increases risk and reduces risk adjusted return. Investing in our own market avoids withholding tax and potentially reduces volatility, so there is a case to be made for over weighting it relative to the global index. Nonetheless, 100% UK would increase your risk and reduce your risk adjusted return. The same applies to the more diversified US market, but to a lesser extent. Investing in the S&P 500 rather than a simple market weighted US tracker does not make sense unless you believe that the companies excluded from the S&P 500 will consistently under perform. That is an active management decision. Do you know more than the market?

Where did I say I was going to invest 100% in one country???

I said that, for my US investments, I am planning to use a S&P500 (and that's a choice compared to the whole US market).

I am planning for my portfolio to be global, and replicate broadly VLS100, but cheaper and less UK-focused. Yes, it will take a couple of hours per year more in management, but given the savings on fees, well worth it. Of course, VLS100 has got other advantages, such as not letting the investor influence its structure (so a true passive strategy).

If my data is correct, by using 7 ETFs or funds from Vanguard, I would have a fee of 0.11% and would invest in 8,938 companies, in all regions and in large and small companies. Good enough diversification for me!

Using something like VLS100 would also involve some active management decision, but not by me. Vanguard makes the decision, and charges more for it. So yes, my strategy is cheap investment, using a set of passive ETFs/funds.

I was not commenting on anything that you had written. I was commenting on Buffet's suggestion that people should invest solely in an S&P 500 tracker for their equity exposure.

sebtomato

Nebulous2 said:

sebtomato said:

dunstonh said:

A fund that is made up of underlying funds is a fund of funds.  Not a tracker.     It is also a managed fund not passive as the fund house has to pick the weightings it wants to be allocated to each fund.  it also increases the cost.

I agree: if the fund manager is deciding on the weightings, it's not completely passive. Someone is still making some decisions/priorities. That's why VLS100 is probably 0.12% more expensive than the underlying ETFs/funds.

However, do you know a fund or ETF that is a world "tracker"? Even at the UK level, how would you create such UK all shares fund? One share per listed company? Number of shares proportional to the market cap? In which case, someone is again making a decision to put more weight on large caps...

Of course, you can have FTSE100 trackers etc. but what's supposed to be the weight of those in a global portfolio?

Have you seen this? 

A fairly simple breakdown of global trackers and the differences between them, including reliability, what they track (whether all world, or developed world only) and costs. 

Best global tracker funds – how to choose - Monevator

One which is often mentioned here is the HSBC one - which comes out well in that article. 

I started a year ago - from probably the other end of the spectrum from you. I was worried that the 60+% per cent weighting of the US in a global tracker was putting too many eggs in that one basket. It has outperformed for some time, but there is no guarantee that will continue.  I tried to select some funds to move away from that. Some UK mid and small caps, some Europe and some Japan. 

Early days, but our  trackers are doing better than the managed funds I selected and these of course are higher cost. 

Yes, I saw the Monevator articles.

I wouldn't be comfortable having 60% of my portfolio in the US, particularly when a large part would be concentrated on a few very large caps (Microsoft, Apple, Amazon etc.). Not good diversification, and some of the companies seems quite overvalued.

If I consider the platform fee and fund/ETF fees, I think Vanguard is the best option for me, but I won't be able to invest in non-Vanguard funds, like HSBC.

There are some smaller players with no platform fees, and access to ETFs (e.g. Freetrade), but I wouldn't be comfortable putting large pensions or ISAs with them. 

Every time I have experimented with managed funds or individual shares, they did worse than the trackers/index funds, so I am done with that. I am convinced (like Monevator) that having a set of passive funds will do better in the long run, while keeping fees very low (which does matter, when investments like pensions are for the next 10-15 years at least).

sebtomato

GeoffTF said:

sebtomato said:

GeoffTF said:

It makes no sense for a UK based passive investor to invest solely in one overseas country rather than all of them. That reduces diversification, increases risk and reduces risk adjusted return. Investing in our own market avoids withholding tax and potentially reduces volatility, so there is a case to be made for over weighting it relative to the global index. Nonetheless, 100% UK would increase your risk and reduce your risk adjusted return. The same applies to the more diversified US market, but to a lesser extent. Investing in the S&P 500 rather than a simple market weighted US tracker does not make sense unless you believe that the companies excluded from the S&P 500 will consistently under perform. That is an active management decision. Do you know more than the market?

Where did I say I was going to invest 100% in one country???

I said that, for my US investments, I am planning to use a S&P500 (and that's a choice compared to the whole US market).

I am planning for my portfolio to be global, and replicate broadly VLS100, but cheaper and less UK-focused. Yes, it will take a couple of hours per year more in management, but given the savings on fees, well worth it. Of course, VLS100 has got other advantages, such as not letting the investor influence its structure (so a true passive strategy).

If my data is correct, by using 7 ETFs or funds from Vanguard, I would have a fee of 0.11% and would invest in 8,938 companies, in all regions and in large and small companies. Good enough diversification for me!

Using something like VLS100 would also involve some active management decision, but not by me. Vanguard makes the decision, and charges more for it. So yes, my strategy is cheap investment, using a set of passive ETFs/funds.

I was not commenting on anything that you had written. I was commenting on Buffet's suggestion that people should invest solely in an S&P 500 tracker for their equity exposure.

Why were you talking about UK investors and tax payers then???

The video I have shared was clearly for an American audience. He says people may as well invest in a S&P500 tracker than BH. He is not really talking about diversification to other regions etc. He is talking about American equities, which is relevant to a portion of my portfolio.

Tailender_Investor

Just remember with an ETF you have to buy a whole share.  Not sure how often you will be buying but by buying a fund all your money will be invested whereas with an ETF you might have money left over.

E.g you have £150 to invest and current ETF price is £100.  You would get 1 ETF share at £100 and have £50 left in cash.  If you invested £150 into a fund then the whole £150 would be invested.

It might or might not be an issue depending on your circumstances, just something to keep in mind.

With my S&S ISA with Vanguard I invest in a fund so I know my monthly direct debit will be invested in whole each month and I'm not left with spare bits of cash in my account, just makes it simpler for me.

GeoffTF

sebtomato said:

GeoffTF said:

sebtomato said:

GeoffTF said:

It makes no sense for a UK based passive investor to invest solely in one overseas country rather than all of them. That reduces diversification, increases risk and reduces risk adjusted return. Investing in our own market avoids withholding tax and potentially reduces volatility, so there is a case to be made for over weighting it relative to the global index. Nonetheless, 100% UK would increase your risk and reduce your risk adjusted return. The same applies to the more diversified US market, but to a lesser extent. Investing in the S&P 500 rather than a simple market weighted US tracker does not make sense unless you believe that the companies excluded from the S&P 500 will consistently under perform. That is an active management decision. Do you know more than the market?

Where did I say I was going to invest 100% in one country???

I said that, for my US investments, I am planning to use a S&P500 (and that's a choice compared to the whole US market).

I am planning for my portfolio to be global, and replicate broadly VLS100, but cheaper and less UK-focused. Yes, it will take a couple of hours per year more in management, but given the savings on fees, well worth it. Of course, VLS100 has got other advantages, such as not letting the investor influence its structure (so a true passive strategy).

If my data is correct, by using 7 ETFs or funds from Vanguard, I would have a fee of 0.11% and would invest in 8,938 companies, in all regions and in large and small companies. Good enough diversification for me!

Using something like VLS100 would also involve some active management decision, but not by me. Vanguard makes the decision, and charges more for it. So yes, my strategy is cheap investment, using a set of passive ETFs/funds.

I was not commenting on anything that you had written. I was commenting on Buffet's suggestion that people should invest solely in an S&P 500 tracker for their equity exposure.

Why were you talking about UK investors and tax payers then???

The video I have shared was clearly for an American audience. He says people may as well invest in a S&P500 tracker than BH. He is not really talking about diversification to other regions etc. He is talking about American equities, which is relevant to a portion of my portfolio.

Because they are the people reading this forum (as far as I know). I was commenting on what Buffet said from a UK perspective, which is a perfectly reasonable thing to do on this forum.

MX5huggy

sebtomato said:

Nebulous2 said:

sebtomato said:

dunstonh said:

A fund that is made up of underlying funds is a fund of funds.  Not a tracker.     It is also a managed fund not passive as the fund house has to pick the weightings it wants to be allocated to each fund.  it also increases the cost.

I agree: if the fund manager is deciding on the weightings, it's not completely passive. Someone is still making some decisions/priorities. That's why VLS100 is probably 0.12% more expensive than the underlying ETFs/funds.

However, do you know a fund or ETF that is a world "tracker"? Even at the UK level, how would you create such UK all shares fund? One share per listed company? Number of shares proportional to the market cap? In which case, someone is again making a decision to put more weight on large caps...

Of course, you can have FTSE100 trackers etc. but what's supposed to be the weight of those in a global portfolio?

Have you seen this? 

A fairly simple breakdown of global trackers and the differences between them, including reliability, what they track (whether all world, or developed world only) and costs. 

Best global tracker funds – how to choose - Monevator

One which is often mentioned here is the HSBC one - which comes out well in that article. 

I started a year ago - from probably the other end of the spectrum from you. I was worried that the 60+% per cent weighting of the US in a global tracker was putting too many eggs in that one basket. It has outperformed for some time, but there is no guarantee that will continue.  I tried to select some funds to move away from that. Some UK mid and small caps, some Europe and some Japan. 

Early days, but our  trackers are doing better than the managed funds I selected and these of course are higher cost. 

Yes, I saw the Monevator articles.

I wouldn't be comfortable having 60% of my portfolio in the US, particularly when a large part would be concentrated on a few very large caps (Microsoft, Apple, Amazon etc.). Not good diversification, and some of the companies seems quite overvalued.

If I consider the platform fee and fund/ETF fees, I think Vanguard is the best option for me, but I won't be able to invest in non-Vanguard funds, like HSBC.

There are some smaller players with no platform fees, and access to ETFs (e.g. Freetrade), but I wouldn't be comfortable putting large pensions or ISAs with them. 

Every time I have experimented with managed funds or individual shares, they did worse than the trackers/index funds, so I am done with that. I am convinced (like Monevator) that having a set of passive funds will do better in the long run, while keeping fees very low (which does matter, when investments like pensions are for the next 10-15 years at least).

Yet you are going to use S&P 500 for your US allocation where Amazon Apple MS FB and Google make up over 22%.