Annual Review - Rebalancing and Changes to Investments Concerns

bostonerimus

Deleted_User said:

We also need to know the age and if the investments are supposed to last “until state pension/other db income kicks in” or until the end.

Accounting for inflation the OP lost over a third of the real value of his fund in one year.  If he is in the early stages of retirement and is relying on this pot for the full duration of retirement then the issue is very serious. And boilerplate statements are even more problematic. 

Some information on the fees would be useful too. 1% or 2% in IFA fees over and above fund fees would be a nasty drain on an account after a 25% loss particularly when the client doesn't seem to be getting much nuanced advice.

How people are coping with the stress that todays economic conditions are placing on their drawdown arrangements is an important topic. Things are easy when markets are making 10% gains every year, but now many of the assumptions of current retirement planning will be tested.

GSP

Audaxer said:

Linton said:

GSP said:

Deleted_User said:

GSP said:

Deleted_User said:

GSP said:

Deleted_User said:

bostonerimus said:

The OP gives us some comments from the IFA about changing some funds from income to accumulation and rationalizing portfolio contents across similar clients and of course this all comes with the usual boilerplate macro-economic BS taken from a copy of Barrons or The Economist that is so broad and vague to be meaningless. What I haven't heard anything about is what the IFA suggests for drawdown actions and management of the portfolio with that in mind that are specific to the OP's situation. If I employed an IFA I'd want them to be modelling various income levels and the sustainability of the portfolio. Is that being done. has the IFA suggested a 25% drop in income to match the portfolio losses?

Yep. All true. Motherhood statements which are typed once and sent out to every client with a different name on the top and a very special individualized invoice.

But there is a more fundamental issue. How exactly did he lose 25%?  Very heavy allocation to long term term British bonds? Illiquid assets?  Was the IFA unaware that longterm bonds are risky in an inflationary environment? Didn’t he think some international diversification would be helpful? What was the added value vs a simple and cost efficient all-in-one fund? 

My risk appetite is 5 out of 10, so whether on that scale I was more exposed than that rating suggests? Out of interest, I wonder what falls should have occurred for someone on my risk profile?
With my losses of 25%, I do wonder with the proposed recommendation of 13 new funds how these will perform? My concern wonders if my overall loss is better left alone and has a chance to recover, rather than chasing a better return or less losses with new funds?

All these risk numbers are unhelpful except for streamlining things. Risks can be long and short term and what is damaging to your financial success isn’t the same thing as volatility which these questionnaire derived numbers usually reflect. The same person answers the same “risk” question differently on a different day. Important to understand whats risky for you personally. 

 The point is that where you are at, large drawdowns are harmful. Wouldn’t be an issue for a 30 year old climbing career ladder. The standard approach is to say “5 out of 10 risk appetite, lets give him lots of bonds”.  Thats (and I am guessing) what happened.  That’s fine when inflation is decreasing but bouts of inflation can be devastating to such a portfolio.  Inflation wasn’t hard to anticipate; plus after 2020 bonds had nowhere to go but down.  As a minimum yourportfolio should have had international diversification and that (again, guessing from the return) didn’t happen either.  

You are not alone; its a fairly typical story.  If I were you, I would spend a month reading, understanding what is risky to you, and then I would decide on asset allocation and ditch the advisor. 

I have now:
Region
UK 30%.
North America 24%.
Emerging Markets? 15%.
Japan 13%.
Europe (not UK) 11%.
Asia (not Japan) 7%.

And Equity’s 69%.
Fixed Interest 26%.
Money Markets 5%.
 

Whether this is fair split of International diversification?

Nothing’s particularly wrong with that.   Is Fixed Interest 100% UK? Longterm bonds? Still, Surprised that the fall in your portfolio is quite as large as it is. Do you know how much you withdrew over the period of 25% reduction in the value (in %)? Was it over 12 months?

It looks like the actual fund selection might be the problem. Also, do you know the total annual costs (platform, fund fees,advice, etc)? 

I can’t see with the splits of information if the Fixed Interest is 100% UK, or long term bonds.
£35k withdrawn.
platform/fees/advice £4.6k.

If you can tell us the full fund names and their %s we can tell you what their performance has been and what they are invested in.  That is if you are interested.

It sounds like this 25% figure that people have been quoting is not too meaningful.

I'd also be interested to see the fund names and their percentages.

I note that in the first post the OP said that individual investments are down anywhere between 10% and 50%, so I would think the overall 25% loss figure may be correct?

Thank you all for your replies.

Sorry this is a bit late, I know a few of you were interested in these which are my current investments and their latest % of the total.

Royal London Sustainable Managed Growth Trust CAcc  18.6%.
Vanguard Lifestrategy 20% Equity Gross Acc  15%.

Aviva Insured Funds Liontrust Sustainable Future Managed $14  13.8%.

Stewart Investors Asia Pacific Sustainability B Acc  7.2%.

Brown Advisory US Sustainable Growth growth B Acc  5.7%.
Fidelity Index Japan P Acc 5.5%.
Royal London Sustainable Leaders Trust C Acc  5.2%.

Liontrust Sustainable Future UK Growth 2 Acc  4.3%.

Baillie Gifford Pacific B Inc  4.3%.
Goldman Sachs India Equity Portfolio R Inc  3.8%

Baillie Gifford American B Acc  3.6%.

Jupiter UK Mid Cap Z1 Acc  3.5%.

Jupiter European I Acc  2.8%.

Baillie Gifford Emerging Markets Growth B Acc  2.7%.

Baillie Gifford China B Acc  2.4%.

Aviva Insured Funds Deposit S14  1.1%.
GBP Cash  0.5%.

My Advisor’s recommended funds and %’s.

Decrease these existing funds from above.

Vanguard LifeStrategy 20% Equity A Gross Acc GBP  11%.
Royal London Sustainable Managed Growth Trust C Acc  10%.
Fidelity Index Japan P Acc  3%.

Increase these existing funds from above.

Baillie Gifford Emerging Markets Growth B Acc  4%.

Royal London Sustainable Leaders Trust C Acc  8%.

Aviva Pen Deposit Pn S14  5%.

Brown Advisory US Sustainable Growth B Acc GBP  9%.

New Funds

Jupiter UK Mid Cap I Acc GBP  4%.
HSBC American Index C Acc  5%.

Stewart Investors Asia Pacific Leaders Sustainability B Acc GBP  4%.

Premier Miton UK Multi Cap Income B Inst Acc GBP  4%.
HSBC FTSE 100 Index C Acc  5%.
Man GLG Japan Core Alpha C Professional Acc  3%.
BlackRock Continental European D Acc  3%.

Fidelity Asian Dividend W Acc  3%.
HSBC European Index C Acc  3%.

Aviva Pen Property Pn S14  6%.

Liontrust Sustainable Future Managed 6 Acc  10%.

Cash 1%.

 

bostonerimus

Your portfolio really does look like something a computer algorithm might spit out, which I assume is the case. How has this been tailored for retirement drawdown? I get the feeling that people are pushing the same old buttons and getting an answer that isn't really any good for your circumstances, ie there's little to no actual thought going into this. I'm biased, but I would never own that many funds unless they were wrapped up inside a multi-asset fund. It looks risky and you have a small cash allocation, so has your advisor actually done any work on retirement income generation and drawdown strategies?

GSP

bostonerimus said:

Your portfolio really does look like something a computer algorithm might spit out, which I assume is the case. How has this been tailored for retirement drawdown? I get the feeling that people are pushing the same old buttons and getting an answer that isn't really any good for your circumstances, ie there's little to no actual thought going into this. I'm biased, but I would never own that many funds unless they were wrapped up inside a multi-asset fund. It looks risky and you have a small cash allocation, so has your advisor actually done any work on retirement income generation and drawdown strategies?

This is a little out of date for cash anyway as after discussion we have or will have cash allocated for likely drawdown for next year.

[Deleted User]

In my opinion, its a crazy list of overlapping funds. Many of them holding the exact same stocks but using different concepts. 

Its a very active portfolio full of bets. There is also an “ESG”/sustainability tilt.  Did you specifically ask for it?  This is something that reduces diversification and increases your risks.  For example this year oil companies have done great, for obvious reasons, and offset some of the losses in other industries. Weapons companies have done alright too.  ESG avoids both, so hurts your portfolio.  Some falsely believe that they are hurting themselves but are doing good by not buying shares in these companies.  In practice production isn’t impacted by you buying shares in company A. If a lot of people follow ESG, it artificially cheapens shares in certain stocks and increases future returns for people who do buy their shares. 

Lastly, these are quite expensive funds, costing about 1% each, and the cost adds to your IFA charges.  This percentage is levied on the same sterling you put in again and again annually, so over a couple of decades on a typical 100K portfolio, tens of thousands would go to the financial industry rather than you. The impact on your portfolio is even larger because you are not getting the return on this charges.  And the financial industry makes good money of this portfolio even as you are experiencing damaging losses.  You could easily slash  most of these costs. 

JohnWinder

Just as some of us were recovering from the thought of imposing 16 funds on a client and changing 13 of them in a swoop, you deliver us the funds. It’s Sunday. As if losing legs in a war in Ukraine isn’t misery enough.

Jupiter UK mid-cap Z holds shares which must surely be found in some of the bigger holdings there, such as the VLS20. But pretend JUKMCZ is unique among the 16, how much is holding 3.5% of your portfolio in it going to impact the invested money as a whole? Even if it outperformed the others by 10%/year in returns, that gives you 10% of 3.5%; I just can’t see it’s worth the complexity of a 16 fund portfolio, either your own work or paying someone else. And that fund costs 0.88%/year; VLS20 probably costs a third of that. And then there’s Aviva Insured Funds Deposit S14 at 1.1% of holdings.  Please explain.

This is not the only forum facing these challenges. A perceptive post elsewhere said: ‘But I think there is a much more important reason (for the OP) to spend time doing deep analysis. I can explain the main points of (a sensible) approach in 5 minutes using language a smart 12-year can understand: How to do it, why it works, and why for most it is the best approach. Basically, everything one would need to get started. However, while this provides the information needed to follow the approach, in my opinion, it does not provide the deep understanding and conviction that comes from investing the time and effort to understand this approach at much deeper level--the kind of understanding and conviction that provides the rock solid confidence necessary to "stay the course" through challenges’ (financial and argumentative). Back to reading about Ukraine.

Linton

I agree with the assessment of the old portfolio given by Mordko and JohnWinder. The lather’s point about being able to explain a portfolio in 5 minutes is particularly appropriate.  

I was hoping to be able to explain the performance but putting all those funds into trustnet or Morningstar for analysis is too much even for a wet Saturday afternoon.

Three points I did pick up:

 - The original portfolio has an unusually high 20% of Emerging Markets/AsiaPacific and that is ignoring anything in that area held by the general funds. AsiaPac suffered particularly badly in the recent falls. So we have a partial explanation for the bad performance.

 - I had understood that the new portfolio consisted of superficial changes to the old one. This does not appear to be the case with direct holdings of EM/AsiaPac now down to 11%.

 - If this is the entirety of your drawdown investments I would have expected to see something rather less growth oriented.

To respond to the question raised by JohnWinder on having both VLS20 and a UK mid cap fund: VLS20 is 20% equity of which about 25% is UK. MidCap I guess would be 20% of that which gives a total of 1%. So no, holding 15% VLS20 dies not make the holding of a UK midcap fund unnecessary if you want to have a non trivial allocation.

[Deleted User]

To respond to the question raised by JohnWinder on having both VLS20 and a UK mid cap fund: VLS20 is 20% equity of which about 25% is UK. MidCap I guess would be 20% of that which gives a total of 1%. So no, holding VLS20 dies not make the holding of a UK midcap fund unnecessary if you want to have a non trivial allocation.

Yes, but the 20% VLS that is in stocks overlaps with all the other puny funds in this portfolio.  Why bother with VLS? Just get a bond fund and increase your stock funds a bit. Looks like someone is a little bipolar and can’t decide which strategy to use. 

There are other puzzling choices in this mess.  For example, why have 2 European funds (3% each!)? This is someone going for complexity purely for the sake of complexity.  I would be stunned if having a single European fund with 6% allocation resulted in a meaningfully different performance. He is chasing performance in the active Blackrock fund while hedging his bets with a passive HSBC one.  Except that chasing performance does not work, and in any case 3% allocation isn’t meaningful. But this is detail.  

bostonerimus

Deleted_User said:

To respond to the question raised by JohnWinder on having both VLS20 and a UK mid cap fund: VLS20 is 20% equity of which about 25% is UK. MidCap I guess would be 20% of that which gives a total of 1%. So no, holding VLS20 dies not make the holding of a UK midcap fund unnecessary if you want to have a non trivial allocation.

Yes, but the 20% VLS that is in stocks overlaps with all the other puny funds in this portfolio.  Why bother with VLS? Just get a bond fund and increase your stock funds a bit. Looks like someone is a little bipolar and can’t decide which strategy to use. 

There are other puzzling choices in this mess.  For example, why have 2 European funds (3% each!)? This is someone going for complexity purely for the sake of complexity.  I would be stunned if having a single European fund with 6% allocation resulted in a meaningfully different performance. He is chasing performance in the active Blackrock fund while hedging his bets with a passive HSBC one.  Except that chasing performance does not work, and in any case 3% allocation isn’t meaningful. But this is detail.  

There's some algorithm at work here that is trying to optimize some ultimately meaningless parameter and when someone turns the handle this portfolio drops out. It's a case of analysis and modeling getting out into the wild and being used by marketing people and advisors to sell services with unnecessary complication. I get back to my question about how this portfolio is designed for retirement income drawdown to meet the client's actual requirements...it looks like not at all to me.

GSP

bostonerimus said:

Deleted_User said:

To respond to the question raised by JohnWinder on having both VLS20 and a UK mid cap fund: VLS20 is 20% equity of which about 25% is UK. MidCap I guess would be 20% of that which gives a total of 1%. So no, holding VLS20 dies not make the holding of a UK midcap fund unnecessary if you want to have a non trivial allocation.

Yes, but the 20% VLS that is in stocks overlaps with all the other puny funds in this portfolio.  Why bother with VLS? Just get a bond fund and increase your stock funds a bit. Looks like someone is a little bipolar and can’t decide which strategy to use. 

There are other puzzling choices in this mess.  For example, why have 2 European funds (3% each!)? This is someone going for complexity purely for the sake of complexity.  I would be stunned if having a single European fund with 6% allocation resulted in a meaningfully different performance. He is chasing performance in the active Blackrock fund while hedging his bets with a passive HSBC one.  Except that chasing performance does not work, and in any case 3% allocation isn’t meaningful. But this is detail.  

There's some algorithm at work here that is trying to optimize some ultimately meaningless parameter and when someone turns the handle this portfolio drops out. It's a case of analysis and modeling getting out into the wild and being used by marketing people and advisors to sell services with unnecessary complication. I get back to my question about how this portfolio is designed for retirement income drawdown to meet the client's actual requirements...it looks like not at all to me.

As far as I know I’m invested in my advisor’s recommended funds which hopefully will make enough returns as whole to get me through until we die. And as for cash, it’s going that at each review my anticipated drawdown level is made for the following year, with everything rebalanced at this time.

Comparing my existing funds and the recommended funds I posted earlier today, apart from reading posts suggesting these are just too many funds, are these quite similar overall that anyone can tell?

Thanks