S&P 500 or U.S. Equity Index in addition to LF60%

InvesterJones

aroominyork said:

If you are experienced at managing money and making passion-free tactical moves, buying some hedged USD might be an idea. For those of us less skilled/impassionate, would we know when to sell and revert to unhedged? 

I think the better case for tactical is strategic. If the US economy strengthens you would expect to see its index rise and currency strengthen, leading to a double gain for Sterling investors. If its economy weakens you would be hit with the reverse double whammy. So hedging takes one of those variables out of the picture and might be a sensible option as you approach retirement and want to dial down risk, especially if, to paraphrase Terry Smith, you can not overpay and then do nothing.

I think you make a wider case about short term investing (even trading) vs longer term. Hedging has it's value for both - certainly I consider it in the long term as quite literally a hedge - splitting the outcome of currency movements so that at any given point in time where I need to sell I can take from the best placed fund.

adindas

GeoffTF said:

US equities have become very expensive. You make money by buying cheap and selling expensive, not the other way around. US are about half the global market, without over-weighting them. That is already a big concentration of risk. Putting 100% in VLS60 or VLS80 would make more sense.

This is the P/E ratio of S&P500. Look at in the last ten years. The current P/E ratio is much lower then around 2010. Price could be high as long as it is matched with increase in earning. People who think that the S&P 500 is very expensive now might not be comfortable to invest in S&P 500 in the next decade.

Linton said:

2 problems I see with your proposals
1)  better to focus on maximum diversification. 

It is a fallacy to think too much desertification is a good thing. What people are doing are actually diluting their potential profit. Let alone too much diversification will cost more money as very widely diversified funds typically have a higher OCF.

It is also the same for people who things Bonds are a good investment especially if they still have a long time horizon in investing.

I have posted numerous quotation from investing gurus such as Warren Buffet, Peter Lynch, Charlie Munger their opinion regarding too much desertification and investing in Bonds in this forum. As retailer investor people have the option to put it into high interest savings in short term which are more secure, earning more interest and easier to access than bonds.

Linton

adindas said:

GeoffTF said:

US equities have become very expensive. You make money by buying cheap and selling expensive, not the other way around. US are about half the global market, without over-weighting them. That is already a big concentration of risk. Putting 100% in VLS60 or VLS80 would make more sense.

This is the P/E ratio of S&P500. Look at in the last ten years. The current P/E ratio is much lower then around 2010. Price could be high as long as it is matched with increase in earning. People who think that the S&P 500 is very expensive now might not be comfortable to invest in S&P 500 in the next decade.

Linton said:

2 problems I see with your proposals
1)  better to focus on maximum diversification. 

It is a fallacy to think too much desertification is a good thing. What people are doing are actually diluting their potential profit. Let alone too much diversification will cost people more money as very widely diversified funds typically have a higher OCF.

It is also the same for people who things Bonds are a good investment especially if they still have a long time horizon in investing.

I have posted numerous quotation from investing gurus such as Warren Buffet, Peter Lynch, Charlie Munger their opinion regarding too much desertification and investing in Bonds in this forum. As retailer investor people have the option to put it into high interest savings in short term which are more secure, earning more interest and easier to access than bonds.

There are two levels of diversification.  At the Asset Class level (eg bonds vs equity) you need to choose those asset classes appropriate to your objectives.  Choosing asset classes that are not compatible with your objectives  doesnt make sense.  If there is more than one asset class that would do the job, choose them all as far as it is practical.

Where I see diversification as a more useful criteria for guiding investment choices  is within an asset class.  I find it difficult to understand the concept of "too much diversification".  Particularly with equity the less diversification you have the more you are dependent on lucky choices given a constrained investment duration.

Sorry, I dont regard well chosen quotations from gurus as evidence of anything.   Choosing quotations that superficially support your previously held views is just a game. People have been playing it with their scriptures for millennia.  If there is a coherent argument let's hear it, assess it and reach rational conclusions that hopefully will challenge previously held views.

adindas

Linton said:

Where I see diversification as a more useful criteria for guiding investment choices  is within an asset class.  I find it difficult to understand the concept of "too much diversification".  Particularly with equity the less diversification you have the more you are dependent on lucky choices given a constrained investment duration.

Similarly I fail to understand the concept of "Maximum Diversification"

Linton said:
Sorry, I dont regard well chosen quotations from gurus as evidence of anything.   Choosing quotations that superficially support your previously held views is just a game. People have been playing it with their scriptures for millennia.  If there is a coherent argument let's hear it, assess it and reach rational conclusions that hopefully will challenge previously held views.

Sorry similarly, I don't regard arguments, preaching help in making money. Proof, reality is. A few of people in this forum beat the market by reducing diversifications.

Unless you think you are better than many of these legendary proven investors.

Bill Ackman: Diversification Is For whom ??

https://www.youtube.com/watch?v=XRNxiMNQi7k

Not enough ??? these are a bunch of billionaire investors.

http://mastersinvest.com/diversificationquotes

Also it is very easy to see. Just plot the performance of for instance S&P 500 vs FTSE all world index over a prolonged period. There are a already a few comparison discussion about this in this forums. Let alone if you are diluting it again with bond. It is the general truth that Equity always outperforms bond in the long run.

And again might be good to remember this.

coastline

If you fancy hedging there's certainly a fair bit of movement. Recently the dollar index stood at 114 but has fallen since.

FXuZ_3PUcAIQ5fj (900×411) (twimg.com)

Maybe the US is 60% of the world but it's rarely been below 50% in many decades . Where do you go as an alternative and why ? Up to the individual of course.
The SP 500 forward P/E minus the top six stocks is 12 just like many other countries and regions. So similar valuations.

FmUYkWxX0AAqrFp (652×900) (twimg.com)

Fe4-zlmVQAEEFoy (564×406) (twimg.com)

Some of these links go back to 1995 and US appears to have had a premium rating for a long time. Nothing new then. Again it's clear in many of the charts current forward P/E's are around 12 similar to the US minus those tech stocks. Tech usually has higher valuations in growth phase ? One of the best free guides below updated weekly.

MSCI Forward P/Es (yardeni.com)

GeoffTF

adindas said:

GeoffTF said:

US equities have become very expensive. You make money by buying cheap and selling expensive, not the other way around. US are about half the global market, without over-weighting them. That is already a big concentration of risk. Putting 100% in VLS60 or VLS80 would make more sense.

This is the P/E ratio of S&P500. Look at in the last ten years. The current P/E ratio is much lower then around 2010. Price could be high as long as it is matched with increase in earning. People who think that the S&P 500 is very expensive now might not be comfortable to invest in S&P 500 in the next decade.

Linton said:

2 problems I see with your proposals
1)  better to focus on maximum diversification. 

It is a fallacy to think too much desertification is a good thing. What people are doing are actually diluting their potential profit. Let alone too much diversification will cost more money as very widely diversified funds typically have a higher OCF.

It is also the same for people who things Bonds are a good investment especially if they still have a long time horizon in investing.

I have posted numerous quotation from investing gurus such as Warren Buffet, Peter Lynch, Charlie Munger their opinion regarding too much desertification and investing in Bonds in this forum. As retailer investor people have the option to put it into high interest savings in short term which are more secure, earning more interest and easier to access than bonds.

The CAPE ratio tells a different story:

https://seekingalpha.com/article/4576817-sp-500-cape-valuation-2023-forecast

Historically, the CAPE ratio has been a good predictor of future returns, whereas the P/E ratio has been a poor one.

Warren Buffet recommended that we all buy a low cost broad market tracker fund. There is abundant evidence that active fund managers cannot beat the market, except by chance. Are you any better? If so, why are you not in their place earning the top dollar?

Linton

adindas said:

Linton said:

Where I see diversification as a more useful criteria for guiding investment choices  is within an asset class.  I find it difficult to understand the concept of "too much diversification".  Particularly with equity the less diversification you have the more you are dependent on lucky choices given a constrained investment duration.

Similarly I fail to understand the concept of "Maximum Diversification"

Linton said:
Sorry, I dont regard well chosen quotations from gurus as evidence of anything.   Choosing quotations that superficially support your previously held views is just a game. People have been playing it with their scriptures for millennia.  If there is a coherent argument let's hear it, assess it and reach rational conclusions that hopefully will challenge previously held views.

Sorry similarly, I don't regard arguments, preaching help in making money. Proof, reality is. A few of people in this forum beat the market by reducing diversifications.

Unless you think you are better than many of these legendary proven investors.

Bill Ackman: Diversification Is For whom ??

https://www.youtube.com/watch?v=XRNxiMNQi7k

Not enough ??? these are a bunch of billionaire investors.

http://mastersinvest.com/diversificationquotes

Also it is very easy to see. Just plot the performance of for instance S&P 500 vs FTSE all world index over a prolonged period. There are a already a few comparison discussion about this in this forums. Let alone if you are diluting it again with bond. It is the general truth that Equity always outperforms bond in the long run.

And again might be good to remember this.

Comments on a few items....

Warren Buffet......
Warren Buffet etal are in a different business to private investors.  They buy individual companies to get a controling interest in the belief that their management and financial expertise, experience, and money will help those companies realise their full potential.    Essentially I suppose you could regard them as stock picking folowed by actively managing the companies they invests in.

Stock picking is a respectable way of investing.  The upside is that rewards can be very high.  The downside is that it requires time, skill and information to assess possible investments.

WB I guess employs an army of accountants to understand and get beneath the published financial results and researchers withgood  industry expertise to find likely candidates.  He is able to talk to the top management of the companies he is interested in.  So he would have better understanding of those companies would anyone reading the financial pagest. Where do you get your information on regarding what to invest in? Why do you believe you get it before the world has so that you can invest before the price has already risen?

50 or so years ago in this country and I think the US  there was a trend toward conglomerates when ranges of companies were bought out by high profile "entrepreneurs" with a view to asset stripping or creating efficiency by forced merges or better management.  Where are they now? Perhaps WB is notable by being one of the few in the US still standing.

But WBs quote "Diversification is protection against ignorance. It makes little sense if you know what you are doing" is very true in that all of us are pretty ignorant about the future.  That is why we need the protection of diversification .  However if you were born with mystic powers it would be foolish not to use them.  Perhaps you would like to share some of your prognostications with us so we can all benefit.

A few people may make money by not diversifying.  Many I am sure do not but they tend not to publicise it, apart from IIRC a long running thread abut investing in biochem.  Many investors used to and perhaps some still do start their investment careers dabbling in stock picking but most gave up when they realised they were not very good at it.

FTSE World Vs US: I suggest you look at the decade 1/1/2000-31/12/2009.  I think you will find that World Indexes significantly outperformed the S&P500. Sadly data going back further than the 1990s is difficult to find.

Beating the market? In my view this is not a sensible ambition, at least with a life-changing pot of money.  The point is that in real life the joy of exceeding your ambitions  may well not balance the misery when you fail.  Better then to aim for sufficient return to meet your needs with a good chance you will over-achieve than to aim for great riches with a good chance that you will end up in relative poverty.

coastline

From the CAPE article the 100 year chart . 1920 to 1985 most of the time is spent in the green to yellow area of cheap to fair value. Since 1985 to present 2022 it's spent most of the time in the orange to red area of expensive to bubble. From 1985 the SP500 moved from 200 to 4000. Up 0ver 400%. Can't really see where it's of any help to an investor missing out on all of that ?

saupload_dd7808-730-0f2c-fb4e-da4b1afafcc7_100_Years_of_SP500_CAPE_Mean_Reversion.png (645×336) (seekingalpha.com)

saupload_dbd70eb-43b-db7-7d3-c4168d237467_SP500_CAPE_Valuation_Chart_2023_small.png (645×336) (seekingalpha.com)

Article goes on to say in 2021 the SP almost reached levels of dotcom insanity  ?  Surely that was all down to the lockdown and the pandemic ? Profit margins were bound to take a huge hit if companies were closed down. 

FhSZValXEAIghRD (900×556) (twimg.com)

Clear to see what happened below . 2020 market crashes then companies report losses in 2021. Since then they've made a V shaped recovery. As I've shown in the other post most are now on a forward P/E of 12 ?

FozOxJ7XoAAn17k (900×652) (twimg.com)

If you want some doom and gloom then history shows it's more than likely to come from the FED pivot. Rate cuts leading to market losses. If this plays out I'm sure it won't only be the SP 500 falling. There'll be nowhere to hide . Expensive or not.

Fed-Funds-and-Bear-Markets.jpg (968×519) (realinvestmentadvice.com)

Fhm-y4rX0AAG8et (900×506) (twimg.com)

Well your bonds might give you a lift if rates are cut in the future ? Looking at VGOV with lower rates early last year price was 22.00 and 16.00 with the higher guesstimate last October. Now at 18.00 .

Vanguard UK Gilt UCITS ETF, UK:VGOV Advanced Chart - (LON) UK:VGOV, Vanguard UK Gilt UCITS ETF Stock Price - BigCharts.com (marketwatch.com)

coastline

Similar article here about the FTSE 100. CAPE has been low since 2001 call it 20 years. Fair value in yellow and cheap in green . Yet never regained the dizzy heights of 1999 boom. Even 2007 it was yellow and fair value then crashed.  Basically if you'd gone underweight in the US for 20 years and overweight in the UK then you would have underperformed . CAPE can only be used as a guide really.

XyRoKo86Tz2j6eEmW0Mx_FTSE_100_CAPE_Rainbow.png (604×332) (kajabi-cdn.com)

A Bear Market Would Leave the FTSE 100’s CAPE at Attractive Levels (ukdividendstocks.com)

Sometimes best not to tinker and let the market decide . Global tracker not to be overlooked and probably best solution for most. 60% US or not.

20 Global Investment Trusts Compared – IT Investor