How to Fund the Life You Want - Investing in the S&P500

dunstonh

solidpro said:

How to Fund the Life you Want is specifically written post-pandemic by people in the UK, for people in the UK... that's why I was reading it!

Perhaps they lack experience and are just looking at the recent performance (when the S&P500 was the place to be for UK investors - strong US equity performance and falling exchange rate.   The cycle before was both going the other way)

GazzaBloom

The way I see it is, even a global weighted tracker is 60-70% US and only 4% UK so there is always going to be significant exposure to foreign currency risk unless you overweight with a home bias or hedge.

I would say that owning a UK home outright, having a chunk of GBP cash savings and having most of your pension/investments based in UK investments is more risky that owning a UK home outright, holding a chunk of cash savings in GBP and holding a big chunk of your pension/investments in US funds. 

Personally, I have a heavy leaning to US stock funds including VUSA and while in accumulation, if the pound strengthens against the dollar the value of my existing investments may fall but my purchasing power with my monthly purchases increases so I get more for my money going forward.

Consequently, if the pound weakens then my existing holdings increase in value but my purchasing power for new investing decreases.

Swings and roundabouts and over a working lifetime of investing I would wager that it balances out. 

However...once into decumulation there may be more impact to consider as a creeping strengthening of the pound over 5-10 years could be a -30% headwind over time on top of withdrawals.

jimjames

solidpro said:

dunstonh said:

Why on earth would a book recommend an S&P500 tracker to a UK investor?  That would be poor quality investing.  

I actually try to avoid the UK purely because of the s-show that is at least 8 years of tory ineptitude with the UK economy.

Although FTSE100 companies get 70% of their revenue from outside the UK so completely unaffected by UK government.

dunstonh

I actually try to avoid the UK purely because of the s-show that is at least 8 years of tory ineptitude with the UK economy.

And lets not forget that some of the events of 2022 were consequences of actions taken under the previous Government.  e.g., Gordon Brown, the pension fund liquidity issues, and the quantitative easing being unwound.   Its easy to blame the incumbent party. Especially given their inability to project any coherent policies in recent years, but a lot of the structural issues are historic.

solidpro

Exodi said:

I'm sorry to be the bearer of bad news, but the Vanguard managed funds (VLS80 & VLS100) have a significant home (UK) bias.

Yeah I was aware of that. I have other investments that are heavily weighted, from memory, about 50% US, 25% Europe, something like 5-10% UK and others. My question is whether I should change my UK weighted LS funds to simply an S&P500.

solidpro

GazzaBloom said:

I would say that owning a UK home outright, having a chunk of GBP cash savings and having most of your pension/investments based in UK investments is more risky that owning a UK home outright, holding a chunk of cash savings in GBP and holding a big chunk of your pension/investments in US funds. 

With the exception of my VLS80/100 stuff (my wife wanted a slightly lower risk than I) that's exactly where I am. It's actually a 50/50 split between property in UK and a mix of SIPP/ISA, but about half of that SIPP/ISA (and therefore a quarter of our capital) is VLS, but the book I reference in the title, which is written by UK people from a very recent UK perpsective specifically seemed to advocate passive S&P500 rather than active/managed funds. I'm still young enough to roll the dice and ride out a few economic cycles, so equities is still my thing.

dunstonh

but the book I reference in the title, which is written by UK people from a very recent UK perpsective specifically seemed to advocate passive S&P500 rather than active/managed funds. 

But they appear to have put recency bias on it or have lifted their data from US sources.

solidpro

dunstonh said:

And lets not forget that some of the events of 2022 were consequences of actions taken under the previous Government.  e.g., Gordon Brown, the pension fund liquidity issues, and the quantitative easing being unwound.   Its easy to blame the incumbent party. Especially given their inability to project any coherent policies in recent years, but a lot of the structural issues are historic.

13 years including a 80 seat majority and they've achieved nothing. Being kind you could say Universal Credit but being unkind that's probably ruined thousands of lives. 4% hit on GDP. £37bn on test, track and trace. 280,000 dead. Trade deals to decimate our farming and scheisse in our river. We all know the rest so I won't go on. None of this was inherited no matter how how many times people refer to the Iraq war, 'GB sold all our gold' or 'sorry no money left'. None of it compares to the complete waste of time that has been the last 13 years.

solidpro

Linton said:

What useful data do you get from your investments' previous performance?  My approach is to admit I have not got the faintest idea what the future performance will be, beyond a general rising value in the long term . So the important thing to do is to invest as widely as practicable to minimise the effect of local disasters.

Hence I am very wary of 60% US weighting.  The problem with a major holding in UK large companies is not that the UK is necessarily a bad place to invest but rather that particular sectors are significantly over-represented on the basis of the financial fundamentals whilst others are not represented at all.  Apart from speculative tech this is less of a problem in the US.

I'm told never to make decisions on past performance, despite everyone with a keyboard ever referring to the UK and US stock exchanges over the last 50 years.

I think the UK needs to rebalance and work out what it wants. We've ended up with a trade deal with the EU that doesn't include financial services. Why? I think things could maybe turn around as equally as I think we're Japan in the early 90s, heading for decades of stagnation.

InvesterJones

It's certainly worth considering passive over active - in the long run the lower the fees the better. S&P500 passive trackers are certainly some of the cheapest funds available, but as mentioned they're riskier than something like a global passive tracker (which are also very cheap) as they're less diversified. The price you pay (vs predicted earnings) for US stocks (and therefore S&P500) is also pretty high by historical standards and Vanguard themselves suggest the outlook for something like the S&P500 is less positive than for other markets in the world/smaller cap stocks.