S&SISA portfolio

noclaf

masonic said:

noclaf said:

This is probably a fairly basic question if anyone can opine : would there be a significant overlap between the companies that fall within FTSE 100 and 250 trackers and the developed markets component of a global equities tracker? I assume the answer is yes but assumptions are dangerous!

The UK market makes up less than 5% of the global index, so there will be very little overlap on a percentage basis, but a very large overlap on the basis of holdings.

Thanks Masonic, I was pondering whether any value holding for example FTSE 100 + Global Tracker but not sure I see much point as I am more focussed on growth for now....I held the FTSE 100 last year but as of now will stick to my original plan of Global Equities + a couple of smaller allocations for the non-equities elements.

noclaf

After some thought I've come up with the below proposed allocations for my S&SISA, would welcome thoughts/suggestions:

It will be all ETF's to take advantage of the platform fees and overall valuation is £50k. It's a lot of ETF's...I accept that and maybe overkill but am trying to balance large/mid/small cap as well as growth Vs value and bonds/commods/property to dampen if Equities drop. Interested to know if the 5% allocations are too low to make a meaningful impact or would make a tangible difference along with the 10% for Bonds?

I haven't decided on all ETF choices yet hence some are missing.

SWLD largecap growth 20%

IWFS edge midcap 20%

IFWV Edge value  20%

WLDS smallcap 5%

IITU Largecap Tech 5%

EM 8%

Bonds 10%

Property 5%

Gold 5%

masonic

A few points:

• 9 funds is a lot when you are paying a trading fee to buy and sell. If you are rebalancing and/or making regular investments, this could become costly
• There will be significant overlap between SWLD and IITU, so unless you wish to tilt even further towards tech, this may not be desirable, and also seems inconsistent with the significant overweight towards value.
• Property usually means companies in the property sector, so this is not likely to dampen a fall in equities. Usually exposure is through REITs, to get bricks and mortar property exposure you might need an open-ended fund on which you would pay a percentage platform fee. A 5% allocation is unlikely to make any meaningful difference to your portfolio.
• 5% gold is different than 5% commodities, the latter usually being a broad basket of commodities futures contracts. 5% commodities would be too small to make a difference, whereas 5% gold is sometimes advocated as being helpful during a crash.
  

JohnWinder

overlap between the companies that fall within FTSE 100 and 250 trackers’

Were it laziness preventing you answering your own question it could be forgivable. If it’s ‘I don’t know how to do it’, you might be taking on more than you can chew.

could be scenarios I need to dip into it .

If you’re proposing 10% as bonds, and ‘dip in’ would remove only 10% of the fund, then 10% bonds seems reasonable to me. Isn’t that what it comes down to?
A bond fund for some safety, good idea. Do you know if SAGG is currency hedged? If not, you take currency risk when you’re looking for stability. Illogical. I think it’s not, hedged. Does SAGG hold less safe corporate bonds at the expense of safer government bonds? You want the safest bonds in a bond fund being held for safety. It wouldn’t be logical, costs etc being equal, to go beyond government bonds would it? SAGG holds both I think. It has a duration of 6.5 years which I’ll guess is short enough not to be a problem if interest rates rip up again.

noclaf

I will try to respond to all the comments, all really helpful, thank you!
@Masonic : good point re overlap between SWLD and IITU.....IITU is much more concentrated too so only adds volatility I guess....can drop IITU.
9 funds is a lot and aware that rebalancing could be a nightmare as well as fees. I did consider a simple setup of VWRL + a bond etf....but then midcap will be missing and very growth tilted without the iShares value fund to add some balance. For commods, likely would be a gold etf I would use....not sure if any other options for ETF's on fidelity that hold a basket of commods products.

@JohnWinder - Bonds is an area of my least understanding....but I think govt bonds are typically less volatile than corp bonds? Based on your suggestion and point re. interest rates rising again would a govt bonds ETF with fairly short duration bonds be reasonable?

Albermarle

For commods, likely would be a gold etf I would use....not sure if any other options for ETF's on fidelity that hold a basket of commods products.

There is an ETF for precious metals . I think it is something like 55% gold 25% silver and 10% each of platinum and palladium ( which has crashed in price in the last year) 

WisdomTree Physical Precious Metals Key Statistics | JE00B1VS3W29 | Fidelity

noclaf

Thanks Albermarle, will check that out.

JohnWinder

https://www.bogleheads.org/wiki/Outline_of_bonds might help you on bonds.

‘but I think govt bonds are typically less volatile than corp bonds?’

I’ve never seen any data, so no idea. But if you’re getting bonds so you don’t have to dip into your equities when equities are hammered, then you should expect corporate bonds to be hammered at the same time since they’re issued by the same companies that are considered more risky during any stocks crisis. So, ‘typically less volatile’ is probably not the issue; the issue is what are they like when you need cash at the worst possible time since that’s what your plan is all about (if it is).

‘re. interest rates rising again would a govt bonds ETF with fairly short duration bonds be reasonable? ‘

There are too many moving parts for me to say what’s reasonable. It depends on what percentage of this S&SISA portfolio you’ll have to cash-out, and how far away in the future, and how risk averse/tolerant you are, how much interest rates will change. Then add to that the problem that a bond fund’s duration stays the same, while all the time you’re getting closer and closer to needing to cash out, which exposes you to bond fund price fluctuations caused by interest rate changes (without enough time for recovery). It’s a minefield, but you’ve got a better feel for the variables than anyone else; you just need to understand how bond funds behave.

You should get higher interest from longer bonds, and usually do, but more volatility from interest rate changes. The compromise spot is for the bonds’ duration to match when you need the cash; the impossible dream.

PS

a bond fund’s duration stays the same, while all the time you’re getting closer and closer to needing to cash out, which exposes you to bond fund price fluctuations

An imperfect solution to that problem which I forgot to mention, is to use cash' property of zero duration, to progressively switch from your bond fund with several years' duration to cash. The sum of those two has a progressively shortening duration which will better match an approaching need to have the lot as cash. The maths is simple proportions of bonds and cash, depending on the duration of the bond fund.

noclaf

@Johnwinder : This is meant to be a long-term S&SISA and I will always maintain a cash buffer however ideally want less volatility Vs say my pensions/SIPP.

My SIPP is invested in VEVE/VFEM, work pension split between two global Equity funds (albeit one is quite a concentrated high risk fund that is overweight Tech and HMWO in my LISA....over the years I've built some tolerance to the point I just leave those wrappers alone and set divis to auto invest for an easy life ....I have 15-18 years to retirement so don't focus on the short term gyrations of those funds and welcome the volatility hoping it will all work out fine....

For the S&SISA, the aim is to continue building up the fund and to the extent I can, avoid dipping into this....the idea is to build this up as an 'accessible' investment Vs pensions which won't be touched for years unless circumstances arise that require to use it....that approach is based on my current circumstances and being very aware that the job situation can change very quickly...been there and got the t shirt before. 

Linton

noclaf said:

@Johnwinder : This is meant to be a long-term S&SISA and I will always maintain a cash buffer however ideally want less volatility Vs say my pensions/SIPP.

My SIPP is invested in VEVE/VFEM, work pension split between two global Equity funds (albeit one is quite a concentrated high risk fund that is overweight Tech and HMWO in my LISA....over the years I've built some tolerance to the point I just leave those wrappers alone and set divis to auto invest for an easy life ....I have 15-18 years to retirement so don't focus on the short term gyrations of those funds and welcome the volatility hoping it will all work out fine....

For the S&SISA, the aim is to continue building up the fund and to the extent I can, avoid dipping into this....the idea is to build this up as an 'accessible' investment Vs pensions which won't be touched for years unless circumstances arise that require to use it....that approach is based on my current circumstances and being very aware that the job situation can change very quickly...been there and got the t shirt before. 

1) Your requirements seem a little vague/contradictory.  In particular you seem to want equity returns but then want to be able to dip into the ISA  with some degree of safety.  The fact that you want to avoid dipping into it is irrelevent.  You either plan for the dipping or you ignore that possibility and deal with things at the  time if the need ever arises.

This incombatability is demonstrated by your recent portfolio.  You have bonds to dampen volatility but then only at 10% which would make very little difference.  If a 100% equity portfolio was to drop 50% an 85% equity portfolio would drop 42.5%.  Is the difference really significant - would you panic at 50% but calmly accept 42.5%?

So ISTM you have 2 choices, either a 100% equity portfolio or a moderately cautious one.  An approach was suggested by @InvesterJones at the start of this thread:

InvesterJones said:

noclaf said:

InvesterJones said:

I think the key consideration is that 'could be scenarios I need to dip into it' - it might be worth working out what amount you'd possibly need to make available and treat that separately to the rest of your long term investment.

As of now/near term ..highly unlikely to touch the S&SISA. I am thinking a 5-10 years down the line but it's a big 'what if' at the moment.

So perhaps split a portion that you think might represent that 'what if' moment and consider that a 5-10yr (eg medium) term investment (so perhaps suiting a mixed asset fund like a global 80/20 or 60/40 fund), and treat the rest as long term (eg. cheap global equities fund) that you don't touch. Yes, means some fund overlap but justified in this case. This should not be construed as advice of course, just an example.

2) Looking at the dippable requirement I feel you are trying to construct a  complex portfolio from the wrong building blocks. 

tbh I do not understand why you chose a platform with a charging structure that forces you to keep to ETFs which by their nature are not good at providing objective driven solutions and pretty restrictive in the type of investments available.  ISTM this leads to the need to buy more funds to compensate for the deficiencies in the ones you have already chosen.

If you remove the ETF restriction you could buy a single moderately cautious fund.  It may have higher charges but will much reduce the effort and costs of constructing and then managing a complex set of inter-related ETFs.