First Time DIY Portfolio

RichardS

I’ve never done anything like this before so I’m a little nervous and could do with some re-assuring words 😀

Thanks to everyone who commented on my 5 Years From Retirement thread where I expressed concern about the 1.57% charges I am paying on my Discretionary Pension through an FA and also the value in having my ISA with Nutmeg. I’ve been reading two books (Tim Hale’s Smarter Investing and Trillions by Robin Wigglesworth) as well as various threads in this forum and watching a whole bunch of podcasts and YouTube channels. Over the long term it certainly sounds like active fund management rarely beats passive index tracking. So I’m pretty sure that’s the direction I will take with my Pension and my ISA.  The ISA I would be looking at drawing money from in 5 years and the Pension I am expecting to remain invested for decades with some form of flexible drawdown. 

I created an account today with InvestEngine and I must say I quite liked how easy it was to start a DIY portfolio and the charges seem very low.  It’s too early for me to risk anything with the £200k pension at the moment - I need to read, watch and listen a bit more yet I think.  But as far as the Nutmeg ISA goes I think I would be comfortable with transferring it to something like an InvestEngine ISA portfolio. 

This is my first draft Portfolio:

Vanguard ESG Global All Cap (60 %)
Vanguard Global Aggregate Bonds (20%)
Amundi Bloomberg Equal Weight Commodity ex Agriculture (20%)

Does this seem a sensible balanced approach to things?

dunstonh

Vanguard ESG Global All Cap (60 %)

Why ESG?    These funds have lower returns than conventional investing and your other funds are not ESG funds.  So, why on this one?

Vanguard ESG Global All Cap (60 %)
Vanguard Global Aggregate Bonds (20%)
Amundi Bloomberg Equal Weight Commodity ex Agriculture (20%)

Does this seem a sensible balanced approach to things?

A non-currency hedged global bond is an interesting choice.  What is your hope with that fund?
And why the Amundi fund?

And overall, you have gone quite high up the risk scale.   Do you really have the tolerance, capacity for loss and behaviour for the level of risk you are taking?

JohnWinder

Yes, sensible. There’ll be a thousand choices better than yours but we won’t know which they were until you die, and a zillion worse than yours which we can identify with some confidence now. Even if Saint Jack posted his portfolio here there’d be legitimate criticism that could be made by folk posting here. Plenty right with yours, what might be ‘wrong’?

Bonds are useful if your equities hit a 15 year period when high quality bond returns exceed equity returns, and because they can dampen the volatility of an equity holding. They dampen it better if the foreign ones are currency hedged (as exchange rates can be source of volatility itself). Thus the conventional wisdom is ‘hedge foreign bonds’. But you don’t need to if you understand the issues; however, as I read it that bond fund is hedged. You’ll know.

20% in a higher cost commodities fund? The extra cost is not great, and the 20% isn’t going to have a huge impact I would imagine. But some would say ‘why bother?’. Well, we’re up to our necks in information and new knowledge, so let’s fine tune and get something special. Maybe. The further you go the more likely you’ll come to embrace simplicity. Ferri summarised it in his four phases in the education of an index investor: born in darkness; sees the light with indexing; overcomplicates everything; embraces simplicity. It’s cute but might have some validity; make of it what you will.

I don’t really understand commodity funds, but I think they don’t trade in commodities but in derivatives like futures; otherwise the fund would have to hold tanks of oil and piles of coal. I don’t think they do that. How that would impact their advantages when everything turns to stool I don’t know.

Lastly, drawing from your portfolio in 5 years is a bit risky/early, unless the withdrawals can be small-ish and occur over a long-ish period.

Bostonerimus1

I commend you on your restraint at keeping your portfolio to 3 funds as many people go a bit wild at first and think more funds is better in some way. The only significant issue I have is the commodities fund which will probably be pretty volatile and because I have a bias to inexpensive index funds. Why do you include it? But all in all a reasonable start.

RichardS

Thanks all. You are pointing out some gaping holes in my knowledge. Gaping holes that I intend to fill. But this was only my first draft after all.  Thank you. I love this forum. 

@dunstonh in my small brain this 60/20/20 split was medium risk and anything above 70% stocks was high. Maybe I should re-think that a little. Thanks you again!

RichardS

Bostonerimus1 said:

I commend you on your restraint at keeping your portfolio to 3 funds as many people go a bit wild at first and think more funds is better in some way. The only significant issue I have is the commodities fund which will probably be pretty volatile and because I have a bias to inexpensive index funds. Why do you include it? But all in all a reasonable start.

I expect I went for three because one of the recent videos I watched was this one but that does not mean I understood it probably and made a sensible selection! https://youtu.be/kVCeIr_3iBo?si=aGVqjJat4dyviRc8

RichardS

JohnWinder said:

Ferri summarised it in his four phases in the education of an index investor: born in darkness; sees the light with indexing; overcomplicates everything; embraces simplicity. It’s cute but might have some validity; make of it what you will.

I like this a lot - thank you. I was definitely in the darkness and I hope I have seen the light even if there’s a lot more to see. And I like to keep things simple

RichardS

dunstonh said:

Vanguard ESG Global All Cap (60 %)

Why ESG?    These funds have lower returns than conventional investing and your other funds are not ESG funds.  So, why on this one?

Vanguard ESG Global All Cap (60 %)
Vanguard Global Aggregate Bonds (20%)
Amundi Bloomberg Equal Weight Commodity ex Agriculture (20%)

Does this seem a sensible balanced approach to things?

A non-currency hedged global bond is an interesting choice.  What is your hope with that fund?
And why the Amundi fund?

And overall, you have gone quite high up the risk scale.   Do you really have the tolerance, capacity for loss and behaviour for the level of risk you are taking?

  Thanks for this. I wasn’t looking enough into what I was doing. 

Maybe the Vanguard FTSE All World (VWRP) would be better.  

The bonds side of things I find more confusing actually.  Is there a pretty standard Global Bonds Index that people tend to add to a two/three fund portfolio to balance out the risk. I’m on InvestEngine and nothing I’m seeing appears to fit that description, they all seem to be concentrating on different types of bonds rather than one global index (perhaps that’s me showing my naivety).  What would be a good bond index to choose if someone wanted to just follow this concept for example? https://portfoliocharts.com/portfolios/classic-60-40-portfolio/

Janie2008

RichardS said:

dunstonh said:

Vanguard ESG Global All Cap (60 %)

Why ESG?    These funds have lower returns than conventional investing and your other funds are not ESG funds.  So, why on this one?

Vanguard ESG Global All Cap (60 %)
Vanguard Global Aggregate Bonds (20%)
Amundi Bloomberg Equal Weight Commodity ex Agriculture (20%)

Does this seem a sensible balanced approach to things?

A non-currency hedged global bond is an interesting choice.  What is your hope with that fund?
And why the Amundi fund?

And overall, you have gone quite high up the risk scale.   Do you really have the tolerance, capacity for loss and behaviour for the level of risk you are taking?

  Thanks for this. I wasn’t looking enough into what I was doing. 

Maybe the Vanguard FTSE All World (VWRP) would be better.  

The bonds side of things I find more confusing actually.  Is there a pretty standard Global Bonds Index that people tend to add to a two/three fund portfolio to balance out the risk. I’m on InvestEngine and nothing I’m seeing appears to fit that description, they all seem to be concentrating on different types of bonds rather than one global index (perhaps that’s me showing my naivety).  What would be a good bond index to choose if someone wanted to just follow this concept for example? https://portfoliocharts.com/portfolios/classic-60-40-portfolio/

A lot of people go for a multi asset fund such as Vanguard lifestrategy 80 which would give you 80% equities and 20% bonds or Vanguard 60 for 60% equities and 40% bonds. You can also look at the HSBC strategic funds which are similar.

LHW99

You don't have to do the same in the ISA and the pension (although you could). But if the ISA is earmarked for 5 years duration, I probably wouldn't look at a high level of equity funds. Maybe (at the moment) I would choose a money market fund, which are mentioned on various threads here, and should generate ~4-5% dividend at the moment, can be held in ISA's and don't risk the capital loss that could happen over a short term with equities.

As usual DYOR

dunstonh

RichardS said:

Thanks all. You are pointing out some gaping holes in my knowledge. Gaping holes that I intend to fill. But this was only my first draft after all.  Thank you. I love this forum. 

@dunstonh in my small brain this 60/20/20 split was medium risk and anything above 70% stocks was high. Maybe I should re-think that a little. Thanks you again!

The Amundi fund is volatile fund.  Of the three, it is the highest risk.  So, in effect, you have gone 80/20 on asset mix.

It is the sort of fund that you may hold upto 5% of your investable assets if you fancy a dabble.

I expect I went for three because one of the recent videos I watched was this one but that does not mean I understood it probably and made a sensible selection!

Quantity of funds doesn't matter.   If you have 1 fund at 0.10% or ten funds at 0.10% then it is still costing you 0.10%.

The VLS funds have around 17 funds.   So, on most portfolio builds you would expect to hold more funds.  A Global equities fund will reduce the equity fund numbers but you need to consider the defensive side of the portfolio.  The days of using a gilt fund for defensive are over.   Now you need to diversify that spread in the same way you do with equities.

If you go global bonds  and nothing else for the defensive side and do not currency hedge then you are not really reducing the risk that much.     Also, some believe that the UK was not an outlier in its 2022/23 falls but the first to go through what others will follow.   So, you need to be careful that you not putting too much faith in non-currency hedged global bonds.