First Time DIY Portfolio

RichardS

MK62 said:

Vanguard do a range of global bond index funds and ETFs.......perhaps the one that best fits best with the single diversified bond fund theme, is the Vanguard Global Bond Index fund.

BTW, that fund is held in the Lifestrategy series of "fund of funds" offerings (apart from VLS100 of course as thats 100% equities)

Ah ok thanks. That’s probably not on InvestEngine. I’ve not actually invested anything yet though so I could always create an account on Vanguard instead I guess and do it there.  So basically I could have their two Index funds in a two fund portfolio and save on fees.  My big issue is deciding on the allocation % as when it comes down to it (when my own money is concerned) I think I would find it difficult to decide. I can’t get my head around how I work out my approach to risk. 

dunstonh

so I could always create an account on Vanguard instead I guess and do it there.  

That would restrict you to Vanguard funds.  So, a whole of market platform would likely be better as Vanguard are not the best option in every area.  You can still be The Vanguard Global Bond hedged fund on whole of market platforms.

Linton

RichardS said:

MK62 said:

Vanguard do a range of global bond index funds and ETFs.......perhaps the one that best fits best with the single diversified bond fund theme, is the Vanguard Global Bond Index fund.

BTW, that fund is held in the Lifestrategy series of "fund of funds" offerings (apart from VLS100 of course as thats 100% equities)

Ah ok thanks. That’s probably not on InvestEngine. I’ve not actually invested anything yet though so I could always create an account on Vanguard instead I guess and do it there.  So basically I could have their two Index funds in a two fund portfolio and save on fees.  My big issue is deciding on the allocation % as when it comes down to it (when my own money is concerned) I think I would find it difficult to decide. I can’t get my head around how I work out my approach to risk. 

The 2 main drivers for risk management are:

1) Timeframe

Over the long time (>10-15 years) you can expect equities to increase in value.  But in the shorter term they could be very volatile.  If you take too much risk in the short term you could have a crash which leaves you with less money than you need to meet your objective and insufficient tme to recover.

2) Psychology.

Major equity crashes could experience a 50% fall in value every decade or so..  When faced with that many novice investors will be very tempted to sell the lot thus turning a paper loss into a very real one.  You need the confidence to stay invested.  Taking less risk will reduce the psychological stress and thus the likelihood of you doing something stupid.

If equity falls by 50% a 60/40 portfolio would be expected to fall by about 30%.

Bostonerimus1

dunstonh said:

so I could always create an account on Vanguard instead I guess and do it there.  

That would restrict you to Vanguard funds.  So, a whole of market platform would likely be better as Vanguard are not the best option in every area.  You can still be The Vanguard Global Bond hedged fund on whole of market platforms.

You don't need a platform that gives you access to everything. You can do just fine with only Vanguard funds, or Fidelity or HSBC or any combination. Choice can sometimes lead to paralysis. I've done ok with Vanguard funds and have not bought anything else for the past 20 years so with your two fund portfolio a simple Vanguard account would work...as would an infinite number of other platform and fund combinations.

dunstonh

You don't need a platform that gives you access to everything. You can do just fine with only Vanguard funds, or Fidelity or HSBC or any combination.

Why restrict to one fund house when you know there are limitations when you can use a whole of market platform that allows you to pick the best options from the marketplace?

 Choice can sometimes lead to paralysis.

It can.  But if you know what you want, you filter out the rest and leave yourself with what you are after and a much shorter list.   

I've done ok with Vanguard funds and have not bought anything else for the past 20 years so with your two fund portfolio a simple Vanguard account would work...as would an infinite number of other platform and fund combinations.

But you are not in the UK.   The OP is.  Vanguard is not as strong here.   The OP wants to focus on cost.   Going restricted from Vanguard will not be the optimal solution.

RichardS

Thanks @dunstonh - why would the fact that I am in the UK make any difference - do you mean in terms of platform costs etc?

dunstonh

RichardS said:

Thanks @dunstonh - why would the fact that I am in the UK make any difference - do you mean in terms of platform costs etc?

Financial services provision varies in other countries.  So, what may be best in one country won't be in another.  Providers who are best in one country are not going to be best in others etc.       Bostonerimus1 is not in the UK.   Vanguard's offering where he is located is different to the UK offering.     

LHW99

You could try looking on Morningstar

https://www.morningstar.co.uk/uk/screener/fund.aspx#?filtersSelectedValue={}&page=1&sortField=legalName&sortOrder=asc

If you select "Global Bond" under the Morningstar Category dropdown, you get nearly 500 funds returned (there are other Global Bond categories too). You can use the other boxes to filter the results and/or just go through and check out any you are interested in, and see if Investengine has them.

JohnWinder

‘But what about bonds?  Is there a standard global bonds index that gives you full diversification or is it just not that simple with bonds?’

You diversify with stocks because any one stock can fail, from the smallest to General Electric, Kodak or General Motors which went bankrupt. Bonds are different: they’re a promise to pay you back and pay you interest. If the promiser can be trusted, like the UK Treasury can, you don’t need to diversify the borrower. If you buy corporate bonds, you’d better diversify.

You diversify to control risk. Bonds have three risks: credit risk (the bond issuer will default on payments - unlikely with UK govt); interest rate risk (interest rates will rise, so your bond value will fall etc) - this is also called ‘duration’ risk or re-investment risk (your bond matures, you reinvest, but now interest rates are lower than before so it’s a worse investment); unexpected inflation risk (all bonds give some compensation for the anticipated inflation that will reduce the purchasing power of your money when the bond matures, but if there’s more inflation you lose out).

You choose your bonds/funds to deal with those risks. If UK Treasury default is a concern, buy global bonds. If the credit worthiness of many businesses worry you, buy only government bonds or highly (credit) rated bonds.  If interest rate changes worry you, buy a spread of maturities (as bond indexes hold). If you’re worried about unexpected inflation, buy index linked bonds in the currency whose inflation will affect you. 

JohnWinder

‘ My big issue is deciding on the allocation % as when it comes down to it (when my own money is concerned) I think I would find it difficult to decide. I can’t get my head around how I work out my approach to risk.’

Fear not, no one has a great approach to this, including the advisor with a questionnaire. You’ll only have a good idea of your risk tolerance when you’ve been through a crisis when your investments quickly lose 30% of their value, then another 30% of what remains, and doesn’t look like stopping. Your friends are vomiting, it’s so gut wrenching….then you’ll know. You can bravely say ‘I’ll be strong’, before the event, but you never know. Meanwhile, put some portfolios into portfoliovisualizer and look at some falls.

Secondly, there’s not much difference in returns for 80/20 and 60/40 which is probably why Vanguard don’t offer 70/30 in VLS, so don’t worry about getting risk assessment right to three decimal places. Something about ‘overcomplicates everything; embraces simplicity’.

Thirdly, providers and others (Morningstar) have glide paths to adjust stock/bond allocations as investors age eg, target date funds etc. Look at some of them to get a feel for what the industry thinks is reasonable for someone at your stage. Is you thinking way out of line or a bit similar?

It can be tempting to take a lot of risk to get better returns, but it doesn’t necessarily follow. If high risk reliably gave high returns it wouldn’t be high risk.