Dumping IFA portfolio to go DIY

NoviceInvestor1

dunstonh said:

eople love to navel gaze and criticize the finest details of asset allocation and it really is pretty pointless. So I say well done, sit back and enjoy your simple portfolio.

The key points raised are more than just navel-gazing and criticising.

VLS80 costs more.  you are normally one of the first to say go with lower cost.
6% bonds is so irrelevant to the risk level but it will hurt returns.   So, why both with it?
And as you said earlier in the thread about keeping it simple, all this could be achieved with a single suitable global tracker. 
(it could be achieved cheaper still by using single sector funds but that requires more work and more funds)

Dunston, may I please ask what% of bonds becomes relevant to the risk level in your opinion? 

mark5

I just have an overseas fund 70%, uk fund 20%, uk smaller companies 10% all index trackers. I’m slightly UK heavy but happy with that. I’ve seen reasonable gains the last few years. I will add some bonds at some point. 

I don’t think there is any need to over complicate things when doing it yourself. 

dunstonh

Dunston, may I please ask what% of bonds becomes relevant to the risk level in your opinion? 

Realistically 20% chunks but possibly 10% for more cautious investors.
6% really does nothing in the scheme of things.

example:
24/02/2020-24/03/2020 -  the CV fall.   This is 100% in purple vs 90% in grey.


That is -19.30% for 90% equities and -20.52% for 100% equities.    An insignificant difference for a higher risk investor/

Now lets look 10 years:



That is 265.06% for 100% and 227.81% for 90%.    

90v100 has made very little difference on the downside but look at the difference on the upside.

Daffdil

Oh, thanks everyone, lots of ideas to consider. We had a good chat last night and discussed some suggestions and tried to think what we really wanted. My husband had always been keen to go with 100% equities and from what has been said here it does seem to point towards that being better than trying to build in a safety net with bonds when we dont need to and also because we wouldnt want to include enough to really be meaningful...dunston's chart was very useful to show that. I think we are leaning towards three funds because we dont like the idea of all eggs in one basket

30% Hsbc All World C
30% Fidelity Index World P
40% Vanguard Ftse Global All cap

NoviceInvestor1

dunstonh said:

Dunston, may I please ask what% of bonds becomes relevant to the risk level in your opinion? 

Realistically 20% chunks but possibly 10% for more cautious investors.
6% really does nothing in the scheme of things.

example:
24/02/2020-24/03/2020 -  the CV fall.   This is 100% in purple vs 90% in grey.


That is -19.30% for 90% equities and -20.52% for 100% equities.    An insignificant difference for a higher risk investor/

Now lets look 10 years:



That is 265.06% for 100% and 227.81% for 90%.    

90v100 has made very little difference on the downside but look at the difference on the upside.

Thank you, that's a very helpful response - much appreciated! 

JohnWinder

Vanguard agrees. That's why they offer the VLS series in 20% jumps.

Bostonerimus1

dunstonh said:

eople love to navel gaze and criticize the finest details of asset allocation and it really is pretty pointless. So I say well done, sit back and enjoy your simple portfolio.

The key points raised are more than just navel-gazing and criticising.

VLS80 costs more.  you are normally one of the first to say go with lower cost.
6% bonds is so irrelevant to the risk level but it will hurt returns.   So, why bother with it?
And as you said earlier in the thread about keeping it simple, all this could be achieved with a single suitable global tracker. 
(it could be achieved cheaper still by using single sector funds but that requires more work and more funds)

The OP has come a long way, they could improve things slightly in some people's view, but I'd rather hand out some praise and encouragement in embarking on DIY with a simple portfolio. Yes there is overlap, but I think that's a small issue compared to the massive improvements already made. The OP can sit back for a while and maybe they will eventually sell the VLS80 and put it into the Vanguard FTSE World fund or something else, there's no hurry.

Linton

A lot has been said about precisely which funds should be chosen to provide an efficient 100% equity portfolio  I am somewhat concerned that there is no information about the financial management strategy, which surely should be well defined before any consideration is given to appropriate funds.  Getting an optimal strategy is likely to be far more important than choice of funds, which provided the overall portfolio is well diversified, is unlikely to make a life changing difference.

Just as it is important to minimise portfolio complexity up to but not beyond that needed to meet your objectives it is also important, if not nore so, to meet those objectives at mininimum risk. Choice of a minimum risk strategy is where a good IFA could really earn their money and an inexperienced amateur could make serious mistakes. 

From the data as I understand it I am not convinced the numbers are sufficiently safe for 100% equity. It is stated that after SPA, interest on cash of £10K/year (? or possibly not) plus 2X DB pensions + 2X SP an additional 1X DB pension + 2X SP pension + £20K - £10K wife's income will be needed from the cash holdings £40-£50K/year?

I see some significant risks...

1) Cash income

 - The interest rate is not guaranteed for more than a small number of years.  Within the pre-SPA time scale it could easily fall by 50%.   

 - any amount used from the core savings will reduce future interest

- cash savings cannot provide inflation matching in the long term so you will become increasingly dependent on your equity.

2) DB pensions

Do your DB pensions fully match inflation with no cap?  The danger with capped DB pensions is that any loss of inflation matching in a single year is never recovered in future years.  So over the longer term a capped DB pension can be expected to fall in real value.

3) Equity crash

Every decade it can reasonably be expected that there will be a major equity crash of say 50%.  Will your and your wife's nerves stand it when you are dependent on taking 3.3% of £600K rising with inflation  to maintain your desired standard of living?  Especially if you add in the risk from inflation with other income streams.  The 3.3% figure is generally regarded as a sensible sustainable drawdown amount for planning purposes based on a 60% equity/40% bond portfolio. It is not wildly pessimistic.

If I were in your place I would want to see a range of financial models illustrating possible scenarios. Only then can one make rational decisions on a retirement investment portfolio. 

IanManc

Daffdil said:

Oh, thanks everyone, lots of ideas to consider. We had a good chat last night and discussed some suggestions and tried to think what we really wanted. My husband had always been keen to go with 100% equities and from what has been said here it does seem to point towards that being better than trying to build in a safety net with bonds when we dont need to and also because we wouldnt want to include enough to really be meaningful...dunston's chart was very useful to show that. I think we are leaning towards three funds because we dont like the idea of all eggs in one basket

30% Hsbc All World C
30% Fidelity Index World P
40% Vanguard Ftse Global All cap

Each of those funds buys shares of companies with your money, and those shares are ring fenced and held by a custodian, so that if the fund house went bust - which with these three is extremely unlikely - then the assets and the customer book would be transferred to another fund house which would want to acquire the additional market share.

The Fidelity fund invests in 1455 companies, the HSBC fund invests in 3555 companies, and the Vanguard fund invests in 7129 companies.

For these reasons there is no real need to worry about "all eggs in one basket" as each is very diversified and each has its assets protected.

However, if you are going to be concerned or worry about it then you're not doing anything wrong by buying into more than one fund, though really you only need one.

For completeness, I'd point out that each of them does slightly different jobs. The Fidelity one invests only in developed world countries in large and mid-cap sized companies and is 70.9% invested in the USA. The HSBC one invests in developed countries and emerging markets in large and mid-cap sized companies and is 62.82% invested in the USA. The Vanguard fund invests in developed countries and emerging markets and invests in large, mid-cap and small cap companies, and is 62.2% invested in the USA.

The size of holding in the largest cap companies varies due to this composition, so for example as far as their holdings in Microsoft, the largest holding in each fund, is concerned, the Fidelity fund is 4.6% Microsoft, the HSBC one 4.3% Microsoft and the Vanguard one 3.8% Microsoft; so the Fidelity one is the most skewed towards large companies. 

If any of that is of significance in your considerations then you could choose one fund that fits with your preferences and your investments would still be perfectly safe.

However, as I said before, you wouldn't be doing anything daft by buying into one, two or all three of them - they're just a bit different from each other.

Hope this helps. 

Hoenir

Scrudgy said:

I am quite risk tolerant and I forced myself to put a whole 30% into LS80, but it is my nod to reducing volatility slightly. I do keep 2 years "oh crap" cash for severe market drops.

Most investors only fully appreciate their own risk tolerance when a market correction directly impacts their portfolio for extended periods. While another market segment will perform better.