Dumping IFA portfolio to go DIY

Daffdil

thunderroad88 said:

Just to bookend this thread for future readers, this is what I finally settled on. I am using II for my wife’s isa and iWeb for mine, so very low platform costs and minimal trading fees. Our pf splits are these

HSBC FTSE All World C                   37%
Fidelity Index World P                      32%
HSBC Global Strategy Balanced.    19%
VG LS80                                            6%                      
VG Small Cap Index                          6%

Total fund charges 0.147%

IFA charges £0

Yes this possibly could have been an even simpler pf but it’s pretty set and forget I think. Decided to add in small level of bond representation (about 8%) in the end which can be increased in future as required. Savings on charges will be approx £7k per annum versus previous ifa pf. Thanks again for all contributions which did help my thinking immensely.

I found this thread interesting as we are going through a similar process. My husband has just inherited £350k and we were just finalising a move to transfer our isas from a wealth manager to do them ourselves as the fees seemd very high. we are in a similar position of no kids, no mortgage, turning 60 and pensions sorted. My husband has decided to retire now we have that cash buffer to provide income via interest and drawdown from it, plus he can start taking his db pension. We should easily be able to live without touching our equity isas until my db pension in 5 years and our state pensions in 7 years.
Vanguard
Our isas we had with our wm were using their balanced fund so about 60/40, but my husband thinks we should move 100% into equities and go only for growth now we have guaranteed income for 7 years, and i think i agree but part of me is always more cautious than him so I don;t know. We have £450k between us which we were thinking of splitting

Vanguard FTSE global all cap 50%
HSBC All World C 30%
Something else 20%

The somehting else he wants to have L&G global 100 or VUAG to go for growth but I am thinking of LS60 to have a bit less risk, or I have read about value funds like Vanguard high dividend or VHVG. Did you consider any of these? Also, can I ask why you chose to have small companies separate as a fund like Vangaurd All cap includes them.

It is quite confusing isn;t it but hopefully we will get sorted soon.


 

JohnWinder

It is quite confusing isn;t it but hopefully we will get sorted soon.'

I think you can deal with the confusion fairly easily. You need to know a bit of personal investing theoretical underpinnings, a bit of returns history, and a bit of the best available evidence. For the first: diversification is beneficial; market cap weighting offers the best return for risk level with equities; bonds need some duration matching consideration for risk management; keep costs low. For the second: there are periods when small cap stocks out-return other stocks, and other periods when growth stocks beat value stocks (recent decade in US), or emerging market stocks are very disappointing etc. These periods vary from a few years to decades, and some of it you can see in table and graph form at portfoliovisualizer. For the third: it's very hard for active funds to beat index funds over longer periods; investors are their own worst enemies as they fall prey to performance chasing, recency bias, over-confidence with risk tolerance etc. None of all this ensures you'll make perfect choices and get the best portfolio, but you should be able to get a very good one. Perfect is only known in retrospect.

It seems your future is financially fairly secure, so any of the choices you're considering ought to work out fine. Don't fret too much.

Specifically, LG global 100 smacks of recency bias since the big US tech stocks have done so well in recent years. Be careful of that; choosing the biggest 100 is not choosing the whole market which theory says offers better return for risk. But as that choice affects only 20% of your discretionary investing, it's hardly going to make much difference; if it's ahead or behind by 2%/year compared to the others, it affects your results by only one fifth of 2%.

As to a high dividend fund, equity returns can be realised as dividends or stock value growth; they're both components of return so it doesn't matter which form the return comes in (except dividends need less effort to get the money in hand to spend). It's a fallacy to imagine dividend investing is safer than whole market investing.

So, accepting that the final end of your life outcomes from any of your choices could be the best or worst among your choices but won't be that different or matter to you materially, the very important matter you're left with is the undoubted benefit of knowing that a big risk you face is seen when you look in a mirror. People do silly things with good portfolios at great cost. Because of frightened selling in down markets, following the crowd in buying flavour of the month investments, chopping and changing for something that might be better etc, individual investors on average get returns about 1.5%/year lower than the funds they're invested in. Read Morningstar's 'mind the gap' research.

Ferri says index investors go through 4 phases: born in darkness; discover index investing; overcomplicate everything; embrace simplicity.

Enjoy the journey.

thunderroad88

It is quite confusing isn;t it but hopefully we will get sorted soon

Daffdil, I’m glad you found the thread to be of some use. Yes it is daunting going it alone and I’m probably not the best person to ease your confusion. I took weeks to decide my final selections and at one stage I too was sure I’d go with Global All Cap too to get EM and Small Cap coverage. But I decided I didn’t want any more EM than I get via the HSBC funds so I chose one of the best and cheapest developed world funds in Fidelity and added a satellite Small Cap to keep SC at a reasonable %. I had also toyed with Global 100 but like you I had a nagging voice suggesting a little caution and not overdo the big US companies too much so I included the GS and LS funds to add a small varied bond element and reduce volatility a little. After all, you will have plenty of exposure to the US, the Mag 7 and the S&P in those tracker funds so if they do well you’ll still do well…it might be greedy to want that extra 1 or 2% if you’re already up 12%? I’m still 92% in equities so that bond element is not going to offer much comfort I guess in the event of a crash and I do wonder if I might as well have left it out but there you go. It’s there and I can increase it in 5 years time if required. I didn’t consider value funds as I always just really wanted to keep it simple and have only a few of the best global index trackers. I complicated it slightly by reading and thinking too much and if I’d put half in HSBC All World and half in VG Global All Cap I don’t think it would have made too much difference.

You sound as if your income is sorted with that cash pot for the next 7 years and then I guess your db pensions and state pensions will cover your needs? That is similar to our position so I don’t think it’s unreasonable for your other half to be keen to go all in on equities. £450k in equities and £350k in interest bearing cash with guaranteed good pension income by 2031 sounds pretty secure.

I hope it goes well, tell your husband not to overthink too much…you might get some other pointers on here from others, it’s a useful site and people are generally helpful.

Daffdil

JohnWinder - thank you. i take your point about the global 100, in last year it performed 5% better than HSBC which as you say would only add an incremental 1%, not huge gains in the grand scheme of things. I mentioned high dividend index as a proxy for value/quality, we would reinvest dividends, just wondered if it added some balance.

Beddie

Daffdil said:

thunderroad88 said:

Just to bookend this thread for future readers, this is what I finally settled on. I am using II for my wife’s isa and iWeb for mine, so very low platform costs and minimal trading fees. Our pf splits are these

HSBC FTSE All World C                   37%
Fidelity Index World P                      32%
HSBC Global Strategy Balanced.    19%
VG LS80                                            6%                      
VG Small Cap Index                          6%

Total fund charges 0.147%

IFA charges £0

Yes this possibly could have been an even simpler pf but it’s pretty set and forget I think. Decided to add in small level of bond representation (about 8%) in the end which can be increased in future as required. Savings on charges will be approx £7k per annum versus previous ifa pf. Thanks again for all contributions which did help my thinking immensely.

I found this thread interesting as we are going through a similar process. My husband has just inherited £350k and we were just finalising a move to transfer our isas from a wealth manager to do them ourselves as the fees seemd very high. we are in a similar position of no kids, no mortgage, turning 60 and pensions sorted. My husband has decided to retire now we have that cash buffer to provide income via interest and drawdown from it, plus he can start taking his db pension. We should easily be able to live without touching our equity isas until my db pension in 5 years and our state pensions in 7 years.
Vanguard
Our isas we had with our wm were using their balanced fund so about 60/40, but my husband thinks we should move 100% into equities and go only for growth now we have guaranteed income for 7 years, and i think i agree but part of me is always more cautious than him so I don;t know. We have £450k between us which we were thinking of splitting

Vanguard FTSE global all cap 50%
HSBC All World C 30%
Something else 20%

The somehting else he wants to have L&G global 100 or VUAG to go for growth but I am thinking of LS60 to have a bit less risk, or I have read about value funds like Vanguard high dividend or VHVG. Did you consider any of these? Also, can I ask why you chose to have small companies separate as a fund like Vangaurd All cap includes them.

It is quite confusing isn;t it but hopefully we will get sorted soon.


 

100% equities is considered very high risk and few IFAs would advocate that at your age. I'd be more inclined to do a 60/40ish split - bonds do grow as well, despite the awful year they had in 2022. If there is a 20% or more drop from the current highs, how would you both feel? If the answer is "not bothered" then go for it!

Daffdil

Thunderroad - thank you. i think we;re just a little nervous having been with our wm for 12 years. I think youre right, we are secure and in a different position than previously so we can afford to take more risk. I think we could go with the two funds I said and it would give us what we need, although I did look at multi asset funds like LS and have found Blackrock My Map which seem good and cheaper. My Map 5 is 70% equities and 30% fixed income so that might be an option for the other 20% but i will talk over with my husband later. We have no hurry as our transfers will take weeks yet i think.

Aminatidi

The thing I've heard really focuses the mind is trying to imagine how calm and level headed you'd be if you saw that £450K go down to £225K and there was no new money coming in.

By all accounts there's often quite a difference between how you think you'll react and how you do react and when you've put your feet up and there's no more salary coming I'm told it can be quite a sobering experience if you don't react the way you think you will and you don't have the safety net of a monthly salary coming in to calm your nerves.

Sorry to be that guy but it needs saying so you really think long and hard whether you can stomach that scenaio.

Daffdil

Aminatidi said:

The thing I've heard really focuses the mind is trying to imagine how calm and level headed you'd be if you saw that £450K go down to £225K and there was no new money coming in.

By all accounts there's often quite a difference between how you think you'll react and how you do react and when you've put your feet up and there's no more salary coming I'm told it can be quite a sobering experience if you don't react the way you think you will and you don't have the safety net of a monthly salary coming in to calm your nerves.

Sorry to be that guy but it needs saying so you really think long and hard whether you can stomach that scenaio.

But we do have £16k per annum coming in from my husbands db pension now and if we take even £40k per year from this inherited cash, we will still have some left in 7 years when my db pension will have started and both our state pensions so our regular income in 7 years will be about £50k at current prices. My husbands argument is that given this we should go for max growth in our ISA as it is entirely possible we may never need to even touch our investments for 10 years if ever. we do have kids but completely non dependant kids so these investments will either be for them or our care. i feel a little bit more cautious so its a interesting conversation were having.

Bostonerimus1

Beddie said:

Daffdil said:

thunderroad88 said:

Just to bookend this thread for future readers, this is what I finally settled on. I am using II for my wife’s isa and iWeb for mine, so very low platform costs and minimal trading fees. Our pf splits are these

HSBC FTSE All World C                   37%
Fidelity Index World P                      32%
HSBC Global Strategy Balanced.    19%
VG LS80                                            6%                      
VG Small Cap Index                          6%

Total fund charges 0.147%

IFA charges £0

Yes this possibly could have been an even simpler pf but it’s pretty set and forget I think. Decided to add in small level of bond representation (about 8%) in the end which can be increased in future as required. Savings on charges will be approx £7k per annum versus previous ifa pf. Thanks again for all contributions which did help my thinking immensely.

I found this thread interesting as we are going through a similar process. My husband has just inherited £350k and we were just finalising a move to transfer our isas from a wealth manager to do them ourselves as the fees seemd very high. we are in a similar position of no kids, no mortgage, turning 60 and pensions sorted. My husband has decided to retire now we have that cash buffer to provide income via interest and drawdown from it, plus he can start taking his db pension. We should easily be able to live without touching our equity isas until my db pension in 5 years and our state pensions in 7 years.
Vanguard
Our isas we had with our wm were using their balanced fund so about 60/40, but my husband thinks we should move 100% into equities and go only for growth now we have guaranteed income for 7 years, and i think i agree but part of me is always more cautious than him so I don;t know. We have £450k between us which we were thinking of splitting

Vanguard FTSE global all cap 50%
HSBC All World C 30%
Something else 20%

The somehting else he wants to have L&G global 100 or VUAG to go for growth but I am thinking of LS60 to have a bit less risk, or I have read about value funds like Vanguard high dividend or VHVG. Did you consider any of these? Also, can I ask why you chose to have small companies separate as a fund like Vangaurd All cap includes them.

It is quite confusing isn;t it but hopefully we will get sorted soon.


 

100% equities is considered very high risk and few IFAs would advocate that at your age. I'd be more inclined to do a 60/40ish split - bonds do grow as well, despite the awful year they had in 2022. If there is a 20% or more drop from the current highs, how would you both feel? If the answer is "not bothered" then go for it!

If you have retirement income sources from DB pensions and state pensions and even rental income or a part time job I think a 100% equity allocation is quite sensible. But you have to be ok with the potential for large losses, but if you aren’t relying on those equities for income that’s  not a practical problem. You just need to be ok with it psychologically.

Bostonerimus1

Daffdil said:

Aminatidi said:

The thing I've heard really focuses the mind is trying to imagine how calm and level headed you'd be if you saw that £450K go down to £225K and there was no new money coming in.

By all accounts there's often quite a difference between how you think you'll react and how you do react and when you've put your feet up and there's no more salary coming I'm told it can be quite a sobering experience if you don't react the way you think you will and you don't have the safety net of a monthly salary coming in to calm your nerves.

Sorry to be that guy but it needs saying so you really think long and hard whether you can stomach that scenaio.

But we do have £16k per annum coming in from my husbands db pension now and if we take even £40k per year from this inherited cash, we will still have some left in 7 years when my db pension will have started and both our state pensions so our regular income in 7 years will be about £50k at current prices. My husbands argument is that given this we should go for max growth in our ISA as it is entirely possible we may never need to even touch our investments for 10 years if ever. we do have kids but completely non dependant kids so these investments will either be for them or our care. i feel a little bit more cautious so its a interesting conversation were having.

The other argument is if you don’t need your investments just put them in something super safe and let them compound as saving interest rates. It is a good test of your psychology which option you choose. I think most people go for max growth potential and put the money in equities because that’s worked in the past and we are prone to emphasize good outcomes over the negative ones. I’m in a similar situation with enough guaranteed income from DBs to cover my spending so my investments are 90% equities. It means nothing much to me as I’m just gambling with my heirs inheritance.