Dumping IFA portfolio to go DIY

JohnWinder

Daffdil said:

. I mentioned high dividend index as a proxy for value/quality, we would reinvest dividends, just wondered if it added some balance.

Wait a minute. You're planning 50% in Vanguard which is a fund covering large, medium and small stocks from developed and emerging markets. That's as close as you can practically get to my idea of ideal. Another 30% with HSBC in the same except it omits small companies, so close enough to ideal to not matter. You can't add anything to those to improve 'balance'. Anything added except perhaps some small cap can only unbalance it all, not in an important way, but do examine your thinking (or mine). Bread is 1% salt and mostly flour, very unbalanced; you don't improve it with ten times as much salt. I hark back to my Ferri line.

Scrudgy

I wanted to go DIY, but first wanted all my plans for retirement planning, investments, tax etc sense checked. I used an IFA who works on a one off fee basis to provide this.

The IFA was very firm on the investment strategy, being:- low cost passive trackers, global exposure, predominately equities.

The investments I settled on:-
35% Vanguard FTSE Developed World ex UK equity ACC
35% HSBC FTSE All World Index C ACC
30% Vanguard Lifestrategy 80 Fund A ACC

The IFA supported this and reminded me that there are going to be times when I will crap myself in down turns, but to stay the coarse and stick to the plan. He is of the firm opinion that my goals will be met and the cash flow model backed this up. Time will tell.

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.

dunstonh

Scrudgy said:

I wanted to go DIY, but first wanted all my plans for retirement planning, investments, tax etc sense checked. I used an IFA who works on a one off fee basis to provide this.

The IFA was very firm on the investment strategy, being:- low cost passive trackers, global exposure, predominately equities.

The investments I settled on:-
35% Vanguard FTSE Developed World ex UK equity ACC
35% HSBC FTSE All World Index C ACC
30% Vanguard Lifestrategy 80 Fund A ACC

The IFA supported this and reminded me that there are going to be times when I will crap myself in down turns, but to stay the coarse and stick to the plan. He is of the firm opinion that my goals will be met and the cash flow model backed this up. Time will tell.

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.

For me, the VLS80 in that mix is completely pointless.    You may as well use a global tracker and be done with it.  Lower cost, very little difference in volatility and a lot simpler.

JohnWinder

'For me, the VLS80 in that mix is completely pointless.    You may as well use a global tracker and be done with it.  Lower cost, very little difference in volatility and a lot simpler.'

It doesn't add much in the way of bonds; with the VLS there's now 6% bonds in the portfolio (if we ignore the 2 years of cash, which we shouldn't). But without the VLS the portfolio is under-weight UK stocks. If there's anything to be said for some 'home bias' it's that when you become enemies with other countries and they decide to freeze the assets of foreigners or even confiscate them, home bias feels good. That makes if far from completely pointless to my mind.

NoviceInvestor1

Daffdil said:

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.

Having 20% of something with 30% fixed income gives you 6% in fixed income, which to me would be completely pointless. 

MyMap 5 seems fairly volatile for the poor returns it has offered, I'm not sure you'd gain much by adding it. 

IanManc

JohnWinder said:

'For me, the VLS80 in that mix is completely pointless.    You may as well use a global tracker and be done with it.  Lower cost, very little difference in volatility and a lot simpler.'

It doesn't add much in the way of bonds; with the VLS there's now 6% bonds in the portfolio (if we ignore the 2 years of cash, which we shouldn't). But without the VLS the portfolio is under-weight UK stocks. If there's anything to be said for some 'home bias' it's that when you become enemies with other countries and they decide to freeze the assets of foreigners or even confiscate them, home bias feels good. That makes if far from completely pointless to my mind.

The presence of the VLS80 doesn't really add any significant home bias - it is just marginally overcompensating for the lack of UK investments in the "35% Vanguard FTSE Developed World ex UK equity ACC" element which wouldn't exist if the OP simply chose a global tracker as @dunstonh suggests.

I think the OP would be better off with one global tracker. Their current choice is just a bit of a dog's breakfast attempt to tweak that, with a 20% of 30% bond element which at a net of 6% of the total investment is pointless and will have an undetectable effect on volatility.

Bostonerimus1

Scrudgy said:

I wanted to go DIY, but first wanted all my plans for retirement planning, investments, tax etc sense checked. I used an IFA who works on a one off fee basis to provide this.

The IFA was very firm on the investment strategy, being:- low cost passive trackers, global exposure, predominately equities.

The investments I settled on:-
35% Vanguard FTSE Developed World ex UK equity ACC
35% HSBC FTSE All World Index C ACC
30% Vanguard Lifestrategy 80 Fund A ACC

The IFA supported this and reminded me that there are going to be times when I will crap myself in down turns, but to stay the coarse and stick to the plan. He is of the firm opinion that my goals will be met and the cash flow model backed this up. Time will tell.

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.

Three solid funds and you have an asset allocation that makes you comfortable, so I think that's just fine. You could make it simpler, but that would really be diminishing returns. There is an almost infinite set of portfolios that will work for your situation and I think you have one that's in that set. People 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.

dunstonh

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)

thunderroad88

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.

I agree with Bostonerimus1…now they have the £350k inheritance they have a well split pf. I think they absolutely can keep their £450k solely in equities and in fact if they used their isa allowances this year to increase their equities to £490k, they’d have almost exactly a 60/40 split. Part of the £350k cash can be invested in one or two year fixed interest savings to provide 4-5% interest which could be compounded and likely provide as much capital growth as bond funds, with the remainder kept in interest bearing instant access accounts to augment the db pension and provide income. I guess the only difference compared with a traditional 60/40 with bonds is that their 40% will definitely be eroded somewhat by taking a fair proportion as income, but that is offset by the fact that in seven years their income is guaranteed at a healthy level anyway and so the pf will potentially not be needed for drawdown. 

The psychological factor is interesting…I had a similar dilemma and in the end I ended up betwixt and between by adding a few funds with some bonds (why? Given my ifa constructed pf was 100% equities?) which will still hopefully provide returns to meet my objectives but as others have pointed out, having 6% in bonds is neither use nor ornament and not really necessary other than being a psychological crutch

boingy

If it was me I'd lose the two Vanguard funds and stick it all in the HSBC one. The OP and their partner have plenty of income and assets elsewhere and it's not like they are going to need to cash in the whole lot at once so they can weather any downturn.