Strategy for an amateur, other than sticking everything in a diverse index fund?

dannybbb

my hsbc funds  (in a SIPP) are up just under 7% in 10 months. happy with this especially with the added tax relief -  my only concern is my age vs a possible crash. if i was younger I wouldnt care  but obviously have limited time to recover (also only started at 49) im thinking i should step back from equities . No one knows what will happen  but I  would rather have smaller gains than bigger losses at this point. Annoyed it took me till so late to start but there we are.

Being more open to investing but in what seem like volatile times Ive been going back and forwards about what to do with cash savings i have accumulated.  still waiting to see a financial adviser but I also value the impartial advice offered here.

Would be interested to hear some good ideas for a large amount of cash that i have sitting outsite the sipp or the business. Ive maxed out my cash isas which are around £270000 and have almost 500k in cash savings.  Thought about a property as a sort of annuity so that i could work less, what would you do  as an alternative to equities in later life?

Bostonerimus1

smulx said:

I don't really have the knowledge to actively manage my investments so a few years ago I decided to stick everything in Vanguard's LifeStrategy 80% index fund. It's doing okay, and I've gained 30% since I started, so there may not be any reason to change this approach. I assume there are other options though, there must be a huge gap between what I'm doing, and someone that actively manages their own stock portfolio. 

For someone in my situation, is this generally the done thing, once a platform that suits your needs has been found? Or is it normal to have a bit more active involvement even for people without the a lot of investment knowledge? Hope that makes sense.

Vanguard LS80 is a multi-asset fund that is made up of index funds that are regularly rebalanced. So it's an all in one portfolio of index funds. There were some active decisions made to own particular indexes and in particular proportions, but that's what passive index investors do and many also rebalance.

What you are doing is very sensible and vastly different from someone who spends time researching funds or stocks in an effort to maybe time the market and certainly beat it. By using something like VLS80 you have a diversified portfolio and will do better than most active investors. There was a time a few years ago when there were lots of posts about how good the actively managed funds from Fundsmith and Lindsall Train were, but for the last few years they have not performed well and people now don't post to shout about their losses. With active investing you have the potential to beat market indexes and portfolios of indexes, but there is a bigger potential to do worse. Using VLS80 will take a lot of pressure off you, give you time to do fun stuff other than investing research and increase the probability that you will do well enough to retire comfortably. I've been doing passive indexing for 40 years and it has allowed me to retire at age 52 and never have to worry about money again - it worked very well for me which is why I advocate that others do something similar.

GeoffTF

dannybbb said:

Would be interested to hear some good ideas for a large amount of cash that i have sitting outsite the sipp or the business. Ive maxed out my cash isas which are around £270000 and have almost 500k in cash savings.  Thought about a property as a sort of annuity so that i could work less, what would you do  as an alternative to equities in later life?

Any answer would depend on your personal circumstances, ability to absorb risk and risk tolerance. The likely returns can be higher if you take more risk, but that risk could come to fruition. It does not look like a good time for buy to let. There are no easy answers. Nobody knows the future.

Cus

If your intention is to make average market returns by following an index then you are doing fine now.
If you want to play with 5% of your wealth for fun, knowing that on average you'll not do so well but you might have fun then why not

Nebulous2

Who knows what tomorrow will bring? 

Almost 4 years ago I found myself with a six figure sum to invest. I couldn't wrap my head around the fact that a passive world index fund was around 60% invested in US companies.

I wanted to pivot away from that. 

Despite the advice here not to, I diversified by selecting some other companies. UK smaller companies,  European companies and a Japanese fund. 

My best performer is an index fund and it is up 61%. Some of the worst ones, like UK smaller companies, are still down after 4 years or so.

Hoenir

EdSwippet said:

Hoenir said:

EdSwippet said:

Hoenir said:

For fun you could run a dummy portfolio and see how your decisions pan out. 

Not really recommended. The danger is that you get lucky, attribute luck to skill, and then go on to put real money into that portfolio ... until luck runs out.

That depends on how seriously you approach the task. ...

I've been seriously flipping a coin for five minutes now, but failed to get ten heads in a row. I guess I need to increase my seriousness.

Why would you want to endlessly flip investments. Utterly pointless activity. 

Bostonerimus1

Nebulous2 said:

Who knows what tomorrow will bring? 

Almost 4 years ago I found myself with a six figure sum to invest. I couldn't wrap my head around the fact that a passive world index fund was around 60% invested in US companies.

I wanted to pivot away from that. 

Despite the advice here not to, I diversified by selecting some other companies. UK smaller companies,  European companies and a Japanese fund. 

My best performer is an index fund and it is up 61%. Some of the worst ones, like UK smaller companies, are still down after 4 years or so.

I retired in 2014 with an 80% world index equity portfolio because I also had a DB pension and rental income. I have done nothing to it since and have an average annual return of just over 11%. Worst year was -17%, best year was +26%. So when you invest without a lot of asset class diversity you can get some big short term swings. I can live with those because I do have the income diversity of a DB pension and people with long time horizons have historically seen good long term returns from equities. However, as retirement approaches the generation of income becomes important and using the anticipated growth in equities is only one approach and fixed income and annuities become more important assets to consider in many circumstances.

I think the OP's investment in VLS80 is excellent as long as they are young and have time to recover from market down turns before they need their money.

Linton

If your sole objective is long term returns then diversified global equity is the best bet with minimal risk from failure of individual companies, industries and countries.  Over the long term from the tests I have done the difference in performance between quite differently allocated but still highly diversified portfolios is small and I would expect it to approach zero the longer the time period. 

In some circumstances such as retirement there are other factors that may apply, in particular control of short term volatility or a change in the balance between happiness at higher returns than expected vs misery at lower returns..  Under those circumstances some skill and a good understanding of the behaviour of investments can be very beneficial in the design of an appropriate portfolio.

Eyeful

dannybbb said:

my hsbc funds  (in a SIPP) are up just under 7% in 10 months. happy with this especially with the added tax relief -  my only concern is my age vs a possible crash. if i was younger I wouldnt care  but obviously have limited time to recover (also only started at 49) im thinking i should step back from equities . No one knows what will happen  but I  would rather have smaller gains than bigger losses at this point. Annoyed it took me till so late to start but there we are.

Being more open to investing but in what seem like volatile times Ive been going back and forwards about what to do with cash savings i have accumulated.  still waiting to see a financial adviser but I also value the impartial advice offered here.

Would be interested to hear some good ideas for a large amount of cash that i have sitting outsite the sipp or the business. Ive maxed out my cash isas which are around £270000 and have almost 500k in cash savings.  Thought about a property as a sort of annuity so that i could work less, what would you do  as an alternative to equities in later life?

1. Make sure you understand the difference between
an Independent Financial Adviser (IFA) who is supposed to work for you,, and 
a Financial Adviser (FA) who works for the company who employs them.
https://www.which.co.uk/money/investing/financial-advice/how-to-find-a-financial-adviser-afZ375F6BIiC

2. Everything to do with money has risk attached, its just the size & type of risk that changes.
Cash in a savings account has the risk of inflation greatly reducing the buying over the time you are retired. 
UK inflation examples:
1976=24%, 
1979=17%
1986=15%
2022=9%

3. The following article maybe of interest to you:
 https://www.getrichslowly.org/bull-bear-markets/

4. Have you considered how long you are expected to live?
https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07

Albermarle

Nebulous2 said:

Who knows what tomorrow will bring? 

Almost 4 years ago I found myself with a six figure sum to invest. I couldn't wrap my head around the fact that a passive world index fund was around 60% invested in US companies.

I wanted to pivot away from that. 

Despite the advice here not to, I diversified by selecting some other companies. UK smaller companies,  European companies and a Japanese fund. 

My best performer is an index fund and it is up 61%. Some of the worst ones, like UK smaller companies, are still down after 4 years or so.

Sounds familiar ...........