Reasonable Portfolio?

Telfordhill1

Hello all, may I kindly ask for opinions on the following before committing? I have spoken to an IFA and I have no reason to doubt that the steer from him is sound but just interested in opinions from the knowledgable people on this forum.

My assessment to taking risk is apparently on the cautious side of moderate if that makes sense. I am almost 63 years old and retiring at the end of May 2025. I am receiving an NHS pension currently and will use some of the money in the Royal London Short Term Money to supplement my income until state pension age. I am hoping to not touch the remainder for a good number of years. 

The suggestion is to split the uncrystallised pot as follows:

 

Orbis Investments Global Balanced Fixed Fee: 37.5%

Royal London Short Term Money Market: 25% 

HSBC Global Strategy Balanced Portfolio: 18.75%

Ruffer LLP Diversified Return: 18.75%

Does this look reasonable for a diversified portfolio?

dunstonh

Does this look reasonable for a diversified portfolio?

Investing is a lot about opinion and there are thousands of options. So, expect a lot of different opinions.  But opinions do not mean right or wrong.

RLSTMM is a good option for short term and defensive.
HSBC GS Balanced is a good transactional option.
The other two have never made my radar.  I have heard of them but not for me.

Linton

I like the approach exemplified by this portfolio where the requirements are clearly reflected in the choice of funds.

RLSTMM seems appropriate for your income until you get your SP. 

For the longer term the emphasis is on a fairly cautious balance between fixed interest (bonds) and well diversified equity weighted somewhat towards solid defensive companies.

Once you have the structure of your portfolio sorted the choice of specific funds is much less important and is subject to personal taste.  HSBC GS Balanced is a well known multi asset fund suited for moderately cautious investors seeking long term growth. 

I had not heard of the Ruffer and Orbis funds and it is not obvious to me why they were chosen but overall from their choice of underlying investments they look to be in keeping with the general aims of the portfolio with the Orbis fund less cautious than the others.  Perhaps the information from the IFA provides further insight.

Labtebricolist

The fees on the Orbis and Ruffer funds look quite racy - over 1% for each based on a quick google.  There will also be some significant correlations between the underlying holdings in the three non-money market funds.

You can almost certainly achieve better returns and lower fees (before even thinking about what an IFA will be taking) using a simple DIY approach made up of passive investments.  The first thing to do is to think about your risk appetite and select an equity component consistent with that, then select bond and money market funds for the balance, noting that MMFs will most likely do the work of cash.

Fink_Nottle

Fees. That's money you give away. Be sure it's worth it. There's nothing wrong with high fees so long as there's a good chance that a higher fee fund will guarantee you a better return than a lower fee fund. But do they? A lot of opinions I've read suggest the opposite. (This debate is usually broken down into 'active funds = high fees, passive funds = low fees'.)

There are some good articles on Occam Investing's blog in particular describing how fees erode your wealth, and how most (c80-90%?) active funds underperform the market - and therefore underperform the passive funds based on those markets. If the experts managing the active funds so often get it wrong, what chance do uninformed amateurs like me have in picking the 10-20% of good funds? That's why I stick to passive funds and accept that I won't beat the market. Matching the market is good enough for me,

I will offer no opinion on these specific funds, but if any of the above chimes with you, it wouldn't hurt to ask your IFA whether he can suggest a portfolio which has a similar balance but at lower cost.

barnstar2077

https://www.youtube.com/watch?v=xKLBd_WMSBg

Linton

I believe an over-riding focus on fees to be dangerous especially for a cautious investor with a range of different needs who would get more pain from losing 1% than the pleasure from gaining an extra 1% and may be unable to sleep at night when faced with excess short term fluctuations. Even for the most hardened investor maximum return may be less important than achieving sufficient return at minimum risk.  Appropriateness for meeting objectives in my view is far more important than charges. 

For example a cautious investor, or any investor with other than long term time scales who focussed purely on the standard index funds could have been badly hurt by the tech boom/bust 25 years ago (some of us remember living through it) or by the more recent crash in long term bond prices.

Having determined the desired characteristics of the underlying investments you then have the problem of constructing a corresponding portfolio.  If your needs match the behaviour of the cheapest standard index funds then fine, problem solved.

However if a portfolio consisting of a couple of index funds dont match your needs in way that you feel comfortable with life gets more complicated.  You have to build your own portfolio using a number of different funds.  A larger set of index funds may be right or you may then find that you need to include even more to counter some of the undesired features of the core ones.  Some areas of investing are poorly served by current index funds.

So it is an optimisation problem where the fund charges is one factor but I would suggest a lesser concern than meeting your needs whilst keeping the number of funds within managable bounds.

barnstar2077

I don't think anyone is suggesting that fees be the only concern, just that they can have a massive effect on long term returns, so clearly everyone should keep the cost in mind while meeting their long term objectives.

Managed funds tend to not to do as well in the long term and their costs are higher (if I was a cautious investor I wouldn't want to touch them with a barge pole personally.)  I know what I would choose, but everyone must make their own assessment.

Beddie

I like the first 3, all good funds which do their respective jobs well. The Ruffer one I'm less sure about. Ruffer tends to do well in a difficult market, so it's there as a buffer against a downturn or crash, but personally I'd have it in bonds.
Or increase the amount in HSBC as that has a bond element. 

Just my opinion, it's no more valid than anyone else's and what you've listed does seem reasonable.

Bostonerimus1

Well the asset allocation seems to align with your stated attitude to risk as there is a good proportion of cash and short term bonds. I see that you can use the money market to add to your pension and fill the gap until SP kicks in which is a very safe strategy, but after that what do you want your investments to do? You say you want them to grow, but with what goal in mind, will your asset allocation be changing after SP starts?

I would not be using active funds with their high charges as I feel they are a waste of money, but that's my personal preference. You have some funds with annual charges over 1% which is too high IMO and what are you paying your IFA every year? Have you worked out exactly how much money you will be paying in fees each year? Maybe you can come up with the figure in pounds and tell us. With those figures in hand you might ask your IFA to come up with a cheaper portfolio with a similar asset allocation or even DIY and save even more...if you feel comfortable.