Which Index funds to invest in?

chiang_mai

michael1234 said:

So we're all sat here tweaking our fund portfolios.

Are we hoping the regions we've invested in will grow more than expected or are we hoping more folk like us will pour more of their money into the regions we're currently invested in ? Which is it ?

It depends which region(s) you're invested in. If you're invested in the US and parts of Europe for example, those markets are very expensive, if not overvalued. But if you're invested primarily in EM, Asia and the likes, the odds are that growth will drive those markets higher. It's for that reason that I have reduced my US holdings and inxcreased my EM and Asia holdings.

https://worldperatio.com/

InvesterJones

chiang_mai said:

michael1234 said:

So we're all sat here tweaking our fund portfolios.

Are we hoping the regions we've invested in will grow more than expected or are we hoping more folk like us will pour more of their money into the regions we're currently invested in ? Which is it ?

It depends which region(s) you're invested in. If you're invested in the US and parts of Europe for example, those markets are very expensive, if not overvalued. But if you're invested primarily in EM, Asia and the likes, the odds are that growth will drive those markets higher. It's for that reason that I have reduced my US holdings and inxcreased my EM and Asia holdings.

https://worldperatio.com/

Well no, odds (as determined by where other people are 'betting') are saying they will not grow as much for the risk as other markets, hence why you can buy them cheaper.

But there are other reasons besides growth to apply your own over/under weighting - whether that's a home bias, or countering another home bias (I think this is fair reason to consider slightly under weighting the US for e.g.) or simply having a different risk appetite (in either direction) than the market as a whole.

GazzaBloom

chiang_mai said:

GazzaBloom said:

What criteria or rationale do you use to decide what markets you invest in and in what proportion?

The benefit of a global index, be it total market or developed markets only (long term it will make little difference to returns and isn't worth procrastinating over), is that it requires no educated active selection (some may call it guesswork), you just buy the one fund and hold it forever and let the index adjust over time as individual markets wax and wane.

Perfect for the “no nothing” investor and will deliver perfectly reasonable returns.

Having said that, contrary to many commentators on here, I am overweight US equities (through selective low cost index trackers) compared to the global index weighting and have been for many years and see no reason to change despite all the current hand wringing, furore and emotion surrounding the current President.

My rationalse for the choice of market is the availability of investing information in those markets and my personal comfort level. I wouldn't invest substantially in markets where I have no knowledge at all of that market and where information on it was hard to come by.  I lived in the US for 15 years and in Europe for 10. I was born and raised in the UK but have lived in SE Asia for 25 years and in China for 3.

The proportions are slightly more tricky. There's a lot of statistical data out there about what percentages people invest in which region so that can be a guide. Add to that your personal bias and comfort level and you'll arrive at a number. I have read repeatedly where it is said that investors should hold no more than 6% in Japan, because of volatility and risk. The emerging view is that it's not high risk to increase that to 10%....I hold 12%. Many UK investors will have home country bias and be overweight but I'm not happy with more than 15% or 18%. Ditto Europe, that's around 18% currently for me. EM can be 20% or more which including China, leaves me at 24 at present. The fact that your end allocation may be different from the percentages in say a global all world fund, doesn't mean much to me because they are usually based on capitalisation percentages. One mans meat etc. My decison to be sigificantly underweight USA is vested in US politics but is also a personal challenge to myself to try and achieve profit from places other than the US.....guess what, it's not hard to do hence there's no point in taking on US political risk, with the current regime. 

That's all very considered and I'm sure requires ongoing monitoring and potential adjustment. I do question whether over 20-30 years you can make the right calls to delivery better returns than a low cost global market cap weighted index which would require no effort or further consideration beyond holding your nerve and not panic selling when the market turns down.

For someone accumulating for retirement, I would advocate far more time and effort go into other aspects of personal finance such as debt reduction, lifetime cash flow planning and tax optimisation which will have far more beneficial impact on wealth building than hopping from one bus to another with your investments.

That was certainly my experience in the decade leading up to retirement and beyond.

Linton

michael1234 said:

So we're all sat here tweaking our fund portfolios.

Are we hoping the regions we've invested in will grow more than expected or are we hoping more folk like us will pour more of their money into the regions we're currently invested in ? Which is it ?

Neither.  Particular portfolio factors are specified in advance (eg % US, % tech, % small).  Occasionally the portfolio may be modified to improve the fit because:
 - fund price movements or allocations within individual funds change the overall allocations
 - new funds become available that allow a better fit
 - one thinks of more efficient (fewer funds) ways of achieving all the desired factors

The future is unpredictable so sadly one cannot change a portfolio to ensure higher performance except by  changing high level asset allocations or lowering charges.

AlanP_2

michael1234 said:

So we're all sat here tweaking our fund portfolios.

Are we hoping the regions we've invested in will grow more than expected or are we hoping more folk like us will pour more of their money into the regions we're currently invested in ? Which is it ?

Neither as such.

I'm pondering lowering my US exposure, particularly the Mag 7 exposure, a bit just to play safe as much as anything.

Unlike a professional money manager I don't need to be concerned about my "results" in the short term as long as I achieve my objective which is to protect the assets we have built up against inflation and allow us to spend it down in our retirement.

A professional will get caned if they lag their peers / the market for a while so they almost have to be invested in US / Mag 7 whether they personally think it is a sensible long term approach or not.

Private investors can do what they want, when they want and only have to answer to their spouse (that could just be me  )

The US is at a very high valuation , particularly the Mag 7, and the fact that ex-US trackers are now being offered provides a low cost, easy opportunity to decrease US exposure using a passive approach without going to the hassle of holding multiple country / region funds. 

Theoretically the cheaper assets purchased should do better over an extended period as they are starting from a lower base but Whether the Rest Of The World grows faster than the US or whether other folk do similar is of no relevance to me. 

thunderroad88

chiang_mai said:

michael1234 said:

So we're all sat here tweaking our fund portfolios.

Are we hoping the regions we've invested in will grow more than expected or are we hoping more folk like us will pour more of their money into the regions we're currently invested in ? Which is it ?

It depends which region(s) you're invested in. If you're invested in the US and parts of Europe for example, those markets are very expensive, if not overvalued. But if you're invested primarily in EM, Asia and the likes, the odds are that growth will drive those markets higher. It's for that reason that I have reduced my US holdings and inxcreased my EM and Asia holdings.

https://worldperatio.com/

Whilst 65% of my equity pf is invested in a couple of the main global index funds, I turned to some managed funds to increase my exposure to UK, Europe, Asia and Japan. My hope is that the managers at Ranmore, Orbis, Artemis and Fidelity with their experience and eye for more value oriented stocks will complement what cap weighted exposure to those regions I get from the global index funds…and so far so good. Adds a little extra work I guess in terms of monitoring this proportion of my pf from time to time instead of being able to set and forget, but it’s nothing onerous and easy to change if performance down the line deteriorates consistently.

chiang_mai

GazzaBloom said:

That's all very considered and I'm sure requires ongoing monitoring and potential adjustment. I do question whether over 20-30 years you can make the right calls to delivery better returns than a low cost global market cap weighted index which would require no effort or further consideration beyond holding your nerve and not panic selling when the market turns down.

For someone accumulating for retirement, I would advocate far more time and effort go into other aspects of personal finance such as debt reduction, lifetime cash flow planning and tax optimisation which will have far more beneficial impact on wealth building than hopping from one bus to another with your investments.

That was certainly my experience in the decade leading up to retirement and beyond.

I'm not necessarily interested in better returns, I'm more interested in lower risk investments that offer some amount of control and produce a reasoanable return. When markets sink and a tracker goes down, you have two choices, sell or take the ride to the bottom and hope it recovers  within acceptable timescales. I would much rather have a less volatile fund that achieves say 50% of the upside but only looses a smaller amount on the way down. Trackers may be fine for the younger set but for the over 70's, they are less good.

chiang_mai

InvesterJones said:

chiang_mai said:

michael1234 said:

So we're all sat here tweaking our fund portfolios.

Are we hoping the regions we've invested in will grow more than expected or are we hoping more folk like us will pour more of their money into the regions we're currently invested in ? Which is it ?

It depends which region(s) you're invested in. If you're invested in the US and parts of Europe for example, those markets are very expensive, if not overvalued. But if you're invested primarily in EM, Asia and the likes, the odds are that growth will drive those markets higher. It's for that reason that I have reduced my US holdings and inxcreased my EM and Asia holdings.

https://worldperatio.com/

Well no, odds (as determined by where other people are 'betting') are saying they will not grow as much for the risk as other markets, hence why you can buy them cheaper.

But there are other reasons besides growth to apply your own over/under weighting - whether that's a home bias, or countering another home bias (I think this is fair reason to consider slightly under weighting the US for e.g.) or simply having a different risk appetite (in either direction) than the market as a whole.

We don't agree on that point. I strongly suspect the average retail invester is more afraid to invest in EM and Asian markets and it is that fear that prevents them from investing furtther, not the percieved lack of returns. My holdings in Artmenis Smartgarp GEMS has returned over 18% so far this year, more than my comparable hoplidings in the L&G US Index.

InvesterJones

chiang_mai said:

InvesterJones said:

chiang_mai said:

michael1234 said:

So we're all sat here tweaking our fund portfolios.

Are we hoping the regions we've invested in will grow more than expected or are we hoping more folk like us will pour more of their money into the regions we're currently invested in ? Which is it ?

It depends which region(s) you're invested in. If you're invested in the US and parts of Europe for example, those markets are very expensive, if not overvalued. But if you're invested primarily in EM, Asia and the likes, the odds are that growth will drive those markets higher. It's for that reason that I have reduced my US holdings and inxcreased my EM and Asia holdings.

https://worldperatio.com/

Well no, odds (as determined by where other people are 'betting') are saying they will not grow as much for the risk as other markets, hence why you can buy them cheaper.

But there are other reasons besides growth to apply your own over/under weighting - whether that's a home bias, or countering another home bias (I think this is fair reason to consider slightly under weighting the US for e.g.) or simply having a different risk appetite (in either direction) than the market as a whole.

We don't agree on that point. I strongly suspect the average retail invester is more afraid to invest in EM and Asian markets and it is that fear that prevents them from investing furtther, not the percieved lack of returns. 

If that was the case then the professional investor with more capital would take advantage and buy up EM/Asia to get increased returns for the price, bringing the cost up to the same risk adjusted return as other markets.

michael1234

AlanP_2 said:

michael1234 said:

So we're all sat here tweaking our fund portfolios.

Are we hoping the regions we've invested in will grow more than expected or are we hoping more folk like us will pour more of their money into the regions we're currently invested in ? Which is it ?

Neither as such.

I'm pondering lowering my US exposure, particularly the Mag 7 exposure, a bit just to play safe as much as anything.

Unlike a professional money manager I don't need to be concerned about my "results" in the short term as long as I achieve my objective which is to protect the assets we have built up against inflation and allow us to spend it down in our retirement.

A professional will get caned if they lag their peers / the market for a while so they almost have to be invested in US / Mag 7 whether they personally think it is a sensible long term approach or not.

Private investors can do what they want, when they want and only have to answer to their spouse (that could just be me  )

The US is at a very high valuation , particularly the Mag 7, and the fact that ex-US trackers are now being offered provides a low cost, easy opportunity to decrease US exposure using a passive approach without going to the hassle of holding multiple country / region funds. 

Theoretically the cheaper assets purchased should do better over an extended period as they are starting from a lower base but Whether the Rest Of The World grows faster than the US or whether other folk do similar is of no relevance to me. 

Given you're the second person to say it you're probably right but I don't understand your reasoning.

And by the way, I agree with your comments about the US but I also think there will be a significant number of investors who think like you and therefore there will be money moving out. That said, Trump will not want to see businesses' harmed and their may be an element of truth in his ambition to move more production back to the US. Its all more risky than it was though.

So that aside, if a region doesn't grow and if there is no more money added, why might it still be an attractive region to invest in?