Is This a Good Investment Strategy?

Domnhallaich

Hi,

Have been getting really into the weeds and I just need to get started. Is the below an okay investment strategy?

Weight	Role	Ticker	ISIN Code	TER
80%	Developed World	WRDA	IE00BD4TXV59	0.06%
10%	Emerging Markets	EIMI	IE00BKM4GZ66	0.18%
10%	Global Small Cap	WSML	IE00BF4RFH31	0.35%

According to my research, the FTSE all-world doesnt include small cap. The MSCI emerging apparently includes small cap for that segment and I also have small cap selected for developed economies. I think this will give me a really good global spread.

But is it a sensible strategy for 20+ year investment?

Linton

As an initial investment with a 20 year outlook it is not unreasonable especially if you are starting with a small sum and continually contributing. If you keep reading this forum you should gain further insight.

if you are starting with a large sum of money, say >£100k, it may be worth paying for advice.

From history your portfolio could well drop by 40%-50% at least once during the 20 years. You should consider how you would react. If you think you would panic and sell the lot you may wish to choose something less adventurous.

Why did you choose those particular funds? From a quick check they appear to be denominated in $s rather than £s. If you are a UK investor it would be better to get the £ equivalent.

masonic

WRDA is traded in GBX on LSE, but for the emerging markets ETF EMIM would be the better ticker to buy, likewise WLDS for the small caps.

As to whether this is a sensible 20 year portfolio, that's in the eye of the beholder, but with MSCI World representing ~85% of the total market, the addition of 10% small-cap maintains a "buy the whole market as cheaply as possible" approach. EMs are a little underweight compared to their contribution to global market cap. But some do not like to include them at all, while others overweight them. There has also been an increasing unease from some to holding such a large proportion in US equities, particularly the largest of them, as you'd get from a world index fund.

I would echo Linton's comments about risk tolerance.

GazzaBloom

Something to ask yourself aside from which funds is what is the money you are investing for and when will you need to use it?

You say 20+ years, is that for retirement? If so, then a 100% mix of global equities as you are proposing should see you comfortably beat inflation over that time and deliver decent long term returns but as mentioned above there will be some sharp drops in value along the way, as the stock market sells off in a panic due to whatever crisis is happening at the time. If you can stomach these falls, and see them as buying opportunities to increase your contributions, even by a little extra each month while the markets are down then you will do well with these increased contributions when the market recovers.

Some may caution against global index funds at present due to fears over the proportion allocated to the US and "Mag 7" (I hate that media coined term!) and the current market sentiment due to the chaos emanating from the current US administration but, personally, I would suggest that for a 20 year outlook, index funds will adjust slowly over time and be sufficient if you want to set and forget and not get into global macro economics analysis and attempted pre-emptive portfolio adjustments, which may deliver better results in the short term but may or may not prove to outperform over the long term. Focus on what you can confidently control, such as fund fees, platform fees, tax advantageous accounts and level of contributions.

Also, as well as your your risk tolerance, think about a strategy to start locking in gains or building a "risk-off" part of your portfolio ahead of the planned date when you will start using the money. The risk-off part can be cash, bonds funds, individual bonds/gilts, etc. and/or used to buy a partial annuity for some guaranteed income but that is whole other discussion.

Albermarle

Something you do not say is what is your overall financial position.

Mortgage; other debt; cash savings; pension etc.

For example if your pension is also invested in 100% equities, and you have very little in cash savings, then that could be seen as pushing risk levels too high.

Domnhallaich

Thanks for the responses so far.

Re the tickers being in USD, thanks for pointing that out - I will ensure whatever I go with is in GBP/GBX on the LSE.

Regarding my starting point - I don't have a lump sum to invest in and plan to pay around £100pm into a Trading212 pie - just to get started and help my confidence grow.

Re any dips - I have accepted the fact that these things are going to happen and that this also brings opportunity in that it will allow me to hoover up more shares when the prices crash - provided of course there is a good chance the ETFs will recover in 5-10 years. I guess that's what I am asking about in this post...do these ETFs stand to recover like say the Vanguard one might or do they have some unique risk that would be avoided if I went for a single global ETF?

Re world funds still being US heavy. I was flirting with the idea of an all world ETF that excludes the US in place of the Developed World WRDA ETF. And then maybe adding the S&P500 or NASDAQ 100 at maybe 20-30% weighting. So it would look something like:

• 30% S&P500 or NASDAQ 100
• 50% All World MSCI excl USA
• 10% Emerging Markets, inc Small Cap
• 10% Small Cap Developed World

I just don't know enough to know if this is too convoluted or not. I was planning of creating a pie and having the investments auto distributed along the lines above.

As for the reasons why I am doing - I just want to help save some money that comfortably beats inflation. I do have a workplace pension where I have maximised my employers contributions - that I believe is a defined contributions pension and does get invested but I think its fairly low to medium risk and includes bonds and other things. I have a SIPP too which is the result of an old workplace pension from a while back - I have not done anything with it. I was considering moving the value (around £9K) into my workplace pension. - I will need to look into it but this isn't the focus area of this query so I don't want to veer off topic too much.

EthicsGradient

I don't think using a NASDAQ 100 index would make sense there - it's concentrated in tech stocks, which is the sector people have most worries about being overvalued at the moment. That would have the effect of keeping a lot of the risk of the USA, while decreasing the companies in the USA that are more like the rest of the world with less risk.

If the charges on a "world ex US" fund are reasonable, then it could work with the S&P 500. I don't use Trading212, but I understand you can buy fractional shares on it - which you'd need for the 10% of £100/month, ie £10, to be buying the actual proportion desired for emerging/small cap.

LHW99

that I believe is a defined contributions pension and does get invested but I think its fairly low to medium risk and includes bonds and other things.

Worth checking for sure. If it is DC, and you fancy something more medium - high risk, have you looked into what funds are available in the workplace pension? Most seem to offer at least a few funds, and what you are talking about sounds as if it could be the "default option", which is designed for those with no interest (or knowledge) so as not to panic them with too much volatility.

Bostonerimus1

It's good that you are researching and have decided to invest some money. However, when I see "into the weeds" in your first post I worry that you will lose a strategic vision and get too involved in fund picking and trading. Investing does not need to be complicated and there is no one best portfolio, so don't worry too much about the fine details of your asset allocation. Now that you understand something about funds come up for air and try to maintain some distance and view your finances holistically. If you are risk tolerant and can avoid silly trading through market ups and downs then a global equity portfolio will probably do ok over the next 20 years.

So I would proceed with your strategy inside an ISA wrapper and also take control of your DC pension by understanding how it is invested and making adjustments so it's holdings are in line with your overall financial goals. This obviously assumes you have done the basics of paying off all high interest debt ie credit card and car loans, and you have at least 6 months cash spending in an emergency fund.

Domnhallaich

Once again, thanks for the advice. Re debt, I am relatively debt free. I have no credit cards and will be mortgage free in about 4 years. My current mortgage payments are about £250pm so very manageable. The only other thing I have is a loan I took out when purchasing a car as the APR was about 2% compared to getting finance via the dealershios - that will be paid off in about 1-2 years also. So I will have a bunch of extra cash that I don't want to flush down the pan by spending it on crap - the plab is to get it invested and have it growing for me. I'll look into the DC pension though, because it is the default option and I can probably go with taking a bit more risk as I have about 22 years until I hit state retirement age.

@Bostonerimus1 you are correct re your "into the weeds" obervation. This thread is an effort to try and pull back and have that holistic view by getting opinions and feedback from more experienced members of the community, so my sincere thanks to you and everyone else for taking the time to respond.

thunderroad88

https://forums.moneysavingexpert.com/discussion/6654412/is-this-a-good-investment-strategy

I’d be allocating more to UK and Europe than you’ll get from that Developed World Fund as my personal preference is for less US going forward…make sure your EM option also has some Japan in it too. Consider a tilt towards value with something like IWFV or XDEV as again, my own feeling is that it’s a sector that will do well in the coming years. This may sound too complicated for you but it’s fairly set and forget although that’s a term I don’t like…you should always keep an eye on your investments and sense check them at least once a year.