Investing / Carry on regardless?

Linton

https://forums.moneysavingexpert.com/discussion/comment/81901717#Comment_81901717

Before the AI boom I set my % US allocation to 40%. It has now drifted down to about 35%. It includes an allocation to US Small Companies limiting the effect of the tech giants. This was not because I had any skills in predicting the future but rather a belief that the 70% US allocation now provided by the developed world index funds presented too much of a single point of failure risk. If anything did go wrong with the US market the overall portfolio would be severely hit.

Avoiding a predominant holding in one section of the world market also has the advantage that it leaves more room for gains from all the other parts of the world

Now people are getting worried about US market instability whilst I continue to sleep soundly and have no intention of changing the allocations. Even if the AI boom were to collapse completely and the companies involved all went bust the effect on my wealth would be relatively small.

So I advocate building ones portfolio with the aim of limiting the effect of future market disruptions and avoiding changing strategy every time one gets worried. There is always something to worry about.

dannybbb

@Linton do you think this is possible with an index fund?

Linton

https://forums.moneysavingexpert.com/discussion/comment/81902802#Comment_81902802

Not with one index fund. I currently have a mixture of index funds and managed funds to separately cover US, Europe, Japan, and Emerging Markets large and small companies. morningstar will tell you exactly what the fund invests in and I then use a spreadsheet to get a picture of the whole portfolio.

Currently I am investigating using the fairly new Vanguard World Excluding US index funds which together with separate US index and China index funds should enables me to get the overall %s I want. However there are some problems so I am not ready to switch over yet,

Rollinghome

Index funds are most useful in markets that are highly researched and therefore difficult for active managers to beat. That's not to say that if a region/markets does badly then both active and passives aren't likely to also do poorly.

The Times had an article based on a similar AJ Bell article and Morningstar research that showed where active managers do least badly. Over 10 years to 30 Nov 25, just 13% of managers out-performed similar US passives, and because global funds are typically heavy US, the figure was the same for Global. For the UK just 17% of managers out-performed.

At the other end, a creditable 53% of Japan active managers outperformed, 48% for Global EM, and 33% for Asia Pacific ex Japan, so in with a better chance.

A J Bell article at https://www.ajbell.co.uk/group/news/active-funds-endure-dreadful-decade-just-24-have-beaten-index-tracker . The Times article is pay-walled.

dannybbb

https://forums.moneysavingexpert.com/discussion/comment/81902911#Comment_81902911

caan i ask how you work out the percentage allocation

chiang_mai

https://forums.moneysavingexpert.com/discussion/comment/81905201#Comment_81905201

Allocations are the first thing mentioned in every discussion yet they are often the most difficult to decide on because they are personal and individual that involve a number of variables. At 76 years of age, I finally moved away from 100% equities about two years ago, to a more sustainable 48%…..I sleep much better as a result. How did I decide on that number? I started at around 60/40 and kept reducing until I started to sleep better, it's as scientific as that! A second part of that process is deciding if the percentage that you decide on, can generate the amount of gain you require/want, at the level of risk you're comfortable with…..that's quite tricky and takes a lot of research and effort as you trawl funds and possible combinations et al.

safe_hands2

I was in a similar situation to you 6 years ago. No lump sum but I wanted to add new money to a sipp to help me bridge the gap between retiring at 60 on a small DB pension and state pension age. A few months after I started investing, COVID happened. It gave me the wobbles but I kept to plan, and I'm so glad I did. I'm now in the situation where I might be able to retire at 59.

I invest in a balanced multi asset fund. I could have had a higher equity allocation 10 years out from retirement, but this balance felt comfortable to me. I also have cash savings to help ride out significant falls that could put my plan behind.

The biggest learning for me has been to find a plan you're comfortable with, review it (but not every week!), and don't listen to the noise.

Some articles I've found useful are:

https://monevator.com/how-to-estimate-your-risk-tolerance/

https://monevator.com/passive-fund-of-funds-the-rivals/

Albermarle

Another issue is in what context you work out the % allocation.

For example if your SIPP is £200K and 80% equities, but you also have £200K in cash savings. So in reality your equity % is 40%.

If you also have some DB pension provision, or even state pension provision, you could also argue that effectively your equity % is significantly < 40%.

chiang_mai

https://forums.moneysavingexpert.com/discussion/comment/81902911#Comment_81902911

Are you using VFWAX, because I was considering doing similar this year?