Does this equity portfolio make sense?

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bluefukurou
bluefukurou Posts: 97 Forumite
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in Savings & investments
I'm currently living abroad and planning on how to invest my savings. I earn well and save most of it, so I'm seriously looking at investing in ETFs (originally I planned to buy a property in the UK to rent out). Some of the reading I've done suggests that a simple 3 or 4 ETF portfolio is good for a long term buy and hold investor. It's suggested that you should buy at least one home index, one bond index, and an international index.

One reason given for the home index is to offset currency fluctuations. As I'm a UK expat (mid 40s) that will invest using pounds and in all likelihood retire in the UK, the home index thing makes sense to me. So for a British citizen, something like this is suggested:

Vanguard UK FTSE 100 Stock Index (VUKE)
Vanguard UK FTSE 250 Stock Index (VMID)
Vanguard FTSE All World ETF (VWRL)
Vanguard UK Gilt ETF (VGOV)

I would perhaps have 1/3 in the gilts, 1/3 in All World, and split the rest, with an annual rebalance. Supposing I was to initially invest around £50k, and then add around £2/3k per quarter, does this sound like a good way to invest?
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  • dunstonh
    dunstonh Posts: 116,383 Forumite
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    Where are your:

    Index Linked Gilts
    Global High Yield Bonds
    Global Bonds
    UK Corp Bonds
    Property

    If its just £50k, then perhaps a multi-asset fund would be more suitable. That would give you diversification and structure. Whereas your current selection is a bit random and lacks structure and process.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    edited 11 October 2018 at 10:46PM
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    You can go a long way on just a few broad indexes. I would not limit yourself to FTSE 250......I'd want the entire UK market even if cap weighting meant that most of your money was still in large caps and the point about the narrowness of your bond allocation is a good one. Next you need to look at an allocation ie how much in each index and you should research the taxation and the administrative mechanics of this investing. What platform will you use and will your country of residence be an issue for taxation?
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Audaxer
    Audaxer Posts: 3,508 Forumite
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    dunstonh wrote: »
    Where are your:

    Index Linked Gilts
    Global High Yield Bonds
    Global Bonds
    UK Corp Bonds
    Property

    If its just £50k, then perhaps a multi-asset fund would be more suitable. That would give you diversification and structure. Whereas your current selection is a bit random and lacks structure and process.
    dunstonh, I understand about diversification, but what do you mean specifically when you talk about structure and process?
  • dunstonh
    dunstonh Posts: 116,383 Forumite
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    Audaxer wrote: »
    dunstonh, I understand about diversification, but what do you mean specifically when you talk about structure and process?

    Numbers shouldnt just be picked at random. i.e. a third here, a third there etc. And missing out sectors is more likely to damage your returns.

    If its all a bit random, then its more hit and hope. It could do well but you are more reliant on luck.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Audaxer
    Audaxer Posts: 3,508 Forumite
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    dunstonh wrote: »
    Numbers shouldnt just be picked at random. i.e. a third here, a third there etc. And missing out sectors is more likely to damage your returns.

    If its all a bit random, then its more hit and hope. It could do well but you are more reliant on luck.
    Thanks, but how do you decide what percentage to put to each sector? If you include all the sectors you mentioned that are missing, how do you decide what percentages you should put in each sector to ensure that you have a well structured portfolio to your risk tolerance?
  • atush
    atush Posts: 18,726 Forumite
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    You read up on portfolio building?
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    edited 11 October 2018 at 11:07PM
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    Audaxer wrote: »
    Thanks, but how do you decide what percentage to put to each sector? If you include all the sectors you mentioned that are missing, how do you decide what percentages you should put in each sector to ensure that you have a well structured portfolio to your risk tolerance?

    You could go for a broader bond index that has gilts, corporates etc and then just arrange your overall asset allocation to be say 60/40 equity to bonds. So maybe think about Vanguard Global Bond Index too and replace the UK FTSE equity funds with Vanguard UK FTSE All shares....or just go for a multi asset fund. Let the fund companies worry about what and how much goes into the index and then just buy indexes in the proportion you want.

    I'm in the US and use a broad US index that covers the bond sectors like Government, corporate, mortgages some foreign and a range of maturity dates and just make the index the percentage of my portfolio that I want for fixed income.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Audaxer
    Audaxer Posts: 3,508 Forumite
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    atush wrote: »
    You read up on portfolio building?
    I have been, but it's not clear to me what percentages should go into each sector to achieve a well balanced and structured portfolio.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    edited 11 October 2018 at 11:26PM
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    Audaxer wrote: »
    I have been, but it's not clear to me what percentages should go into each sector to achieve a well balanced and structured portfolio.

    Decide on your risk tolerance and let that drive your equity to bond ratio. Then its up to you how much you want to slice and dice the sectors within bonds and equities, but one approach is to cap weight the allocations. I don't go much further than US and rest of the world when thinking within equites and bonds.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Tom99
    Tom99 Posts: 5,371 Forumite
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    [FONT=Verdana, sans-serif]I think splitting the UK equities into FTSE100/FTSE250 is better than an FTSE All Share.[/FONT]
    [FONT=Verdana, sans-serif]Taking Vanguard, HSBC is 6.85% of their FTSE100 tracker but still 5.85% of their FTSE All Share tracker.[/FONT]
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