Tim Hale based plan- comments please?

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  • bostonerimus
    bostonerimus Posts: 5,617
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    jamesd wrote: »
    Please don't try to mislead people like that. Passive investing effectively guarantees to fail to beat benchmarks every time, unless tracking error takes it over or active strategies like stock lending are also used.* It's almost 100% failure rate, not higher chance of success.

    I don't see how I've exactly mislead people. It is true that expenses will cause a perfectly tracking index to fall below the return of it's benchmark by a few tenths of a percent, However I do not define success as beating a benchmark. Success is achieving your investment goals and for most people looking to save for retirement or financial security those will be amply met with the highest probability by a passive indexing approach.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • bostonerimus
    bostonerimus Posts: 5,617
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    jamesd wrote: »
    You should do some shopping around. At least the All Share and global equity indexes should be available cheaper elsewhere and probably most of the rest as well.

    This is just a suggestion given the OPs selection of funds.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Audaxer
    Audaxer Posts: 3,505
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    dunstonh wrote: »
    And a lazy investor would be better with a multi-asset fund as a portfolio of single sector funds will need work whether it is fully passive, managed or a combination.
    Wanting the relatively safe option of a passive multi asset fund like VLS is not neccesarily the lazy option - just maybe an option of not wanting to get it wrong in trying to find the best mix of active funds.
  • dunstonh
    dunstonh Posts: 115,910
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    Wanting the relatively safe option of a passive multi asset fund like VLS is not neccesarily the lazy option

    Safety has nothing to do with it. That is a common misconception with trackers.

    Lazy investor is a frequently used term to someone that wants to invest and forget.
    ust maybe an option of not wanting to get it wrong in trying to find the best mix of active funds.

    If you are building a portfolio of single sector passive funds then you still have to find the best passives and decide the allocations and from threads on this board, it is clear that many people come up with some strange sector allocation decisions.
    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: 3,505
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    dunstonh wrote: »
    Safety has nothing to do with it. That is a common misconception with trackers.
    I just meant 'safety' in that you are not trying to come up with funds to beat the market, and with a multi asset fund like VLS, the asset allocation and weightings have been professionally selected and are regularly rebalanced.
    If you are building a portfolio of single sector passive funds then you still have to find the best passives and decide the allocations and from threads on this board, it is clear that many people come up with some strange sector allocation decisions.
    That's why I have gone for a multi asset passive fund.
  • MrLeek
    MrLeek Posts: 28 Forumite
    dunstonh wrote: »
    If you are building a portfolio of single sector passive funds then you still have to find the best passives and decide the allocations and from threads on this board, it is clear that many people come up with some strange sector allocation decisions.

    Interesting point. Hale's book breaks out a range of portfolio choices (adjusting the growth/defensive assets according to risk, what you're aiming for, etc.). Using OPs portfolio of 50/50 you get:

    Global - market developed: 22.5% (so met by UK and ex-UK funds)
    Global - value (developed): 7.5%
    Global - smaller companies (developed): 7.5%
    Emerging Markets - market: 5%
    Emerging Markets - value & small: 2.5%
    Global REIT - 5%

    Bonds are a straight 25% of short-dated and inflation-linked short-dated (50% in total). OP has 30% in bonds, but 20% in cash. In short, OP is following what Hale thinks is a sensible portfolio - and the funds under consideration are what Hale provides as example funds to use (he provides others as well whilst highlighting that this is just a sample). Plus having 20% in cash in your mid-50's seems reasonably sensible(?).

    Now, is that right for OP? Is this the best investment plan for him/her? Depends on a myriad of factors - it would be unfair for me to push you on what you think OP should do as there's a lot of information that you don't have access to. That's fine. But is that portfolio unreasonable as a base-line to work with? I think that's what a lot of DIY investors work on trying to get right so it would perhaps be more beneficial in this board highlighting some of these portfolio ranges and what's good/bad about them. That enables DIY investors to make better decisions....but again, the right answer for me is not the right answer for anyone else.

    Personally I consider that it's worth looking at more active funds when it comes to Global - Value and EM - value & small (I don't like the L&G Global 100 fund as it just feels like it concentrates money into the top companies - it doesn't really look for 'value'). Finding value in the market is something that, arguably, a good fund manager should be able to do - and putting 10% into a fund that looks for such value seems prudent. The challenge of course is finding the right funds......
  • bostonerimus
    bostonerimus Posts: 5,617
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    edited 22 May 2017 at 7:18PM
    dunstonh wrote: »
    Safety has nothing to do with it. That is a common misconception with trackers.

    Agreed, the underlying funds/index will determine the risk....
    Lazy investor is a frequently used term to someone that wants to invest and forget.

    "Lazy" or "Couch Potato" is often used to describe the passive index investor. With a multi-asset fund there's not much to do other than track the values....even less if the fund rebalances as you approach retirement. Of course not changing an allocation or actively trading does not mean that you have forgotten your investments, you should check in regularly. Those that come up with their own asset allocation from a few trackers or ETFs should periodically rebalance.
    If you are building a portfolio of single sector passive funds then you still have to find the best passives and decide the allocations and from threads on this board, it is clear that many people come up with some strange sector allocation decisions.

    Choose broad trackers that have the lowest fees. Don't slice and dice into small geographical areas or specific industry sectors. Keep things simple. Some corporate bonds, some government bonds, some UK equity, some developed international equity and some emerging markets. Don't mess and fiddle with things too much, rebalance when an allocation is off by 5% and spend your time, and the money you'll save on fees, doing something more important than investing.

    There are many "Lazy Portfolios" out there just Google them. I've had success with a 3 fund portfolio in the US, but I can see the desire for a couple more for the UK investor. Still you don't need to be in every thing so resist the temptation to own too many funds ie "slice and dice".
    Here are some US lazy funds that you can easily translate to the UK.

    https://www.bogleheads.org/wiki/Lazy_portfolios#Three_fund_lazy_portfolios

    Learning how to do it yourself now will be a real positive if you are going to be doing drawdown in retirement because you will be able to avoid fees. If you want to drawdown 4% and your IFA/platform/fund is charging you 1% total that is a full quarter of your income. So while minimizing fees is important in accumulation it's even more important in the drawdown phase.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Audaxer
    Audaxer Posts: 3,505
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    With a multi-asset fund there's not much to do other than track the values....even less if the fund rebalances as you approach retirement.
    Learning how to do it yourself now will be a real positive if you are going to be doing drawdown in retirement because you will be able to avoid fees. If you want to drawdown 4% and your IFA/platform/fund is charging you 1% total that is a full quarter of your income. So while minimizing fees is important in accumulation it's even more important in the drawdown phase.
    I'm now retired and currently transferring a significant amount of ISA savings into VLS funds. I have read that a good asset allocation for my age is to have 40% in equities, but I'm not sure if that is enough equity to safely allow a 4% annual drawdown? I will have a cash buffer to cover years where there are losses and I don't want to drawdown from the fund, so do you think a 4% annual drawdown is feasible in that case?
  • Linton
    Linton Posts: 17,045
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    ......
    Choose broad trackers that have the lowest fees. Don't slice and dice into small geographical areas or specific industry sectors. Keep things simple. Some corporate bonds, some government bonds, some UK equity, some developed international equity and some emerging markets. Don't mess and fiddle with things too much, rebalance when an allocation is off by 5% and spend your time, and the money you'll save on fees, doing something more important than investing.

    ...........
    Learning how to do it yourself now will be a real positive if you are going to be doing drawdown in retirement because you will be able to avoid fees. If you want to drawdown 4% and your IFA/platform/fund is charging you 1% total that is a full quarter of your income. So while minimizing fees is important in accumulation it's even more important in the drawdown phase.

    This is an attitude one often seems to see in US investing discussions. The whole world is divided into US and International, now it seems that EM is allowed to have a separate minor existance. However "International" or "Developed World" includes a range of very different markets. Neglecting this may make some sense from a US base where these other markets are comparatively small. From the UK though the allocation between these markets is just as important for diversification as the allocation between your home country and "International".

    The situation with EM is even more marked. At one end you have the high tech South Korean and Chinese electronics giants or car manufacturers which are comparable with corresponding companies in the US, Europe, or Japan. At the other you have the real basics and high risk of South America or much of Africa where the only large companies are the banks and possibly a miner or an oil company. It makes no sense to dump it all into EM. With the large companies operating in a global market, sector allocation becomes more important than geographic allocation. An oil company in one country will be much the same as an oil company in another, but both will be very different to say a bank, a major biotech company or a global retailer no matter where their shares happen to be quoted.

    How much you "slice and dice" depends on how much money you have to invest. If it's say £10K you may as well go for an all world tracker or an all world active growth fund. In absolute terms the effects of charges or of allocations, as long as they are reasonable, are pretty small. If you have £500K then you can benefit from tighter control over where you money goes by geography, sector, or size. Differences in % allocations in these areas can have a much larger effect than differences in charges.
  • Linton
    Linton Posts: 17,045
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    Audaxer wrote: »
    I'm now retired and currently transferring a significant amount of ISA savings into VLS funds. I have read that a good asset allocation for my age is to have 40% in equities, but I'm not sure if that is enough equity to safely allow a 4% annual drawdown? I will have a cash buffer to cover years where there are losses and I don't want to drawdown from the fund, so do you think a 4% annual drawdown is feasible in that case?

    I disagree that 40% is a good allocation for someone retired. If you are retired at say 60 you need to plan for half your money not being used for perhaps 15 years or more. For that timeframe it would be sensible to have a a high equity allocation. For the rest perhaps 40% equity may work out about right. You need the high equity allocation for protection against inflation as well as to maximise your long term income.

    Specifying a particular overall % is difficult as you need to balance a range of objectives. What % you drawdown depends on the importance you place on the different objectives. 4 possible objectives for a retirement portfolio...
    1 - a steady income
    2 - growth to cover future inflation and to supplement your income portfolio if necessary
    3 - a base level of safety for the bad times and protection against the wilder fluctuations
    4 - inheritance for the grieving relatives on your demise

    It would be surprising if a VLS fund just happened to provide the most appropriate portfolio to meet all these objectives to the extent your circumstances required. I couldnt construct a single portfolio to do all these jobs adequately. Having no need for objective 4, I have set up 3 totally separate portfolios each attempting to meet a specific objective.

    The steady income is provided by a globally diversified high yield portfolio, 60% equity 40% bonds and other relatively fixed income, providing around 6% annually. There is a 100% equity growth portfolio that is providing a higher annual return than VLS100. And finally security is provided by a wealth preservation portfolio based on strategic bonds and the specialist wealth preservation funds. High level control can then be exercised by allocation of appropriate %s to each portfolio.

    If you follow this route, the overall % drawdown figure is defined by the allocation which in turn is dependent on the importance you place on each objective. It's not something you can meangfully specify before any analysis.

    Obviously you need a figure for planning purposes. A reasonably safe steady default value would appear to be about 3.5% though that's based on history. Jamesd has advocated up to about 6% adopting a strategy that cuts back on the drawdown during the bad times. What will be safe for the next 30 years, who knows? But the actual implementation of retirement finance is very different to a high level plan.
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