Does this equity portfolio make sense?

2

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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.

    As a newbie to investing, I don't understand the importance or difference between the types of bonds and gilts you mention. Because I'm not that knowledgeable, I'm looking for a simple, low cost portfolio that will not require much input once it's up and running.

    I assigned a 1/3 split between UK, World, and gilts based on my current age: roughly 65% equity/35% bonds. As I age, I would slowly increase the bond allocation. I hope I've got that bit right. :)

    Is it possible to buy 3 or 4 different ETFs that would give me the diversification and structure you talk about?

    Or is a multi asset fund (presumably available to expats) the best option? Are these multi asset funds actively managed, hence implying higher fees? I ask this because my reading suggests passive is better than active over the long term, and a lot cheaper.
    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?

    Vanguard Global Bond Index and Vanguard UK All Share Index, plus another world share index would be a lot better than my original list of ETFs?

    I'm based in the Middle East at the moment, so taxation is not really an issue. I'm looking at European based platforms that are targeted at expats. Internaxx is looking the most suitable for me at the moment.
    ...replace the UK FTSE equity funds with Vanguard UK FTSE All shares...
    Tom99 wrote: »
    [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]

    What's the case for going for all the FTSE rather than just the top 100/250?
  • AnotherJoe
    AnotherJoe Posts: 19,622
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    I think the idea you hold "U.K." stocks due to currency fluctuation is overdone, maybe 50 years ago the U.K. stock market had its own momentum but these days it moves with global fluctuations including currencies, and a huge part of that is that many nominally U.K. companies derive the vast majority of their income from abroad. This means that the companies that make up most of the FTSE have most of their income from abroad.
    You could see the effect of this after the Brexit vote when the Pound crashed and these companies like Vodafone, BP, rose.
    Also, with "all U.K". investment funds you miss out on many industry sectors. No IT, no social media, no car manufacturers etc and have a concentration to a few sectors like finance and pharmacy. . Eg no Apple, no Microsoft, no Toyota , no coca Cola, and so on.and you will likely miss out on any new and upcoming big global companies.
    So I would suggest you just go global, such as VWRL. That's what I've done in my passive SIPP, with a mixture of global trackers some including the U.K. some ex U.K. including VWRL.
  • dunstonh
    dunstonh Posts: 115,904
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    As a newbie to investing, I don't understand the importance or difference between the types of bonds and gilts you mention. Because I'm not that knowledgeable, I'm looking for a simple, low cost portfolio that will not require much input once it's up and running.

    In which case, you should not be doing what you are doing.

    Single sector funds require rebalancing and reviewing. You also need to create exposure in the various areas by including funds that cover those areas. Currently, you have a number of gaps.

    If you want low maintenance then you should use a multi-asset fund.
    Or is a multi asset fund (presumably available to expats) the best option? Are these multi asset funds actively managed, hence implying higher fees? I ask this because my reading suggests passive is better than active over the long term, and a lot cheaper.

    Multi-asset funds are available with underlying passives or underlying managed.

    It should also be noted, that whilst you are using underlying passives in your portfolio, you are the one making the management decisions. So, no solution is truly passive. You have decided to put a third in each etc. That is a management decision. You have chosen not to include a number of investment areas you would expect to see. That is a management decision.

    You would be better off with a multi-asset fund with underlying passives. Yes, they have management decisions as well but at least they wont leave the gaps you have.
    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.
  • Ok, I'll have a look multi asset funds and see what I can find out. Thanks for the input.
  • poppy10_2
    poppy10_2 Posts: 6,573
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    I'm looking for a simple, low cost portfolio that will not require much input once it's up and running.

    I assigned a 1/3 split between UK, World, and gilts based on my current age: roughly 65% equity/35% bonds. As I age, I would slowly increase the bond allocation.
    Just go for one of Vanguard's Target Retirement funds. They contain a mix of equity and bonds, and manage this dynamically, so the older you get, the more they shift into lower risk bonds, without you having to think about it.


    If you are in your mid-40s, then the Target Retirement 2040 would make sense. Currently has a 77-23 equity-bond split, with around a third of the equity component invested in the UK
    poppy10
  • Alexland
    Alexland Posts: 9,652
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    poppy10 wrote: »
    Just go for one of Vanguard's Target Retirement funds. They contain a mix of equity and bonds, and manage this dynamically, so the older you get, the more they shift into lower risk bonds, without you having to think about it.

    That's fine if the OP intends to withdraw it all (to buy an annuity, etc) on the target date but for those intending to maintain investment risk during draw down (e.g. 60% equities, 30% bonds and 10% cash) the VTRs reduce the risk a bit too far - down to 50% at the point of retirement.

    Alex
  • Alexland wrote: »
    That's fine if the OP intends to withdraw it all (to buy an annuity, etc) on the target date but for those intending to maintain investment risk during draw down (e.g. 60% equities, 30% bonds and 10% cash) the VTRs reduce the risk a bit too far - down to 50% at the point of retirement.

    Alex
    When my wife looked at them early in the year it was lower then that as after the target date is reached it reduces for another 7 years down to 30% equity 70% bonds
  • Alexland
    Alexland Posts: 9,652
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    firestone wrote: »
    When my wife looked at them early in the year it was lower then that as after the target date is reached it reduces for another 7 years down to 30% equity 70% bonds

    Yes 50% at point of retirement reducing to 30% if left in for longer.

    VTRs are really good for when the whole lot might be withdrawn in a short period such as an annuity, Junior ISA university costs or a SIPP that's a stop-gap to be withdrawn over a few years before a DB scheme starts. I think it would be a lot clearer if Vanguard called them Target Withdrawal Date funds.

    Alex
  • poppy10 wrote: »
    Just go for one of Vanguard's Target Retirement funds. They contain a mix of equity and bonds, and manage this dynamically, so the older you get, the more they shift into lower risk bonds, without you having to think about it.
    Unfortunately, as an expat I cannot open an account with Vanguard and do what you suggest.
    dunstonh wrote: »
    Where are your:

    Index Linked Gilts
    Global High Yield Bonds
    Global Bonds
    UK Corp Bonds
    Property
    I've had a look at the different types of bonds that seem to be available and some are obviously more risky than others. As government bonds appear to me to be the least risky, and assuming that you have bonds in your portfolio to reduce the risk of a sudden wipeout of value, why is it a mistake to only have UK gilts in your portfolio? Why is it so important to have high-yield bonds, even though whenever I read about them, they are referred to as having a high risk of default?
  • dunstonh
    dunstonh Posts: 115,904
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    I've had a look at the different types of bonds that seem to be available and some are obviously more risky than others.

    Correct. Which is why they are a useful counterbalance for the risk you are taking on equities.
    As government bonds appear to me to be the least risky, and assuming that you have bonds in your portfolio to reduce the risk of a sudden wipeout of value, why is it a mistake to only have UK gilts in your portfolio?
    That would be like only having UK equity as your equities. You are not. You spread them around to diversify and pick the appropriate weightings for your target volatility range. The same should occur with bonds.
    Why is it so important to have high-yield bonds, even though whenever I read about them, they are referred to as having a high risk of default?

    They have a higher risk of default but a higher potential return.

    Why have you picked higher risk equities for some of your portfolio despite them having a higher potential for loss?
    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.
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