Tracker fund investment for retirement

andy001 · 16 November 2018 at 11:27PM

thanks a lot for your post.
I'm thinking to invest 500 GBP P.M. over 20yrs. Mostly rebalance in 15yrs

L&G Multi-index, VWRL, Vanguard ex uk developed world and vanguard LS60
are my options.

=dunstonh;75049266]What portfolio model are you looking to build?

But building a model portfolio of single sector funds requires management decisions.

For example, choosing FTSE100 to represent your UK allocation is a management decision. You are choosing large caps largely weighted to financials and oil. Very clearly a management decision. (ignoring the fact the FTSE100 has been one of the worst indexes to track for the best part of 25 years).

What management decisions have you made for your weightings?
How frequently are you going to rebalance your portfolio?

Is the amount involved high enough to make building a portfolio worthwhile? (if not then why not use a multi-asset fund)
Is your knowledge enough to understand how to build a portfolio?[/QUOTE]

dunstonh · 16 November 2018 at 11:33PM

Stick the whole £500pm into a single multi-asset fund until you get to about £40,000+ then maybe add in a single sector fund or two but dont bother thinking about portfolio building until 75k-85k+

Thrugelmir · 17 November 2018 at 12:40AM

Linton wrote: »

I dont see the issue being n:1. Rather the requirement is that there is sufficient diversification so that problems in one geography or sector or currency do not have a disproportionate effect on the portfolio as a whole.

So 6:1 or 1:6 US:UK isnt the question but rather whether the ratios lead to one geography being over dominant in the portfolio. I would agree that global trackers with 50-60% US are to be avoided. Equally 50-60% UK would be bad.

Actually 50-60% UK would be much worse. The problem is that the UK stock market is very skewed in its sectors. There are no major IT or electronics companies, no FANGs or even any hopefuls, no significant world class manufacturers, rather a lot of oil, services, banks etc. The largest UK companies which would normally form the majority of your holding are generally global businesses that just happen to be listed on the London Stock Exchange and do not necessarily have a major UK presence (if I remember correctly one has none). They could well be listed on foreign exchangess, and several are. Their price follows the $ not the £ - hence the rise in valuations when the £ fell after the BREXIT vote. So there is no particular benefit from choosing say a UK oil company over a French or US one.

This is where the US has particular advantage. Most industries are well represented, You could probably have a reasonable sector balanced portfolio based on the US alone. There is just the concern that you dont want too much US, and it would be good to diversify away from the $.

One area where the UK is good, perhaps over the long term the best in the world, is Small Companies. So I would certainly advocate having a sigmificant investment there. But SC are volatile anyway and to compound that by restricting the geographic allocation in that sector seems foolish. One certainly doesnt want a major part of ones portfolio in UK small companies.

Over 100 Chinese companies are listed on the Nasdaq alone. Country of listing means little in many ways.

As for the FAANGs. Remember General Electric and IBM in their heydays. Then there was Polaroid, Kodak, Xerox to name but a few.

Apodemus · 17 November 2018 at 9:22AM

Ray_Singh-Blue wrote: »

Don't look for a needle in a haystack- buy the haystack...

In my experience hay-stacks are high risk, if there is any damp hay in there, the whole stack overheats and the barn burns down! Individual bales are safer and much easier to handle. Not sure how to relate that to investment strategy, though!

andy001 · 21 November 2018 at 8:14AM

Alexland wrote: »

You would probably be best looking at low cost diversified mixed asset fund series such as Vanguard LifeStrategy, HSBC Global Strategy, Blackrock Consensus or L&G Multi Index.

If you insist on going high risk 100% equities (at this point in the market cycle...) then the HSBC FTSE All World fund or the VWRL ETF you mention are both good choices.

If you are thinking 20 years then consider the most suitable tax efficient wrapper (Pension, S&S LISA, etc).

Alex

Looks like bull market is coming to an end. Should one be considering to stop Vanguard LS100 and rebalance with LS 20 or 40?

Regards to LISA- iI'm unfortunately OVER 40 ;(

Any reviews about HSBC FTSE All World fund?
thanks again

andy001 · 21 November 2018 at 8:16AM

dunstonh wrote: »

Stick the whole £500pm into a single multi-asset fund until you get to about £40,000+ then maybe add in a single sector fund or two but dont bother thinking about portfolio building until 75k-85k+

Thanks. Would you have any preferences for which multi asset funds, over next 10yrs to make amount advised i.e. 75k+ ?

AlanP_2 · 21 November 2018 at 2:29PM

andy001 wrote: »

Thanks. Would you have any preferences for which multi asset funds, over next 10yrs to make amount advised i.e. 75k+ ?

Nobody knows what fund will achieve £75k over 10 years from your overall investment of £60k (at £500 p/m).

On the face of it any of them could achieve it, and would have done over the last 10 years, but that doesn't make the choice easier.

If you go down the DIY route the key word is "Yourself". You need to make the decisions that you don't want to pay someone else for, so you need to decide what fund(s) you want to invest in and at what risk level.

Example multi-asset tracker ranges are Vanguard LifeStrategy, HSBC Global Strategy, L&G Multi-Index (they also do a Multi-Asset range I think) and Blackrock Consensus.

All similar in concept (range of underlying funds across a range of asset classes), but each with their own interpretation of what will appeal from a marketing perspective.

For example VLS works on fixed Equity / Bond allocations whilst L&G is risk based and so will tweak underlying weightings based on their view of what markets are going to do. L&G include a Property allocation, VLS doesn't. HSBC has a lower allocation to UK than L&G or VLS from memory.

I would suggest that you look at the Fund Factsheets for each range and understand what the choices are, then rule out the one(s) you don't fancy based on your viewpoint and then look at what's left.

PS - Nothing wrong with having more than one by the way, particularly as the pot grows.

bostonerimus · 21 November 2018 at 4:23PM

Why do people make this all so complex. It really isn't at all. There are a few factors that will maximize your chances of success

1) Save/invest as much of your gross income as you can; 20% is a good target
2) Build up a 6 month cash emergency fund and put the rest in a multi-asset fund like VLSxx. If you have a decades long time frame use VLS60 or VLS80.
3) Do this for 30 years and allow compounding to do it's magic.

So combine a high saving rate, low cost prudent investing and time and you've got a pretty good recipe.

I did that (well I used a few large trackers rather than a multi-asset fund) and managed to get almost 9% average annual return and I don't have to worry about money anymore. If you take 20% of the average salary of say 25k and compound it for 30 years including 3% annual salary increases you end up with a million pounds.

I'm not saying this is easy, saving so much and not panicking when markets fall is hard.....but it isn't complicated.

bitofsaving · 21 November 2018 at 4:49PM

From what I've learned (reading the www), a good strategy is to stick with one type of index (e.g. either the FTSE, or the MSCI) and not mix them, so there's less chance of overlap. Example: one of the two might stick South Korea into the "developed countries" basket, the other in the "emerging markets" basket. If you mix indices, you may double-count, or not count South Korea at all, which would mess up diversification.
I invest some of my money in the MSCI World and MSCI Emerging Markets trackers with a 70/30 split. That's quite a broad diversification across sectors and markets with just two products. Alternatively you could pick the MSCI ACWI (All country) index (which mixes the two above at about 90/10). You want the least number of index funds that still give you large diversification given the amount you have to invest (splitting into too many pots will just eat your profit with transaction costs).
From my point of view, by starting to weigh one country more than another you are leaving the realm of truly passive investing and are on your way towards active stock picking (even if it's still in a rather broad sense of valuing one part of the world market more than another), but that's a personal choice to make.
If you invest in index trackers, make sure you've also thought about what you want to do (and how large a portion) with your low-risk investment.
I also invest in a Vanguard LifeStrategy fund as a one-stop-shop.

eskbanker · 21 November 2018 at 5:15PM

bitofsaving wrote: »

From what I've learned (reading the www), a good strategy is to stick with one type of index (e.g. either the FTSE, or the MSCI) and not mix them, so there's less chance of overlap. Example: one of the two might stick South Korea into the "developed countries" basket, the other in the "emerging markets" basket. If you mix indices, you may double-count, or not count South Korea at all, which would mess up diversification.

Your point about aiming to avoid inadvertent overlap has some merit but then appears to be contradicted by what you actually do:

bitofsaving wrote: »

I invest some of my money in the MSCI World and MSCI Emerging Markets trackers with a 70/30 split. That's quite a broad diversification across sectors and markets with just two products.

[...]

I also invest in a Vanguard LifeStrategy fund as a one-stop-shop.

Tracker fund investment for retirement

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