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  • FIRST POST
    • RichestoRetire
    • By RichestoRetire 13th Mar 18, 1:57 PM
    • 3Posts
    • 1Thanks
    RichestoRetire
    Is my Portfolio too high risk?
    • #1
    • 13th Mar 18, 1:57 PM
    Is my Portfolio too high risk? 13th Mar 18 at 1:57 PM
    Hello All,

    First post, so please be gentle!

    A bit context to enable you to offer an opinion;

    Age: 38
    Home: Valued at approx 820k with a 166k mortgage on just under 2%. I will look to pay this down to under 100k this year and would like to be mortgage free within 10 years.
    Home Life: My income only (wife doesn't work) with 1 child in a fee paying school (13k per annum) and the other to join there in a couple of years. Eldest child is about to turn 11 and the youngest will be 8 when they join the school. The fee's go up to a max of 16k per annum when in the senior school so quite the commitment.

    Ambition: I'm looking to retire (or semi-retire at the least) when I am fifty. At that point, I would like to downsize the house and buy a place in Florida, living 6 months here and 6 there.

    Pensions: I have 3 small pensions which all kick in at 60 years old and cumulatively pay approx 400 per month.

    Work: I've been lucky to have earned quite a lot over the last few years through my business but we've almost certainly seen the boom times and the business, for a variety of reasons, will reduce in size from this year on meaning my income will be reduced as well.

    As we've earned decent money, I have paid down the mortgage and debt rather than live with any expensive luxuries. An approach, I'm really pleased I've taken given the impending reduction in salary.

    On the basis of this, I have started an investment portfolio which I would like to grow to circa 1m over the next 12 years and to achieve this, I may have to contribute along the way (i.e: I don't think it's possible to get there from where I am now without some additional contributions).

    With that in mind, I have opted towards the higher risk end of the investment spectrum but I'd really like some independant views on the portfolio spread and, in particular, whether you feel there is an overexposure to things like emerging markets/global funds.

    Again for further context, I invested with an aspiration that I could achieve circa 8% growth per annum and not for short term income;

    So, here goes:

    Stock Cost ()
    Aberdeen Asia Pacific Equity Class I - Accumulation (GBP) 9,941.78
    Baillie Gifford Emerging Markets Growth Class B - Accumulation (GBP) 6,168.09
    Baring Europe Select Class I - Income (GBP) 15,000.00
    BlackRock Latin America Fund (Offshore) Inclusive - Class A2 - Accumulation
    4,880.21
    Fidelity China Special Situations PLC Ordinary Shares 1p 9,999.79
    First State Global Listed Infrastructure Class B - Accumulation (GBP) 20,145.45
    Fundsmith Equity Class I - Accumulation (GBP) 7,495.19
    HSBC GIF Russia Equity Inclusive - Class AD - Income (GBP) 10,000.00
    iShares Pacific ex Japan Equity Index Class H - Accumulation (GBP) 9,934.86
    JPM Euroland Equity Class C - Accumulation (EUR) 10,000.00
    JPMorgan Emerging Markets Class B - Accumulation (GBP) 10,000.00
    Jupiter UK Special Situations Class I - Accumulation (GBP) 4,969.10
    LF Woodford Equity Income Class Z - Accumulation (GBP) 9,965.95
    Lindsell Train Global Equity Class D - Income (GBP) 15,035.73
    Lindsell Train Investment Trust plc (The) Ordinary 75p *2 8,610.7
    Marlborough Special Situations Class P - Accumulation (GBP) 7,482.16
    Newton Global Income Class U - Accumulation (GBP) 9,361.99
    Rathbone Global Opportunities Class I - Accumulation (GBP) 10,000.00
    Schroder ISF Middle East Inclusive - Class A - Accumulation (USD) 10,000.00
    Scottish Mortgage Investment Trust Ordinary Shares 5p 35,183.79
    Standard Life Inv Global Smaller Companies Class S - Accumulation (GBP) 5,000.00
    Stewart Investors Asia Pacific Leaders Class B - Accumulation (GBP) 4,992.01
    Vanguard LifeStrategy 100% Equity Accumulation (GBP) 14,852.67

    Totals 249019.50

    I invested back in March 2017 and again in August 2017 and the portfolio is currently showing an overall growth of 7.9%.

    I'd really appreciate some opinions on the risk profile and the general approach taken.

    Also, should say, I'm very much hoping to put both children through their schools using my income and not touching these savings in anyway.

    Thanks in advance.
Page 1
    • DairyQueen
    • By DairyQueen 13th Mar 18, 2:25 PM
    • 287 Posts
    • 442 Thanks
    DairyQueen
    • #2
    • 13th Mar 18, 2:25 PM
    • #2
    • 13th Mar 18, 2:25 PM
    A couple of quick comments before the experts appear....

    1) It would be helpful if you edited your fund list so that each fund appears on a separate line. It would also help if the list was grouped in some kind of logical order (e.g. by region). It's difficult to read in its current format.

    2) Despite 1) a quick glance suggests that's an awful lot of funds

    3) Could you explain your overall strategy regarding fund selection? There seems to be a whole lot of this-and-that.

    4) Why the 'inc' class?

    I think that you can rationalise the list (cull loads) and make management a whole lot easier and cheaper.

    I'm sure the experts will be along soon.
    • economic
    • By economic 13th Mar 18, 2:34 PM
    • 2,940 Posts
    • 1,586 Thanks
    economic
    • #3
    • 13th Mar 18, 2:34 PM
    • #3
    • 13th Mar 18, 2:34 PM
    You provided a lot of details but failed to provide income. Whats your total annual income gross and net of tax? Given this information will be very telling if you are approaching things the right way or not.
    • DairyQueen
    • By DairyQueen 13th Mar 18, 2:37 PM
    • 287 Posts
    • 442 Thanks
    DairyQueen
    • #4
    • 13th Mar 18, 2:37 PM
    • #4
    • 13th Mar 18, 2:37 PM
    Ah... that's better.
    • bowlhead99
    • By bowlhead99 13th Mar 18, 3:19 PM
    • 7,970 Posts
    • 14,499 Thanks
    bowlhead99
    • #5
    • 13th Mar 18, 3:19 PM
    • #5
    • 13th Mar 18, 3:19 PM

    Stock Cost ()
    Originally posted by RichestoRetire
    Why would we be interested in the Cost() ?

    The cost is no longer relevant, as it's not what you'd get if you sold to buy something more appropriate. Your investment exposure to a fund or sector is is current value. Not some historic measure of cost. Better to work with the value numbers which show what you've actually got.

    I'd really appreciate some opinions on the risk profile
    You say you are interested in opinions on risk profile and your thread title asks if it's too high risk. You must know that the answer is yes it's high risk. Whether that's too much risk for you, who reckons you *hope* not to need it for school fees but are facing declining business profits; who can say. We don't know you.

    As a reference point: in the last big crash of 2007-9, the FTSE All-world index fell almost 60% in USD terms from peak to trough. Your portfolio is pretty much 100% equities and though it doesn't necessarily follow the index up and down, it contains some high risk funds which individually are significantly higher risk than the all-world, being concentrated in specific sectors or markets that could have a hard time when the general market has a hard time.

    So, if your 250k investment halves to 125k just as your second child is getting to fee paying school, are you ok with that? That would be a 50% loss while the portfolio could bottom out at more than 50% loss so would not necessarily be showing signs of stopping by that point when it hits 50% below its peak. Would you be tempted to pull out, or happy to wait perhaps half a decade for it to flatline for a while and then gradually recover? Such practical questions are the way to gauge whether you're happy with the risk. Especially when self employed if the country is going through a recession at the same time as markets crash.

    and the general approach taken.
    From what you've told us, the 'general approach taken' was just to think of some funds that might go up at on average 8% over the long term, and buy them in haphazard proportions. Was there more science to it than that? If so, we could critically review the process.

    As it is, you have (for example), 25k spread across a China, Russia and Latin America fund, and only 6k allocated to Baillie Gifford's emerging markets growth fund. Is that because you strongly believe those particular individual regions and their specialist managers are the best ones, and you don't like the gerneralist allocation put together by the specialists at Baillie Gifford? Did you just pick them because they came in high on a list of recent performance tables?

    Investing is a multi-decade pursuit and you are 12 years from retirement; you should not just look to copy recent "high score tables" or leaderboards which were put together on the basis of strongly positive markets in recent years, to come up with a plan on what will be best for the years to come.

    As to the question posed by someone else about why use income class in some cases, presumably some funds are only available in that class. And maybe you need some periodic cash for platform fees. But really it's the overall asset allocation which should be looked at, rather than nuances of specific funds or classes.
    • OldMusicGuy
    • By OldMusicGuy 13th Mar 18, 3:28 PM
    • 396 Posts
    • 780 Thanks
    OldMusicGuy
    • #6
    • 13th Mar 18, 3:28 PM
    • #6
    • 13th Mar 18, 3:28 PM
    So, if your 250k investment halves to 125k just as your second child is getting to fee paying school, are you ok with that? That would be a 50% loss while the portfolio could bottom out at more than 50% loss so would not necessarily be showing signs of stopping by that point when it hits 50% below its peak. Would you be tempted to pull out, or happy to wait perhaps half a decade for it to flatline for a while and then gradually recover? Such practical questions are the way to gauge whether you're happy with the risk. Especially when self employed if the country is going through a recession at the same time as markets crash.
    Originally posted by bowlhead99
    This is the key question you have to answer. If you would not be ok with that scale of loss, you need a different approach to your portfolio. Only you can answer if this portfolio is too high risk.

    Like bowlhead said, it does look like a bit of a hodge podge. Why this mix of funds? And have you thought about the level of fees you are paying? If you are trying to diversify, why not have more in lower cost multi-asset funds?
    • bostonerimus
    • By bostonerimus 13th Mar 18, 3:31 PM
    • 1,921 Posts
    • 1,264 Thanks
    bostonerimus
    • #7
    • 13th Mar 18, 3:31 PM
    • #7
    • 13th Mar 18, 3:31 PM
    You must have an enormous amount of overlap, but there are so many funds that it's not exactly obvious in what sectors and would take a while to work out.......and that's the real issue. How on earth do you manage this portfolio? Do you rebalance? Is there a strategy? This looks like an ad hoc equity fund portfolio. It is certainly risky and I would have some cash and fixed income component for diversity and rebalancing that acts as a volatility dampener.
    Misanthrope in search of similar for mutual loathing
    • dang
    • By dang 13th Mar 18, 3:48 PM
    • 151 Posts
    • 33 Thanks
    dang
    • #8
    • 13th Mar 18, 3:48 PM
    • #8
    • 13th Mar 18, 3:48 PM
    Are you a company director? Would you not be better off making use of the tax benefits of making company contributions to your pension? Your company can pay upto 40k a year to your pension, which will be classed as a business expense saving you corporation tax, but will not go on your return as earnings.
    Are any of these investments in Isa's? The tax man would love a bite of a 1m portfolio.
    • dunstonh
    • By dunstonh 13th Mar 18, 3:54 PM
    • 92,949 Posts
    • 60,325 Thanks
    dunstonh
    • #9
    • 13th Mar 18, 3:54 PM
    • #9
    • 13th Mar 18, 3:54 PM
    Looks like a load of fashion investing to me.
    As well as a total overload on the number of funds for the amount invested.

    The mixture of multi-asset, single sector and niche sector funds must make it difficult to balance the portfolio on the underlying assets.

    Its also way above the average risk profile of a UK investor. Whether that matches your risk profile, investor behaviour and capacity for loss is hard to say with the limited info. Bowlhead has covered most of it.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Alexland
    • By Alexland 13th Mar 18, 4:09 PM
    • 2,544 Posts
    • 1,928 Thanks
    Alexland
    Looks like you bought everything advertised on those posters at the train station. Think hard about the losses you are willing to tollerate, the assets you want to be invested in then find a low cost and simple way of doing it.
    • forextc
    • By forextc 13th Mar 18, 10:02 PM
    • 62 Posts
    • 23 Thanks
    forextc
    I'd echo the above re the number of funds. You would probably find on deeper analysis either

    a) It's not as diversified as you think due to a large number of cross holdings (i.e. riskier than it appears)

    or

    b) It's so diversified as to be market neutral, in which case a couple of tracking products would achieve the same thing.

    In my opinion if you want to generate 'alpha' in a portfolio then you need to back your conviction so that if you get it right, the gain makes a meaningful contribution to the portfolio, otherwise why bother.

    I'd also note that overall it seems quite equity loaded given the investment timeframe and desire for a target level of return.
    • grey gym sock
    • By grey gym sock 14th Mar 18, 4:38 AM
    • 4,383 Posts
    • 3,933 Thanks
    grey gym sock
    8% growth, measured in , not making any adjustment for inflation, is plausible from 100% equities.

    inflation + 8% would be very optimistic, considering that the long-term average from equities is more like inflation + 5% or 6%, and that valuations look a bit high, so one might expect somewhat lower returns starting from here.

    those are just averages. 12 years is not very long in shares - the actual result over that time could differ wildly from the median expectation (positively or negatively).

    it's hard to see the overall allocations of your portfolio at a glance, without digging into what all those global funds actually hold. however, excluding global funds, i make it something like 30% in asia pacific ex-japan + emerging markets (those 2 areas are not the same thing, but can behave similarly), which is quite a lot. i don't know how much you have in other world regions.

    does putting more in emerging markets increase your expected returns? in some ways it may seem logical that it should, but it turns out that there is no sign of this in the long term, i.e. over c. 100 years of returns from developed and emerging markets. (see the study in the credit suisse global investment returns yearbook 2014.) certainly over relatively short periods, such as 12 years, it's entirely possible for either developed or emerging markets to come out ahead. you can't extrapolate from the last few years' relative returns.

    how to get higher returns from equities, assuming you're prepared to increase the risk level, in the hope of higher returns (and you do need to be sure that you really are prepared for for that higher risk - bowlhead has covered this point), is a tricky one. some people do favour over-weighting emerging markets. others would over-weight small-cap shares (you have c. 2% in a small companies fund; other funds may also include small companies). others would favour "value" shares.
    • RichestoRetire
    • By RichestoRetire 14th Mar 18, 11:01 AM
    • 3 Posts
    • 1 Thanks
    RichestoRetire
    Thank you all for taking the time to read and make comment.

    You've given me lots to consider.
    • RichestoRetire
    • By RichestoRetire 14th Mar 18, 4:03 PM
    • 3 Posts
    • 1 Thanks
    RichestoRetire
    Having reflected on some of the comments, in particular my levels of comfort around losses etc.

    I think I'd be prepared to put up with a circa 25%-30% drop in the hope that the portfolio would recover over the timescale mentioned.

    However, if there is a potential downside of 60% (as mentioned in one of the first posts) then I'd obviously fear that the length of time to recover would be in excess of the time I'd want to have the cash tied up.

    With that said, what would be the best way to re-gear this to a lower risk profile?
    • Prism
    • By Prism 14th Mar 18, 4:30 PM
    • 352 Posts
    • 269 Thanks
    Prism
    The typical way to lower your risk is to put a percentage of your allocation into bond funds. However the returns are lower and doing this will almost certainly mean that you will struggle to meet your other target of 1m in 12 years. If you really don't need your investment for at least 12 years then you could always continue as you are with 100% equities and then introduce bonds into the mix gradually over the years.

    For reference it took about 2 and a half years to recover from the 2008 crash and about 6 years from the dot .com bubble.
    • JohnRo
    • By JohnRo 14th Mar 18, 4:30 PM
    • 2,608 Posts
    • 2,421 Thanks
    JohnRo
    Assign an allocation quota and reduce exposure to the sectors / regions that have the greatest potential to impact the bottom line, the tricky part is ensuring those allocations are aligned with your goals and tolerance for losses that may or may not happen.

    I don't know how interested you are in the finer details, this might just look like a wall of meaningless numbers and squiggly lines to you, it is however fascinating to see what might happen to your EM exposure when compared with developed markets, if another GFC event were to occur.

    30 Year Drawdown Charts

    This is US centric but what happens in the US tends to affect everywhere else to some extent, the themes discussed are universal.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
    • bostonerimus
    • By bostonerimus 14th Mar 18, 5:50 PM
    • 1,921 Posts
    • 1,264 Thanks
    bostonerimus
    I would start by deciding on an equity/bond/cash allocation. Given your comments about risk you should be looking at somewhere between 20% and 40% in fixed income and cash as those will limit your losses in a crash. You also need to do some serious pruning and consolidation of your equity portfolio. You might consider a single global equity fund and then augment it with some sector or geographical funds. I have just 3 funds because I stick with large global or US indexes, but even if you want to DIY a portfolio using individual funds with greater sector/geography resolution there's no reason for the DIY investor to have more than 10.
    Misanthrope in search of similar for mutual loathing
    • A_T
    • By A_T 14th Mar 18, 6:19 PM
    • 438 Posts
    • 285 Thanks
    A_T
    Looks like a very complicated portfolio of equity funds. To simplify things you could just switch the whole lot into HSBC FTSE All-World Index fund, Fidelity Index World fund and/or Vanguard FTSE Global All Cap Index fund. The outcome in 12 years will probably be the same as if you just leave them as they are.
    • Thrugelmir
    • By Thrugelmir 14th Mar 18, 6:35 PM
    • 58,876 Posts
    • 52,198 Thanks
    Thrugelmir
    Again for further context, I invested with an aspiration that I could achieve circa 8% growth per annum and not for short term income;
    Originally posted by RichestoRetire
    Investing is like the weather. Full of uncertainty. Majority of investment return comes from reinvesting income, i.e. the effects of compounding. Build a diversified portfolio for the long term. With a wide range of uncorrelated assets. Set reasonable expectations. Better to be pleasantly surprised than extremely disappointed. As in the fable of the hare and the tortoise. Speed isn't everything.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
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