Index vs managed funds the great war
Comments
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I have learned a lot on this forum, but picking the right mix of active funds to get a fully diversified and balanced asset allocation is not that easy for the inexperienced investor. A post on here recently advised that even IFAs buy in their asset allocations, so it can't be that easy.
With low cost multi asset funds you may not do as good as a well devised active or hybrid (active and passive) portfolio, but they are low maintenance and you have a level of confidence that they will give you decent long term returns, probably a lot better than most DIY active portfolios.
An IFA has a more difficult job than thee and me because they have to cater for a wide range of people, with varying risk profiles, varying objectives, and varying ages and incomes. They also have to work within the law, and can be sued if they make gross errors. This means that they must be able to demonstrate that their advice was indeed suitable for the given person. So no doubt it is for them easier and/or cheaper to buy in expert advice from external sources. The IFA can then get on with the part of the job they do best.
As to your second paragraph, it is a quite reasonable and sensible point of view.0 -
I'd be interested to know how you decided what funds and percentages of asset classes would be in your active asset allocation? Have you stuck mainly to the same percentages and same funds over the years? Do you regularly rebalance your portfolio?BananaRepublic wrote: »An IFA has a more difficult job than thee and me because they have to cater for a wide range of people, with varying risk profiles, varying objectives, and varying ages and incomes. They also have to work within the law, and can be sued if they make gross errors. This means that they must be able to demonstrate that their advice was indeed suitable for the given person. So no doubt it is for them easier and/or cheaper to buy in expert advice from external sources. The IFA can then get on with the part of the job they do best.
As to your second paragraph, it is a quite reasonable and sensible point of view.0 -
I'd be interested to know how you decided what funds and percentages of asset classes would be in your active asset allocation?
I think these are two separate sets of choices. One decision, for any investor, is to decide what the asset allocation is going to be. Another, separate decision, is whether to fulfil the chosen allocation with passive funds or active ones.
So I too am interested in the answer regarding the question of choice of active funds. How do you decide which active funds to use?0 -
From what I read the asset allocation in percentages is more important than the actual active funds you choose. I don't just mean the percentage of equities to bonds, I mean for the equity part alone, what percentage should you allocate to each country/region? What percentages to Large, Small and Mid cap, and should those differ for different regions? What percentages to different industry sectors etc.? I think if you get it right you will probably do better with an active portfolio, but knowing how to get the balance right seems difficult to me.I think these are two separate sets of choices. One decision, for any investor, is to decide what the asset allocation is going to be. Another, separate decision, is whether to fulfil the chosen allocation with passive funds or active ones.
So I too am interested in the answer regarding the question of choice of active funds. How do you decide which active funds to use?0 -
I'd be interested to know how you decided what funds and percentages of asset classes would be in your active asset allocation? Have you stuck mainly to the same percentages and same funds over the years? Do you regularly rebalance your portfolio?
I have always gone 100% equities (ignoring my home) as I invest for the long term. I also tried to spread around world markets, with a decent amount in the UK and Europe, but avoiding those I considered too volatile which included China and emerging markets. You might perhaps with reason criticise that decision but it was not unreasonable and kept me happy. One mistake I made was to invest in Japan 20 years ago. That country has had many false dawns, when experts said it was the place to invest, but only recently has that been true. Then again, that is on side of diversifying. Some investments work out, some don’t, and one failure is not so bad.
I had an Equitable Life pension and I transferred out when they imploded. I ended up doing extremely well unlike many poor souls. And I had various other pensions. Generally these pensions limit the range of funds you can access, and their charges are high, so all but my current work pension have been transferred to a SIPP. That also makes managing the funds easier since there is one logon, though for me management means gloating when the times are good, and hiding my head in the sand when they are not. I suspect an awful lot of people ignore their pension funds, and one benefit of an IFA is that they can advise on a transfer to reduce costs, and increase gains.
Generally I stick with funds, and do not rebalance. The funds I bought that were poor performers were ones I bought 20 years ago and I did not research them properly. Over recent years I have become more adventurous with more small companies funds. And I am still invested in Japan. I know that rebalancing has good science behind it, but I’m sure it would have hit my portfolio growth.
As I approach retirement, I will have to slowly transfer funds into less volatile asset classes, leaving the bulk in equities. As far as I can see annuities are not worth having, although they do offer some security.0 -
From what I read the asset allocation in percentages is more important than the actual active funds you choose.
I'm not disputing this. In fact I totally agree. Your asset allocation will relate to your risk attitude, appetite, aversion... and maybe to some extent tactical decision-making regarding which sectors, regions etc. might be a better investment. I also agreed with you that the two other posters might like to explain how, once they've decided on their asset allocations, then go on to decide which active funds/ fund managers/ fund houses to use.0 -
BananaRepublic wrote: »
Generally I stick with funds, and do not rebalance. The funds I bought that were poor performers were ones I bought 20 years ago and I did not research them properly. Over recent years I have become more adventurous with more small companies funds.
So when you make your actively-managed fund choices, what process do you follow? It has been suggested in this thread, and elsewhere, that to have a portfolio of actively-managed funds you need to pick the right ones. So my question is, quite literally, how do you do this?0 -
I think these are two separate sets of choices. One decision, for any investor, is to decide what the asset allocation is going to be. Another, separate decision, is whether to fulfil the chosen allocation with passive funds or active ones.
So I too am interested in the answer regarding the question of choice of active funds. How do you decide which active funds to use?
I use a method that many others here use, and really there is no other unless you pick at random. Essentially I decide on a market or sector, such as UK small companies, and then I look for funds that have consistently good performance. By that I mean that they do not outperform because of one stellar year and nine modest ones. Clearly that stellar year is likely due to luck, so overall the fund performance is modest. But consistent good performance over ten years suggests a good fund with a sound methodology.
When I read the personal finance pages in the newspapers, they all talk about such and such a manager having a sure fire method based on blah de blah, which will generate high returns. I ignore all that. It is no more than marketing spiel.0 -
BananaRepublic wrote: »I use a method that many others here use, and really there is no other unless you pick at random. Essentially I decide on a market or sector, such as UK small companies, and then I look for funds that have consistently good performance. By that I mean that they do not outperform because of one stellar year and nine modest ones. Clearly that stellar year is likely due to luck, so overall the fund performance is modest. But consistent good performance over ten years suggests a good fund with a sound methodology.
When I read the personal finance pages in the newspapers, they all talk about such and such a manager having a sure fire method based on blah de blah, which will generate high returns. I ignore all that. It is no more than marketing spiel.
Pretty much what I have tried to do as part of building my portfolio for my SIPP (for the bits which will be active), as a relative noob I will no doubt make mistakes along the way, but I am actually interested in the process as well and willing to spend time on it, which is one of the reasons why I am willing to give active a go for various segments.
I suppose my biggest concern will be how some funds will perform in the lean years given how long the bull run has been going, there aren't that many that have a track record with the same manager through the GFC.
At the same time if going passive and just tracking global markets I would equally have concerns about the heavy US tech weighting at current valuations, or having heavy exposure to UK large cap which has been an uninspiring area for a while.
I just don't see any one ideal methodology for investing, and I need to be sensible about reviewing my progress and making changes when required without overreacting.0
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