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  • FIRST POST
    • bluefukurou
    • By bluefukurou 11th Oct 18, 4:01 PM
    • 69Posts
    • 17Thanks
    bluefukurou
    Does this equity portfolio make sense?
    • #1
    • 11th Oct 18, 4:01 PM
    Does this equity portfolio make sense? 11th Oct 18 at 4:01 PM
    I'm currently living abroad and planning on how to invest my savings. I earn well and save most of it, so I'm seriously looking at investing in ETFs (originally I planned to buy a property in the UK to rent out). Some of the reading I've done suggests that a simple 3 or 4 ETF portfolio is good for a long term buy and hold investor. It's suggested that you should buy at least one home index, one bond index, and an international index.

    One reason given for the home index is to offset currency fluctuations. As I'm a UK expat (mid 40s) that will invest using pounds and in all likelihood retire in the UK, the home index thing makes sense to me. So for a British citizen, something like this is suggested:

    Vanguard UK FTSE 100 Stock Index (VUKE)
    Vanguard UK FTSE 250 Stock Index (VMID)
    Vanguard FTSE All World ETF (VWRL)
    Vanguard UK Gilt ETF (VGOV)

    I would perhaps have 1/3 in the gilts, 1/3 in All World, and split the rest, with an annual rebalance. Supposing I was to initially invest around 50k, and then add around 2/3k per quarter, does this sound like a good way to invest?
Page 1
    • dunstonh
    • By dunstonh 11th Oct 18, 4:22 PM
    • 95,423 Posts
    • 63,079 Thanks
    dunstonh
    • #2
    • 11th Oct 18, 4:22 PM
    • #2
    • 11th Oct 18, 4:22 PM
    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.
    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.
    • bostonerimus
    • By bostonerimus 11th Oct 18, 5:49 PM
    • 2,371 Posts
    • 1,674 Thanks
    bostonerimus
    • #3
    • 11th Oct 18, 5:49 PM
    • #3
    • 11th Oct 18, 5:49 PM
    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?
    Last edited by bostonerimus; 11-10-2018 at 10:46 PM.
    Misanthrope in search of similar for mutual loathing
    • Audaxer
    • By Audaxer 11th Oct 18, 9:21 PM
    • 1,351 Posts
    • 812 Thanks
    Audaxer
    • #4
    • 11th Oct 18, 9:21 PM
    • #4
    • 11th Oct 18, 9:21 PM
    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.
    Originally posted by dunstonh
    dunstonh, I understand about diversification, but what do you mean specifically when you talk about structure and process?
    • dunstonh
    • By dunstonh 11th Oct 18, 10:06 PM
    • 95,423 Posts
    • 63,079 Thanks
    dunstonh
    • #5
    • 11th Oct 18, 10:06 PM
    • #5
    • 11th Oct 18, 10:06 PM
    dunstonh, I understand about diversification, but what do you mean specifically when you talk about structure and process?
    Originally posted by Audaxer
    Numbers shouldnt just be picked at random. i.e. a third here, a third there etc. And missing out sectors is more likely to damage your returns.

    If its all a bit random, then its more hit and hope. It could do well but you are more reliant on luck.
    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.
    • Audaxer
    • By Audaxer 11th Oct 18, 10:19 PM
    • 1,351 Posts
    • 812 Thanks
    Audaxer
    • #6
    • 11th Oct 18, 10:19 PM
    • #6
    • 11th Oct 18, 10:19 PM
    Numbers shouldnt just be picked at random. i.e. a third here, a third there etc. And missing out sectors is more likely to damage your returns.

    If its all a bit random, then its more hit and hope. It could do well but you are more reliant on luck.
    Originally posted by dunstonh
    Thanks, but how do you decide what percentage to put to each sector? If you include all the sectors you mentioned that are missing, how do you decide what percentages you should put in each sector to ensure that you have a well structured portfolio to your risk tolerance?
    • atush
    • By atush 11th Oct 18, 10:48 PM
    • 17,253 Posts
    • 10,821 Thanks
    atush
    • #7
    • 11th Oct 18, 10:48 PM
    • #7
    • 11th Oct 18, 10:48 PM
    You read up on portfolio building?
    • bostonerimus
    • By bostonerimus 11th Oct 18, 10:56 PM
    • 2,371 Posts
    • 1,674 Thanks
    bostonerimus
    • #8
    • 11th Oct 18, 10:56 PM
    • #8
    • 11th Oct 18, 10:56 PM
    Thanks, but how do you decide what percentage to put to each sector? If you include all the sectors you mentioned that are missing, how do you decide what percentages you should put in each sector to ensure that you have a well structured portfolio to your risk tolerance?
    Originally posted by Audaxer
    You could go for a broader bond index that has gilts, corporates etc and then just arrange your overall asset allocation to be say 60/40 equity to bonds. So maybe think about Vanguard Global Bond Index too and replace the UK FTSE equity funds with Vanguard UK FTSE All shares....or just go for a multi asset fund. Let the fund companies worry about what and how much goes into the index and then just buy indexes in the proportion you want.

    I'm in the US and use a broad US index that covers the bond sectors like Government, corporate, mortgages some foreign and a range of maturity dates and just make the index the percentage of my portfolio that I want for fixed income.
    Last edited by bostonerimus; 11-10-2018 at 11:07 PM.
    Misanthrope in search of similar for mutual loathing
    • Audaxer
    • By Audaxer 11th Oct 18, 11:03 PM
    • 1,351 Posts
    • 812 Thanks
    Audaxer
    • #9
    • 11th Oct 18, 11:03 PM
    • #9
    • 11th Oct 18, 11:03 PM
    You read up on portfolio building?
    Originally posted by atush
    I have been, but it's not clear to me what percentages should go into each sector to achieve a well balanced and structured portfolio.
    • bostonerimus
    • By bostonerimus 11th Oct 18, 11:12 PM
    • 2,371 Posts
    • 1,674 Thanks
    bostonerimus
    I have been, but it's not clear to me what percentages should go into each sector to achieve a well balanced and structured portfolio.
    Originally posted by Audaxer
    Decide on your risk tolerance and let that drive your equity to bond ratio. Then its up to you how much you want to slice and dice the sectors within bonds and equities, but one approach is to cap weight the allocations. I don't go much further than US and rest of the world when thinking within equites and bonds.
    Last edited by bostonerimus; 11-10-2018 at 11:26 PM.
    Misanthrope in search of similar for mutual loathing
    • Tom99
    • By Tom99 12th Oct 18, 2:45 AM
    • 2,799 Posts
    • 1,921 Thanks
    Tom99
    I think splitting the UK equities into FTSE100/FTSE250 is better than an FTSE All Share.
    Taking Vanguard, HSBC is 6.85% of their FTSE100 tracker but still 5.85% of their FTSE All Share tracker.
    • bluefukurou
    • By bluefukurou 12th Oct 18, 8:28 AM
    • 69 Posts
    • 17 Thanks
    bluefukurou
    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.
    Originally posted by dunstonh
    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?
    Originally posted by bostonerimus
    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...
    Originally posted by bostonerimus
    I think splitting the UK equities into FTSE100/FTSE250 is better than an FTSE All Share.
    Taking Vanguard, HSBC is 6.85% of their FTSE100 tracker but still 5.85% of their FTSE All Share tracker.
    Originally posted by Tom99
    What's the case for going for all the FTSE rather than just the top 100/250?
    • AnotherJoe
    • By AnotherJoe 12th Oct 18, 9:06 AM
    • 11,077 Posts
    • 12,769 Thanks
    AnotherJoe
    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.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • dunstonh
    • By dunstonh 12th Oct 18, 9:49 AM
    • 95,423 Posts
    • 63,079 Thanks
    dunstonh
    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). 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.
    • bluefukurou
    • By bluefukurou 12th Oct 18, 5:19 PM
    • 69 Posts
    • 17 Thanks
    bluefukurou
    Ok, I'll have a look multi asset funds and see what I can find out. Thanks for the input.
    • poppy10
    • By poppy10 14th Oct 18, 10:51 AM
    • 6,011 Posts
    • 7,265 Thanks
    poppy10
    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.
    Originally posted by bluefukurou
    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
    • Alexland
    • By Alexland 14th Oct 18, 11:11 AM
    • 3,400 Posts
    • 2,735 Thanks
    Alexland
    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.
    Originally posted by poppy10
    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
    • firestone
    • By firestone 14th Oct 18, 1:01 PM
    • 278 Posts
    • 126 Thanks
    firestone
    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
    Originally posted by Alexland
    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
    • By Alexland 14th Oct 18, 1:10 PM
    • 3,400 Posts
    • 2,735 Thanks
    Alexland
    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
    Originally posted by firestone
    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
    • bluefukurou
    • By bluefukurou 16th Oct 18, 12:42 PM
    • 69 Posts
    • 17 Thanks
    bluefukurou
    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.
    Originally posted by poppy10
    Unfortunately, as an expat I cannot open an account with Vanguard and do what you suggest.

    Where are your:

    Index Linked Gilts
    Global High Yield Bonds
    Global Bonds
    UK Corp Bonds
    Property
    Originally posted by dunstonh
    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?
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