Author Topic: Is this a good portfolio?  (Read 5364 times)

webcat86

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Is this a good portfolio?
« on: January 27, 2016, 10:13:55 AM »
(If anyone saw my other thread this week about investing, this one serves to replace it)

I am just starting to invest, and my aim is to track global equities. I'm trying to have a portfolio that meets that aim without too much or too little exposure to certain areas, as far as would be considered reasonable. I've also added property.

The bulk of the portfolio is Vanguard LifeStrategy 100%, and I've basically tried to supplement it in the areas that have low weighting, and to compensate for the large home bias in the UK.

Before i commit to this, would anyone mind taking a quick look at the screenshot and saying if it looks reasonable, or i'm making a massive mistake?

The LS 100 does not have any small cap, so i've added it with a tracker. Japan is included but about 7% so i thought adding some more would be useful but i don't know if that's overdoing it and i would be better off without it completely or adding a different area instead, and there is also no emerging markets so i added that too.

(I know investing aims are personal, but for instance i was on a forum today where a person was considering 30% stocks, 50% bonds, 20% commodities, which was universally agreed as being ridiculous. I just want to know if this allocation is sensible for meeting the criteria of global tracking)


« Last Edit: January 27, 2016, 10:19:40 AM by webcat86 »

Kaspian

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Re: Is this a good portfolio?
« Reply #1 on: January 27, 2016, 11:49:22 PM »

Before i commit to this, would anyone mind taking a quick look at the screenshot and saying if it looks reasonable, or i'm making a massive mistake?


No "massive mistakes" if you're starting out on this, bud--congrats!  Where's the large US exposure?  Like the S&P 500?  Is that available as a standalone fund in a British Vanguard account?  Judging from the prospectus of the Vanguard LifeStrategy, it probably has enough exposure to emerging markets.  Not sure if you need that last one to up the ante.  I'd replace it with a purely US fund if possible.  But yes, it's "good"!  Anything with indexes and low-fees is good for a start.  :D


webcat86

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Is this a good portfolio?
« Reply #2 on: January 28, 2016, 12:12:40 AM »

Before i commit to this, would anyone mind taking a quick look at the screenshot and saying if it looks reasonable, or i'm making a massive mistake?


No "massive mistakes" if you're starting out on this, bud--congrats!  Where's the large US exposure?  Like the S&P 500?  Is that available as a standalone fund in a British Vanguard account?  Judging from the prospectus of the Vanguard LifeStrategy, it probably has enough exposure to emerging markets.  Not sure if you need that last one to up the ante.  I'd replace it with a purely US fund if possible.  But yes, it's "good"!  Anything with indexes and low-fees is good for a start.  :D

Thanks! The LS is predominately US, but no emerging markets (I think there is a difference between the uk one and the US one, I will attach a screenshot of the allocation when i log in later)

Edit: screenshot attached. There is some exposure to emerging but it looks very small?
« Last Edit: January 28, 2016, 12:29:50 AM by webcat86 »

mohawkbrah

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Re: Is this a good portfolio?
« Reply #3 on: January 28, 2016, 06:29:01 AM »
hmm never noticed the life strategy fund before. might start funneling into that instead of separate funds. keep things simplez

Woody Viet

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Re: Is this a good portfolio?
« Reply #4 on: January 28, 2016, 09:11:41 AM »
That portfolio allocation looks reasonable. The reason that there is so little emerging markets in the Life Strategy fund is probably because emerging markets are really small. Compare these two indices (look at the market cap of the index). Emerging markets are only around 10% of global markets right now.

https://www.msci.com/resources/factsheets/index_fact_sheet/msci-world-index.pdf
https://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-index-usd-net.pdf

I'm guessing you're a UK investor? Me too! If so it's really important to take into account dividend withholding tax and fund reporting status. The first one can shave up to 20% of your foreign dividends (or more if your broker doesn't file the right forms). The second one can make the capital gains of any fund sold abroad be taxed as income. Are you buying your Vanguard funds from Vanguard UK or USA? If they are a reporting fund it should be:

Also read this:
http://monevator.com/avoid-income-tax-with-reporting-funds/
http://monevator.com/withholding-tax-on-dividends/
As far as your global equity tracker goes then it does a decent job. I really wouldn't worry too much about small caps. Because of the way the large fund companies structure their indicies you'll probably only get an extra 0.6% per year before fees. Right now emerging markets look cheap (but they are very volatile), and the withholding taxes are low so I like them.

One last thing. What are your goals with this investment? Will you need the funds in the near future of not? I'm a massive fan of 100% equities (they trounce commodities and bonds in the long run although I'm sure some will disagree with me to an extent), but only if you have the liquidity to support such a strategy

Edit: that allocation leaves you with a 28% exposure to Japan which seems a lot to me
« Last Edit: January 28, 2016, 09:15:25 AM by Woody Viet »

Doubleh

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Re: Is this a good portfolio?
« Reply #5 on: January 28, 2016, 09:34:20 AM »
I wouldn't want to say that's a crazy portfolio, but it does feel like buying life strategy which is designed as a slightly conservative one stop shop and then adding back to get to something like the weighting of a global tracker may be over complicating things.

I actually tried looking for an all world tracker in the uk after your earlier thread and there don't seem many options in funds. However vanguard do sell a total world tracker  in the uk as an ETF which would be one option. An alternative would be a global developed world fund which seems easier to find, and adding a separate emerging markets fund

webcat86

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Re: Is this a good portfolio?
« Reply #6 on: January 28, 2016, 09:55:21 AM »
That portfolio allocation looks reasonable. The reason that there is so little emerging markets in the Life Strategy fund is probably because emerging markets are really small. Compare these two indices (look at the market cap of the index). Emerging markets are only around 10% of global markets right now.

https://www.msci.com/resources/factsheets/index_fact_sheet/msci-world-index.pdf
https://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-index-usd-net.pdf

I'm guessing you're a UK investor? Me too! If so it's really important to take into account dividend withholding tax and fund reporting status. The first one can shave up to 20% of your foreign dividends (or more if your broker doesn't file the right forms). The second one can make the capital gains of any fund sold abroad be taxed as income. Are you buying your Vanguard funds from Vanguard UK or USA? If they are a reporting fund it should be:

Also read this:
http://monevator.com/avoid-income-tax-with-reporting-funds/
http://monevator.com/withholding-tax-on-dividends/
As far as your global equity tracker goes then it does a decent job. I really wouldn't worry too much about small caps. Because of the way the large fund companies structure their indicies you'll probably only get an extra 0.6% per year before fees. Right now emerging markets look cheap (but they are very volatile), and the withholding taxes are low so I like them.

One last thing. What are your goals with this investment? Will you need the funds in the near future of not? I'm a massive fan of 100% equities (they trounce commodities and bonds in the long run although I'm sure some will disagree with me to an extent), but only if you have the liquidity to support such a strategy

Edit: that allocation leaves you with a 28% exposure to Japan which seems a lot to me

Thank you for that info, particularly reference to Japan - I will remove it and have the emerging, small cap and property as supplements to the LS. Now i'm wondering about allocation again, I'm thinking:

75% LS
10% Property
10% Small cap
5% emerging

I'm also going to commit a cardinal sin and take a very small punt on Volkswagen, holding for the long term. But that will be my only active investment!

I wasn't aware of the parts about tax etc, im holding this in an ISA, aren't growth and withdrawals tax free in the wrapper? (Edit: That Monevator article confirms that i don't have to worry about the tax, phew!)

With regards to my needs, this is my long term portfolio. Whether I will be able to FI or not I don't know but I won't be touching it for at least ten years, almost certainly much longer. I have an emergency fund and am also overpaying my mortgage - I'm not swayed by arguments of "don't overpay with low rates!", it's my home and my biggest expense, so if I can obtain that security of ownership and free up significantly more money then that's my aim. And the diversification doesn't hurt!
« Last Edit: January 28, 2016, 10:38:00 AM by webcat86 »

webcat86

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Re: Is this a good portfolio?
« Reply #7 on: January 28, 2016, 09:56:45 AM »

I wouldn't want to say that's a crazy portfolio, but it does feel like buying life strategy which is designed as a slightly conservative one stop shop and then adding back to get to something like the weighting of a global tracker may be over complicating things.

I actually tried looking for an all world tracker in the uk after your earlier thread and there don't seem many options in funds. However vanguard do sell a total world tracker  in the uk as an ETF which would be one option. An alternative would be a global developed world fund which seems easier to find, and adding a separate emerging markets fund

I did actually try to do that before purchasing the LS. In the end I preferred the LS, but agree I don't want to over complicate it. I think I will just add the emerging and small cap, removing Japan. I'm comfortable with that and don't feel like I'm underexposed to a given area

frugledoc

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Re: Is this a good portfolio?
« Reply #8 on: January 28, 2016, 03:52:19 PM »
No tax to worry about in an ISA so you don't have to consider that at all.

Here is my advice and is pretty much what I do, except I use vanguard all world ETF instead of LS 100.

If you are 100% equities just put all your money into one of these. You don't need anything else. Market goes up,keep adding. Market goes down, keep adding. 

I messed around with a complicated portfolio for years and now investing is so easy

I refer you to this article which sells the idea well

http://monevator.com/why-a-total-world-equity-index-tracker-is-the-only-index-fund-you-need/

Also, this guy is singing from the same sheet

http://www.budgetsaresexy.com/2014/06/lazy-one-fund-investing-strategy/
« Last Edit: January 28, 2016, 03:55:08 PM by frugledoc »

frugledoc

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Re: Is this a good portfolio?
« Reply #9 on: January 28, 2016, 03:58:30 PM »
Ps loving the uk chat in the forum

webcat86

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Re: Is this a good portfolio?
« Reply #10 on: January 28, 2016, 04:04:06 PM »

No tax to worry about in an ISA so you don't have to consider that at all.

Here is my advice and is pretty much what I do, except I use vanguard all world ETF instead of LS 100.

If you are 100% equities just put all your money into one of these. You don't need anything else. Market goes up,keep adding. Market goes down, keep adding. 

I messed around with a complicated portfolio for years and now investing is so easy

I refer you to this article which sells the idea well

http://monevator.com/why-a-total-world-equity-index-tracker-is-the-only-index-fund-you-need/

Also, this guy is singing from the same sheet

http://www.budgetsaresexy.com/2014/06/lazy-one-fund-investing-strategy/

Yep I'm definitely on board with the philosophy. I just feel the LS is lacking in certain areas. But the fund would now be LS, property and small cap, removing emerging and Japan, so just 3 funds and probably 80/10/10 allocation

frugledoc

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Re: Is this a good portfolio?
« Reply #11 on: January 28, 2016, 04:12:19 PM »
The 10/10 bit is just fiddling at the edges and unlikely to achieve much but if it makes it a bit more fun for you go for it.

For property I would check out propertypartner.co and propertymoose.co.uk
I prefer investing directly in property rather than a fund but that's mostly because I have a huge distrust of all fund managers

webcat86

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Re: Is this a good portfolio?
« Reply #12 on: January 28, 2016, 04:14:40 PM »

The 10/10 bit is just fiddling at the edges and unlikely to achieve much but if it makes it a bit more fun for you go for it.

For property I would check out propertypartner.co and propertymoose.co.uk
I prefer investing directly in property rather than a fund but that's mostly because I have a huge distrust of all fund managers

I very nearly went with property planner actually, but changed my mind after people said to be wary of it. With the fund I'm keen on the commercial and retail properties. But I would like to get into the personal market - although with buy to let now in the firing line of the government it may not be the best option

Woody Viet

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Re: Is this a good portfolio?
« Reply #13 on: January 28, 2016, 11:01:18 PM »
That portfolio allocation looks reasonable. The reason that there is so little emerging markets in the Life Strategy fund is probably because emerging markets are really small. Compare these two indices (look at the market cap of the index). Emerging markets are only around 10% of global markets right now.

https://www.msci.com/resources/factsheets/index_fact_sheet/msci-world-index.pdf
https://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-index-usd-net.pdf

I'm guessing you're a UK investor? Me too! If so it's really important to take into account dividend withholding tax and fund reporting status. The first one can shave up to 20% of your foreign dividends (or more if your broker doesn't file the right forms). The second one can make the capital gains of any fund sold abroad be taxed as income. Are you buying your Vanguard funds from Vanguard UK or USA? If they are a reporting fund it should be:

Also read this:
http://monevator.com/avoid-income-tax-with-reporting-funds/
http://monevator.com/withholding-tax-on-dividends/
As far as your global equity tracker goes then it does a decent job. I really wouldn't worry too much about small caps. Because of the way the large fund companies structure their indicies you'll probably only get an extra 0.6% per year before fees. Right now emerging markets look cheap (but they are very volatile), and the withholding taxes are low so I like them.

One last thing. What are your goals with this investment? Will you need the funds in the near future of not? I'm a massive fan of 100% equities (they trounce commodities and bonds in the long run although I'm sure some will disagree with me to an extent), but only if you have the liquidity to support such a strategy

Edit: that allocation leaves you with a 28% exposure to Japan which seems a lot to me

Thank you for that info, particularly reference to Japan - I will remove it and have the emerging, small cap and property as supplements to the LS. Now i'm wondering about allocation again, I'm thinking:

75% LS
10% Property
10% Small cap
5% emerging

I'm also going to commit a cardinal sin and take a very small punt on Volkswagen, holding for the long term. But that will be my only active investment!

I wasn't aware of the parts about tax etc, im holding this in an ISA, aren't growth and withdrawals tax free in the wrapper? (Edit: That Monevator article confirms that i don't have to worry about the tax, phew!)

With regards to my needs, this is my long term portfolio. Whether I will be able to FI or not I don't know but I won't be touching it for at least ten years, almost certainly much longer. I have an emergency fund and am also overpaying my mortgage - I'm not swayed by arguments of "don't overpay with low rates!", it's my home and my biggest expense, so if I can obtain that security of ownership and free up significantly more money then that's my aim. And the diversification doesn't hurt!
I'm glad the information was helpful! Here's some more.

That portfolio seems very reasonable. A difference of 5% here or there is probably not going to have that much of an effect in the long run. If you want to capture the benefits of diversification then you have enough in small caps, emerging markets and small caps to do that (IMO).

If you're holding things in an ISA then you have nothing to worry about with the UK government. Every fund that you're broker allows you to buy within an ISA will have or will be seeking reporting status. It's something they have to get to be eligible ISA investments. However you do still need to take into account withholding tax as it is deducted at source. This is done by the government of the country that each individual security is listed in before it even arrives at the fund. Some funds are able to recoup some of this and it's reflected in reduced tracking error. Vanguard are pretty good at this.

If you are holding a stock and never intend to sell it then in my mind that is passive (although not indexing). In this case you are picking a well established company which is down on its luck. Do make sure you do your own due diligence. Personally I wouldn't invest more than 4% of my assets in a single stock. Where are you buying the stock?

With your needs then I would completely agree with your plan. What kind of mortgage have you got? If I had a fixed rate at less than 2.5% then I would probably favour stocks as the cash flow from dividends could be used to match those interest rates while also being exposed to the upside potential of the stockmarket. Also bear in mind that in the long run your home will keep its real value, which makes a mortgage a nominal cost. Inflation will reduce the mortgages real value while leaving your home's equity intact.

That's my personal opinion though and if you feel a lot better having lower outgoings then you should stick to overpaying.

webcat86

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Re: Is this a good portfolio?
« Reply #14 on: January 29, 2016, 12:06:53 AM »

That portfolio allocation looks reasonable. The reason that there is so little emerging markets in the Life Strategy fund is probably because emerging markets are really small. Compare these two indices (look at the market cap of the index). Emerging markets are only around 10% of global markets right now.

https://www.msci.com/resources/factsheets/index_fact_sheet/msci-world-index.pdf
https://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-index-usd-net.pdf

I'm guessing you're a UK investor? Me too! If so it's really important to take into account dividend withholding tax and fund reporting status. The first one can shave up to 20% of your foreign dividends (or more if your broker doesn't file the right forms). The second one can make the capital gains of any fund sold abroad be taxed as income. Are you buying your Vanguard funds from Vanguard UK or USA? If they are a reporting fund it should be:

Also read this:
http://monevator.com/avoid-income-tax-with-reporting-funds/
http://monevator.com/withholding-tax-on-dividends/
As far as your global equity tracker goes then it does a decent job. I really wouldn't worry too much about small caps. Because of the way the large fund companies structure their indicies you'll probably only get an extra 0.6% per year before fees. Right now emerging markets look cheap (but they are very volatile), and the withholding taxes are low so I like them.

One last thing. What are your goals with this investment? Will you need the funds in the near future of not? I'm a massive fan of 100% equities (they trounce commodities and bonds in the long run although I'm sure some will disagree with me to an extent), but only if you have the liquidity to support such a strategy

Edit: that allocation leaves you with a 28% exposure to Japan which seems a lot to me

Thank you for that info, particularly reference to Japan - I will remove it and have the emerging, small cap and property as supplements to the LS. Now i'm wondering about allocation again, I'm thinking:

75% LS
10% Property
10% Small cap
5% emerging

I'm also going to commit a cardinal sin and take a very small punt on Volkswagen, holding for the long term. But that will be my only active investment!

I wasn't aware of the parts about tax etc, im holding this in an ISA, aren't growth and withdrawals tax free in the wrapper? (Edit: That Monevator article confirms that i don't have to worry about the tax, phew!)

With regards to my needs, this is my long term portfolio. Whether I will be able to FI or not I don't know but I won't be touching it for at least ten years, almost certainly much longer. I have an emergency fund and am also overpaying my mortgage - I'm not swayed by arguments of "don't overpay with low rates!", it's my home and my biggest expense, so if I can obtain that security of ownership and free up significantly more money then that's my aim. And the diversification doesn't hurt!
I'm glad the information was helpful! Here's some more.

That portfolio seems very reasonable. A difference of 5% here or there is probably not going to have that much of an effect in the long run. If you want to capture the benefits of diversification then you have enough in small caps, emerging markets and small caps to do that (IMO).

If you're holding things in an ISA then you have nothing to worry about with the UK government. Every fund that you're broker allows you to buy within an ISA will have or will be seeking reporting status. It's something they have to get to be eligible ISA investments. However you do still need to take into account withholding tax as it is deducted at source. This is done by the government of the country that each individual security is listed in before it even arrives at the fund. Some funds are able to recoup some of this and it's reflected in reduced tracking error. Vanguard are pretty good at this.

If you are holding a stock and never intend to sell it then in my mind that is passive (although not indexing). In this case you are picking a well established company which is down on its luck. Do make sure you do your own due diligence. Personally I wouldn't invest more than 4% of my assets in a single stock. Where are you buying the stock?

With your needs then I would completely agree with your plan. What kind of mortgage have you got? If I had a fixed rate at less than 2.5% then I would probably favour stocks as the cash flow from dividends could be used to match those interest rates while also being exposed to the upside potential of the stockmarket. Also bear in mind that in the long run your home will keep its real value, which makes a mortgage a nominal cost. Inflation will reduce the mortgages real value while leaving your home's equity intact.

That's my personal opinion though and if you feel a lot better having lower outgoings then you should stick to overpaying.

Thanks!

I'll be buying the VW stock through my broker so it'll also be held within the ISA.

My mortgage is five year fixed at 2.83%, and my plan is overpay it as much as possible so when I remortgage in four years I can get the best rate (and if prices have dropped I don't want to be in or approaching negative equity)

Playing with Fire UK

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Re: Is this a good portfolio?
« Reply #15 on: January 29, 2016, 02:41:03 AM »
Solid portfolio. Personally I don't invest in property because I have enough exposure in my house YMMV.

In terms of overpaying the mortgage, think about the natural banks of LTV ratios - there is more to be gains from a rate change in moving from 91 to 90 % LTV than 59 to 58 or beyond. If you philosophically want to OP amap, then crack on.

webcat86

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Re: Is this a good portfolio?
« Reply #16 on: January 29, 2016, 04:20:44 AM »

Solid portfolio. Personally I don't invest in property because I have enough exposure in my house YMMV.

In terms of overpaying the mortgage, think about the natural banks of LTV ratios - there is more to be gains from a rate change in moving from 91 to 90 % LTV than 59 to 58 or beyond. If you philosophically want to OP amap, then crack on.

My mortgage concern is say the base rate has gone up within the five years of my fix, pushing the mortgage rates up and subsequently my payments. I figure if I reduce it as much as possible then I will reduce my monthly obligation as well. And my main objective is to clear the mortgage entirely, so I need to overpay to meet that aim.

Woody Viet

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Re: Is this a good portfolio?
« Reply #17 on: January 29, 2016, 04:52:23 AM »
Having a lower loan-to-value might also get you a lower refinancing rate.

Have you been looking at rates recently? They've gone up a fair bit (1 percentage point), or so in the past two years. I think it's going to get pretty painful for a lot of homeowners and landlords when they start moving significantly

webcat86

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Re: Is this a good portfolio?
« Reply #18 on: January 29, 2016, 04:58:25 AM »

Having a lower loan-to-value might also get you a lower refinancing rate.

Have you been looking at rates recently? They've gone up a fair bit (1 percentage point), or so in the past two years. I think it's going to get pretty painful for a lot of homeowners and landlords when they start moving significantly

No I've not paid much attention to them, we are 10 months into a five year fix so I haven't seen much point. But yes a lower LTV is what I'm thinking too. We bought with a 25% deposit, I'm hoping with a mixture of overpayments and an increase in price will give us better leverage