If you were starting again...

Closed-end funds and OEICs
seekingbalance
Posts: 40
Joined: November 7th, 2016, 11:14 am

Re: If you were starting again...

Postby seekingbalance » December 22nd, 2016, 11:04 am

Yes, 35 years may be better to focus on 100 rather than 80, maybe not for 10.

In considering VWRL instead, it is probably a good sub for the 100 and is cheaper, though the LS rebalancing could be worth having. Don't forget the LS etfs are made up of multiple other
ETFs - the 100 is currently:
Vanguard U.S. Equity Index Fund 19.4%
Vanguard FTSE Developed World ex-U.K. Equity Index Fund 19.2%
Vanguard FTSE U.K. All Share Index Unit Trust 18.3%
Vanguard S&P 500 UCITS ETF 13.2%
Vanguard FTSE Developed Europe ex-U.K. Equity Index Fund 8.4%
Vanguard Emerging Markets Stock Index Fund 7.1%
Vanguard FTSE 100 UCITS ETF 5.6%
Vanguard Japan Stock Index Fund 5.2%
Vanguard Pacific ex-Japan Stock Index Fund 2.6%
Vanguard FTSE 250 UCITS ETF 1.0%

Bonds may not be needed for a while, but should not be ignored.

To complicate the decision, don't forget the Targeted Retirement Date 2045 or whatever date is appropriate. Vanguard change the bond mix for you over time!

moorfield
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Re: If you were starting again...

Postby moorfield » December 22nd, 2016, 11:30 am

"what would I do if I was starting again?"


I would use a spread betting account and a very very conservative margin level to sell put option ratio spreads. But I guess a little OT for here.

M

stuart349734
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Joined: November 14th, 2016, 11:17 pm

Re: If you were starting again...

Postby stuart349734 » December 22nd, 2016, 12:59 pm

Phileasrob wrote:Your daughter has 35 years to go to retirement so why bother with bonds at this stage? I would go for the Vanguard LS 100 unless she wants to go down the HYP route.


That's a good point. I may well choose the 100% equities option.

scotia
Posts: 49
Joined: November 4th, 2016, 8:43 pm

Re: If you were starting again...

Postby scotia » December 22nd, 2016, 2:12 pm

I'm not familiar with the Vanguard offers, but looking at the list provided by seekingbalance, there appears to be very little mid cap and smaller companies content - yet these indices have shown significantly higher growth than the FTSE 100 over an extended period. I know that past performance is no guarantee of future performance, but I would certainly be tempted to hold a larger fraction in these areas.
But this brings us back to the original point - does she want to become actively involved, or simply save and forget. If the latter, then I'm sure a Vanguard fund is probably as good as any ready-made solution. Thanks for the interesting topic, and the many submissions

melonfool
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Re: If you were starting again...

Postby melonfool » December 22nd, 2016, 11:23 pm

scotia wrote:I'm not familiar with the Vanguard offers, but looking at the list provided by seekingbalance, there appears to be very little mid cap and smaller companies content - yet these indices have shown significantly higher growth than the FTSE 100 over an extended period. I know that past performance is no guarantee of future performance, but I would certainly be tempted to hold a larger fraction in these areas.
But this brings us back to the original point - does she want to become actively involved, or simply save and forget. If the latter, then I'm sure a Vanguard fund is probably as good as any ready-made solution. Thanks for the interesting topic, and the many submissions


I wanted some exposure to smaller caps alongside my HYP and the various trackers my pension is in, so I bought this: iShares S&P Small Cap 600 UCITS ETF USD (Dist)

It is up 47% since I bought it in March. Wish I had bought more!

This has been a useful thread. I've just had £10k transferred into my SIPP which I need to invest somewhere. For some odd reason I don't like individual shares in my SIPP, I keep those for my ISA. The SIPP charges now preclude me buying more Vanguard Lifestrategy (60%), which was my preference until they changed the charging structure, now I need to move to ITs or ETFs, so I shall be looking for inspiration there soon!

Mel

richfool
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Joined: November 19th, 2016, 2:02 pm

Re: If you were starting again...

Postby richfool » December 23rd, 2016, 1:05 am

Stuart, I would suggest your daughter follows your example, - and invests in a selection of well known investment trusts.

My investment history is similar to yours. I started long ago (about 20 years) with investment trusts and my selection has evolved over the years to include most sectors, with an emphasis on UK and Global G&I trusts, though with some defensives, wealth preservers and diversifiers, such as: Personal Assets, RIT Capital Partners and CGT, and property (SLI) Standard Life Property Income trust..

My best performers over the last year have been Middlefield Canadian Income trust (MCT), Aberdeen's North American Income trust (NAIT) and Blackrock Commodity Income trust (BRCI).

After finding and following TMF and because of my own interest in investing, I have more recently created a separate portfolio of some directly held stocks, though I am not suggesting that for your daughter. The IT's keep things relatively simple and spread the risk.

Daytona
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Joined: November 17th, 2016, 12:48 pm

Re: If you were starting again...

Postby Daytona » December 29th, 2016, 5:59 pm

BarrenWuffett wrote:If I were in my 30s and starting over I would definitely go for the Lifestrategy 80 fund - what could be simpler - globally diverse, mix of equities/bonds, auto rebalance, low cost.


I've not looked at those funds before and a quick look at the funds held seemed to indicate a duplication in US holdings. The report contained a country breakdown which revealed US holdings of 35%. I'm not sure I'd be comfortable with that for a hands off investment.

Ashfordian
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Joined: November 4th, 2016, 5:47 pm

Re: If you were starting again...

Postby Ashfordian » December 29th, 2016, 6:28 pm

stuart349734 wrote:My daughter is 30 and wants to start investing modest amounts into a Stocks and Shares ISA every year, with a view to not touching it until she retires in 35 years (or who knows when?) and would like me to choose her investments.


If I was starting again and had the above remit for the money I would choose a SIPP over an ISA to start with. Even as a basic rate tax payer you get a 20% uplift, more if higher rate.

The only downside is no access to the money until you reach a certain age.

Dod1010
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Re: If you were starting again...

Postby Dod1010 » December 29th, 2016, 10:20 pm

Ashfordian wrote:
If I was starting again and had the above remit for the money I would choose a SIPP over an ISA to start with. Even as a basic rate tax payer you get a 20% uplift, more if higher rate.

The only downside is no access to the money until you reach a certain age.


You are naïve if you think that is the only downside. The tax benefit is about the only upside (and of course you pay tax on withdrawal although quite possibly at a lower rate if you are by then retired). The downside is that no political party can resist playing around with the rules for a SIPP, life time allowance, tax on death for some arrangements and so on. An ISA so far has been a one way benefit, although of course some day I expect a chancellor will realise just what he is missing by way of tax with the increasing subscription levels. I live off my dividends plus the State Pension and have a good life style. I pay almost no income tax or CGT.

Dod

1nv35t
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Re: If you were starting again...

Postby 1nv35t » December 29th, 2016, 11:14 pm

A cautionary note. Vanguard somewhat hides that they tend to benchmark to net total return indicies and where that includes the standard rate of withholding tax rather than any lower rate under tax treaty terms. So for example if standard withholding tax rate is 30% (as per the US), but the UK has a 15% tax treaty rate, and the stocks collectively pay a 3% dividend yield, then the net total return benchmark figure will reflect a 30% reduction (0.9%) compared to the 0.45% rate actually encountered due to tax treaty terms. Add on fund fees of perhaps 0.25% onto that 0.45% = 0.7% lag of the gross (mathematical) index. Typically Vanguards actual performance "compares closely to the benchmark", fundamentally however its as though that benchmark had endured a 30% hit against dividends.

It would be nice if Vanguard (and others) made it more clearer what the 'benchmark' actually was. For example VWRL Factsheet shows Benchmark of FTSE All World Index and associated to that is a Index Ticker of TAWT01U, there's no footnote however that details how that Index Ticker is a net total return index (nor the tax rates applied).

Yet another concern is how funds and stocks have drifted apart. Whilst UK reporting registered funds are taxed similar to stocks, if that registration lapses even for a second during the time you hold a fund then the entire investment period becomes liable to income tax (capital and dividends) and there's no capital loss offset option either. Whilst you might expect funds to automatically roll registration, a strike or some other deliberately contrived situation that prevented renewals could be engineered for taxation revenue benefit purposes.

Another risk is that sooner or later you may have to sell a fund to repurchase a equivalent fund with a different provider and incur a large taxable event in the process, more so if the fund had been held for many years.

The popularity of being broadly diversified across hundreds/thousands of stocks via 'low cost' funds may peak as higher costs are applied (easy targets). Individual direct share ownership tendencies of the past might again become more popular. Jack Bogle himself has suggested that the ideal choice is to buy the 50 largest blue chips, buy and hold (no further trading). Adapt that to include equal initial amounts invested in each, and ensuring you select from across a diverse range of sectors; Alongside accumulating dividends and adding another stock to the set periodically ... and ongoing costs will be small and counter party risk such as fund provider be eliminated. 50 initial stocks is too many IMO, the Dow 30 for instance more or less tracks the 500 S&P stocks reasonably. Even at 15 initial stocks likely you'll hold a closet index tracker and adding stocks periodically to that via dividend reinvestment expands the stock diversity/number over time. 'Old school' style of investing in stocks.

hiriskpaul
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Re: If you were starting again...

Postby hiriskpaul » December 30th, 2016, 5:54 pm

stuart349734 wrote:My daughter is 30 and wants to start investing modest amounts into a Stocks and Shares ISA every year, with a view to not touching it until she retires in 35 years (or who knows when?) and would like me to choose her investments.

I've mainly invested in Investment Trusts for the past 25 years or so and whilst I've been pleased with the overall record, I'm trying to put myself in her position and think "what would I do if I was starting again?"

I've been investing long enough to realise that although there are many sound investment trusts, over the very long term, all are subject to market sentiment and with the best will in the world, I turn a bit of a blind eye to the inevitable periods of underperformance (or reversion to the mean?)

So I was thinking that for my daughter, or if I was starting again, my advice may be to use say, the Vanguard Lifestrategy 80% alone.

Without turning the discussion into an active vs passive bun-fight, I would be interested in people's views.


I would say the investment to choose would depend on your daughter's attitude to risk, which I appreciate is far from easy to determine. You only get a good feeling for it once asset values have dropped 50% or so. A single Lifestrategy fund of some sort would be a good option, especially for someone who does not want to think too much about the investment (nothing wrong with that). Personally, with an expected 35 year investment timescale, I would take on a lot more than 80% equity risk. So a Lifestrategy 100 or global tracker as others have suggested. But I would not stop there. ITs allow you to up the equity risk to more than 100% (because of gearing) and you can go overweight with higher risk areas, such as emerging markets, small caps and value stocks. So if it was just me, I would go for something like this to start with, then start slackening off on the risk in 15 years time:

Lifestrategy 100 or global tracker fund/ETF 30%
Vanguard Global Value Factor ETF 30%
Templeton Emerging Markets IT or iShares Core Emerging markets ETF 20%
Aberforth Smaller Companies Trust 20%

I really like the look of the Vanguard value ETF. As well as the tilt to value, it invests more evenly across stocks, so that it has an element of a small cap tilt as well. In addition the TER is low at 0.22% and dividends are automatically reinvested. Over an extended period the low cost, tilt to value and smaller caps give it a good, but not guaranteed, chance of beating an equivalent cap weighted world tracker.

Emerging markets are of course a lot more risky than developed markets, but over the long haul I would hope that the additional risk was compensated with higher returns. I have held Templeton EM for 26 years, and although I would not automatically recommend it these days over an ETF, right now and for a potential 35 year investment term, I think it has some merit due to the 14% discount to NAV. If/when that drops below 7% I would then flip to an ETF, unless the TER on Templeton EM dropped substantially.

UK smaller companies have taken a battering this year, mainly due to Brexit fears, but over the long term are likely to produce excellent returns (with considerable uncertainty and volatility of course). There are no small cap trackers* so ITs or OEICs are the only way to go unless you or your daughter wants to research and invest directly yourself. OEICs are IMHO problematic due to the illiquidity of small cap stocks, so ITs are the better choice. I have been looking into UK small cap ITs recently and the Aberforth would seem to me to be the optimal choice for a long term investment. It is trading on a 14% discount to NAV, can use gearing up to 20% and focuses on value. The value approach does mean more risk, but again this should be compensated risk.

One other thing. If the Lifetime ISA starts in April and is not otherwise crippled (e.g. with high charges), then it would seem highly appropriate to your daughters' requirements.

* Yes there are small cap trackers, but these tend to invest in FTSE 250 sized companies rather than FTSE small cap sized companies.


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