Make Portfolio more simple

[MartynC27]

Do readers have any ideas where I could invest the sale proceeds ( Stage2 - proceeds from selling the original Fixed income ITs (shown as 'not invested (£64K) in previous post) ?

Do readers have any comments on the Equity / Fixed income split risk level of my portfolio ?

By the way I intend to work part-time for the next 3 years to earn approx. £9,000 pa to bridge the income gap until my State Pension starts (unfortunately this will all be taxed @ 20%).

MartynC

[mrbrightside]

The OP is looking at options to simplify a retirement portfolio. I expect there are one or two here who enjoy running their 35 share hyp but, for the vast majority of investors, myself included, its not in any way simple.

There is a tendency for advice to be "just do what I like doing", rather than attempting to answer the question that the OP is asking.

The original poster was MartynC who subsequently asserted:

'HYP - (Highest Yield due to low charges - but needs a lot of work to manage 30+ shares - so not an option)'

I was merely giving the OP my thoughts on his assertion not advising him to 'just do what I like doing' or are replies supposed to constrained to the OP's opening post ?

[tjh290633]

Stage 1 - Keep ETFs and sell the ITs and Individual shares in the (SIPP & ISA) platforms and invest equity proceeds into equity ETFs to keep same regional breakdown.

It's your choice but I would have done the opposite and gone into global ITs to get your desired spread much more easily.

And I would still steer well away from anything fixed interest.

TJH

[BarrenWuffett]

Do readers have any ideas where I could invest the sale proceeds ( Stage2 - proceeds from selling the original Fixed income ITs (shown as 'not invested (£64K) in previous post) ?

Do readers have any comments on the Equity / Fixed income split risk level of my portfolio ?

By the way I intend to work part-time for the next 3 years to earn approx. £9,000 pa to bridge the income gap until my State Pension starts (unfortunately this will all be taxed @ 20%).

MartynC

I have been very pleased with my Vanguard Lifestrategy 60 fund so far - low cost, globally diverse, auto rebalanced to maintain 60/40 split between equities and bonds so that is where I would put 50% of the money. The remainder I would (and do) look at the likes of RIT Capital, Capital Gearing and Personal Assets - all focused on preserving what you have accumulated so far.

[MartynC27]

Thanks for the replies

@ tjh290633 - I could go for a global IT portfolio (like Gadges global IT portfolio) but a global ETF portfolio is lower cost although may be a bit more work to monitor.

@BarrenWuffet - The charging structure of my platform is 0.45 % for funds but capped at £50 pa(ISA) & £100 pa(SIPP) for shares so this has discouraged my use of Funds and put me towards ETFs & ITs. I believe the risk level of my portfolio may be quite high for my age and circumstances so I may need to adjust my Global ETF portfolio to be 60/40 to rather than 75/25 in order to reduce the risk level. I would then need to find some more Fixed income such as Bond or Property or perhaps Gold ETFs in order to diversify the risk of the Global Equity ETFs.

I understand ITs like PNL, Ruffer, Capital Gearing, and RIT could also be used for capital preservation.

MartynC

[richfool]

MartynC, I have only just seen this thread and hesitate to post on this board as it is the "Passive Investing" board. However in view of your OP, I will say I favour and hold a wide spread of IT's (and a handful of individual HYP stocks).

In view of your objective to simplify things, I think you could do a whole lot worse than hold a small selection of Global IT's and a couple more from the UK and any other sectors that suit your particular interests/investment objectives, (e.g. Commercial Property). You can then spend as little or as much time as you wish monitoring or ignoring them. I enjoy monitoring my investments, (reading reports, factsheets, monitoring and comparing dividends received etc).

[Raptor]

Do you HYP investors not read and consider the annual and half year reports & accounts, updates, RNS? Do you look out for and consider a response to say profit warnings, or proposed takeovers, changes to policy, etc? Do you ever think about company or sector specific risks and react (or not) accordingly? Does it ever occur to you to consider whether a company might be taking on excessive debt, or otherwise acting recklessly?

Similarly for IT investors, do you not read published reports, or consider the portfolio risks? Are they still invested as you are expecting them to, with acceptable risk taking? Ever considered performance and deemed it acceptable/unacceptable?

If the answer to all the above is all no, then yes these investments are uncomplicated to you and unlikely to absorb much of your time.

HYP is supposed to be LTBH. The only actions, for a pure HYP would be what to do with the dividends and corporate actions. Doris would say no. the rest of us I would think are spread from no action to lots of action.

I do not read anything anymore, just read TLF forums for the best advice.

Raptor.

[MartynC27]

MartynC, I have only just seen this thread and hesitate to post on this board as it is the "Passive Investing" board. However in view of your OP, I will say I favour and hold a wide spread of IT's (and a handful of individual HYP stocks).

In view of your objective to simplify things, I think you could do a whole lot worse than hold a small selection of Global IT's and a couple more from the UK and any other sectors that suit your particular interests/investment objectives, (e.g. Commercial Property). You can then spend as little or as much time as you wish monitoring or ignoring them. I enjoy monitoring my investments, (reading reports, factsheets, monitoring and comparing dividends received etc).

Besides choosing a Global portfolio of low Cost Equity ETFs as a core I would use ITs as 'satellites' to provide exposure to specialist areas or 'Themes' (especially if I could buy ITs below their NAV)

Martyn C

[richfool]

Martyn, Note that some Global IT's hold other asset classes as well as equities (e.g. Scottish American - SCAM). Those in the "Flexible" category (such as: PNL, RICA, CGT etc previously referred to), hold multiple asset classes.

[MartynC27]

I could use the Defensive Multi Asset ITs in place of some of the fixed income and reduce equity ratio to 60/40 or even lower.
As follows :-

(SIPP +ISA) Equity allocation - 60 % (£500K) :-

USA ---- - 40 % ----- Vanguard-(VUSA)----+---ishares (ISP6)
UK ------- 13% ----- -Vanguard-(VUK) ---+ ---Vanguard (VMID)
Euro ----- 20% --- --- Vanguard-(VERX) -- + ----DBX (XESX )
Japan ----- 8% --- - Vanguard-(VJPN )
Asia Pac --- 7% --- - Vanguard-(VAPX)
EM ------- 10% --- --- Vanguard-(VFEM)


(SIPP and ISA) Fixed Income, Bonds, Multi assets - 40 % (£300K) :-

Remainder to invest (£165k) Multi Assets ITs - (PNL , CGT , RICA, RIT) ?
Quality Bond ETFs - Ishares IS15 (£25K) + UBS (SBEG) (£10K)
Cash ISA - (100 K)

[hiriskpaul]

I could use the Defensive Multi Asset ITs in place of some of the fixed income and reduce equity ratio to 60/40 or even lower.
As follows :-

(SIPP +ISA) Equity allocation - 60 % (£500K) :-

USA ---- - 40 % ----- Vanguard-(VUSA)----+---ishares (ISP6)
UK ------- 13% ----- -Vanguard-(VUK) ---+ ---Vanguard (VMID)
Euro ----- 20% --- --- Vanguard-(VERX) -- + ----DBX (XESX )
Japan ----- 8% --- - Vanguard-(VJPN )
Asia Pac --- 7% --- - Vanguard-(VAPX)
EM ------- 10% --- --- Vanguard-(VFEM)


(SIPP and ISA) Fixed Income, Bonds, Multi assets - 40 % (£300K) :-

Remainder to invest (£165k) Multi Assets ITs - (PNL , CGT , RICA, RIT) ?
Quality Bond ETFs - Ishares IS15 (£25K) + UBS (SBEG) (£10K)
Cash ISA - (100 K)

The idea of the bond allocation is that this is the place you draw an income from following poor stock market returns. If you put something else in place of bons, you need to be confident that it will fulfill this function.

Adopting multi-asset funds is going in the opposite direction to simplicity unless the ones you buy keep their asset allocations constant and regularly rebalance. Most of the actively managed funds will not be doing this - the asset allocations are likely to a moving target. If that is what you want, then fine, but if you want simplicity you should choose your asset allocation, set it in stone and then systematically rebalance back once per year (within tolerances). Being systematic means you will much less likely to be blown off course by yours or other peoples guesswork as to what is going to happen in the future. That is not to say you should not be flexible and you may want or need to change your asset allocation in the future due to your changing circumstances, but don't do it too often and certainly not because of crystal ball gazing you might read about in the financial press, by fund managers, or on internet forums.

I don't know anything about the multi asset ITs that you mention, but in general you should look very closely at any complex financial product so you know precisely what is going on under the lid. Certain types of financial voodoo can give the appearance of steady returns, but that is because risks can be made highly asymmetric. For example, it is very easy to engineer a strategy that delivers regular gains 95% of the time, but leads to massive losses 5 percent of the time. Watch out for anything that uses shorting, options, or other option based derivatives. There our safe ways to use options to dampen volatility and/or hedge against significant drops in security prices, but buying insurance in this way is expensive and will drag returns if used a lot of the time. To offset the cost of the insurance, some investors (including ITs) are likely to sell some insurance to generate additional returns (selling insurance is generally profitable). Like all insurance, most of the time the seller does not have to pay out, but when they do it can prove incredibly expensive. There should be rules and procedural safeguards against a fund manager going off the rails and taking on excessive risks, but all too often a blind eye is turned to someone who is making too good to be true risk adjusted returns. The more complex an investment, the more scope there is to hide or ignore outrageous risk taking.

On your bond allocation, the modern idea is for high quality, short dated and with no currency risk. Buffett's proposal of 90% in an S&P 500 tracker, 10% in short dated US Treasury bonds for example. If you want to follow this, the easiest comparison would probably be to forget bonds entirely and leave the bond part in cash deposits. Some deposits can be longer dated, perhaps up to 5 years so you can lock in slightly higher rates. Personally I prefer to hold some longer dated bonds, and foreign currency denominated bonds, but I am not going to argue with those who want to keep things simple and follow Buffett and others recommendations. Longer dated bonds carry higher interest rate risk, but this risk is usually compensated with a higher return. Also, at times of severe stock market stress, high quality longer dated bonds can actually go up in price. This is much less likely with short dated bonds and of course impossible with cash.

If you did want a single simple bond fund, Vanguard's Global Bond Index Fund is great. Hugely diversified, Sterling hedged and average maturity not too long at 8.6 years, but long enough to give expected returns higher than for retail cash deposits. The downside for you is that it is an OEIC, so you would be charged that 0.45% platform fee. You could avoid that by transferring some ISA assets to a cheaper broker that does not levy a platform charge, such as iweb. That is what I would do. If not, you could go for a longer dated gilt ETF, such as VGOV and possibly a longer dated Sterling investment grade corporate bond ETF, such as SLXX for some of your bond allocation. Holding cash + long dated bonds lowers your overall "bond duration".

[hiriskpaul]

Forgot to mention your allocation 60/40 or 75/25. Entirely up to you, but you should not ignore your index linked pension in your deliberations. The Government values that at 20 times income, I think about 30 times would be more appropriate, so I would consider an 18k indexed linked pension to be equivalent to about £540k in bonds.

On the risk side of the balance, you could bring in asset classes other than equities, such as high yield bonds and property. I would not consider it, but some say you should always hold some gold. The advantage is that these asset classes are less correlated with stock market movements, so should dampen volatility a bit. More complexity though!