Adding FTSE100 tracker to Portfolio

[Gumble]

Hi all,

I took some excellent advice from some of you earlier in the year and have fixed my mindset on passive investing, it’s made me sleep a lot easier so thank you! Now I’m after some more advice/opinions. Currently approx:
VEVE 65%
VFEM 5%
SGLP 30%
Gold is in there due to the economic climate and I can’t bring myself to accept bonds as a viable option (I understand the argument for them) -right or wrong I’m happy with that.

My question is…. I’m thinking off adding a FTSE100 tracker, to skew VEVE/VFEM more away from being so US and Tech heavy and to increase Value shares that come naturally with the FTSE100. I’m thinking around 15% holding meaning My current holding will become more like 55/5/25 very approximately.

Thoughts?

[JohnW]

Stages of an index investor’s education:
Darkness – get rich quick. What hot stock tip can you get in the doctor’s lounge. This is the pursuit of a “hot stock tip that will make me rich quick.”
Enlightenment – reached by an epiphany that low cost index investing is the way to go.
Complexity – rabbit holes such as perfect optimal allocation, products, factor investing paralysis by analysis
Simplicity – you realize that none of the complexity matters, it is all about asset allocation. Complexity provides more money for the financial-industrial complex. Be simple to achieve your goals.
https://www.fiphysician.com/the-educati ... ick-ferri/

[GeoffF100]

My question is…. I’m thinking off adding a FTSE100 tracker, to skew VEVE/VFEM more away from being so US and Tech heavy and to increase Value shares that come naturally with the FTSE100.

You would also avoid some withholding tax, and potentially reduce the volatility of your portfolio a little.

I’m thinking around 15% holding meaning My current holding will become more like 55/5/25 very approximately.

What do you mean by that?

[Gumble]

Thanks for the responses and Geoff, thank you, you were one of the main influences that helped get me on the right track earlier this year, I’m extremely grateful.

Re. Tax, this is all in a SIPP so does that still apply? However your comment suggests adding a VUKE is not a bad idea.

The maths was saying that by adding VUKE my portfolio would then be approx:
VEVE 55%
VFEM 5%
VUKE 15%
SGLP 25%

I’m conscious from our previous communications that over complicating generally doesn’t help, hence why I’m looking for opinion on if this move is sensible (no one can tell me it’s right/wrong as who knows) Is the addition of VUKE sensible and is the split sensible too?

Thanks again

[Hariseldon58]

John W sums it up, I have been guilty of micro managing asset allocation and making judgements on the present market climate to adjust allocations..

After 30+ years the lesson learned is don’t bother. You get some things right and some wrong but mostly it makes little difference.

Bonds are a much attractive proposition now, rather than Gold take a look at ITPS, real yields of just under 2%, not unattractive.

[Gumble]

Thanks Hariseldon, I’ll certainly take a look, I think I struggle with getting my head around the concept of bonds. Perhaps a stupid question but what do you mean by 2% real yield? Are you talking dividends?

Thanks in advance

[Hariseldon58]

@grumble

Inflation linked bonds pay interest, both the interest payments and the capital are increased with inflation.

At present you can receive an inflation protected income from US Government $ bonds that is a little under 2% real, ie the yield to maturity is inflation + 1.75% these are called TIPS. ( There is a UK version for pounds but they have a long duration if bought as an Index fund,)

I have added two links about TIPS and the last link is a useful guide from Monevator to choose a bond fund. Bonds are a simple concept but there are a fair few details you need to know before investing, but if you like Gold then you should consider TIPS. I could write a very long post about bonds !


To start you off this is worth reading https://monevator.com/understanding-bond-index-funds/

https://www.investopedia.com/terms/t/tips.asp

https://www.wsj.com/market-data/bonds/tips

https://monevator.com/how-to-choose-a-bond-fund/

[1nvest]

@grumble

Inflation linked bonds pay interest, both the interest payments and the capital are increased with inflation.

At present you can receive an inflation protected income from US Government $ bonds that is a little under 2% real, ie the yield to maturity is inflation + 1.75% these are called TIPS. ( There is a UK version for pounds but they have a long duration if bought as an Index fund,)

I have added two links about TIPS and the last link is a useful guide from Monevator to choose a bond fund. Bonds are a simple concept but there are a fair few details you need to know before investing, but if you like Gold then you should consider TIPS. I could write a very long post about bonds !


To start you off this is worth reading https://monevator.com/understanding-bond-index-funds/

https://www.investopedia.com/terms/t/tips.asp

https://www.wsj.com/market-data/bonds/tips

https://monevator.com/how-to-choose-a-bond-fund/

With the financial crisis, then Covid, then Ukraine war, a tendency is for investors to flight to safety i.e. the US$, and in part buying US stocks with those $$$'s. Resulting in a rising/strong dollar and US shares being bid up.



At some point when fear subsides so the flow will be the other way, investors will see "better value" elsewhere and sell their US stock and sell US$ to buy whatever currencies, resulting in a declining $$$ and low/down US stock performance.

Many in the US are recently claiming that its better to just hold US stock, foreign stock lag etc. which can be a sign of highs. The above chart is also indicative of a 'swing low' i.e. strong US stock/currency. With US TIPS its only the currency factor you're looking at, but just a warning that the US$ could relatively decline (or rather 'will' at some point) and that can wipe out investment (such as inflation bond interest) rewards.

With US stocks (or bonds), you're exposed to both stock (bond) risk/reward, compounded with FX (currency) gain/loss. Sometimes they can be complimentary, sometimes they move in opposite directions. I suspect US inflation upon which TIPS are based, may be lower than the UK's, potentially further hindered by a declining US$ (strengthening Pound). But you never know, current widening trends could persist. You just should be mindful of the risk/reward factors (not directed at you Hariseldon58, I know you're already well aware of such factors).

[absolutezero]

Just be careful if you hold ETFs in a taxable (non ISA/non SIPP) account. They cause tax return issues some people might not know about.

They are 'foreign' (usually Irish) so their dividends need to go in the foreign section on your tax return.
They also often have an annoying thing called Excess Reportable Income which YOU need to calculate (the broker won't do this for you) and put on your tax return. Only applies if you hold the ETFs on a certain day of the year.

I like trackers but only in tax sheltered accounts!

[Hariseldon58]

@grumble

Inflation linked bonds pay interest, both the interest payments and the capital are increased with inflation.

At present you can receive an inflation protected income from US Government $ bonds that is a little under 2% real, ie the yield to maturity is inflation + 1.75% these are called TIPS. ( There is a UK version for pounds but they have a long duration if bought as an Index fund,)

I have added two links about TIPS and the last link is a useful guide from Monevator to choose a bond fund. Bonds are a simple concept but there are a fair few details you need to know before investing, but if you like Gold then you should consider TIPS. I could write a very long post about bonds !


To start you off this is worth reading https://monevator.com/understanding-bond-index-funds/

https://www.investopedia.com/terms/t/tips.asp

https://www.wsj.com/market-data/bonds/tips

https://monevator.com/how-to-choose-a-bond-fund/

With the financial crisis, then Covid, then Ukraine war, a tendency is for investors to flight to safety i.e. the US$, and in part buying US stocks with those $$$'s. Resulting in a rising/strong dollar and US shares being bid up.



At some point when fear subsides so the flow will be the other way, investors will see "better value" elsewhere and sell their US stock and sell US$ to buy whatever currencies, resulting in a declining $$$ and low/down US stock performance.

Many in the US are recently claiming that its better to just hold US stock, foreign stock lag etc. which can be a sign of highs. The above chart is also indicative of a 'swing low' i.e. strong US stock/currency. With US TIPS its only the currency factor you're looking at, but just a warning that the US$ could relatively decline (or rather 'will' at some point) and that can wipe out investment (such as inflation bond interest) rewards.

With US stocks (or bonds), you're exposed to both stock (bond) risk/reward, compounded with FX (currency) gain/loss. Sometimes they can be complimentary, sometimes they move in opposite directions. I suspect US inflation upon which TIPS are based, may be lower than the UK's, potentially further hindered by a declining US$ (strengthening Pound). But you never know, current widening trends could persist. You just should be mindful of the risk/reward factors (not directed at you Hariseldon58, I know you're already well aware of such factors).

These are fair points, I would add that's it hard to avoid an exposure to US$ and US stocks, the FTSE has a significant exposure to the Dollar.

The Dollar/£ is volatile and the tendency has been for a decline in the £, in the past week or two the dollar has weakened but over time this volatility in currency evens out.

I would agree that US inflation is different to that of the UK and tends to be lower, but higher inflation tends to lead to a weaker currency.... so much of what we buy is reflected in Dollars. IE if UK inflation proves to be significantly higher than that of the US the pound will tend to weaken against the dollar. You can of course buy hedged TIPs index ETFs for an extra couple of basis points.

I am finding Bonds very interesting lately and in particular Long Duration bonds...

[vand]

The FTSE often gets short shrift due its relatively high payout, but on a total return basis the FTSE 100 breaking out to new all time highs: