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Complete beginner

A helpful place to also put any annual reports etc, of your own portfolios
kdtoal
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Re: Complete beginner

#474406

Postby kdtoal » January 19th, 2022, 12:08 pm

tjh290633 wrote:
kdtoal wrote:If I am to drip feed into the portfolio every month, say £1500/month, after the initial lump sum investment (£30-40K).

Am I best to rebalance every month by transferring money into each asset to balance or transfer in to each asset based on the % allocation and rebalance once a year only?

If you are topping up each month, then you can correct any imbalances then. It is best to allow some leeway in your nominal percentages, as they will always vary to some extent. You may find that a band of +/-25% of the nominal figure is a good practical tolerance at the outset. Presumably you would top up sectors sequentially, one or two each month. Then topping up by say 20% would keep you within range. You need to avoid too much rebalancing unless it gets radically out of kilter.

TJH


Thanks TJH,

Will keep this in mind and try and not rebalance too much.

vand
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Re: Complete beginner

#474409

Postby vand » January 19th, 2022, 12:21 pm

kdtoal wrote:
vand wrote:
kdtoal wrote:
vand wrote:I would personally reduce the fixed income allocation if you want something more aggressive. Bonds might be worth holding for panic protection, but are unlikely to do any heavy lifting until yields are substaintially higher, and some of us think they could do quite poorly as they have done for several stretches in history.


Having read a bit more through other forums on this site, I see an awful lot of people avoiding bonds altogether, especially for someone aged 36.

If I was to reduce my bond allocation would you advise reducing the long term bond IGLT or the global aggregate bond VAGP. I have seen the VAGP been mentioned in multiple forums with diversified portfolios. I still feel I would like to hold some % of bonds but am happy to move the % allocation.

Thanks again for all your advice.


I would reduce the shorter duration bonds (VAGP) and keep the long term bonds. A part of the reason that multi-asset strategies work is that they benefit from volatility harvesting when you rebalance, so therefore you want the assets that move around the most, and long term bonds are more sensitive to interest rate changes, while shorter term bonds behave more like cash.

That is also why a small but significant amount of gold works well in a diversified portfolio.. because it tends to do its own thing and/or mildly countercyclical to paper assets, so is a very good complimentary asset when put together with the traditional financial assets. Your 10% gold is a perfect amount imo.


Hi vand,

Thanks again for the input.

I've readjusted my % allocation to:

25% All world VWRP
20% US small cap value IDP6
10% emerging markets small cap IEMS
15% long term UK bonds IGLT
10% global aggregate bond VAGP
10% developed markets property yield IWDP
10% gold SGLN

I wanted a portfolio that I could setup and only need to make minor adjustments to each year. I am aware that other portfolios may produce more (or possibly less) money over time, but with a higher level of risk involved. I feel, after listening to everyone's comments on this thread, that the above portfolio should hopefully set me up with a reasonable long term passive/lazy portfolio and provide a better nights sleep.

Again, if there is something that I have misread in the comments and the allocation is slightly off, I am still open to critique.

Thanks again for all the advice. It has been invaluable.


It's pretty good imo and you could spend a lot of time finetuning it and ultimately see little difference when you come to review it 10 years from now.

Perhaps one small tweak would be why limit your SCV to US only? Find a global dev SCV and/or an ex-US one to compliment the US one.

The important things is to get started. Nobody knows for sure what their perfect portfolio is when they are starting out, and we all tweak things along the way as we grow and learn more.


An important consideration is what rules you will have for rebalancing when the weightings move away from the original ideal weights. Ultimately there is no best way to do this. Some prefer to do it calendar based, others prefer to do it based on boundaries from the original weighting. Don't be too hasty to rebalance though. I believe that in the Permanent Portfolio the strategy didn't call for any rebalancing until the original 25% weighting of any particular component moved a full 10% points away from the original weighting (ie 15% or 35%).

Ultimately though, whilst in accumulation you can probably get the same rebalancing effect through changing what you are buying every now and again so that the overall portfolio weights stay roughly consistent

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Re: Complete beginner

#474420

Postby kdtoal » January 19th, 2022, 12:54 pm

vand wrote:
kdtoal wrote:
vand wrote:
kdtoal wrote:
vand wrote:I would personally reduce the fixed income allocation if you want something more aggressive. Bonds might be worth holding for panic protection, but are unlikely to do any heavy lifting until yields are substaintially higher, and some of us think they could do quite poorly as they have done for several stretches in history.


Having read a bit more through other forums on this site, I see an awful lot of people avoiding bonds altogether, especially for someone aged 36.

If I was to reduce my bond allocation would you advise reducing the long term bond IGLT or the global aggregate bond VAGP. I have seen the VAGP been mentioned in multiple forums with diversified portfolios. I still feel I would like to hold some % of bonds but am happy to move the % allocation.

Thanks again for all your advice.


I would reduce the shorter duration bonds (VAGP) and keep the long term bonds. A part of the reason that multi-asset strategies work is that they benefit from volatility harvesting when you rebalance, so therefore you want the assets that move around the most, and long term bonds are more sensitive to interest rate changes, while shorter term bonds behave more like cash.

That is also why a small but significant amount of gold works well in a diversified portfolio.. because it tends to do its own thing and/or mildly countercyclical to paper assets, so is a very good complimentary asset when put together with the traditional financial assets. Your 10% gold is a perfect amount imo.


Hi vand,

Thanks again for the input.

I've readjusted my % allocation to:

25% All world VWRP
20% US small cap value IDP6
10% emerging markets small cap IEMS
15% long term UK bonds IGLT
10% global aggregate bond VAGP
10% developed markets property yield IWDP
10% gold SGLN

I wanted a portfolio that I could setup and only need to make minor adjustments to each year. I am aware that other portfolios may produce more (or possibly less) money over time, but with a higher level of risk involved. I feel, after listening to everyone's comments on this thread, that the above portfolio should hopefully set me up with a reasonable long term passive/lazy portfolio and provide a better nights sleep.

Again, if there is something that I have misread in the comments and the allocation is slightly off, I am still open to critique.

Thanks again for all the advice. It has been invaluable.


It's pretty good imo and you could spend a lot of time finetuning it and ultimately see little difference when you come to review it 10 years from now.

Perhaps one small tweak would be why limit your SCV to US only? Find a global dev SCV and/or an ex-US one to compliment the US one.

The important things is to get started. Nobody knows for sure what their perfect portfolio is when they are starting out, and we all tweak things along the way as we grow and learn more.


An important consideration is what rules you will have for rebalancing when the weightings move away from the original ideal weights. Ultimately there is no best way to do this. Some prefer to do it calendar based, others prefer to do it based on boundaries from the original weighting. Don't be too hasty to rebalance though. I believe that in the Permanent Portfolio the strategy didn't call for any rebalancing until the original 25% weighting of any particular component moved a full 10% points away from the original weighting (ie 15% or 35%).

Ultimately though, whilst in accumulation you can probably get the same rebalancing effect through changing what you are buying every now and again so that the overall portfolio weights stay roughly consistent


Thanks vand,

I had seen another passive portfolio that had split the SCV between US and ex-US.

I found the iShares MSCI World Small Cap IUSN. Does it matter that this is not a small cap value?

I found Avantis International Small Cap Value AVDV but couldn't see how to invest in this, even with other UK providers. Also came across the Vanguard FTSE All-World ex-US Small-Cap VSS, but again can't see where to invest in this.

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Re: Complete beginner

#474425

Postby kdtoal » January 19th, 2022, 1:00 pm

Although just found the iShares msci world small cap WLDS which is in £.

Again not a small cap value, I don't know if this make a difference.

Having just checked my portfolio, the IPD6 is actually an iShares Small cap 600 ETF, not a small cap value.

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Re: Complete beginner

#474710

Postby Hariseldon58 » January 20th, 2022, 12:08 pm

State Street USSC is US small cap value. It’s beaten the Global WLDS over the last few months, it has underperformed previously.

Given the US market has been on a roll for some time, the Global approach is my personal choice, but who knows ?

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Re: Complete beginner

#474742

Postby kdtoal » January 20th, 2022, 1:48 pm

Hariseldon58 wrote:State Street USSC is US small cap value. It’s beaten the Global WLDS over the last few months, it has underperformed previously.

Given the US market has been on a roll for some time, the Global approach is my personal choice, but who knows ?


Thanks for the info Harriseldon58.

What is the difference between a small cap value and a small cap value weighted? Or is there much difference?

I'm very new to all this, so please excuse my limited knowledge.

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Re: Complete beginner

#474983

Postby Hariseldon58 » January 21st, 2022, 11:08 am

Small cap value is a subset of the small cap world of shares. The small cap sector of the US market consists of well in excess of 2000 shares, a common small cap US index is the Russell 2000.

A value share is defined by a set of mechanical rules to be ‘cheap’ ( below its intrinsic value) by virtue of its price to book, price to sales, price to cash flow, dividend yield, there is no set definition.

There is history that both small cap and value stocks have outperformed over time and in particular small cap value.

This outperformance has often come in particular time periods and then can be absent for extended periods of time, there is a suggestion that when these ‘anomalies’ become known they can vanish.

Whilst we all like the idea of something cheap, does anyone really think that investors go out of their way to buy expensive stocks.

There is no doubt that some stocks surge in popularity and become potentially ‘expensive’, the opposite occurs and no doubt these strategies can be profitable, but fund managers in general don’t offer outperformance in general over an extended period.

I would suggest that a market cap global small cap is a good choice for most investors.

WLDS is a good global small cap tracker, there are obviously other alternatives , used as part of a diversified portfolio.

ISP6 iShares S&P600 tracker is a sensible option for the US market , as well as the Russell 2000. There is a US mid cap tracker following the S&P400 (spy4.l is a good etf)

Like the S&P500, the S&P indices are market cap but constituents are selected by committee and have profitability rules amongst others that filter the constituents and there is evidence that this helps performance. Curiously the S&P500 contains companies that size wise could be in the the two smaller indices.

The three combine to form the S&P1500 but I’ve not seen a UK offered fund that holds this.

My personal preference for the US market is the Vanguard US Equity Fund that covers the top 3000 shares ( being a fund best held on a non % charging platform) the total market approach avoids the potential expense of front running when shares move from one index to another.

Hope this helps, if you haven’t already then visit Monevator, trawl the archives the content and comment is very interesting and generally helpful.

vand
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Re: Complete beginner

#474985

Postby vand » January 21st, 2022, 11:15 am

Hariseldon58 wrote:Whilst we all like the idea of something cheap, does anyone really think that investors go out of their way to buy expensive stocks.


Having observed markets first hand for the last few decades, I can confidently answer YES to this.

And it depends on your definition of "investing". A lot of what some people see as investing I view as little more than speculating.

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Re: Complete beginner

#475025

Postby Hariseldon58 » January 21st, 2022, 12:20 pm

vand wrote:
Hariseldon58 wrote:Whilst we all like the idea of something cheap, does anyone really think that investors go out of their way to buy expensive stocks.


Having observed markets first hand for the last few decades, I can confidently answer YES to this.

And it depends on your definition of "investing". A lot of what some people see as investing I view as little more than speculating.


I take your point entirely, but the speculator does not deem something expensive, but offering exciting opportunities !! ( They are very likely mistaken..)

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Re: Complete beginner

#484359

Postby kdtoal » March 4th, 2022, 5:03 pm

* Update with Portfolio*

Having done a lot more research and listened to "Own the world" by Andrew Craig I'm considering changing my portfolio.

I've read about 100 minus your age (sometimes even 110/120 minus your age) and I felt that my exposure to equities was too low for a 36 year old. Also the fact that the bond market isn't great and is offering very little return on my investment. I have included a multi asset fund to allow exposure to bonds with hopefully a higher return. I am very open to suggestions with regards to this asset allocation.

The portfolio I am considering is:
30% All world VWRP
10% world small cap WLDS
10% US Small cap USSC
10% Developed markets VHVG
10% Emerging markets VFEG
5% Emerging markets small cap EMSM ( might do 10% and scrap PE)
5% Private equity IPRV
10% Blackrock multi asset fund moderate or conservative MAMG/MACG
10% Gold SGLN

Any advice or input would be greatly appreciated.

Thanks :D

tjh290633
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Re: Complete beginner

#484431

Postby tjh290633 » March 4th, 2022, 11:13 pm

kdtoal wrote:* Update with Portfolio*

Having done a lot more research and listened to "Own the world" by Andrew Craig I'm considering changing my portfolio.

I've read about 100 minus your age (sometimes even 110/120 minus your age) and I felt that my exposure to equities was too low for a 36 year old. Also the fact that the bond market isn't great and is offering very little return on my investment. I have included a multi asset fund to allow exposure to bonds with hopefully a higher return. I am very open to suggestions with regards to this asset allocation.

The portfolio I am considering is:
30% All world VWRP
10% world small cap WLDS
10% US Small cap USSC
10% Developed markets VHVG
10% Emerging markets VFEG
5% Emerging markets small cap EMSM ( might do 10% and scrap PE)
5% Private equity IPRV
10% Blackrock multi asset fund moderate or conservative MAMG/MACG
10% Gold SGLN

Any advice or input would be greatly appreciated.

Thanks :D

At your age, apart from a cash reserve fund, you should be 100% in equities. In fact I still am at 88, but my objective was to ensure a steady flow of income. I suspect that you could get a better mix of cover with up to 5 investment trusts. People fixate on charges, but it is performance after charges that matter. You might like to compare FCIT with your mix, as it includes a good mix of world wide companies plus private equity.

You don't need a flow of income as yet, but for a long time the reinvestment of income from higher yielding equities gave a better total return than aiming for growth itself. It had reversed in recent years, but is moving back that way this year.

You do not need to follow fashion or to make use of the theory that you should gradually move to more bonds as you near retirement. With current levels of interest rates and the likelihood of them getting higher, bonds should be avoided like the plague. They are a recipe for losing money. Gold is debateable. It is the ultimate passive investment.

The main thing is that you are thinking about what you should do, which is good.

TJH

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Re: Complete beginner

#484609

Postby kdtoal » March 5th, 2022, 10:06 pm

tjh290633 wrote:
kdtoal wrote:* Update with Portfolio*

Having done a lot more research and listened to "Own the world" by Andrew Craig I'm considering changing my portfolio.

I've read about 100 minus your age (sometimes even 110/120 minus your age) and I felt that my exposure to equities was too low for a 36 year old. Also the fact that the bond market isn't great and is offering very little return on my investment. I have included a multi asset fund to allow exposure to bonds with hopefully a higher return. I am very open to suggestions with regards to this asset allocation.

The portfolio I am considering is:
30% All world VWRP
10% world small cap WLDS
10% US Small cap USSC
10% Developed markets VHVG
10% Emerging markets VFEG
5% Emerging markets small cap EMSM ( might do 10% and scrap PE)
5% Private equity IPRV
10% Blackrock multi asset fund moderate or conservative MAMG/MACG
10% Gold SGLN

Any advice or input would be greatly appreciated.

Thanks :D

At your age, apart from a cash reserve fund, you should be 100% in equities. In fact I still am at 88, but my objective was to ensure a steady flow of income. I suspect that you could get a better mix of cover with up to 5 investment trusts. People fixate on charges, but it is performance after charges that matter. You might like to compare FCIT with your mix, as it includes a good mix of world wide companies plus private equity.

You don't need a flow of income as yet, but for a long time the reinvestment of income from higher yielding equities gave a better total return than aiming for growth itself. It had reversed in recent years, but is moving back that way this year.

You do not need to follow fashion or to make use of the theory that you should gradually move to more bonds as you near retirement. With current levels of interest rates and the likelihood of them getting higher, bonds should be avoided like the plague. They are a recipe for losing money. Gold is debateable. It is the ultimate passive investment.

The main thing is that you are thinking about what you should do, which is good.

TJH



Thanks for the input TJH,

I don't think I would be comfortable with 100% in equities.

Are there any investment trusts that you would recommend to cover the above list? What's the difference in investing with an investment trust instead of an EFT? Is there a wider spread of assets for each investment trust depending on which one you invest in?

Sorry for all the questions. I have just been lookin at mainly EFTs and hadn't really considered investment trusts.

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Re: Complete beginner

#484620

Postby tjh290633 » March 5th, 2022, 11:50 pm

kdtoal wrote:Are there any investment trusts that you would recommend to cover the above list? What's the difference in investing with an investment trust instead of an EFT? Is there a wider spread of assets for each investment trust depending on which one you invest in?

Sorry for all the questions. I have just been lookin at mainly EFTs and hadn't really considered investment trusts.

There is no difference, as both are traded on the stock exchange, but you pay stamp duty on ITs which are UK based. Most ETFs are not.

Various ITs do different things. The global trusts, FCIT, WTAN and ATST, have differing investment policies, WTAN and ATST being multi-manager based, and FCIT has a fair Private Equity content. I was keeping an eye on a selection, with a view to one day moving into them, but haven't kept the data up to date.

This is the list, most of them being income oriented:

Alliance Trust                 ATST
BMO Capital & Income BCI
Dunedin Income Growth DIG
F&C IT FCIT
Invesco Select Trust IVPU
JP Morgan Claverhouse JCH
Merchants MRCH
Murray Income MUT
Schroder Income Growth SCF
Scottish American SAIN
Securities Trust of Scotland STS
Temple Bar TMPL
The City of London CTY
Witan WTAN

The average yield back then was 3.43% and the average IRR was 7.59%, but varied between 3% (CTY) and about 12% (FCIT, ATST and SAIN).

I suggest that you have a look at the data for these at the AIC, https://www.theaic.co.uk/

TJH

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Re: Complete beginner

#484625

Postby vand » March 6th, 2022, 7:40 am

ITs and ETFs are very different.

ITs are close ended and can trade above or below their NAV value. They are also almost all managed actively with the aim of outperforming their chosen benchmarks (and peer funds).

ETFs are open ended and so buy and sell their holdings according to cash flows in and out of the fund. They are also mostly passively managed, meaning that they are mostly rule based and their aim is to replicate an index of other benchmark, not to beat it.

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Re: Complete beginner

#484670

Postby tjh290633 » March 6th, 2022, 11:13 am

vand wrote:ITs and ETFs are very different.

ITs are close ended and can trade above or below their NAV value. They are also almost all managed actively with the aim of outperforming their chosen benchmarks (and peer funds).

ETFs are open ended and so buy and sell their holdings according to cash flows in and out of the fund. They are also mostly passively managed, meaning that they are mostly rule based and their aim is to replicate an index of other benchmark, not to beat it.

You have to remember that ITs often have discount management systems, when they buy back their shares if they are at a discount and sell them when at a premium. They can also borrow money, using various methods, which gives them some gearing.

TJH

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Re: Complete beginner

#484790

Postby vand » March 7th, 2022, 7:16 am

tjh290633 wrote:
vand wrote:ITs and ETFs are very different.

ITs are close ended and can trade above or below their NAV value. They are also almost all managed actively with the aim of outperforming their chosen benchmarks (and peer funds).

ETFs are open ended and so buy and sell their holdings according to cash flows in and out of the fund. They are also mostly passively managed, meaning that they are mostly rule based and their aim is to replicate an index of other benchmark, not to beat it.

You have to remember that ITs often have discount management systems, when they buy back their shares if they are at a discount and sell them when at a premium. They can also borrow money, using various methods, which gives them some gearing.

TJH


Some do this, yes, but most just let the premium float, at least within a fairly wide range.
The structure of ITs allows them more flexibility with gearing and the dividend reserve.

But those are all factors that arise primarily because they are actively managed. In fact I would say that aside from being exchange traded, ITs and ETFs are near opposites of each other. ETFs are generally used for cheap, passive exposure to a market or sector. With ITs you are buying the philosophy and “skill” of the fund manager.


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