Portfolio For 20 year old

[mark85]

Hi, Just wondering what people's views are on the creation of a long term portfolio for someone in their 20s?

- Assuming £50k initial value held with S&S ISA wrapper
- Account held through ii - £120 per year
- £500 per month regular investment with ii no trading fees this way
- No withdrawals during this period
- Property value £250k outside of this

Essentially the idea is for a longterm portfolio for overall growth - likely initally 100% equities with addition of bonds at later stage. High tolerance for volatility with overall long term view.

Initial thoughts:

Minimum 50% of portfolio in passive global tracker then variety of ITs/ETFs.

Example:
55% - Global World Tracker VHVG Cost 0.12% - 90%, VEFG - Cost 0.29% - 10%
25% - Scottish Mortgage Investment Trust (LSE:SMT) Cost 1.15%
10% - WisdomTree Battery Solutions ETF USD Acc GBP(LSE:CHRG) Cost 0.56%
10% - Invesco Global Clean Energy ETF Acc GBP (LSE:GCLX) Cost 0.68%

Investment costs - ((55*0.9*0.12)+55*0.29*0.1)+(25*1.15)+(10*0.56)+(10*0.68))/100 = 0.48%

I'm sure someone far more intelligent will come up with something far better but thought this would get it started! Any thoughts comments are all appreciated.

[TUK020]

I think you are on the mark for the basic thrust of the portfolio.
The specific bolt-ons that you want to add to are batteries and clean energy. Over a 50 yr horizon, do you think these will be a bigger part of the economy than biotechnology and artificial intelligence?

[BullDog]

Well done getting started early, OP. That's a great start that’s going to really pay off in the long term. Nothing wrong with the investments you propose, a good idea to use II for regular investment with no charge other than the basic monthly fee. Good luck for your future investments!

[mark85]

I think you are on the mark for the basic thrust of the portfolio.
The specific bolt-ons that you want to add to are batteries and clean energy. Over a 50 yr horizon, do you think these will be a bigger part of the economy than biotechnology and artificial intelligence?

No idea! I suppose I had initially choosen battery/clean energy as SMT in a way covers the biotech/AI component but you could be entirely correct that they would be worthy options!

[monabri]

I'd go 90:10 Vanguard:SMT and not bother with the other funds.

[nmdhqbc]

25% - Scottish Mortgage Investment Trust (LSE:SMT) Cost 1.15%

from SMT website...

Ongoing Charges*
0.32%
Source: Morningstar. Share prices are shown at closing mid price. NAVs are estimated.
*Ongoing charges as at 31 March 2022. Calculated in accordance with AIC recommendations. Details of these costs can be found in the Key Information Document.

[mark85]

25% - Scottish Mortgage Investment Trust (LSE:SMT) Cost 1.15%

from SMT website...

Ongoing Charges*
0.32%
Source: Morningstar. Share prices are shown at closing mid price. NAVs are estimated.
*Ongoing charges as at 31 March 2022. Calculated in accordance with AIC recommendations. Details of these costs can be found in the Key Information Document.

SMT KID

"Portfolio transaction costs 0.09% The impact of the costs of us buying and selling underlying investments for
the product.
Other ongoing costs 0.56% The impact of the management fee payable to the Trust's investment
manager (0.30%), the Trust's other administrative expenses (0.04%), the
costs of borrowing money to invest, including interest and arrangement fees
(0.21%) but not any income or capital benefit of doing so and the ongoing
costs of any underlying investments in funds within the Trust's portfolio
(0.01%)."

0.65% + 0.5% (to purchase the UK share) = 1.14% when decimals taken into consideration. You are correct in that yearly would just be SMT ongoing costs i.e. 0.65%.

((55*0.9*0.12)+55*0.29*0.1)+(25*0.65)+(10*0.56)+(10*0.68))/100 = 0.36%

[tjh290633]

My inclination would be to just go for one of the global ITs, like FCIT. That's what I have done for my grandchildren with more than acceptable results over 20 years.

TJH

[moorfield]

I agree with TJH. Too much pfaff here. Pick a Global IT and stick with it. For a long term portfolio for a 20 year old, time will do the heavy lifting. Trying to keep on top of all that allocation allocation will quickly become complicated, and you'll soon lose interest in maintaining it, believe me.

[mark85]

I agree with TJH. Too much pfaff here. Pick a Global IT and stick with it. For a long term portfolio for a 20 year old, time will do the heavy lifting. Trying to keep on top of all that allocation allocation will quickly become complicated, and you'll soon lose interest in maintaining it, believe me.

My inclination would be to just go for one of the global ITs, like FCIT. That's what I have done for my grandchildren with more than acceptable results over 20 years.

TJH

Go for only one global IT? I always thought that a variety of trusts would be required? Had been looking at the moneyweek portfolio of ITs with 6 trusts in it and rebalanced on an annual basis.

[DrFfybes]

Charges will make a huge difference over this time frame, and you will be licky to get an IT (or even a group of them) that will outperform over what looks lile a 35-40 year timescale. VWRL is good long term, but for lower charges you can pretty much replicate is with 90%VEVE/10%VFEM (as Geoff100 pointed out to me a while ago).

For myself, I'm heading towards...
80% VEVE
10% VFEM
10% Berkshire Hathaway, just for a bit of added excitement

I intend to sell down to generate income, which will also serve to rebalance over time, but you might want to rebalance manually say once per year.

Paul

[monabri]

Charges over such a long timescale are relevant.

A recent discussion here in Lemonland.

viewtopic.php?p=430586#p430586

[mark85]

Charges over such a long timescale are relevant.

A recent discussion here in Lemonland.

viewtopic.php?p=430586#p430586

Thanks!!

[monabri]

Charges over such a long timescale are relevant.

A recent discussion here in Lemonland.

viewtopic.php?p=430586#p430586

Thanks!!

I'd suggest a look here too ( although I think you will find your platform, ii, competitive).


viewtopic.php?p=506665#p506665

[Wuffle]

I would start next year.
You are losing just 2 or 3% of your 'time in the market'.
The S&P went down 3% on Friday.
It still isn't cheap.

Investment Trust discounts and gearing arrangements at rates fixed over the last decade (which look unrepeatable) is the counter argument to scratting about for the lowest charges.These won't do any harm over the very long term either but aren't as immediately obvious.

W.

[Urbandreamer]

Go for only one global IT? I always thought that a variety of trusts would be required? Had been looking at the moneyweek portfolio of ITs with 6 trusts in it and rebalanced on an annual basis.

One or more? It's a matter of perception and choice. I struggle to decide if I have one portfolio (of many investments) or two (as they invest slightly differently). When buying an Investment trust or other multi-asset investment then one may be enough, if it's investments meet your desires.

Sure I hold a number, which hold the same sub-investments. An argument can be made that too much of that simply achieves the same as buying a index tracker, but with higher fees. I would dispute that is the case with my portfolio. By mixing trusts with different investment styles and objectives you can easily achieve something different from the index.

Ok, so you have a blend that you like, then the market moves. Now your blend is no longer the blend that you desired. The answer is to re-balance back to the desired blend. You mention SMT, I have sold chunks as it came to dominate my portfolio. I'm now considering at what point I want to buy some back.

However that re-balancing is an effort. An alternative is to pick an existing blend and allow someone/something else to re-balance. Pick a blend based on geography and market capitalization (FTSE or S&P index tracker) alternatively a behemoph like FCIT (I have some) with a history of good management.

Different people, different choices. Choices for grandchildren are even more difficult. Avoiding the need to monitor and re-balance may be a high requirement.

I would however like to suggest that as times and conditions change different blends may be appropriate. A 20 year old with a good job can take more risks than a 60 year old looking at retirement. Why take more risks? Well theory argues that, to encourage people to do so, more reward must be offered.

[mark85]

Thanks Urbandreamer very insightful!

[JohnW]

There are thousands of investment funds to choose from, giving how many combinations of several I can’t imagine, so there’ll likely be millions of portfolios better than yours, but we won’t know until your long term term is completed. So don’t imagine you’ll find the best portfolio, just find one that’s sensible for your situation.
There’s plenty to like in what you chose, but to just pick on the questionable bits (questionable, not necessarily wrong):
1 Have a listen to Ben Felix on thematic ETF’s with respect to your battery and clean energy choices. https://www.ifa.com/articles/thematic-etfs-felix/ ‘Thematic ETF’s are terrible investments’
2 Tell us (or just tell yourself) what makes SMIT a good investment, because the reasons will need to outweigh the extra costs compared with many options. If you tell us, at least we can challenge your thinking.
3 What’s VEFG? Is it a high yield bond fund from Berlin?

[mark85]

There are thousands of investment funds to choose from, giving how many combinations of several I can’t imagine, so there’ll likely be millions of portfolios better than yours, but we won’t know until your long term term is completed. So don’t imagine you’ll find the best portfolio, just find one that’s sensible for your situation.
There’s plenty to like in what you chose, but to just pick on the questionable bits (questionable, not necessarily wrong):
1 Have a listen to Ben Felix on thematic ETF’s with respect to your battery and clean energy choices. https://www.ifa.com/articles/thematic-etfs-felix/ ‘Thematic ETF’s are terrible investments’
2 Tell us (or just tell yourself) what makes SMIT a good investment, because the reasons will need to outweigh the extra costs compared with many options. If you tell us, at least we can challenge your thinking.
3 What’s VEFG? Is it a high yield bond fund from Berlin?

1. Thematic ETFs - fairly damning well researched and evidence-based video on widespread underperformance. Looking more in-depth at Clean Energy ETF recent performance had been strong but if viewed from inception then clearly as discussed by Ben Felix high priced stocks, with high market sentiment coming to the market resulting in poor returns when first coming to the market. If you had bought in 2008 when first came to the market would be down by 64% as of today. I suppose I like the idea of the battery solutions one in particular exposure to basic materials. Though something similar from inception albeit in the March 20 low rose by 138% to ATH Nov 21 subsequently dropping back by around 20%. I suppose I like the ‘story’ behind it but hard to justify having it in the portfolio based on the evidence.
2. SMT – I like the style of growth orientated with a portfolio of around 100 companies and nearly 20% in unlisted private equity companies I feel that it adds something different than the passive investments. Valuation while sky high has come down and likely will continue to fall offering at least a more reasonable place to start slowly accumulating than a few months prior. Long term approach to investing means that the increased volatility can be tolerated with the hope of improving overall portfolio growth. Exposure to unlisted companies is hopefully helpful with companies supposedly taking longer to list missing out on higher early stage growth.
3. That’s a typing error on my behalf VFEG – vanguard FTSE emerging market ACC version of VFEM.

[JohnW]

‘the March 20 low rose by 138% to ATH Nov 21 subsequently dropping back by around 20%.’

Any past performance should give little assurance of long term future performance, especially 20 months of performance so we shouldn’t let a 138% rise encourage us at all if that’s why you noted it.

‘I suppose I like the ‘story’ behind it ’

And I suppose it depends on how hard-nosed you want to be about your investing. There can be a place in your investing for ‘ideals’; I like people who rescue stray cats, and would invest readily in such a business, but really would it be the wisest type of investing?

People ‘liking the story behind’ something is what prompts fund managers to keep creating new funds to cater for those tastes. Thus we have more funds on the planet than stocks to go in them. It makes money for the managers in fees, and if the funds fall by the wayside as they too commonly do, no loss for the managers as they just move on to a new fund. And because these ‘like the story’ funds have some interesting attractive notion to them, customers will pay higher fees than for a boring fund they have no emotional attraction to.

‘t but hard to justify having it in the portfolio based on the evidence’

It’s not only the evidence, however weak that is, it’s the theory as well. I don’t know if Felix is right in his position, or if it might apply to some but not all thematic funds, but I think we know that taking a bet on a theme is reducing diversification (compared with your VHVG), and undiversified risk is uncompensated.
Buying a whole-market fund gives you market risk (which is more than govt bond risk) for which stock investors require better returns. Companies issuing stock can’t avoid paying that higher return or no one would take on the risk. But if you buy only one stock or theme stocks you take on the risk that the whole market represents (from war, inflation, interest rate changes etc) as well as the risks particular to that stock or thematic stocks, and because you don’t have to take that risk no one will want to pay you for taking the risk. Of course, it might turn out that those stocks outperform the market, or underperform the whole market, but idiosyncratic risk is uncompensated whereas market risk is compensated. Basically it’s a bad deal. No crime in having a small part of your portfolio in a bad deal that might shoot the lights out, or investing in cat rescue, but at least we should recognise that’s what we’re doing.

SMT – I like the style of growth orientated

This flies in the face of current theory of factor models explaining stock returns, the most recognised of which is the Fama French 3 factor model which says stocks returns are best explained by the risk of the market as a whole, the outperformance of small companies and the outperformance of ‘value’ as opposed to ‘growth’ companies. They got a Nobel prize for that, and if you wanted to pursue a factor based approach to investing you wouldn’t choose growth I think. Indeed, unless you sort of understand factor investing and have the courage to withstand long periods when your factor underperforms, it might be better to stick to the whole market instead.

a portfolio of around 100 companies

A portfolio of 100 companies is not as diversified as one with 3000. It’s a risk you don’t need to take and aren’t on average rewarded for, although you can be lucky and get above market returns just as you can get below market returns. I think it’s hard to quantify how much better diversification you get with 100 than 20, and with 3000 than 100, and perhaps the measure changes over time, but why bother when it costs you more?

nearly 20% in unlisted private equity companies I feel that it adds something different than the passive investments.

There can be an advantage there, as you should be rewarded for the risk associated with illiquidity. But it was illiquidity that harmed Woodford’s high flying fund, and no one knows the actual value of illiquid assets if they’re not traded.
Secondly, ‘feeling that it adds something different from passive investments’ is not a logical justification on which to base a view that there will be better risk adjusted returns surely. Buying into a high conviction fund that holds 2 stocks and some bitcoin would be ‘something different’, but would it be sensible?

. Valuation while sky high has come down and likely will continue to fall offering at least a more reasonable place to start slowly accumulating than a few months prior.

Valuation coming down means people think it is worth less. If so, how does it become a more sensible investment now than before?

Long term approach to investing means

That’s what you want, but is it longer term than your VHVG? You’re adding nothing.
The unlisted element is 20% of 25% of your portfolio. That’s 5% overall. The unlisted section would have to do amazingly better to have much impact on your overall portfolio returns. And you’re paying an extra 1%/year in fees, a guaranteed ‘loss’ for an uncertain gain. I don’t think so.

You haven’t convinced me to change my portfolio, but thanks for sharing your ideas. But you don’t have to convince me, you have to convince yourself in 10 years time when you review your portfolio and it’s doing so-so. Are your reasons robust enough that despite disappointing performance you’ll say ‘it’s sound, I’ll stick with it’, or will you think ‘that was bad justification, I’ll ‘sell low’ and buy something else’?