Progress Report from a Newbie: invitation to comment

[WessexBoy]

I'd like some feedback on the strategy I've adopted.

While I get a sense of my own risk aversion/tolerance, and wise up on a few things, I'm long on cash (spread as savings in NS&I - including a chunk of Premium Bonds - and various interest bearing deposits) and have less than 20% of total invested, as set out below. I also have annual pensions from State and Occupation which deliver enough for living happily from day to day, and to afford some travel/holidays etc.

My investment is in three buckets, the first two in tax shelters:

1/ Max ISA with Vanguard
50% in LifeStrategy® 80% Equity Fund - Accumulation
25% in Global Small-Cap Index Fund - Accumulation
25% in S&P 500 UCITS ETF (VUSA)

2/ SIPP
45% IFSL TILNEY BESTINVEST AGGRESSIVE GROWTH PORTFOLIO CLEAN Acc
45% IFSL TILNEY BESTINVEST GROWTH PORTFOLIO CLEAN Acc
10% (just recently added) FIDELITY INDEX EMERGING MARKETS P Inc

3/ £1,000 flutter in FTSE Emerging Markets UCITS ETF (VFEM)

Clearly this is very 'risk tolerant' exposure, largely to non-UK activity, esp. S&P 500 which is also in the V LS 80% and one of the SIPP products. I've deliberately done this, in order to diversify away from UK Sterling in which I enjoy a steady risk free income plus savings. This also allows max benefit as returns are tax-exempt and I'm reckoning on these possibly being high returns.

I'm hoping that this strategy would gain endorsement here, but would welcome comment on my choices of high risk/return assets.

As report on what is essentially performance over two months (I said I was a Newbie), I endured wide fluctuations as £ strengthened even though S&P 500 surged, and now have 'personal return' for ISA of 3.82% and 2.2% and 1.9% for the first two of the SIPP products - all over a two month period. The recent FI Emerging Markets caught a wave delivering 1.7% in just under a week. The £1,000 flutter in FTSE Emerging Markets UCITS ETF (VFEM) has only just got into the black for the first time in two months.

I am in this for 5 years, so I know that these short-term returns are not that important - as I told myself when they were yo-yoing earlier - and that the bull market may yet falter. However, this does look promising relative to the returns on savings.

I am now considering drawing from savings to add more to the investments, noting that this will have to be outside the tax shelter of an ISA - I've used up this year's allowance.

The Vanguard ISA is low-cost but the SIPP does attract some ongoing management costs which might make me reflect on alternatives.

[colin]

If I were to create a portfolio to be held for 5 years it would be something like 50% FTSE all share tracker 50% cash or short term bonds, what I would do over those five years would be to increase the overall percentage held in equities whenever the value of the equities fell below a certain threshold and decrease the percentage held in equities whenever they rose above above a threshold.

[WessexBoy]

Thanks for the feedback. I may end up doing something like that with my total stash. But first a couple of questions.

Why FTSE All Share? Surely investing with something like S&P 500 or even something more globally exposed would act as a hedge against the (faltering) £ in which the bonds/cash would be held.

I have read that 80% (or more) exposure to equities is recommended for the young, but with a 'safe' flow of income in £s from a good occupational pension, why be so conservative?

Genuine questions while I explore my risk tolerance before committing more than a fraction.

[gryffron]

The FTSE is pretty global anyway. Roughly 3/4 of FTSE100 earnings (and therefore nearly as much of the All-share) come from overseas. That's why the FTSE has risen as sterling has fallen. Indeed, there's a good argument the FTSE is more "global" than the S&P500 which is roughly 50% USD, 50% RotW. So there isn't really any need to diversify further than the FTSE. Unless of course you can pick a specific market that's going to do better than "the world" average.
FTSE: http://citywire.co.uk/money/study-revea ... as/a716388
S&P500: https://www.marketwatch.com/story/sp-50 ... 2015-08-19

Gryff

[77ss]

Why FTSE All Share? Surely investing with something like S&P 500 or even something more globally exposed would act as a hedge against the (faltering) £ in which the bonds/cash would be held.

A very good question!

If you want a tracker, look elsewhere - in my opinion. It's not just a question of US or global vs UK either,

Check out the long term performance of the FT250 vs the FT100 (or All Share - a bit better, but not much). Then ask yourself why anybody would want an FT100 or All Share tracker for the long haul.

Disclosure: I hold a 250 tracker as part of my investments (about 3%). I sometimes think about the S&P etc, and may yet go that way, but I have never been remotely tempted by the All-Share.

[LooseCannon101]

I am a bit concerned over your time frame of 5 years. Investing is ideally for life or at least for 20 years.

Long-term, buy and hold of a highly diversified world equity fund has worked for me. Buying monthly on a regular basis, re-investing dividends and occasionally topping up when the market is depressed, should deliver decent returns e.g. 9% per annum over 20 years.

Unfortunately over 5 year periods, returns can easily deviate from 0% to 18% per annum. These figures are not the best or worst scenarios possible. We haven't had a proper bear market for a while. A disciplined approach of buying monthly come what may, will serve you well when others are bailing out.

[dspp]

I'd like some feedback on the strategy I've adopted.

.........I am in this for 5 years, so I know that these short-term returns are not that important .

If you are only in this for 5-years you need to ask yourself:

a) Do you have a view on the global economy over the next 5-years ? On any sectors within that ? On any geographies within that ? Any industries ? Any companies ? To what extent is your view likely to have any particular validity ?

b) Where do you personally expect to be in 5-years time ? In the UK ? EU ? USA ? And what is your context - my understanding is retired and with an adequate UK income from pensions / expecting to remain in UK / consuming UK costs.

The answers to those two might help you towards decision. You might get to a different outcome if you thought you would relocate in retirement to within the rEU say, rather than stay in UK. You might have a view on the commodities cycle. Or on the developing economies' growth trajectory. Or on the UK's trajectory.

Absent all those what is wrong with equal shares in VUKE + VWRL + VAPX + VERX ? Highly diversified, very low cost. No market opinion required.

regards, dspp

[WessexBoy]

I’m grateful for the pushback on my 5-year time horizon. I'm doing so much new thinking now that I am not in paid employment So much of my creative juices went into that former employment that I rarely gave sufficient time to the alternative, although with confidence wrt to size of pension.

I am rightly characterised as “retired and with an adequate UK income from pensions / expecting to remain in UK / consuming UK costs”, to which I would add a lust for overseas travel, not only to see new places but also to meet up with friends made during my occupational career, which implies consuming some non-UK costs.
(I also plan to have enough to help out offspring and their offspring as and when, as have been able to do before, but those are (mostly) UK costs.)

As for re-location, I am now in Scotland which is presently UK, but might become part of rEU within lifetime, and it is just possible that I would consider moving to rUK in order to catch more rays of sunshine in my dottage - although the commitment to social services for the elderly does seem greater up here.

On the matter of 5 years, and whether “Investing is ideally for life or at least for 20 years”, family history suggests I may live more than 20 years, so perhaps my time horizon is greater than 5 years. And it is likely that I will have enough put by in cash savings to attend to traveling etc at the 5 year milestone.

As for my judgement on the global economy over the next 5-years, of geographies within that & of sectors & industries within that; and the extent that my view is likely to have any particular validity, well that’s a more challenging set of questions, although helpfully put. On that, my speculation is that there are uncertainties about the financial health of the global economy, but that the US seems to be dynamic and the Asian and Pacific will continue to grow (but with splashdown if Chinese economy falters); I am less confident of UK and rEU for all sorts of reasons, including the Euro. If pushed, I would say that the health and IT sectors will continue to grow in importance, and that all but the UK financial services sector might benefit from the realities of Brexit. Do I trust that sufficiently for money/mouth action? Well I’ll need to firm up on that …

I’m also grateful for re-inforcement of the advice about regular monthly buying, including re-investing dividends - which if held ‘unsheltered’ would presumably still be taxable over and above the £5k-declining-to-£2k allowance? I might regard those dividends as excuse to match for drawdown from cash savings for any ‘enjoyment’. I get the ‘buy when market is depressed’ idea, although since I start now with large (for me) cash sum, that advice and that of “a disciplined approach of buying monthly come what may”, are challenging, resulting in spread of cash with NS&I (including PBs) and with the usual ‘deals’ with numerous banks.

That “We haven't had a proper bear market for a while” suggests that I stay long-ish in cash, and don’t get carried away with search for HYP that will max dividends in short-run, although that is what I have been limbering up to do.

I’m looking into the VUKE + VWRL + VAPX + VERX option to flip £13k from the more costly managed products within recent SIPP. I’ll also consider adding unsheltered holdings alongside the Vanguard ISA.

[WessexBoy]

The FTSE is pretty global anyway. Roughly 3/4 of FTSE100 earnings (and therefore nearly as much of the All-share) come from overseas. That's why the FTSE has risen as sterling has fallen. Indeed, there's a good argument the FTSE is more "global" than the S&P500 which is roughly 50% USD, 50% RotW. So there isn't really any need to diversify further than the FTSE. Unless of course you can pick a specific market that's going to do better than "the world" average.
FTSE: http://citywire.co.uk/money/study-revea ... as/a716388
S&P500: https://www.marketwatch.com/story/sp-50 ... 2015-08-19

Gryff

So I had gleaned with the £/FTSE yo-yoing but good to see this set out plainly. However, is there not a sentiment risk with the FTSE associated with how the prospects for UK are perceived by the market, especially wrt Brexit outcomes/uncertainties? Having said that I recognise that a 'run on the £' would seem to have opposite effect!