Gumble wrote:So I should stick with VEVE and VFEM on the trackers over the accumulating versions in this instance?
I’m in intreagued about your bonds comment, let’s say I go with a bonds tracker too that you mentioned earlier. What % of my portfolio would you suggest, and when you say a rebalancing profit is possible, that’s where I’m lost. Would you be so kind as to give an example to help me understand?
HL gives the spreads today as VHVG 0.23% and VEVE 0.12% (VWRL is tighter by the way), a difference of 0.11%. The FX saving was 0.0007%. Break even is after 0.11% / 0.007% = 16 years. There is not a strong case for using the accumulating versions.
Suppose you have a target of 50% equities, and have £100K in equities and £100K in bonds. Suppose that the equities crash to £50K. You rebalance to £75K equities and £75K bonds. The equities double in price (i.e. recover to where they were initially). You have £150K equities and £100K bonds (a profit of £50K).
Alternatively, suppose the equities double to £200K. You rebalance to £150K equities and £150K bonds. The equities crash to half their value. You have £75K equities and £150K bonds (a profit of £25K).
The downside is that if the market falls and falls and falls, you keep selling bonds to buy equities. The cheapest and safest way to rebalance is not to sell anything, but to direct new money into whichever asset is underweight. (Or take from whichever asset is overweight if your are withdrawing money.) That is known as cash flow rebalancing. Vanguard and others have analysed various rebalancing methods, and cash flow balancing does well. Having the distributing rather than the accumulating versions of the ETFs would help by providing additional cash flows that can be redirected.
Here are the performances of Vanguard's various LifeStrategy funds:
https://www.thisismoney.co.uk/money/diy ... ecade.htmlThe article is, of course, a plug for their active manager advertisers, but is gives some idea of the performance hit that is likely for different percentages of bonds. You can easily estimate the pull-downs for various seventies of market crash.