Adding fixed income to the portfolio introduces diversification and overall should reduce risk. But by adding foreign bonds you’re effectively adding currency risk back into the picture. That’s not necessarily a bad thing (currency risk can work in your favour) but you’ll probably experience more volatility than if you’d just stuck to Sterling.

That said plenty of even quite simple portfolios do include an element of overseas bond exposure, so you’re not breaking any rules. (There are no rules…)

If you’re going to retire in the UK, you’re trusting the UK government one way or another anyway. (E.g. that we can unpick the public sector pension deficit issue). Obviously, if you buy say US bonds you reduce your risk of the UK turning into a basket case, but you add US risk. No free lunches.

Glad you found the article useful, and thanks for the kind words.

I’m quite impressed with the Swenson argument, but was also concerned about the high dependence on UK domestic indexes. Would it not be better to invest in G7 gilts (IGLO and IGIL) rather than IGLT and INXG? I understand that these are USD based, and I’ll need GBP when I retire, but it’s a lot of trust to put in the UK Government…

Currencies are notorious volatile and difficult to call. Maybe I’d put the sterling in a bank account and trickle it out every month with a direct debit to two tracker monthly savings plans, one in a FTSE tracker and one in a Euro-based tracker, with the aim of getting all the money invested in 3-5 years. That way I hopefully avoid taking a view on currencies! But again, it’s what I’d do, not advice – it’s your decision.

If you look at the holdings of something like RIT Capital Partners (the Rothschild investment trust) from year to year, it’s obsessed with currency moves, which shows how important an issue it is for the international elite.

If I was literally in your position, I’d probably invest most of the Sterling in a European tracker or possibly some dividend paying European blue chips for future income, as the Euro is still relatively strong against the pound. But again, if I was you I’m sure I’d keep some £s in a UK savings account or the FTSE, just in case…

But that’s just what I’d do, and certainly not advice.

My base currency where I live is Euros. My cash at the moment is in sterling as I changed it a while back when the rate was good. Now I know currency risk is an element as is the fact that a lot of the largest and most active ETF funds are in dollars.

I know this article is aimed at UK investors looking to avoid currency risk, but in my case (where I feel a Euro based portfolio is a little restrictive in the current market) what would you say is a good ratio of currency based ETFs to hold?

Ultimately I will be drawing on my investments in 20 years in Euros, and my regular top ups will also be in Euros, so I thought I would buy new positions in Euros, gradually building that side of it, but I am not sure what I should do with all this sterling.

When you read about allocations people talk about having 50% of ‘foreign’stock. But for me, I dont know what is domestic and what is ‘foreign’.

Any ideas of what you would do?

By investing the same amount into the tracker monthly regardless of conditions, he’d automatically buy more shares in the months where market is down, without having to make any decisions.

If the market tears away on a bull run, saving so much cash will definitely reduce his returns. But in my view, most people are very unused to having big pots of money about, let alone seeing it go up and down by hundreds or thousands of pounds every day. Having a big cash cushion is a simple way to get used to having lots of money you don’t spend, and it cushions the fluctuations of the equities until you’re used to it.

Glad you’re finding the posts interesting, and thanks for the kind words. I really do try my best, but remember I’m just a private investor writing a blog at the end of the day, so it’s up to readers to do their own research and make their own decisions.

I like the idea of using monthly saving cash injections into the cash holding account which if I understood correctly is used to balance the portfolio, topping up where needed. I suppose by holding off a few months at a time before making a purchase would build that cash cushion and allow me to use the extra cash to take advantage of market conditions.

I will make a start then with a spread of etf index trackers as in the model portfolios, and I might even lower the amount of bond percentage down to say 15-20%. Keeping an eye on it of course until I get used to the way the market fluctuates.

Anyway, once again thanks.

I don’t currently follow any structured portfolio style, personally. (I should, but I don’t. Long story).

You’re quite correct in your understanding how something like the Ivy League portfolio would work. Say after a year everything had got out of whack, compared to your original percentages – you rebalance back to the original percentages. You would *not* go out of bonds completely, or any other class, you would regularly (from annually to every five years, opinions differ on what’s best) sell and buy to ‘rebalance’ back to your original percentages. (This series on portfolio re-balancing explains the basics, though it’s not quite finished.)

Yes, you’re right that NOT having all your money in equities WILL likely reduce your returns. That is the price of protecting yourself in the short-to-medium term from wider variations in your portfolio’s value.

Your plans and aims sound sensible to me. I’m not a financial adviser so I can’t give you personal advice, but I do suggest new investors in general just split their savings between cash and a regular monthly investment into a stocks and shares UK index tracking ISA. If they do that for a few years while they get used to market gyrations etc, they won’t go far wrong. Low charges, tonnes of cash to cushion the highs/lows, and an automatic investment plan to average-into the market.

Alternatively the ETFs portfolios above are a good starting point, but you will need to do more work to learn how to buy the various bits and pieces, and to decide when to rebalance.

Regarding stop strategies etc, don’t be fooled into thinking you need to do more activity / pay more money to make money when investing. In general with investing, *doing less* and keeping costs low is the secret to long-term wealth creation. (I go off-piste for fun/ego and I know the risks of under-performance, basically).

One problem with the blog format is the non-linear sequence of posts, which means I can’t know where a reader will start, or what they’ve read before. One of my (many!) long term plans is to create some sort of online guide that sorts my posts into an order like a book, but as ever it’s finding the time.

Best of luck.

Say I read this back then and started the Ivy League Portfolio with 30% in bonds, would I be out of them now? I thought the idea of this structure was you basically set up a fundamentaltried and tested framework to the portfolio at the outset, which you believe will give you a good overall resilience over time, and then fine tune it along the way.

I have read experienced investors opinions about being completely in equities now which makes sense, but its not that I am afraid to lose my money because of the highs and lows of the stock market, I am concerned that I will lose my money from inexperience.

You also refer to the buy low sell high philosphy. Am I correct in understanding that as the equity part of the portfolio goes up during a bullish period and the bonds hang back, that rebalancing will be moving funds across from equities to bonds to keep the initial ratios the same. The when equitiy prices slump and bond prices go up you would do the reverse. Makes sense, but then over long bull periods will you not be holding back the earning power of your portfolio?

Would another strategy be to use cash holdings more actively with stop orders where you let your stocks run, moving the stop orders along and then jumping back out to cash in slumps? Or was this not the point of the article? Is this for more experienced investors?

To be honest I would like a good structure as a starting point with initially low maintenance, and over time as my experience, my knowledge and sophistication in investing increase, maybe I could then make more drastic modifications.

If I could keep up with the market rather than try and beat it, then that would be a good start.

But if you’re going to set up a portfolio with balanced asset allocation, the idea is usually to take your opinion, my opinion, and the man on the Clapham omnibuses opinion out of it and instead mechanically rebalance over time. That’s meant to be the benefit. At some time assets will look expensive and cheap, but over time the discipline of rebalancing should start to work in your favor.

E.g. If equities kept rallying, you’d be continuously topping up the assets that were falling. Some day equities won’t rally any more and will plummet again, and hopefully you’d then rebalance back into equities. Having a broad mix of assets means you’ll never get the very best return – the idea is to get an acceptable return at less risk and hassle.

Over a period of one year absolutely anything can happen with the stock market. It literally could double or halve (this is always true, not a prediction as to things being particularly wild now).

If you can’t face the thought of losing half your money in 12 months – there’s your answer.

I have researched extensively and have decided that the all ETF approach is for me in one of the above styles, something between 2 & 4.I have cashed in my portfolio and am starting from scratch with a view to getting the structure right and then periodically rebalancing.

My problem is with the bonds side. I am allocating about 25-30% of my portfolio here as I am 45 and feel moderately aggressive, but have not found anything to support going in to either SLXX, ISXF, or IGLT at this late stage of the game. As a long term investor with 15 to 20 years, would still invest here and just leabe them or is there a short term strategy, such as SE15 that would be better now?

I am worried about the bonds part eating too much into my equities profits over the next 12 months, if and when interest rates rise.

Another strategy I am considering is short term all equities, but is this wise?