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9 lazy portfolios for UK investors

The lazy portfolios are the blazing beacons of passive investing. Once you’ve absorbed all the advice and theory you can stand about risk, cost and diversification, you’re still left with one crucial question:

“What does a simple, low cost, diversified portfolio look like?”

And that’s where the lazy portfolios shine a light. They’re rough-and-ready model portfolios designed by some of the champions of passive investing. Think of the lazies as a show home – a useful source of ideas for building your own portfolio.

A lazy portfolio’s standout features are:

  • Simplicity

You only need a few funds to diversify across the key asset classes. This cuts costs and keeps the portfolio manageable.

  • Low maintenance

You rebalance your funds occasionally, but otherwise leave them to make like an oak tree and grow. Novice investors can start with a very simple portfolio and add new funds from time to time, to further diversify.

  • Low cost

Passive investors use cut-price index funds and Exchange Traded Funds (ETFs) to prevent high fund charges gobbling up their returns.

  • Risk control

Every lazy portfolio sticks a hefty chunk into government bonds. The designers are drawing attention to the power of bonds to cushion your portfolio from equity market crashes. Your eventual allocation to bonds will depend on how much risk you can handle.

  • No silver bullet

The lazy portfolios show there’s more than one way to cut the cake. Different portfolios suit different needs, mindsets and goals. But the truth is they will all put you in roughly the same ballpark. There’s no need to agonise over every percentage point split between asset classes.

You don’t need to pay for black box analytics to spit out some fully personalized “mean variance optimised, risk-calibrated” portfolio. You can just keep things simple and do it yourself.

Life's a beach with a lazy portfolio

Dirty Harry Vs Juliet Bravo

The lazy portfolios you’ll read about on the Internet and in books are mostly US orientated. But Monevator has converted them for UK readers using index funds and ETFs chosen from our market.

Cost rules our decision making. Every fund is selected on the basis that:

  1. It fits the original investment category.
  2. It’s generally the cheapest choice available by Ongoing Charge Figure (OCF) and any other upfront fund fees that apply.1

Translator’s notes

Stars and Stripes flavoured lazy portfolios are skewed towards domestic equities. Historically, American investors have been heavily biased towards the home team, and that makes a certain sense given the size, dynamism, and diversity of their domestic market.

UK investors may want to allocate a greater percentage of their equity allocation internationally, given that UK plc only accounts for about 8% of global market cap and that the FTSE All-Share and FTSE 100 are more concentrated than US equivalents.

When it comes to bond funds, we’ve chosen to make our UK picks less diverse. The US portfolios tend to use a Total Bond Market fund, split about 70% into US Government bonds and 30% into Corporate bonds.

In the UK, Total Bond Market funds are as common as apologetic bankers, so I’ve chosen to use UK Government bond trackers instead.

Why? Well firstly, we’re dealing in lazy portfolios. Secondly, bonds are meant to provide you with some protection against equities being hammered when markets are stressed. Government bonds are less correlated with equities than corporate bonds, and so more likely to do the job.

US lazies often tilt towards value and small-value equity funds. Historical evidence suggests that investing in downtrodden companies of this kind can juice your returns – in exchange for an extra dose of risk, of course.

Yet again the UK market responds with a shrug of the shoulders. There are no corresponding value and small-value trackers over here. The closest proxies are high-yielding dividend funds. Value equities by their very nature tend to pay out a good yield, so many of them are scooped into dividend funds. It’s an ill-fitting suit at best, but it’s what we’ve got.

Finally, for some authentically British home-cooking we’ve rustled up a version of  Tim Hale’s Home Bias – Global Style Tilts 4 portfolio.

Tim Hale is the only British commentator I know of who stands comparison to the black belts of US passive investing. I’d recommend his book to any UK investor.

Okay, let’s go!

1. Allan Roth’s Second Grader Portfolio

Asset class Asset allocation Fund name OCF
Domestic equity 60% Vanguard FTSE UK Equity Index 0.15%2
Developed world 30% Vanguard FTSE Dev World ex-UK Equity Index 0.3%
Government bonds (Gilts) 10% Vanguard UK Government Bond Index 0.15%

Very simple and very aggressive with a 90% equity allocation. One for the young and the brave.

2. David Swensen’s Ivy League Portfolio

Asset class Asset allocation Fund name OCF
Domestic equity 30% Vanguard FTSE UK Equity Index 0.15%3
Developed world 15% Vanguard FTSE Dev World ex-UK Equity Index 0.3%
Emerging markets 5% BlackRock Emerging Markets Equity Tracker D 0.28%
Property 20% BlackRock Global Property Securities Equity Tracker D 0.28%
Government bonds (Gilts) 15% Vanguard UK Government Bond Index 0.15%
Government bonds (Index-linked) 15% Vanguard UK Inflation-Linked Gilt Index 0.15%4

The famed Yale fund manager is heavier in property than most. I’ve switched out the original US domestic property fund for a more diversified global property vehicle. The 50:50 split between conventional bonds and inflation-protected index-linkers is a classic lazy portfolio ploy.

3. Rick Ferri’s Core Four Portfolio

Asset class Asset allocation Fund name OCF
Domestic equity 36% Vanguard FTSE UK Equity Index 0.15%5
Developed world 18% Vanguard FTSE Dev World ex-UK Equity Index 0.3%
Property 6% BlackRock Global Property Securities Equity Tracker D 0.28%
Government bonds (Gilts) 40% Vanguard UK Government Bond Index 0.15%

Ferri’s 60:40 split between equities and bonds is another common convention, broadly indicating a portfolio set for moderate growth and volatility.

4. Bill Schultheis’ Coffeehouse Portfolio

Asset class Asset allocation Fund name OCF
Domestic equity 10% Vanguard FTSE UK Equity Index 0.15%6
Developed world 15% Vanguard FTSE Dev World ex-UK Equity Index 0.3%
Domestic value 10% Vanguard FTSE UK Equity Income Index 0.25%7
Domestic small cap 10% iShares MSCI UK Small Cap ETF 0.58%
Emerging markets 5% BlackRock Emerging Markets Equity Tracker D 0.28%
Property 10% BlackRock Global Property Securities Equity Tracker D 0.28%
Government bonds (Gilts) 40% Vanguard UK Government Bond Index 0.15%

The original portfolio has a 10% allocation to small-value equity, which isn’t available in the UK as a tracker. Schultheis has also said:

If I were creating a portfolio today, I would increase the international allocation and include emerging markets, probably 5 to 7 percent.

So I’ve eliminated small-value, upped the developed world ex-UK by 5% and brought in emerging markets at 5%.

5. Harry Browne’s Permanent Portfolio

Asset class Asset allocation Fund name OCF
Domestic equity 25% Vanguard FTSE UK Equity Index 0.15%8
Government bonds (Gilts) 25% Vanguard UK Long Duration Gilt Index 0.15%9
Gold 25% iShares Physical Gold ETC 0.25%
Cash 25% High interest account

This truly is a portfolio for all-seasons. It’s armour-plated against inflation or deflation, recession, and even the good times. The assets have been picked for their contrasting behaviours, so whatever the conditions, some should thrive even while some dive. William Bernstein has written an excellent article about the permanent portfolio.

Note that the iShares gold vehicle is an Exchange Traded Commodity (ETC), not strictly an ETF.

6. Scott Burns’ Six Ways From Sunday Portfolio

Asset class Asset allocation Fund name OCF
Domestic equity 1/6 Vanguard FTSE UK Equity Index 0.15%10
Global equity 1/6 db x-trackers FTSE All-World ex-UK ETF 0.4%
Global energy 1/6 db x-trackers MSCI World Energy ETF 0.45%
Property 1/6 BlackRock Global Property Securities Equity Tracker D 0.28%
Government bonds (Global) 1/6 iShares Global Government Bond ETF 0.2%
Government bonds (Index-linked) 1/6 Vanguard UK Inflation-Linked Gilt Index 0.15%11

Some unusual choices here, including a global energy fund because Burns believes, “Energy is the ultimate currency and the ultimate commodity.”

This portfolio is also notable for its global government bond allocation. Diversifying away from domestic government bonds holds the prospect of greater returns but more volatility too, as currency risk comes into play.

7. William Bernstein’s No Brainer Portfolio

Asset class Asset allocation Fund name OCF
Domestic equity 25% Royal London UK All Share Tracker Fund Z 0.14%
Developed world 25% Vanguard FTSE Dev World ex-UK Equity Index 0.3%
Domestic small cap 25% iShares MSCI UK Small Cap ETF 0.58%
Government bonds (Gilts) 25% Vanguard UK Government Bond ETF 0.12%

Another simple and aggressive portfolio that’s 75% in equities. Note the straightforward 25% split between asset classes. This is because passive investors understand that there is no ‘correct’ answer to asset allocation.

Fine grain allocations may look impressively scientific but are no more likely to provide a better return than a crude four-way slice of the pie.

N.B. I’ve thrown in alternative solutions for UK domestic equity and government bonds for this one.

8. Harry Markowitz’s ‘In Real Life’ Portfolio

Asset class Asset allocation Fund name OCF
Global equity 50% Vanguard FTSE All-World ETF 0.25%
Government bonds (Gilts) 50% Vanguard UK Government Bond ETF 0.12%

A portfolio based on the oft-told tale that the Nobel Prize winning inventor of modern portfolio theory split his real life portfolio 50:50 between equities and bonds. The All-World ETF offers plenty of diversification in a single fund.

9. Tim Hale Home Bias – Global Style Tilts 4 Portfolio

Asset class Asset allocation Fund name OCF
Domestic equity 9% Vanguard FTSE UK Equity Index 0.15%12
Domestic small value 6% Aberforth UK Small Companies 0.85%
Developed world 15% Vanguard FTSE Dev World ex-UK Equity Index 0.3%
Developed world small cap 6% Vanguard Global Small-Cap Index Fund 0.4%
Developed world value 6% Vanguard FTSE All-World High Dividend Yield ETF 0.29%
Emerging markets 6% BlackRock Emerging Markets Equity Tracker D 0.28%
Commodities 6% ETF Thomson Reuters/Jefferies CRB Ex-Energy TR 0.35%
Property 6% BlackRock Global Property Securities Equity Tracker D 0.28%
Government bonds (Gilts) 15% Vanguard UK Government Bond Index 0.15%
Government bonds (Index-linked) 25% Vanguard UK Inflation-Linked Gilt Index 0.15%13

This is the one portfolio designed from the ground up for UK investors. Hence it’s more internationally diversified. US investors are more than happy to keep most of their chips at home in the world’s number one economic powerhouse.

There is certainly no need to devise a portfolio more comprehensive and complex than this one – a multi-fund portfolio like this can get costly if you’re paying dealing charges.

Hale originally allocated a distinct 3% to domestic small cap and another 3% to domestic value. You can use the options cited in the Coffeehouse portfolio if you want to stick to that prescription.

However, in a departure from my usual passive investing orthodoxy, I’ve thrown in an active investing wild card with Aberforth UK Smaller Companies.

This is a small value fund that’s not terribly expensive, fulfils Hale’s brief, and that I personally use. The truth is that small value funds are active management plays anyway and there’s no law against passive investors using active funds when there are no better alternatives. The Aberforth fund is available as a Unit Trust and an Investment Trust.

Intriguingly, the portfolio includes a wedge of commodities. Hale, like Larry Swedroe (but unlike William Bernstein), believes that commodities have a place in an investor’s portfolio.

Hale thinks that commodities offer diversification value because they are uncorrelated to bonds and equities. Hype and poor predicted returns are why many of the US passive commentators steer clear of commodities.

More Britisher snags with this low-cost take on Hale:

  • The global small-cap fund is inc UK, not ex-UK. It increases small cap exposure a little beyond that intended by the designer.
  • It is possible to exclude the UK by choosing separate US, Euro, and Asian small-cap ETFs. Though it’s too fiddly and expensive to do for my taste.
  •  The All-World High Yield ETF substitutes for world ex-UK value. Again it includes UK, so exposure comments above apply.

Vanguard funds feature heavily in this piece because they are an excellent fund house that have blazed a low-cost trail in the UK. For some alternative choices take a look at the UK’s cheapest trackers and Monevator’s very own Slow and Steady portfolio.

Take it steady,

The Accumulator

  1. Caveat: Sometimes it’s the only choice available, given the paucity of the UK market! []
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{ 200 comments… add one }
  • 98 Dave-O September 5, 2012, 11:07 am

    Sorry I am new to all this…how would I go about having one of these portfolio’s seated within an ISA? or does, for example, Alliance Trust give you this option when you originally make the investment? Thanks

  • 99 The Accumulator September 5, 2012, 1:07 pm

    Hi Dave-O,

    You would choose an investment account that was specifically labelled as an ISA account (Note: stocks and shares not cash). Then you’d choose the funds you want to put into it in line with the portfolio you want. See this article for a very simple way of getting an instantly diversified portfolio: http://monevator.com/vanguard-lifestrategy/

  • 100 Tim March 11, 2013, 4:32 pm

    Hi,

    I’m 26 and have been adding to my SIPP (with HL) slowly over the past 2 years. I’m mostly allocated to the Vanguard LifeStrategy 100% Equity Fund at present (along with a few other bits I’m slowly re-allocating into this) – this seems a simple and easy to manage portfolio for the minute (and I’m up 16% which helps), but I’m keen to know what other peoples expectations are for an annualised return on a passive portfolio? I’ve read about 7-8%’s for the equity markets, but what about a portfolio overall?

    Also, what do people think of Discretionary Management Services (e.g. HL / BestInvest) too? There’s a part of me that hopes a £50-100k account managed by a ‘professional’ would outperform my own efforts, but I’m sceptical, and there doesn’t seem to be much performance data on these kind of services. I know it’s tailored to the individual (in some cases), but so far I’ve only seen averages from ARC PCI data, which didn’t wow me that much. Is this really what the wealthy are getting from their discretionary managed portfolios? If there are good service providers out there, what do people recommend for the smaller portfolio (<£50K), or is self-service it?

    Best wishes to all, and thanks for creating such an amazing blog.

    Cheers,
    Tim

  • 101 Medicine Man April 3, 2013, 12:24 pm

    Hi, I have a question on UK vs non-UK portfolio allocation proportion.

    The Accumulator’s passive portfolio (http://monevator.com/passive-investing-model-portfolio/) uses a split of
    UK equity 20%
    ex-UK equity 50%
    emerging market equity 10%
    UK gilts 20%

    However, the potential portfolios in this article have a far heavier slant towards the UK (as does mine!). TERs for UK funds tend to be cheaper but spreading your risk widely seems wise.

    Any thoughts on this aspect?

  • 102 The Accumulator April 3, 2013, 1:32 pm

    Hi Medicine Man,

    The reason these portfolios are so heavily slanted to the UK is because they are based on original US portfolios and there is a strong tradition of slanting to the home market in the US.

    The portfolio that was originally devised with a UK audience in mind is the Tim Hale one and that contains less of a home bias.

    A purist would let the market decide. So you’d allocate about 8% to the UK in line with our weight in the global market.

    Most are more comfortable with a home bias though and the older you get the less you want to be exposed to currency risk. It’s also worth remembering that the FTSE 100 and All-Share are dominated by big global companies whose fortunes aren’t particularly resting on the performance of the UK economy.

    There is no precise answer to this one, but remember diversification is the only free lunch in investing.

  • 103 Medicine Man April 3, 2013, 2:28 pm

    Thanks very much. Hugely impressed by the site.

  • 104 Medicine Man April 3, 2013, 3:11 pm

    Whilst we’re on the subject, why the heavy emphasis on UK bonds in your passive portfolio (as well as the ones above – although I get that that is at least partly because they are directly translated from US models)? Wouldn’t it be better to spread the bonds wider following the same principle you give above?

  • 105 The Accumulator April 3, 2013, 5:35 pm

    Glad you like the site!

    The thinking with bonds is that they are there to dampen volatility in your portfolio. Therefore you want the safest kind: government bonds and you don’t want any kind of currency risk interfering with their ability to provide some stability. Therefore it’s gilts all the way.

    You can rely on your equities to provide your international diversity. Except we do diversify our gilts enough to take into account:

    Inflation-linked gilts
    Some term risk – most suggested portfolios will feature a multi-duration bond fund mixing short, medium and long term gilts.

  • 106 john p woods April 3, 2013, 6:17 pm

    Outside of bonds where else could be deemed a haven from equity volatility for those of use with limited means? Global Real Estate Index?

  • 107 The Investor April 4, 2013, 11:19 am

    @John – Cash. See this article.

  • 108 The Accumulator April 4, 2013, 1:05 pm

    @ John – real estate has been highly correlated with equity since the crash. The Investor is right. You could argue gold too, not because it’s a haven but because of a lack of correlation. Take a look at Harry Brown’s permanent portfolio for ideas.

  • 109 Nigel Root April 6, 2013, 3:07 pm

    Thank you for the interesting article and comments. I’m nervous of ETFs. Some of them appear to be returns tied to an index/commodity/currency while the managers can invest or speculate in whatever they like. Surely one will go broke sometime and I don’t want to be holding that ETF when it does. Ideas gratefully received. Nigel

  • 110 Nigel Root April 7, 2013, 7:32 pm

    This article scares me. It recommends such a high percentage of an investor’s savings in Vanguard. It strikes me as a better attitude that nothing is completely safe. Please remember that a bank hadn’t failed for 150 years until Northern Rock did just that. Better to pay slightly more and diversify, e.g. to HSBC trackers.
    Nigel

  • 111 Medicine Man April 7, 2013, 7:56 pm

    Nigel, I thought that Vanguard hold “physical” funds so that even if they went bust you would still own your shares that make up the tracker fund. However, I am an amateur! Would be interested to hear from someone more knowledgeable (particularly as I am all in with Vanguard!).

  • 112 The Investor April 7, 2013, 11:46 pm

    @Nigel — Personally I agree and would always spread my risks among fund managers, platforms and so on. However you and I are in a minority on this — I am repeatedly assured that nothing terrible can happen to the likes of Vanguard, and all reputable experts seem to agree. Basically it would take massive fraud on an unthinkable scale.

    Still I agree with your sentiment:

    http://monevator.com/assume-every-investment-can-fail-you/

    … And would always spread my money. People like Mike Piper of Oblivious Investor are happy to have literally all their wealth in a couple of Vanguard funds though. And in practice most people trust a single pension provider etc, few of which have Vanguards reputation and scale.

    On ETFs, use the search bar in the right sidebar to look for our many articles. The ones you fear are the synthetic ETFs. Physical ETFs are like any other sort of fund.

  • 113 john p woods April 13, 2013, 12:35 pm

    If bonds are deemed overpriced than maybe an uncorrelated option to equity other than cash is maybe a gold and/or Commercial Property tracker?

  • 114 The Accumulator April 13, 2013, 12:50 pm

    @ Nigel – I missed your earlier comment about ETFs. There are some products labelled as ETFs that are overly complex, opaque or narrowly focussed in function. But the ETFs mentioned in the article are relatively simple vehicles with returns tied to a broad-based index. They don’t really get much more vanilla than this.

    For a FTSE 100 ETF to go broke, you’re either talking about massive fraud or the wholesale destruction of global capitalism. As you’ve already identified, the best solution is diversification.

  • 115 Guy July 23, 2013, 12:38 pm

    I use a tweaked version of the Tim Hale portfolio you put together, works well enough for me but it’s not as interesting as active investing – if only being sensible were more interesting 🙁

    Best regards,

    Guy

  • 116 Rob July 23, 2013, 1:04 pm

    Hi TA,
    Nice to see an update to these portfolios – plenty to chew on here. However, I notice a major asset class is missing from all of them: cash. Emergency fund aside, I think it makes sense to keep part of your fund in cash, for reasons I’m sure you’ve covered before: liquidity, low risk/guaranteed nominal return. I think returns are better than many sources would have you believe, as fixed-rate cash ISAs and NS&I ILSCs when available will beat the ‘average’ savings account often used as a benchmark.
    So my question is – is the academic consensus that cash isn’t worth holding, beyond an emergency fund? And if you were going to modify the portfolios to include cash, what would you take the allocation from? I personally hold all my ‘bond’ allocation in cash at the moment (I know, they’re not interchangeable…) but intend to rebalance this portion to 50/50 cash/bonds.
    Cheers,
    Rob

  • 117 Rob July 23, 2013, 1:07 pm

    * Correction – cash is missing from all of them except the Permanent Portfolio. Missed that one!

  • 118 dearieme July 23, 2013, 1:15 pm

    I’m interested in the Opportunist Portfolio.
    1) UK Fixed Interest Gilts look to be awful value, so instead we use Cash ISAs bought with decent, inflation-beating interest rates a year or five ago.
    2) Index-linked Gilts look bad too, so we use Index-linked Savings Certificates from ns&i, likewise bought a few years ago.
    3) Smaller companies: I’d buy an active investor i.e. a suitable Investment Trust. I don’t know when to take the plunge.
    4) Precious metals: I’ve recently discovered that you can buy different gold ETFs whose bullion is vaulted variously in London, in Zurich and in Singapore. I like the sound of that diversification of risk. On the other hand if I had access to a decent safety deposit I’d buy sovereigns.

    Which leaves large companies in mature markets (e.g. UK, US, Japan) where I agree that ETFs sound a good idea since active managers can’t be expected on the whole to repay their costs. I don’t know when to take the plunge here, either. The US, especially, is surely due another plummet?

    For Emerging or Smaller Asian markets, perhaps investment trusts are the way to go. Again, when?

    Our policy: if you don’t need the extra return, don’t take the extra risk.

  • 119 The Investor July 23, 2013, 1:17 pm

    @Rob — Hi! Agree with all that, including cash as a bond substitute for private investors *in the current climate*, and have written about cash many times before:

    http://monevator.com/tag/cash/

    I think cash is underrated by private investors as an asset class (I don’t mean specifically at this point in time, I mean generally) — though ironically it’s probably overrated by the chap on the Clapham Omnibus, who owns too much cash and not enough equities etc.

    For institutions the situation is less clear cut. Private investors have several advantages they don’t when it comes to cash. (e.g. Rate tarting, deposit protection, etc).

  • 120 Jon July 23, 2013, 1:42 pm

    Hi TA,

    I read Tim Hales book about a year ago (cover to cover) and finally settled on following portfolio for my SIPP:

    SWIP UK Equity 10%
    Vanguard Developed World ex-UK 24%
    Blackrock Emerging Markets 10%
    Blackrock Global Property 8%
    ETFS Physical Precious Metals (Gold, Silver, Platinum, Palladium) 8%

    L & G Index Linked Gilts 8%
    ishares Global Government Bonds ETF 8%
    ishares Global Inflation linked Bonds ETF 8%
    Vanguard Global Bond Index 8%
    Blackrock Corporate bonds 8%

    Rebalance annually.

    For this SIPP, Equity is 60%, Fixed income is 40%. I also have a HYP, so overall I would say I’m > 80% equity.

    I agree with TI and Nigel and when I constructed this portfolio I wanted to include multiple fund managers to miss the car crashes that will ultimately happen in the future. Currently I’m diversifying the SIPP and HYP across multiple platforms and brokers.

    You just don’t know what’s around the corner and I like a good nights sleep.

    Regards,
    Jon

  • 121 InvestoryRory July 23, 2013, 1:48 pm

    For the newcomer to passive investing…. with a HL account & <£20k SIPP…

    "Vanguard LifeStrategy 100% Eq Acc" vs "Allan Roth’s Second Grader Portfolio".

    What's your opinion, and how would I go about evaluating performance please (give the former has only an 18 month record)?

  • 122 Jon July 23, 2013, 1:49 pm

    One other interesting nugget. I’m currently opening a Charles Schwab International share account (USA based) for extra risk diversification and HYP (love to have Coke, Proctor & Gamble, Johnson & Johnson, Pepsi etc ) and have been told that UK residents are also covered under USA SEC protection scheme, which is up to $500K for equity investments and $250K cash !

    Compare that to the tiddly UK FSA protection scheme of £50k.

    Reg,
    Jon

  • 123 Jon July 23, 2013, 1:56 pm

    TA, on a totally unrelated point, the website is claiming their are 120+ comments under this article. Reg, Jon.

  • 124 PassiveNoob July 23, 2013, 2:14 pm

    I read Tim Hale’s book a few years ago, and have been lurking here ever since. I’ve managed to build a simple passive portfolio with a few year’s stocks & shares ISAs, but have no bonds/gilts at all (100% equities), believing a few year’s cash ISAs and some NSI index-linked certs to represent the ‘non-volatile’ portion of the overall portfolio.
    I think I was influenced by this article:
    http://monevator.com/weekend-reading-finally-time-for-the-big-bond-blow-up/
    I struggle with the idea that in passive investing one shouldn’t attempt to time the market, but at what point should I try to build up a portfolio of Gilts & Index-Linked Govt bonds? (which would be at the expense of increasing my overall equities, [unless I converted the historic cash ISA’s into bonds]). Any comments much appreciated…

  • 125 The Investor July 23, 2013, 3:13 pm

    @Jon — There are 120+ comments under the article. 🙂 They get batched into groups of 50 — use the “previous comments” link at the top or bottom to scroll through them.

    This is an update of an old article, remember. (See under the heading). So it’s had plenty of time to collect comments, but some will be out of date, hence why there’s no real harm people having to scroll back to the old ones.

  • 126 Clive July 23, 2013, 4:37 pm

    @Jon RE : I’m currently opening a Charles Schwab International share account (USA based)

    Do you know whether if you reinvest dividends from a US stock held within such an account back into the US stock, whether you’re still charged 15% US withholding taxes on those dividends prior to reinvestment? i.e. from a UK investors perspective.

  • 127 Tony July 23, 2013, 5:25 pm

    Good to see these kinds of portfolios getting an airing again.

    But, you’ve omitted that most iconic of lazy portfolios, the classic Three Funder as recommended/invented by Taylor Larimore, Andrew Tobias, Scott Burns, amongst others.

    Harry Browne’s Permanent Portfolio is really more of a wealth preserver for people who’ve already won the game, rather than a portfolio for long-term accumulation to create a retirement pot.

    The Tim Hale effort is a right mess, too fiddly and not very lazy either – wouldn’t fancy trying to rebalance that too often!

    Anyway, keep it coming!

  • 128 Jon July 23, 2013, 5:51 pm

    @Clive

    Yes, that’s my understanding. The US federal dividend tax rate is 15%. Make sure you complete W-8 form (Schwab will email copy) which confirms double tax treaty with USA, otherwise you will be clobbered with 30% tax rate.
    If you are a UK basic rate tax payer you have no additional taxes to pay on dividends but not the case if you are a UK higher rate tax payer.

    I was made aware of all this stuff by reading this informative article from TA:

    http://monevator.com/withholding-tax-on-dividends/

  • 129 The Investor July 23, 2013, 5:52 pm

    Harry Browne’s Permanent Portfolio is really more of a wealth preserver for people who’ve already won the game, rather than a portfolio for long-term accumulation to create a retirement pot.

    @Tony — I don’t think that’s true at all, to be honest. 🙂 I’ve seen numerous studies showing decent growth for the permanent portfolio over the long-term. Roughly average annual returns of 9-11% depending on time frames, plus with lower volatility than some alternatives. The price you pay seems rather to be deviation from the best asset classes in bull times (e.g. late 1990s, when stocks roared and gold was in a funk) but the strategy has delivered if held through.

    For example, a quick Google provides this data: http://europeanpermanentportfolio.blogspot.sg/p/permanent-portfolio.html

    Can’t vouch for the calculations and they’re only to 2011, but it’s in the ballpark of what I’ve read elsewhere several times.

    Cheers (to you and everyone else!) for your comments — keep them coming. 🙂

  • 130 Clive July 23, 2013, 6:07 pm

    @Tony Re : The Tim Hale effort is a right mess, too fiddly and not very lazy either – wouldn’t fancy trying to rebalance that too often!

    A concern about ETF’s is that if even just for a minute they become non-reporting registered (oversight by provider perhaps), then ALL of capital gains for a UK investor who happened to be holding the ETF for that minute become liable for income tax (not capital gains) for the ENTIRE holding period.

    For a UK investors, a combination of BRK-B for a US ‘stock-index’ like holding that pays no dividends (so no US withholding taxes applied) and that provides some GBP/USD currency exposure, combined with a FT250 Index Tracker (somewhat small cap value like), and the rest in 5 year gilt ladder (ISA’d) can be a reasonable choice of 3-fund portfolio.

    Review once yearly as and when a gilt matures (cash in hand, and maybe selling down the one year that’s close enough to maturity to not have a great deal of capital value risk if more cash is required for rebalancing purposes), using 40% rebalance bands, and overall effort and costs will be relatively low. End of March, early April is a good choice of yearly review time point as you can opt to trade in the old or new fiscal year according to whichever might be the more tax efficient.

    [40% rebalance band = if, as an example, a target weighting of 33% to one asset drifts below 33% x 0.6 weighting or above 33% x 1.4 weighting then rebalance all three assets back to target weightings].

  • 131 Trium July 23, 2013, 10:06 pm

    When I was deciding my own allocations everybody said I needed some property. Fine, I bought a fund (most of the above portfolios use Blackrock Global Property Securities Equity Tracker – mine was Fidelity Global Property) and watched it dart up and down with the FTSE – it correlates so strongly and if anything it’s even more volatile.

    Don’t get me wrong, it’s done very nicely for me over the last year. But if the point of property is to reduce correlation, provide stability, spread risk, diversify and all those sexy things why have I bought something that behaves for all the world like an equity? It’s there too in the Blackrock chart – that familiar shape striding confidently upward until May 22. I might as well be looking at a FTSE100 tracker.

    So why have a property allocation at all if we’re just going to invest in equities that have ‘property’ in the name? Not criticising anyone, just something that’s puzzled me for ages and I often feel my ‘property’ exposure is actually escalating my risk.

  • 132 The Investor July 23, 2013, 11:03 pm

    @Trium — Yes, that correlation is a known problem with listed property funds. However it shouldn’t be quite so marked over the longer term. I think this is an unusual period for looking at property and equities in terms of correlated movement, because overvalued property / rampant lax lending was ultimately at the root of the 08/09 stock market crash, and so it’s perhaps not surprising that the two have recovered in sync.

    Looking at your chosen fund in particular, it’s a collection of listed property equities. Personally I wouldn’t mind, but an alternative would be one that holds property directly. My mother owns some of the F&C Commercial Property Trust:

    http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=KAFU6&univ=U

    As you can see from “holdings” it owns its own property. Being a closed-ended investment trust, there’s no worries about forced liquidations like you’d get with an open-ended property fund, too. (Something I personally would definitely look to avoid!)

    I’d even argue the case for holding the likes of Land Securities as a property proxy if we were in the pub, but I won’t do so among such august and level-headed passive investing company. 😉

  • 133 Grumpy Old Paul July 24, 2013, 2:35 pm

    I wonder what Sharpe ratio, volatility and sortino would be for these different portfolios as well as total return.

    It’s fascinating to me that despite their varying asset allocations, “they will all put you in roughly the same ballpark”. Firstly, because stats like volatility become much more important, especially for those saving towards a goal fixed in time such as retirement or children’s 18th birthdays. Secondly, I’d love to know the explanation. Part of the explanation may be that there is such a high level of correlation between many different stock markets.

    An unsung virtue of lower volatility portfolios is psychological: people are more likely to stick with them than higher volatility portfolios.

  • 134 The Investor July 24, 2013, 6:33 pm

    @GOP — Have you read the Tim Hale book we’re forever touting? That has some data in that direction (not exactly what you’re asking for) for a range of different proposed portfolios.

    Not sure where you’re getting the ballpark quote from (my use of the word was with respect of returns from the Permanent Portfolio) but it’s not so much that some portfolios won’t prove to have been somewhat more desirable to hold than others over time, in the end — it’s that we can’t know which ones in advance, because we can’t predict the future.

    So after following general asset allocation procedures and within sensible bounds, you’re best picking/tweaking the one that feels most psychologically amenable to you. As you say, for some that will be lower volatility. Others may want to believe they have as many bets on black as possible. Some will want more emerging markets because of beliefs they have. And so on.

    If you’re saving for a fixed goal/date, you need to change your portfolio allocations as you approach it of course.

  • 135 Markyboy blues July 25, 2013, 10:18 am

    There is a very, very good spreadsheet available that answers most of the questions that have been asked above about the relative performance and volatility of different lazy portfolios and their Sharp, Sorento ratios, maximum drawdowns etc over the period 1972-2012.

    https://docs.google.com/file/d/0B6rEnGbxebTBUGN4Y2o5UUpuX0E/edit?usp=sharing

    To download it go to File/Download.

    It has most of the lazy portfolios listed in the article already set up albeit with US data. you can also set up your own portfolios and compare their performance to see if you can beat the experts.

    Basically, it is hours of fun – if you like that sort of thing (I do).

    There is also a discussion board for the tool at

    http://www.bogleheads.org/forum/viewtopic.php?t=2520

    Enjoy…..

  • 136 Yabusame July 26, 2013, 10:07 pm

    Just wanted mu thanks for this article.

    My pension looks similar to The Accumulator’s passive portfolio, though the pension provider is charginh a ‘massive’ 0.75% each year (rises to 1.0% if I leave the company early). I am investing 5% of my pre-tax income in this way because the company will match my investment to a maximum off 5% so I’m opting for the full match.

    I’d like to start investing in Vanguard funds through an ISA but choosing which platform to use is confusing me, even when I look through the table of platforms that is available on Monevator, I still don’t seem to be able to find the cheapest platform for 4 Vanguard funds.

    Anyone got the answer for the cheapest platform for 1+ Vanguard funds held in a S&S ISA?

  • 137 The Accumulator July 28, 2013, 7:30 pm

    @ Yabusame – if your portfolio is less than £20K and likely to remain that way for a good few years then go for Charles Stanley. If you’re over that amount or likely to get there pretty soon then head for Alliance Trust.

    @ Passive Noob – I’d consider those cash holdings and index-linked certs as part of your fixed income allocation so you are less than 100% equities. If you want to dial down your equity exposure over time then I think this piece could help: http://monevator.com/asset-allocation-strategy-rules-of-thumb/

    @ Markyboy – thanks very much for the links. I’ll have a play when I get a mo.

    @ Tony – you’re Tim Hale comment made me chuckle. Yes, it’s not very elegant, but there’s a part of me that loves all that fiddly complexity. Probably makes me think I’m doing something clever. Which I’m not.

    @ Jon – didn’t know about the US protection. Thanks for that. Sleeping soundly is what it’s all about of course and it sounds like you’re having fun with all that diversification. Good stuff.

    @ Investor Rory – There’s no point trying to evaluate the performance of something with an 18-month record. It’s not meaningful. But, if it helps you make a choice, then set up two dummy portfolios on Morningstar’s free portfolio tracker tool. Put the Allan Roth funds in one and the LifeStrategy in the other and smother yourself in data. It really tells you nothing though. Both are perfectly fine choices for a passive portfolio. The Lifestrategy 100% fund is more widely diversified, is much less heavily tilted to domestic equity and includes emerging markets. I’d expect it to perform slightly better than the Roth porfolio because it doesn’t have any bonds. But it will also be slightly more volatile and slightly more expensive to run.

  • 138 john July 28, 2013, 8:10 pm

    If I had to part sell and buy to rebalance and I had no more than 7 – 10k who is the best bet, Charles Stanley or TD?

  • 139 InvestoryRory July 29, 2013, 7:30 am

    @TheAccumulator – Thankyou SO much. Your answer has just given me a little confidence in my portfolio! 🙂 Out of interest, are you a financial advisor (someone I could turn to once my capital has increased, and if so, how can I contact you?)

  • 140 The Investor July 29, 2013, 8:41 am

    @Rory — No regular writer on Monevator is a financial advisor, and our writings should certainly be read with that caveat in mind. 🙂

    Glad you’re finding the information helpful! 🙂

  • 141 InvestoryRory July 29, 2013, 9:24 am

    @TheInvestor – No problem. I do sincerely hope, at some point, you and the Accumulator would allow me to buy you both a beer. Your ‘disclaimed content’ could well end up making me, and many others, millionaires. Wisdom is a rare find on the internet. Thanks doesn’t cut it. But thanks!

  • 142 The Investor July 29, 2013, 9:51 am

    @Rory — Cheers, very generous comments! For the moment we’d just be very pleased if you point out Monevator to anyone who you think might benefit, and perhaps “Like” us on Facebook and flag anything interesting on there. Anything regular readers can do to get the word out is much appreciated.

    If nothing else the informed comments on this site from many of you guys are a goldmine that more people should be reading, too. 🙂

  • 143 InvestoryRory July 29, 2013, 10:01 am

    @TheInvestor – Oh, trust me, I do. Already Liked, and Share frequently. 😉

    So many folks I talk to have spent years putting money into pensions without any idea of how or why their money (under)performs. It’s astounding how little value/interest there is by folks in their 20’s/30’s, when it really could be making a difference to later life.

  • 144 The Accumulator July 29, 2013, 7:18 pm

    @ Rory – thank you for your kind comments and a pleasure to help. Like you, I’m a DIY investor, just a little bit further down the road, I guess. Agree with your comments on the astonishing lack of interest people have in their own futures.

    In a world of specialised labour, we’re taught to put our faith in experts, sadly it doesn’t work when it comes to investing. At least not the experts with the large marketing departments.

  • 145 The Accumulator July 29, 2013, 7:20 pm

    @ John – if you’re in funds then Charles Stanley: http://monevator.com/compare-uk-cheapest-online-brokers/

  • 146 john July 29, 2013, 7:50 pm

    Thanks Acc,

    It’ll be funds, probably a Vanguard LifeStrategy to keep it simple. I’ll start off with a 100%. Investing 125-200 per month or 375-600 per quarter. Stick with it for 10 years or so and then probably buy a 40/60 to go with it to give a 70/30 weighting heading into my state retirement age for the next 10 years. One question, is it 5.1k minimum per fund or per account to get the no platform charge?

  • 147 InvestoryRory July 30, 2013, 8:11 am

    Apologies if this has been said and said again, but my portfolio is c. £10K at present, and I hold 2 funds: 90% Vanguard LifeStrategy 100% Eq and the rest in SLI UK Eq Unconst (which I’m drip-feeding into the former). Earlier this year, I was under the impression that HL were the cheapest platform for my portfolio (£9600, then I am best sticking with HL for now, right? (Just a yes/no would be most appreciated please).

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