9 lazy portfolios for UK investors

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• 1 Dave Richardson October 19, 2010, 11:09 am

  I know what an index fund is. What is an accumulation index fund?
• 2 ermine October 19, 2010, 12:09 pm

  > What is an accumulation index fund?

  From looking at ishares’ range, and from the L&G ETF I used to have which gave the choice of accumulation or income flavours it is one that reinvests dividends, ie doesn’t pay out the dividends, but presumably therefore has higher growth in the share price. There sees to be a trend in this direction which is a bummer for me as I want income
  .-= ermine on: send not to know for whom the bell tolls =-.
• 3 Matt October 19, 2010, 12:17 pm

  My “portfolio” for past 14 months has been
  40 % Investec emerging market debt
  40 % JPM Emerging Markets
  30 % JPM Natural Resources

  nice return so far… I can’t see any point in investing in UK stocks
• 4 The Accumulator October 19, 2010, 1:26 pm

  Ermine is spot on. Although Vanguard make all their funds available in income flavour too. Tends to be a bit more hit and miss with ETFs.
• 5 teamdave October 19, 2010, 3:15 pm

  Hi – great article again. Almost too much to take in. I have been trying to follow a portfolio approach too (but keep having my head turned by the odd individual company). If I could just get rid of the dross I bought in the early days of investing I’d be a lot better off.

  Currently buy on a regular basis:
  INXG- ishares inflation linked uk govt bonds
  IAPD – ishares asia pacific select dividend
  LNFT – Lxyor nifty fifty india etf
  PPIPF – Invesco Perpetual Monthly Income (not cheap charges at all, but you don’t pay trading costs when buying it so kind of evens out – espcially when I only buy small amounts per month)
  IUSA – ishares usa S&P 500 etf
  IFD – UK property trust (again high TER charges but the yield is enormous)
  CHY – City Merchants high yield trust (huge yield and capital gain this year, but probably replicates what PPIPF is doing – however I only found it this year, probably due to seeing it on this site!)

  I wonder whether IUKD (ishares UK dividend plus) would be better than CHY or PPIPF? Lower TER charges but higher trading charges to buy and lower yield by the looks of things too.
  Performance vs charges = tricky.

  Just checked out the Alliance Trust website and their table of charges for investing as they are the only people who let you buy the new Vanguard funds.

  They want £12.50 per transaction (as opposed to most others £10) and a huge £5 per transaction for dividend reinvestment. Don’t think they can be recommended.
• 6 The Accumulator October 19, 2010, 5:41 pm

  @ teamdave – One of way looking at is: performance is temporary, charges are permanent. Having said that, good chance of IUKD getting battered next time there’s a downturn.

  If you want Vanguard then Alliance Trust is the only way to go. The charges can be mitigated e.g. buying accumulation funds to avoid the dividend reinvestment fee. See here for more ways around those fees:
  http://monevator.com/2010/10/12/cheap-vanguard-index-funds/

  @ Matt – whatcha gonna do when emerging markets take a dive?
• 7 Rick October 19, 2010, 9:42 pm

  These are all great British versions of the classic lazy portfolios. I’m a big fan of the Permanent Portfolio as well and this is the first time I’ve seen the British version (it’s originally American). I’m wondering though if these portfolios rely too heavily on British equities. Perhaps a world index with a healthy percentage of British equities to take advantage of the growth in other markets outside the UK? Obviously currency fluctuations could be an issue, but you don’t want to miss out on returns.
  .-= Rick on: The Financial Guide to Retiring Abroad is now on Amazon =-.
• 8 The Investor October 19, 2010, 10:56 pm

  @Rick – I think the preponderance of UK equities is less of a problem than it first appears. More than 70% of FTSE 100 earnings originate from outside the UK. True, you’re still exposed to an extent to the vagaries of domestic politics and investor appetite, but Britain has had stock markets for 300-odd years. 😉

  The UK is arguably one of the best ways to play the oh-so-hot emerging market theme due to all the resource companies in our market, though personally I’d trade a few for the big US branded titans, from Coke to Apple and Caterpillar. The emerging markets are only going to buy more of that good stuff as they move along the income chain. (Part 43432 in my series on why the West is not screwed after all… 😉 ).
• 9 rhinestone October 20, 2010, 7:45 pm

  Another very interesting article – I have the Tim Hale book (but travelling at the moment so not with me) – is the Hale portfolio here directly based on one of the six presented in his book – if so which? or is this a later take on his ideas?

  Interested to see you using IUKD – but this fund seems highly volatile – took a big hit during the recent financial crisis – from memory this was worse than a corresponding FTSE A-S tracker.

  Vanguard also have a UK Equity Income Fund but I’m not clear on what it is tracking and where to get stats on the performance of that index.

  Any practical experiences out there with a portfolio of this type?

  Interested to hear your thoughts on rebalancing – presumably coming along in a later article.

  Thanks

  R
• 10 The Investor October 20, 2010, 11:23 pm

  @rhinestone – I share your concerns about IUKD. It would be fair to say that The Accumulator and I have had some robust discussion about that fund. I don’t personally think it’s a value proxy really, but at 3% it probably doesn’t matter. At 10% it might. It probably does diversify over the cycle though, and if I recall correctly when it was launched iShares had back-tested data available showing it had beaten the FTSE over various periods, for what that’s worth.
• 

  Mogul

  11 The Accumulator October 21, 2010, 6:56 pm

  Here’s some thoughts on high dividend funds versus value funds from the Coffeehouse Investor, Bill Schultheis, designer of portfolio 4:

  “Another strategy investors consider is the purchase of a “high-dividend” paying mutual fund, like the iShares Dow Jones Select Dividend Index Fund, (DVY). Currently this fund yields about 3.5%, or about 1.5% more than the stock market.

  Because of the nature of these funds, they tend to have a “value” tilt, meaning they consist of “value” stocks that traditionally pay out more in dividends than growth stocks. From a total return standpoint of 5 years or longer, does it make sense to own this fund, or are you better off owning a straightforward “value” index fund?

  In my opinion, you are better off tilting your portfolio more toward “value index funds” than “dividend funds”, even though you are likely to have similar returns over time, if only because you will end up owning stocks in the same “value” dimension of the market.”

  http://www.coffeehouseinvestor.com/2010/09/dividend-stocks-or-value-index-funds/

  That’s the perspective from the US, where they have a choice. In the UK you can’t buy an index tracker value fund (other than a Eurozone, large-cap effort from iShares).

  I appreciate that high dividend is not an ideal solution, and may be so far from your ideal that you’d rather steer clear. Nevertheless it is a cousin of value. How distant a cousin? We could argue about that until the UK market finally grants us a proper value fund.

  Rhinestone, the Tim Hale portfolio is based directly on one of his portfolios in Smarter Investing. See p.181 when you get home. The portfolio is as named, no 4 on the risk spectrum.

  Incidentally, Hale also suggests IUKD to cover UK value.
• 12 The Investor October 21, 2010, 9:18 pm

  @Accumulator – Thanks for the extra detail, and I do take your point about the lack of choice in the UK. It is frustrating.

  Nevertheless it is a cousin of value. How distant a cousin? We could argue about that until the UK market finally grants us a proper value fund.

  Okay, in that spirit I’ll add a few more thoughts. 😉

  I’ve just had a look at the top 50 IUKD holdings, and they currently have a very value-ish looking tilt to them. However I can remember the dross it held in 2007 and 2008, which included a bank that went bust, companies on clearly unsustainable dividends, etc. This is why I think it’s more of a cyclical/recovery fund.

  The TER of IUKD is 0.4%, so not bargain basement. Personally, I think there are conservatively managed income investment trusts that some readers might consider as alternatives, that are only a little more expensive on an annual basis, or in a few cases actually cheaper. They overwhelmingly hold value style shares (e.g. check out the holdings of Merchants Trust as one example). There will be a spread to pay, though.

  I held a small amount of IUKD in my HYP going into the bear market. This graph shows the result. Luckily I sold it before the bottom, and it’s not an experience I would repeat again! 😉

  Income investment trusts have been around for 100 years, whereas the IUKD’s particular methodology of selecting and ejecting shares in its quarterly re-balancing is four or five years old.

  Anyway, readers can make up their minds.
• 13 Rhinestone October 24, 2010, 11:40 am

  Interesting commentary on IUKD – I’m not fully convinced bythe fund. I will investigate Investment Trusts further or possibly just replace that 3% by more FTSE UK Equity Index. I’m persuaded by the value argument but short of an active fund or maybe the Investment Trust idea – we don’t have many options in the UK right now.

  Portfolio 4 is the one I’d already selected as fiting my needs so your article is very interesting as I have been reseaching this for a while and most timely as I am on the cusp of starting this portfolio up.

  I’ve already decided on Alliance Trust as my provider – and it looks like most of of your selections are available there apart from CS ETF (CUKS). Are there any other alternatives that you have come across in this sector?

  A closer look at the top 10 holdings for UK Vanguard Equity Income indicates 50% of its holdings in fairly solid blue chip FTSE 100 holdings but overall a bit skewed in some sectors (e.g. Finance) – so that’s probably out.

  Rgds

  R
• 14 The Accumulator December 20, 2010, 4:45 pm

  @ Rhinestone – sorry, only just stumbled upon your last comment. There aren’t any tracker alternatives to CUKS. It’s the only UK small-cap tracker available. It wasn’t long launched when I wrote this piece, though. Perhaps Alliance Trust are listing it now?
• 15 Steve January 12, 2011, 9:09 pm

  Is it possible to point me to where the original US based portfolios can be found? Your descriptions of each one make what I find a daunting subject a lot more understandable.

  I saw that by clicking on the titles I am directed to Amazon but as my funds are in dollars I would be very grateful if you can help me find the original funds used.
• 16 The Investor January 12, 2011, 10:12 pm

  @Steve – Hi there. This here article riffs on one I did earlier, which in turn gleefully acknowledges my debt to the Oblivious Investors’ roundup of passive portfolios for US investors.

  Hope this helps! Please come back soon, even though we speak £££. 😉
• 17 Steve January 12, 2011, 11:18 pm

  Interesting that both the US versions and yours draw heavily from the Vanguard stable. Presumably this is to do with keeping TER levels to a minimum.

  In your experience, how do low expenses compare to other funds that more or less work in the same sectors but outperform them, because of say higher volumes etc.

  On another note, these portfolios are aimed at B&H forever investors. Do so few holdings give a portfolio the ability to keep up with the market.

  Interesting as they are, I am not sure I can sit back and not want to jump in every now and again. Could it be possible to use one of these portfolios for say 80% of your holdings and leave the other 20% for momentum plays, or sector rotation, without upsetting the overall balance?

  And a final question, where there are holdings with large percentages in the portfolio is there any benefit in breaking say 40% down into 20% + 20% and mixing up portions from other portfolios to add to the diversity?

  You see I have been messing around for the last couple of years and always seem to get in at the wrong time and out at the wrong time, losing a couple of rallies along the way. In order for this to work for me I have to have clear targets and strategies about where and why I got in and where I want to go. Also it doesnt help that I have about 100K which is really my emergency stash and with the economy as it is I cant say whether my time frame is 20 years or 20 months.
• 18 The Accumulator January 18, 2011, 9:28 am

  Steve, debate rages on most of your points. You can’t know how things will turn out because we can’t predict the future.

  The founding principles of a passive portfolio is to ‘be the market’. So a portfolio designed for your individual needs and maintained along those lines should have as good a chance of ‘keeping up with the market’ as any strategy. It won’t beat the market, but it should do well enough to see you alright.

  In terms of hiving off a portion to play with on an active basis, it’s not recommended, except as a psychological ploy to keep your base instincts in check. As such, plenty of people do this. The key though is to set a limit: say 10%, and, if you lose it all, not to replenish from your passive pool.

  Diversity is always good, if you are adding genuine diversification in uncorrelated assets. Again, depending on your nature, there’s a trade-off between DIY portfolio simplicity and diversification.

  Not sure why the economy makes any difference to your time-frame? Surely it’s about your goals in life? For an excellent book about passive investing, which includes a great section on devising your own personal targets, see Tim Hale’s Smarter Investing.
• 19 Dave Hawkins January 25, 2011, 8:20 pm

  If you were going to split like, for example, the Allan Roth’s Second Grader Portfolio:
  60% FTSE UK Equity Index
  30% FTSE Dev World ex-UK Equity Index
  10% UK Gov Bond Index

  would it make sense to substitute the 30% Dev World ETF with an equal split of that 30% between individual ETFs for Japan, Asia Pacific exc Japan, America, and Europe? My thinking is that a a Dev World ETF is going to be massively weighted toward America, and the alternative I outlined would give better diversification?
• 

  Mogul

  20 The Accumulator January 26, 2011, 8:01 pm

  Dave, you can do that if it makes you more comfortable. But it could be argued you would then be overweight everywhere but America. A purely passive approach puts its trust in the market and currently the market ranks the US as worth approximately 50% of the entire developed world.
• 21 Stephen March 5, 2011, 7:29 pm

  I must admit to not understanding all the in’s and out’s of Bonds.
  From what I have read, people say it is not a good time to invest in bonds as interest rates are so low?
  What role do Bonds play in the current climate, which ones and what % of the portfolio is suggested to be held in Bonds and why?
• 22 The Investor March 6, 2011, 12:36 pm

  @Stephen – The idea of passive portfolios like these is you don’t try to be clever and time your entry and exit into different asset classes. Instead, you invest across the allocations, then rebalance say every year. Like this you’ll tend over time to buy more of a particular asset when it is cheap and tend to sell it (to rebalance into something else) when it’s more expensive, which smooths your returns.

  The academic theory says: Lots of people bet trillions on trading the direction of government bonds. Why should you or I know better?

  Don’t get me wrong, I personally do think they look expensive and have for two years, and I don’t currently hold any! But that is because I am not a pure passive investor (unlike my co-blogger The Accumulator). And if the stock market fell 25% over the next six months and government bonds rallied – perfectly possible at any time – that’d look as dumb as it’s looked smart more recently.

  Here are a few articles I’ve written that might help you learn more about government bonds:

  http://monevator.com/tag/gilts/
• 23 Huh? May 18, 2011, 11:37 pm

  Hello,
  I am relatively new to investing and decided to opt for a SIPP using a lazy portfolio style. I was hoping you guys could let me know if the following is suitable for someone looking for a say 4 out of 5 risk level?:

  U.K. Government Bond Index – 25%
  FTSE U.K. Equity Index – 20%
  FTSE Developed World ex-U.K. Equity Index – 45%
  Global Small-Cap Index – 5%
  Emerging Markets Stock Index – 5%
• 24 The Investor May 19, 2011, 9:03 am

  Can’t give individual advice, but can say that’s a risky portfolio that could easily lose 30% to 40% or more of it’s value in a year and take years to grind it back.

  I’d be okay with that but in reality most aren’t.

  If there’s wealth such as cash or housing equity elsewhere, that’ll help. If not Consider adding cash or if small a slug of the new NS&I index linked inflation certs as ballast.
• 25 Huh? May 19, 2011, 12:24 pm

  Hi, Thanks for the response. I understand you are not regulated to provide financial advice, but I think I speak for a large number of your readers in saying the information you provide on this blog is worth more than what financial ‘advisors’ would provide.

  /wipes nose
• 26 The Investor May 19, 2011, 5:19 pm

  Thanks for that, good to know we’re hitting the spot.
• 27 Update? May 30, 2011, 2:40 pm

  The Tim Hale portfolio could do with an update to replace the Index linked ETF with the Vanguard fund, and remove the CS ETF, as you mentioned in one of your other articles that it was just an expensive closet FTSE250 tracker.
• 28 The Accumulator June 6, 2011, 10:42 pm

  Thanks for the nudge Mr Update. Have replaced the index-linker with the cheaper Vanguard fund as you suggest. CUKS is less straightforward and I’ve chosen to leave it for now. It is basically a closet FTSE 250 tracker, but it is also slightly more small-cap orientated than the average 250 fund. Moreover there is no tracker alternative unless you choose the new RBS Hoare Govett ETN. I haven’t had a chance to check that out yet and ETNs are riskier to use than ETFs. I don’t feel I can stick an ETN up there without going in-depth into the drawbacks of that particular vehicle. So for now, I have to leave CUKS in, unsatisfactory though it is, on the grounds that it is a smidge more small-cappy than other trackers.
• 29 Henry July 1, 2011, 11:53 am

  I’m stuck between choosing Vanguard’s FTSE Dev World ex-UK Equity Index as a ‘one size fits all’ solution , or investing in several individual regions (U.S. Equity Index, FTSE Developed Europe ex-U.K. Equity Index , Pacific ex-Japan Stock Index , Emerging Markets Stock Index ) to cover global growth.

  Opting for Vanguard’s FTSE Dev World ex-UK Equity means that if stock markets take a dive, I can sell and then later buy at lower trading costs since there is only one fund.

  By choosing a range of funds instead of focusing on just one, if markets take a dive in specific regions, then it allows greater flexibility to buy and sell in specific areas which are underperforming.

  But say for some reason I wanted to sell all existing equities and temporarily move them into bonds, then greater trading fees will occur when selling and then rebuying multiple funds.

  Although I am looking for a lazy portfolio style of Vanguard trackers, I want to be actively monitoring performance on a monthly basis rather than just leave it there for 20 years with no adjustments. But more trades = more fees. More funds = even more fees.

  In terms of past performance, the single global fund has returned lower returns than if one had invested in each region individually.

  ????????
• 30 The Accumulator July 2, 2011, 12:03 pm

  It sounds to me like you should go for the single fund and then you won’t be tempted to chase performance!

  The monthly buying and selling regime you seem to be outlining is a sure-fire way to rack up your costs with little or no certainty that you’ll add any value.

  You don’t have to, and shouldn’t, leave a portfolio without adjusting for 20-years. A disciplined rebalancing regime enables you to respond to the market by buying low and selling high: http://monevator.com/2011/03/29/threshold-rebalancing/
• 31 The Accumulator July 2, 2011, 12:05 pm

  Have now had a chance to look at the RBS small caps ETN: http://monevator.com/2011/06/28/uk-small-cap-index-tracker/
• 32 Henry July 2, 2011, 8:01 pm

  Thanks. But I do actually want to meddle and chase performance! Ive just discovered Vanguard offer their LifeStrategy blended index funds, mixing fixed income securities with 20-100% exposure to equities. Looks pretty cool, and would reduce on trading fees should I want to mix things up.

  https://www.vanguard.co.uk/uk/portal/Funds/funds-and-documents.jsp#
• 33 BlueDenim July 4, 2011, 5:32 pm

  Nice blog there ! Yes, it is nice to see lazy investing coming slowly to UK. It is interesting you mention small-value stuff. Here in UK the awareness is not there so much about this Fama-French stuff.

  But if you want to tilt to small value, there is always Dimensional Funds UK. (DFA UK). But you have to go thru advisor and wrap platform and the charges start to add up. I have posted various threads on this subject on Bogleheads. The cheapest I have found is investorprofile.co.uk (0.5% advisor charges), but even with them, they will ask to choose a wrap platform, say Transact. Transact charge 0.5% maintenance charge. But you can build a slice-n-dice tilted portfolio.

  I have asked Vanguard whether they will offer a small-cap value fund. All they have to do is offer UK small-cap value index, and ex-UK small-cap value index – that way they could compete head on with DFA, but if the demand is not there, they wont.

  Unlike US, I see that in UK most people dont even know much about stock market, let alone lazy investing. Either they are day traders, stock pickers or they just to a wealth manager. I feel it may take a long time for the DIY lazy investing culture to come here.

  Personally I suffer from chronic indecision and I still cannot make up my mind whether to go to advisor+DFA or DIY/Vanguard/AllianceTrust. Not sure yet.

  Nice to see your blog. Hope to see more articles like this.

  I feel in UK you can also go for managed funds which may be able to beat the market consistently : Neil Woodford and Anthony Bolton come to mind. Any thoughts on them ?

  Also, Any thoughts on Stephen Bland’s High Yield Portfolio (Motley Fool UK) ?
• 34 The Accumulator July 10, 2011, 8:16 pm

  Hi Blue Denim, yep UK index investing options are pretty paltry in comparison to the US. Even more so, we lack powerful voices in the industry who can champion the cause – where are the British Bogles or Ferris or Bernsteins? Still, things are slowly getting better, especially since Vanguard turned up. I haven’t seen any evidence that the UK active fund industry is any more benign than the US. I don’t think the existence of a few celebrity fund managers changes anything. High Yield Portfolio not my bag, but The Investor has set up Monevator’s version here: http://monevator.com/2011/05/12/buying-high-yield-portfolio/
• 35 The Investor July 10, 2011, 8:34 pm

  @Accumulator – Perhaps you are the powerful voice the UK is waiting for? Well, okay, a nascent voice with powerful ambitions! 😉

  I seem to remember research showing that on average the UK active fund industry charges higher fees than the US. The theory was, if I remember correctly, that Vanguard and ETFs have had more time to encourage US investors to consider the impact of fees.

  Don’t quote me though, without finding a source first!
• 36 Starter Co. September 27, 2011, 9:55 pm

  Hi guys, recently found this website and i must admit cant thank you enough!

  I stupidly had been using Natwest Stock n Shares isa and happily being charged 4% per monthly investment for the privilege!! (should have learnt from the recent banking revelations that they would be shafting me somehow)

  I have been reading through T Hales book and believe i have come up with a solid investment strategy portfolio that suits my risk level:-

  25% Vanguard UK Inflation Linked Gilt Index fund (VVUILG) 
  20% Vanguard UK Gov Bond Index (VIUKGO)

  20% Vanguard FTSE UK Equity Index (VVUKEQ)
  20% Vanguard FTSE Dev World ex-UK Equity Index  (VVDVWE)
  10% Vanguard Emerging Markets Index  (VIEMKT)

  5% iShares FTSE EPRA/NAREIT Developed Markets Property Yield Fund ETF (IWDP)

  Going for a 45% / 55% split, as i am slightly risk averse, whats people thoughts on the above portfolio, i understand people cannot give advice, but i am learning by myself and am more interested if my understanding is correct.

  I am planning on using the Interactive Investor as my platform, my plan is to keep reading, learning and SAVING until April.

  In April i will have defined my final strategy and then have a reasonable lump sum to invest. I can then make monthly savings and re-balance my portfolio once every 6/12 months.

  Appreciate any help given and thank you again for all the blogs/articles etc – keep up the good work !
• 

  Mogul

  37 The Accumulator September 28, 2011, 7:15 pm

  Hi Starter Co,
  Your portfolio looks fine to me. A fairly moderate split between equities and bonds and biased to the UK but not hugely. You could argue that property is slightly low, and you’re avoiding any tilt to small cap and value presumably because of the risk aversion you mention. As long as this portfolio looks like it can deliver the returns you need over the time horizon you’ve got then you’re on course.
  Only snag is you can’t buy Vanguard funds through Interactive Investor. You’ll need to get ’em through Alliance Trust or choose index funds from a different firm if you want to go with iii. There are trading fees to pay for Vanguard on AT, but you can mitigate the impact by using AT’s monthly trading scheme (£1.50 per trade) or by opting for one of Vanguard’s lifestyle funds.
• 38 Starter Co. September 28, 2011, 8:28 pm

  Thanks for the swift reply

  Yes I was wondering about that, so i decided to setup an account with both AT & iii, this way when I eventually come to my first investment i can decide which way i want to go. (also iii allows me to setup a direct debit to force my savings)

  Could you explain the major differences with Vanguards as apposed to another tracker(why Vanguard is the preferred), is it just the spread the funds contain is the best at truly matching the index? and low fees?

  I am still undecided as to my eventual split as although i am risk averse i do have time on my side so could opt to be slightly more risky and except that over a long period if time it would (should) be fine.
• 39 The Accumulator September 29, 2011, 7:15 am

  Vanguard fees are a little lower over the long-term (several years) if you squash down the trading charges down to about 0.5% or less. Vanguard also have an excellent reputation for safeguarding investor interests which is more than can be said for many financial firms, indeed the company is structured to favour its shareholders. In terms of matching the index, most of the funds are too recent to get a decent fix on that, though low charges should help them do that. Here’s some more on Vanguard: http://monevator.com/2010/10/12/cheap-vanguard-index-funds/
  AT will happily rustle you up a direct debit too.
• 40 saveonarola October 3, 2011, 4:48 pm

  Hi, guys – great website.

  I’m new to passive investing – just planning my first portfolio – and (like Starter Co) I’m looking at the iShares FTSE EPRA/NAREIT Developed Markets Property Yield Fund ETF (IWDP) for a bit of asset class diversification, but I’m hesitating for a few reasons:

  1) Looking at the performance on Trustnet (http://www.trustnet.com/Factsheets/Factsheet.aspx?fundcode=K6F95&univ=E&typeCode=FB4P7&pagetype=performance&unitType=unit#cumu), the GBP version of the ETF diverges wildly from the index. Is this down to the index being in USD and, if so, do I just have to accept the extra currency risk/reward as the price for holding a property tracker, and do you think that the diversification still reduces volatility in this case?

  2) In one of your pieces, you suggest that a bid/offer spread greater than 0.2%/0.3% is a bit luxurious for an ETF. The iShares ETF seems to have a spread of about 0.5%, even though it’s the best-established and largest global property ETF, as far as I can tell.

  3) To my mind, there are two other ‘preferable’ property ETFs. The HSBC FTSE EPRA/NAREIT Developed ETF tracks the same index as the iShares ETF (I think – this stuff is complicated!), for a TER of 0.4%, while Db x-trackers FTSE EPRA/NAREIT Global Real Estate is a genuinely global property ETF, offering exposure to ‘developing’ economies’ property too, for a TER of 0.6%. However, neither is more than six months old, so no track record.

  Considering the dealing charges for ETFs, I’m also wondering whether the costs of diversification might be greater than the benefits, for a drip-feeder like me. Interestingly, Tim Hale says that diversification is primarily for reduction of volatility, not for maximising returns. Would be interested to know what you think of that, as well as the above. Hope you don’t mind the long post and all the questions!
• 41 saveonarola October 3, 2011, 4:55 pm

  Another fund worth mentioning is the new Blackrock Global Property Securities Equity Tracker, which also tracks the FTSE EPRA/NAREIT Developed Index (TER 0.55%). However, I can’t find a platform that offers this as a standalone fund, only as part of a Blackrock fund of funds. Perhaps this will change, but as you have pointed out many times the tracker market has a long way to go…
• 42 Starter Co. October 3, 2011, 8:52 pm

  Thanks for the info saveonrola, like you say the HSCB isn’t that old (which is what initially put me off), but I guess as the I-shares hasn’t tracked the index either so I guess both are as risky as each other!?!

  I recently read an article about the “Great Stagnation” suggesting markets could generally not move for several years. I’m aware that a passive investor should not read/ pay attention to articles of this nature, but I’m just wondering if anyone was considering ‘adapting’ their portfolo to take this into consideration?

  I guess I’m slightly concerned that inflation takes off and markets stagnate I could be left short. Im considering increasing my allocation into inflation linked gilts to cover this off.

  Thoughts?

  (I’m only new to this so this is my basic knowledge)
• 43 The Accumulator October 3, 2011, 10:06 pm

  Hi Saveonarola,

  It’s worth questioning which index Trustnet are comparing the ETF against. Following your link, and clicking through on the chart’s index only reveals that it is the mysterious ‘Gbl ETF Property – International’ index.

  In other words, it doesn’t appear to be the actual index the ETF tracks – the FTSE EPRA/NAREIT Developed Dividend Plus index. If Trustnet aren’t comparing the ETF against the benchmark it professes to track then the comparison is essentially worthless.

  When it comes to the spread, you obviously want it to be as low as possible, but it’s important to compare like with like. If you want to be in developed world property then the only thing that counts is the spreads pertaining to your choice of developed world property ETFs.

  The HSBC ETF looks worth a goosey as it is a third cheaper than the iShares equivalent. However, as you say, it’s got no track record, HSBC aren’t offering any info about assets under management on the factsheet, so it may be one to watch until it’s better established.

  The Db-x effort is a different beast that’ll be attractive if you want emerging market exposure. In all probability it’s a synthetic ETF and that raises other issues, see here for a primer: http://monevator.com/2011/05/17/how-a-synthetic-etf-works/

  You may be right about the cost of ETFs outweighing the gains. It depends on how much you drip-feed and how you do it. You can get dealing charges down to £1.50 a throw. Here’s another piece with a few tips: http://monevator.com/2010/10/05/low-cost-etfs/

  Tim Hale is of course right about diversification. In an ideal world it’s about getting the best return you can for the lowest risk you can accept. If you want to maximise return then you’d go 100% equities but it might make you ill along the way.

  You can get the Blackrock funds through Skandia but the platform charges are expensive.

  @ Starter Co – I guess the best advice is don’t be side-tracked by an article that happens to chime with our current fears. No one knows what will happen next so make sure your portfolio is well diversified and you’ll be as best prepared as you can be. Get inflation linked gilts to protect the bond portion of your portfolio from inflation. Not because of some notion of stagnation. If that article is the same one I read, a great stagnation means low inflation or in Japan’s case deflation. Gilts and cash will be your friend if that’s what’s in store. Let’s hope not.
• 44 saveonarola October 6, 2011, 4:04 pm

  @Accumulator

  Thanks for such a detailed response to my post.

  You’re quite right about the vagueness of the index being used on that Trustnet chart. The iShares website paints a much prettier picture: annualised performance since inception -4.64% against -4.24% for the index (http://uk.ishares.com/en/rc/products/IWDP/performance).

  I was also wrong about the HSBC ETF tracking the same index as the iShares ETF. The HSBC ETF and the Blackrock fund track the Developed Index, while the iShares ETF tracks the Developed Dividend+ Index, the latter being made up of companies and investment trusts with a one-year forecast dividend yield of 2% or greater. This suggests higher volatility with higher potential returns, which is borne out by the comparative performance of the two indexes (see factsheets at http://www.ftse.com/Indices). I’m not sure what to think about that. The whole point of diversification is to reduce volatility; on the other hand, the allocation to property comes out of ‘risky’ rather than defensive assets, so maybe there’s no harm in a bit of extra volatility, as long as you know what you’re getting into.

  (The Db x-trackers ETF tracks another index altogether, for global (that is, including developing markets) coverage. (Why can’t they all just follow the same index? Do they do this on purpose?!?))

  As you say, Skandia can be pricey (presumably because it’s only available through IFAs), but I’ve discovered that the Blackrock property tracker is available through Hargreaves Lansdown (it’s not on the website, perhaps because it’s still new, but I phoned them), so presumably, therefore, from other platforms/brokers too. However, the TER is 0.88%, not 0.55% as I stated (class A as opposed to class D) – still reasonable, but not dirt cheap.

  So…the iShares ETF is big, cheap and has a decent record of tracking its index. But it’s not that simple, of course. Unlike the Db x-trackers ETF and the Blackrock ACC units (but like the HSBC ETF), the iShares ETF distributes dividends, which means you don’t get the compounding benefit, unless you have the dividends reinvested by the broker. With iii, this only costs 1% of the dividend, but with Alliance Trust, which I was looking at for the Vanguard trackers, it costs £5 per transaction, which makes it completely uneconomic for a small investor. (And Alliance also charges £25+VAT for the ISA wrapper, which adds to the pain.) The only option is to save up the dividends and then reinvest them when you rebalance (which I was going to do annually), which means you miss out on part of the compounding effect. Not sure how much that costs (I’m going to try to work it out, when I’m feeling brave!).

  Re: Tim Hale. Funnily enough, I misquoted him. It’s rebalancing (not diversification) that he says is for reducing volatility and not maximising returns. Diversification, he says, is for getting the same returns with reduced volatility, or higher returns with the same volatility (by increasing the allocation to risky assets). I suppose it amounts to the same thing, but this rebalancing question is interesting. I like the simplicity of the Vanguard LifeStrategy funds (fixed proportions of equities and bonds in the same fund, constantly rebalanced), but when I read about them I wondered whether constant rebalancing meant that you’d miss out on returns by constantly clipping the wings of the higher-performing asset. But if rebalancing has nothing to do with returns, only with reduction of volatility, then it doesn’t matter how often you rebalance, as long as you’re comfortable with the level of volatility. I guess the people at Vanguard have figured that out!

  Okay, that’s enough, I think. Sorry to hijack this thread, but having done the research, I thought it would be a shame to keep it to myself.
• 

  Mogul

  45 The Accumulator October 6, 2011, 8:04 pm

  Thanks for sharing saveonarola. That’s quite an essay!
  Re: diversification, adding a volatile asset to your portfolio doesn’t necessarily increase overall volatility. It depends on how it correlates with the other assets in your portfolio.
  Re: dividends, you mentioned earlier you’re a drip-feeder. Why not just drip-feed in a sum of cash equivalent to the dividend distribution on top of your regular amount? Just withdraw the distributed sum as cash and avoid any reinvestment view. Note, this won’t work with Alliance Trust as they charge for sending you a cheque, but shouldn’t be a problem with the likes of iii or TDW.
  Re: rebalancing. I wouldn’t overthink this too much. There’s tons of research and counter-research out there trying to identify the rebalancing sweetspot, but your own results will depend on the behaviour of securities in the future and that no one can predict. The assumption is that rebalancing reduces volatility but doesn’t maximise returns because under normal circumstances you would expect to be rebalancing out of equities and into bonds. Pruning back the over-performing asset and putting the proceeds into a relative dullard. Ultimately, the important thing is to rebalance rather than fretting over the perfect frequency.
• 46 saveonarola October 7, 2011, 12:19 pm

  @Accumulator

  Increasing the drip-fed contribution to ‘replace’ the dividends not being reinvested is a neat solution (and even possible with Alliance Trust, because their £10 cash withdrawal fee doesn’t apply to the withdrawal of dividends). However, I want to be as passive (lazy) as possible, so I don’t really want to be tinkering with the level of payments. In the end, as you say, it’s possible to overthink these things. There’s rarely a single perfect solution, but especially with the UK tracker market being so immature.
• 47 Compounder November 2, 2011, 2:26 pm

  Hello Chaps,

  I am a big fan of Tim Hale. I view my portfolio as a core/periphery configuration. At the core I have my FTSE Allshare / Bond mix. In the periphery I have themed investments, which is mostly high yield (merchants trust, henderson high income, small companies dividend), high yield property (ISIS and Picton), private equity and some high yield bonds for some spice (electra, graphite and invesco leveraged high yield).

  My balance is 50% core to 50% periphery with all the dividends dripping back to core only via a regular investment scheme. Over time I want the periphery to come down to 40%, but my focus is continually drip feeding high income to the core to compound on smooth returns as much as possible.

  For my core I use the Edinburgh UK Tracker Trust (no bond holdings as I am only 32), which will get you all thinking! Low charges and always a discount to NAV, so I buy the index cheaper with a higher yield than it would be through an open-ended fund.

  Cheers and Hail Tim Hale

  C
• 48 The Accumulator November 3, 2011, 9:50 pm

  Interesting thoughts, Compounder. Cheers. Are you not worried about the Edinburgh discount opening up even further and knocking back the value of your holding?
• 49 Compounder November 4, 2011, 2:56 am

  On the contrary, I want the discount to always exist. My investment time horizon is 30 years (I am 32), so I always want to buy the FTSE allshare at below par to increase yield and compound my returns over this extensive time period. The discount also helps to mitigate the 0.5% stamp duty on buying in. Cheers.

  C
• 50 The Investor November 4, 2011, 10:31 am

  Agreed, discounts on investment trusts are great if you’re after income and not intent on selling any decade soon. Even better if you’re getting gearing into the mix, too, though I think that tracker (which is indeed a curious anomaly / relic I’ve long kept an eye on) is ungeared.
• 51 Compounder November 4, 2011, 12:40 pm

  The UK Edinburgh tracker trust doesn’t have gearing – it’s purely a tracker and definitely a viable alternative to the open-ended vehicle. The discount trades within a range, the level of reporting exceeds the trackers (as it is a company), and it is closed-ended, so the holders receive all of the dividends. In Open-ended funds an increase in size of the fund before ex-div dilutes the payout to long term holders.
• 52 The Accumulator November 4, 2011, 7:14 pm

  @ Compounder – yes, I was just wondering what you’d do as the time came to sell up and the discount started to widen. Is the discount range enough to cover the stamp duty and extra cost of the TER versus OEIC alternatives?

  I’ve very interested in your tactics, it’s the first time I’ve heard anyone speak up for the tracker trust.
• 53 Compounder November 4, 2011, 7:23 pm

  The discount historically has always traded within a range, and the Directors are not afraid to buy stock to prevent the discount widening out of range – it is within their policy, I believe. So, if I buy at a discount and sell at the same discount this is no problem, I am still up after 30 years compared to an open-ended fund due to the increased yield.

  If I happen to sell at par to buy an annuity at 60 (during a frothy period), then whippee, this would be an added bonus.

  It is a great vehicle, and a secret I should probably have kept to myself!!! It’s one of those trusts, despite a large market cap, exists in the half-light. I wonder why Aberdeen don’t give it more press 😉

  C
• 54 Compounder November 4, 2011, 7:26 pm

  PS: TER is 0.31% – how is this more expensive than the ETFs and the OEIC’s ? Have you seen cheaper ?
• 55 The Accumulator November 4, 2011, 11:26 pm

  HSBC FTSE All Share Index Fund is at 0.27%, Vanguard FTSE U.K. Equity Index Fund is cheaper still at 0.15% with a 0.5% upfront stamp duty charge.
• 56 Compounder November 5, 2011, 12:10 am

  That’s excellent, thank you very much indeed.
• 57 The Investor November 5, 2011, 10:17 am

  @Compounder — Hah, the tracker isn’t quite such a secret, as I say I’ve seen the discount debated many times before. 🙂 (i.e. A debate about whether the discount is a market anomaly or is it a fair reflection of the risk of … the discount! 😉 )

  There used to be more listed trackers around, but to be honest the discount doesn’t make a lot of sense in the context of a passive vehicle, from a mass-market perspective, even if the likes of us enjoy the idea of getting more income producing units for our money.
• 58 rhinestone December 23, 2011, 5:42 pm

  One year on from starting off my own portfolio (Dec 10) based on the Tim Hale global tilts – I’ve just done my first review and rebalancing of the portfolio.

  Return for year was just under 5.5% – pretty pleased with that given the market gyrations we have seen – outperforming sectors of the year were Govt Bonds at 21.2% and 15% p.a respectively for linked and conventional. Would never had expected that a year ago – and it obviously has propped up the portfolio as a whole. More grist to the mill.

  This website continues to be a fantastic resource for passive investing – keep up the good work.

  PS Thanks for the great rebalancing articles – very useful
• 59 Compounder December 23, 2011, 6:02 pm

  Thanks for the update; very interesting indeed, and I think that the demand for investment grade bonds is going to continue.

  I have just been re-engineering my portfolio to Hale’s 30+ years all seasons portfolio.

  50% LEVEL ONE EQUITY – HSBC FTSE ALLSHARE (thanks guys for letting me know about this one – you’ve saved me on my costs by 12%)

  10% EMERGING MARKETS – ISHARES DOW JONES EMERGING MARKET SELECT DIVIDEND

  10% UK VALUE – (1) ISHARES UK DIV + (2) MERCHANTS TRUST

  10% INTERNATIONAL – (1) DB STOXX GLOBAL SELECT DIV 100 (2) ISHARES EURO STOXX SELECT DIV 30

  10% COMMERCIAL PROPERTY – (1) PICTON PROPERTY INCOME (2) ISIS PROPERTY TRUST

  5% SMALL CAP – SMALL COMPANIES DIVIDEND TRUST

  5% PRIVATE EQUITY – GRAPHITE ENTERPRISE TRUST

  As you will see I have chosen dividend-based trackers for my level 2, taken out commodities in favour of property, and taken 5% off small cap and created a place for private equity (which I don’t think Tim Hale is a fan of, generally).

  Comments welcome.

  C
• 60 Dave M January 10, 2012, 10:19 pm

  Thanks for a great article!

  I’ve been doing some reading around the Permanent portfolio as I’m looking to start using my ISA allowance but the wife is highly risk averse!

  It seems that while the original was in long-term treasury bonds only, our options (VIUKGO, L&G All stocks gilt index) hold gilts of all durations. Does this not dilute the diversification (in the sense that long-term gilts are even more negatively correlated with equities)?

  Is it possible (or advisable) to follow long-term gilts for a small-scale UK investor? Should I just get into the cheapest all-gilt index and not worry about it?

  Thanks 🙂
• 61 The Investor January 11, 2012, 12:41 am

  @Dave — The following article may help you decide: http://monevator.com/2010/12/16/buy-gilts-directl-or-invest-in-a-gilt-fund/
• 62 Ben January 11, 2012, 9:47 am

  I would be very interested to know if anyone here has bought gilts directly with a view to holding them to maturation?

  Strikes me that this is the only way to get the full benefit of their lack of ‘riskiness’ but it is a bit more hassle than just buying a gilt fund

  But the returns seem a little miserly at the moment for that sort of thing, maybe someone did it a while back?

  (I haven’t done it)
• 63 rhinestone January 11, 2012, 8:23 pm

  @Dave

  Vanguard have a long duration gilt fund

  https://www.vanguard.co.uk/uk/portal/Funds/fund-prices.jsp

  https://www.vanguard.co.uk/documents/factsheets/uk_long_duration_gilt_index.pdf
• 64 Dave January 12, 2012, 5:52 pm

  @Investor – thanks for that. After reading the other article and thinking it over, I’ve gone direct for 2049 4.25% gilts.

  I’m going to dip my toe into a permanent-portfolio. I had to take PHAU over PHGP which wasn’t on offer, and I took the HSBC FTSE all-share index over Vanguard (again, not on offer through my ISA provider).

  We’ll see how it goes. The main thing I need to think about is how best to invest from monthly savings without excessive fees, since I’m starting out with nothing (just paid off the mortgage) and have at least £900 a month to put away – to max out the allowance.

  So far I’ve only got as far as buying in quarterly. That way I’ll be paying £20/quarter in trading fees, although that’s still 0.75% to buy in on an ISA-worth of cash, higher than I’d like!
• 65 Compounder January 12, 2012, 9:29 pm

  You can do something about the trading fees. TD Waterhouse and iii allow you to purchase funds for £ 1.50 per month under their regular investment schemes.
• 66 Ben January 13, 2012, 9:29 am

  @Dave

  am i right in thinking the returns from Gilts are tax exempt?
• 67 The Investor January 26, 2012, 11:06 pm

  @Ben — Gilts are Capital Gains tax free, but the coupon is taxable as income.
• 68 Juliet Bravo's Secret Lover January 26, 2012, 11:10 pm

  Hello, are these Vanguard ETFs really an option in the UK or do I just have a bad online broker (selftrade).

  It says ‘no match’ when I put in VVUKEQ for instance.

  If I put in an IShares ETF symbol such as IEEM (for global emerging markets) I get the option to trade.

  It is your website and I do appreciate how much work it must be but for UK readers/savers maybe UK funds would be best? (This is on the assumption that I am not being a moron of course. 🙂 ).

  Thank you for any help in advance.
• 69 BlueDenim January 27, 2012, 6:10 am

  Hi Secret Lover,

  you can go thru both these articles :

  http://monevator.com/2011/10/07/bestinvest-vanguard/
  http://www.fool.co.uk/news/investing/2011/11/09/3-wealth-sapping-myths-about-the-markets-best-buy-.aspx?source=uhpsithla0000002

  Also check out http://www.vanguard.co.uk for Fund offerings.

  You can buy Vanguard funds thru a few platforms such as Alliance Trust, HL, SippDeal, and BestInevst. I use Alliance Trust but not sure if thats the most cost effective. But Monevator’s article above should help you if you havent chosen a platform yet.

  I believe also, that Vanguard makes sense only for people with substantial assets, if you look at the total cost. For people with smalller amounts, I think Monevator had an article on how to build low cost lazy portfolio without Vanguard funds. I canot find the link now.

  I hope I have helped you.

  Frustratingly, I am unable to find the time to sit down and carefully evaluate all the options, costs etc to know which is the best option for me. I wish there was a paid advisor who charges an hourly fee, to whom you can go to, and they will do this exercise for you and help you set up a portfolio. Once the portfolio is set up, I can maintain it annually, I dont need an advisor then. But does such an advisor exist ? Nope. The normal IFAs have no clue about passive investing. The ones that do are DFA advisors and they would like you to marry them and have a “permanent relationship” with them. The costs ? 0.5% “platform fee” per year such as the likes of Transact, at least 1% advisor fee per year, but the advantage is : you can forget about it and focus on other things in life (since time is the most precious commodity for most of us). You will also get a nice small-value-tilt portfolio which currently only DFA offers in the UK. Vanguard doesnt offer value funds whether small or large. Vanguard offers a “dividend fund” – I wonder if it is a proxy for Large Value. Who knows ? I think it makes sense to go the advisor route if you have at least a million to invest, which I am nowhere close to. So I keep going around in circles.

  I am married to my day job (but at least I have a job in this tough market) and keep working on weekends, and really have no time to even think about my investments. I wish Monevator would offer paid hourly advise.

  – Blue
• 70 Ben January 27, 2012, 1:29 pm

  What M should offer is a flat-fee service to set up a long-term portfolio

  1. Send out questionnaire with relevant questions to determine current assets, risk profile, future requirements etc. all the usual stuff

  2. One hour interview on Skype just to go over and check the questionnaire results, maybe fine tune a few things

  3. Deliver report detailing portfolio asset allocation, details of exact products and platforms and how to proceed and a timeline of what to do over the whole lifetime of the portfolio.

  Charge say £500+VAT one off flat-fee

  Pep talks for flagging investors could be provided on as required basis at £50+VAT per hour

  Hell of a business model – as all the hard work is being done anyway
• 

  Mogul

  71 The Accumulator January 27, 2012, 2:11 pm

  @ Juliet Bravo’s Secret Lover – I’m jealous. Or at least I would have been in the 80s. VVUKEQ is available for UK investors, it’s an index fund, not an ETF and it’s not available with Selftrade. Hence the blank. Blue Denim is spot on about your UK options.

  @ Ben – like your business model. We’ll have to have a chat with the FSA sometime.
• 72 Juliet Bravo's Secret Lover January 27, 2012, 7:27 pm

  The Accumulator — thank you!! Juliet isn’t as lovely as she was but she has a lot of cracking stories to tell!!

  Don’t take this as hugely critical please but my input would be that it could be easier to read what is an ETF and what is a fund in this article. You kind of must be expert already to know who Vanguard is and what is an index fund or an ETF just from the letters. Maybe the ETFs could have ETF written by them and index funds (IF) or something like that.

  I found another article on this website that was only ETFs. (The link to the article is http://monevator.com/2009/10/26/lazy-uk-etf-portfolios/)

  Has that one been made redundant or are the choices still adequate. I ask because I can buy all those I think with my broker, as far as I’ve tested. I think they are all ETF funds, are they not?
• 73 The Accumulator January 28, 2012, 11:07 am

  Ah yes, all those tales of Hartley station, it must be like a modern Arabian Nights… Fund names are pythonesque in both length and ridiculousness, I often think there must be a better way. All the ETFs in the article have ETF somewhere in the name though or ETC if it’s an Exchange Traded Commodity fund. The index funds have the words index in the title.

  The other article you mention does have a few investment trusts in the mix, those will have the word trust in the title. The other article is still a reasonable guide, it’s just another way of skinning the cat.
• 74 Juliet Bravo's Secret Lover January 28, 2012, 7:27 pm

  Thanks “The Accumulator” very much appreciated. I will be coming back to this website again!!
• 75 57Andrew February 26, 2012, 7:17 am

  Intersting range of options here but when I look at some of them, for example, Vanguard FTSE Developed World ex UK Equity Index Fund VDWXEIA, I see a minimum investment of GBP100,000. (Source: http://www.bloomberg.com/quote/VDWXEIA:LN ) and that tends to make it challenging! Is this wrong?
• 

  Mogul

  76 The Accumulator February 26, 2012, 7:36 pm

  Hi Andrew, yep, that’s wrong. You can buy a Vanguard fund from a broker – like Alliance Trust – for a minimum investment of around £50. The £100,000 quoted is only if you buy direct from Vanguard.
• 77 Ben February 27, 2012, 4:11 pm

  @andrew – see http://monevator.com/2011/12/13/hargreaves-lansdown-vanguard-funds/
• 78 57andrew February 28, 2012, 2:42 am

  Thanks Accumulator & Ben. My situation is a bit more complicated as I am not UK resident and buying either through a QROPS or simply personally but out of HK. I did have a securities dealing account with a UK bank but they closed it when I went abroad. I’m not sure HL would accept me as a customer. I was hoping I could buy these trackers on an exchange as I have ETFs with no problem.
• 79 john March 31, 2012, 9:03 pm

  I’m assuming there is a minimum amount for these models for them to be cost effective.
  I was contemplating going down the Vanguard LifeStrategy route with an initial 5k and monthly contributions of £100 and lifestyling accordingly (http://monevator.com/2011/10/25/lifestyle-vanguard-lifestrategy-funds/). I was looking at an 80/20 and offsetting with a 40/60 over a 20 yr time period.
  Alternatively I was looking at your slow and steady HSBC & L&G mix via iii with the same amounts.
  Do you think they could be doable with my amounts stated?
• 80 The Accumulator April 1, 2012, 3:17 am

  Hi John, I think the dealing fees or platform charges you’d have to pay on the LifeStrategy funds are a little high for that level of contribution. I’d personally go for the kind of no-fee route (other than TER) suggested by the Slow & Steady portfolio initially. You could always switch later once your pot was bigger. Bear in mind though, the LifeStrategy funds are much easier to manage.
• 81 john April 1, 2012, 4:19 pm

  Does the TER of the HSBC route work out at <.5%?
  I'm assuming the aim is to make the total TER at least <.75%.
  If I was to go down the LifeStrategy route then it sounds like at least 10k across both would make it cost effective at £24 per fund for platform fees via H-L. Maybe a little more would be needed to get nearer to the HSBC option. Wouldn't the monthly contributions be academic?
  Is it correct that there is a selling cost with iii but no selling costs with H-L?
• 82 The Accumulator April 6, 2012, 6:16 pm

  Yep, HSBC TERs for index funds would be sub 0.5%. The aim is to minimise all costs as much as is reasonably practicable without putting yourself off the whole caper.
  iii do not charge to buy or sell HSBC index funds, although this is nothing special, most brokers don’t.
  Your monthly contributions are academic in the sense that you’re not paying dealing costs for any of the funds mentioned, but they’re pertinent in the sense that they reveal how much of a bite the HL costs would take from your whole portfolio.
• 83 john April 7, 2012, 2:40 pm

  The Accy,
  So at least 10k into a Vanguard LifeStrategy at H-L v a range of HSBC/L&G index funds at iii (slow & steady portfolio) comes out as roughly a draw TER wise.
  I guess we are then down to a tracking error shoot-out.
  Do years of holding then become key?
  I’m looking at 15/20 year timespan.
• 84 The Accumulator April 7, 2012, 6:07 pm

  It’s roughly a draw TER-wise except for the HL platform costs which add on a significant extra nibble at 10K. I agree with you about tracking error but the Vanguard funds aren’t old enough to have built up any track record in this respect.
  Over your timespan any cost difference will be compounded, although the impact of the HL platform costs will gradually recede, depending on your ongoing contribution rate.
  You can try feeding it all into the ‘fund cost comparison’ calculator over at Candid Money for a belt and braces approach. It’s probably not worth sweating over at 10K and beyond, especially if you’re drawn to the minimal management approach of the LifeStrategy funds.
• 85 john April 12, 2012, 1:25 pm

  Is there a dividend reinvestment (drip) charge of 1% with iii or can that be avoided with acc index funds?
  Do regular contributions into the index funds attract a charge of £1.50 with iii?
  I will also have to consider the minimal management approach of a LifeStrategy fund v the greater flexibility to rebalance towards more defensive assets with the range of index funds in that slow and passive portfolio too.
• 86 The Accumulator April 13, 2012, 2:24 pm

  Contribs into index funds won’t attract dealing costs i.e. no £1.50 charge or charge to reinvest dividends if you make them part of your regular contribs. But I’d still use acc funds to avoid the faff.
  Good luck with your decision! Let me know which way you decide to go.
• 87 Clive April 20, 2012, 12:03 am

  Your Harry Browne’s long dated treasury choice of VIUKGO is a bit short on maturity/duration. You want the higher volatility of 20 year+ maturity. Undated or long dated (30+ year) gilts held directly would be a more appropriate choice.

  VIUKGO with its 10 to 14 year type maturity would be more appropriate as the combined ‘cash’ and long dated treasury holdings (i.e. 50% weighted).

  Have a look at this example of stocks versus long dated treasury’s

  http://chart.finance.yahoo.com/z?s=VTI&t=5y&q=l&l=off&z=m&c=TLT&a=v&p=s&lang=en-GB&region=GB

  Fixed yield (gilts) and variable yield (stocks) tend to move in opposite directions. You need however long dated gilts for that effect.
• 88 The Accumulator April 20, 2012, 8:56 pm

  Thanks for the comment, Clive. You’re right that portfolio could do with updating. When the piece was originally written there was no UK long dated bond fund available – VIUKGO was the best we could do. Now there is a long-dated fund: Vanguard’s VVUKLD. The average maturity is currently 28 years. I’ll update the main article.
• 89 Clive May 18, 2012, 11:26 am

  Historically there have been periods when treasury yields were being artificially kept low and when inflation had spiked (sizeable negative real yields). A UK Permanent Portfolio comprised of 12.5% LUK2 (2x FT100), 12.5% LBUL (2x gold) and 37.5% in each of INXG (inflation bonds that span a wide range of maturities from short to long dated) and IGLT (conventional bonds that span a wide range of maturities) is potentially a more well rounded overall choice.

  A 2x bull ETF has a daily exposure profile similar to 100% equity and 100% debt (the actual exposure is achieved using derivatives, but the effect is the same). The above combination might therefore be considered as holding exposure to

  25% stocks
  25% gold
  25% debt
  37.5% inflation bonds (gilts)
  37.5% conventional bonds (gilts)

  (yes that does total more than 100% – which is due to multiple dimensional nature of some of the investments) and which is resilient to whatever economic crisis/event it might encounter. Likely it will neither be the best nor the worst – but will middle road reasonable real (after inflation) returns of around 3% to 5% relatively consistently.
• 90 The Accumulator May 19, 2012, 6:28 pm

  Hi Clive, when you say ‘debt’, what do you mean? In what way does your debt component differ from gilts?

  Also, I think leveraged ETFs are the preserve of highly sophisticated investors who have done their research and understand multi-dimensional portfolios that add up to more than 100%.

  For all the difference it makes, I think most investors who want a permanent portfolio would be better off investing in straightforward products that will do much the same job.
• 91 Clive May 26, 2012, 4:10 pm

  Hi Accumulator.

  A 2x bull ETF has a daily exposure profile similar to 100% equity and 100% debt (the actual exposure is achieved using derivatives, but the effect is the same). Leveraged funds can be used to good effect when, as an example, a 2x leveraged fund is allocated half the amount (weighting) that would otherwise have been allocated to the non leveraged underlying investment.

  The ‘debt’ to which I refer is therefore indirect (via the ETF). In periods when inflation is higher than treasury yields then debt is eroded by inflation (being in debt is beneficial).

  I haven’t got the the exact details to hand, but between the mid 1930’s and early 1950’s the Fed kept yields low (less than 2% if I recall correctly), simply by releasing news that they would buy treasury’s to maintain low yields (they didn’t have to buy much as the market simply reacted to adjust prices to sub 2% yield levels). In a couple of those years (1946/1947 ?) inflation was something like 18% one year, and 9% the next, whilst treasury (cash) investors were receiving less than 1% yield. In those two years alone, investors lost a third of their money in real (after inflation) terms. Owning stocks and bonds didn’t help in those years either, nor did precious metals (all lost our quite heavily to inflation).

  Holding some debt (owing money) and/or inflation bonds would obviously reduce the impact of such low yield and high inflation periods.

  There are other examples such as in or around the 1919’s I think it was. With current treasury yields being artificially suppressed, perhaps the risk of yet another repeat of low yields, high inflation is likely to occur sooner rather than later.

  In most cases the straightforward PP is OK, during periods as I’ve outlined above however even that suffers/performs relatively poorly in real (after inflation) terms. The adjustments I’ve suggested IMO provide a more rounded overall PP.
• 92 Clive May 26, 2012, 4:14 pm

  Sorry : “all lost our quite heavily to inflation” should have read “all lost OUT quite heavily to inflation”
• 93 Clive May 26, 2012, 4:33 pm

  There are other benefits to holding half in 2x half in cash rather than 100% in 1x (non leveraged).

  Initially you start with 50-50 of 2x and cash. If that day stocks decline in price then the 2x stock ETF will become a smaller proportion the subsequent day i.e. you might be holding 48-52 2x/cash weightings.

  If that repeats over a period of time you might see the ratio decline down to 32-68 levels …etc.

  The opposite holds in the upward direction. You might start with 50-50 2x/cash and after a period of up days you might be holding 60-40 2x/cash.

  If you just rebalance once each year (back to 50-50 2x/cash levels), then in up years the 50-50 2x/cash might have risen more than 100% in the 1x. In a down year the 50-50 2x/cash might have lost less than the 100% in 1x. Larger up’s, smaller down’s potentially.

  If you rank stocks, silver, long dated T, cash from best to worse each year, and then average all of those yearly values (average of all rank 1’s, average of all rank 2’s …etc) then since the mid 1920’s its something like the best averaged 24% (I’m using real values here), the next best averaged 6%, the next best -1% and the worst averaged -11%. Holding 25% in all four (on the basis that you can’t predict which would be the best (worse) each year), averaged 4.5%. i.e. simply holding all four of those assets typically generated around a 4.5% real gain.

  If you marginally uplift the best, reduced the loss from the worst by having used 50-50 2x/cash, then the figures might be (wild guess) 26%, 7%, 0% -9%, which has an overall average of 6%.

  That’s a reasonable uplift in real gain, for just rebalancing once each year back to 25% equal allocations of stocks, LTT, STT, gold (but using 2x funds i.e. 12.5% 2x stocks, 12.5% 2x gold, 12.5% 2x LTT and the rest in STT).
• 94 Clive May 26, 2012, 4:36 pm

  I’ve an image showing the best/worse and rank2/rank3 yearly real gains since 1926 here -> http://www.jfholdings.pwp.blueyonder.co.uk/bestworse.gif
• 95 Clive May 26, 2012, 4:38 pm

  I should have said that the colour coding used in that image/table is red for stocks, blue for long dated treasury, green for short dated treasury and grey for silver.
• 96 The Accumulator May 28, 2012, 9:57 pm

  @ Clive – thanks a lot for taking the time to explain your strategy more fully. Do you have any links to resources for readers interesting in learning more?

  As I understand leveraged ETFs, the daily reset means they do not behave as simple machines that double your gain or loss. You also get a compounding effect that can cause major deviations in behaviour. There’s more here: http://www.hbpetfs.com/pdf/20090908_dh.pdf
  Though the hope would be that the strategy would return more than the performance of 100% unleveraged fund, it could easily fall short.

  The years you cite are post World War years and I think all investors should understand that there will be periods when there’s little you can do but tough it out.
• 97 Clive May 29, 2012, 11:48 pm

  2x leveraged ETF’s aren’t generally designed to provide double the gain (loss) other than for a single day. Over more than one day they’ll just generally double the volatility (not the gain). That said there will be periods when they are at 2x the underlying gain (loss) – as you say that’s down to the compounding effect.

  Look at it from the other way around and hold half in the 2x (and deposit half in cash) and that will generally replicate 100% in the 1x (non leveraged) reasonably well.

  Go to ETFReplay.com and select the backtesting, ETF option (free) and plug in 50% SSO (2x S&P500 ETF), 50% SHY (as cash) and use the S&P500 (SPY) as the comparison. Select any year (the free version is fixed at buy-and-hold) and generally you’ll see how the two compare reasonably well. Only compare a year at a time as over multiple years they will start to drift i.e. you do periodically need to rebalance SSO and SHY back to equal 50-50 weightings.

  Over-simplifying, but imagine you deposit $100,000 with a 2x long ETF fund manager. He then borrows another $100,000 and invests the combined $200,000 in the underlying asset (S&P500 perhaps for a 2x S&P5000 fund). That $100,000 you invested might only be half your investment amount so you might also have $100,000 in cash. If what the fund manager pays to borrow that $100,000 is less than the gain the $100,000 that you hold in cash earns, then overall you make more than having invested all $200,000 in the S&P500. If the fund managers cost to borrow is greater than what your $100,000 cash earns, then overall you’ll make less than having invested $200,000 in the S&P500.

  Generally the cost to borrow is around LIBOR+0.9% which on average is much the same as the 18 month treasury yield. If you’re continually holding such a 2x position and have the cash invested in perhaps a 5 year treasury ladder (that averages the 5 year treasury yield), then more often that will reward more (on average) than 18 month treasury’s (cost of borrowing).

  Whilst 2x funds might have higher costs, if you’re only investing half as much in that as you would a 1x, then that higher cost is immediately halved. If the cash you hold that would otherwise have been invested in the 1x earns >18 month treasury yields then you also get the benefit of that spread, which could reduce or even reverse the ‘cost’ of the ETF. And should the underlying asset crash more than 50%, then you’re maximum loss is limited to <50% in any one year (assuming you rebalance just once each year).
• 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).
• 148 The Accumulator July 31, 2013, 10:25 pm

  Yep, right now, you’re paying HL £24. You can’t do better. However, HL will change their pricing structure in line with the recent ruling on how platforms disclose costs. The cost of your second fund is likely to fall but you’ll get charged a platform fee for it. They have until 2016 to do this, but may well move earlier. There’s no point you doing anything until you know how competitive HL will be. Early indications are that HL will go for a percentage fee rather than their current flat rate.
• 149 Bluejeansman August 3, 2013, 2:12 am

  Thanks for another great article. Lazy portfolios are great, comprising of index funds /ETFs spanning various asset classes. if you are based in / decide to stay permanently in the US or in the UK, this is probably one of the best ways to invest. Rebalance once a year and just forget about it, while the money does the hard work for you.

  However, some of us like me are global nomads, I lived in the US for many years with money still there and now been in the UK for many years. I may go to India permanently or come back to UK. i dont have a personal life and dont know what the future holds. Right now I feel like going back to India but I truly dont know the future. I have a crazy idea of going back to US to university in my fifties, i.e a decade or so from now.

  mutual funds / ETF are a bad idea for people like me, because countries dont like other countries mutual funds, tax treatments are draconian, and countries also occasionally dont like other countries’ tax shelters like ISA etc. Many people ate unaware of this, but once they have global careers, they will realize this torture. You can tell the tax treaty guys in government departments are awesome, very hard at work ! truly very nice guys.

  two knowledgeable posters on bogleheads suggested “index sythesis” to me, i.e replicate the performance of an index by a handful of stocks from the index. So, for S&P 500, you dont need 500 stocks, but maybe 40 or 50. I thought Monevator might have articles on this topic for the less fortunate who have to relinquish index funds.
• 150 emanon August 12, 2013, 6:54 pm

  What are the differences between how these two funds work?

  Government bonds (Gilts)
  [Vanguard UK Government Bond Index]

  Government bonds (Index-linked)
  [Vanguard UK Inflation-Linked Gilt Index]

  presumably the inflation linked gilt is your best bet as the standard one could technically be de-valuing your money i.e the real rate of inflation is higher than what they bond yields?

  My portfolio is almost ready, i have a fund which is a collection of passive funds aggregated together (7IM) and is classed as ‘adventurous’ which suits my objectives (long time horizon, young age) but i do want to subsidise it with other asset classes – property 10%, cash 10% and bonds 15% so i wanted to get an idea of the difference with these two….
• 151 The Accumulator August 13, 2013, 8:49 pm

  @ Bluejeansman – sorry, that one’s a bit outside my area. I guess tracking error could be significant using 50 stocks to track 500. Still, plenty of investors manage portfolios of this size or less. Take a look at The Investor’s High-Yield Portfolio articles.

  @ Emanon – The main difference is that nominal gilts will do best when inflation is lower than market expectations. Index-linked gilts will perform best when inflation exceeds market expectations.

  If inflation remained unchanged then you’d expect the nominal gilts and index-linked gilts to yield the same.

  So either you take a view on what inflation will do, or consider whether you are more vulnerable to inflation or deflation, or do what many people do and split your bond allocation 50:50.
• 152 Bluejeansman August 14, 2013, 2:23 pm

  Accumulator : Thanks ! Just looked up Movenator HYP. Need to go thru the articles. Is this similar to the Motley Fool’s HYP concept ? I do remember it got slaughtered badly in 2008 crisis. With index funds like total stock market index fund, I dont worry about market crashes at all, I would just buy more of the fund. But with individual stocks, I always have this fear that it can all go poof ! Been there, done that : My tech stocks portfolio from the late nineties simply vanished into thin air: Exodus Communications, JDS Uniphase, PMC Sierra, Sun Microsystems, all gone to dust after I bought them at the peak in 99/2000. Even Stalwarts like Cisco, Intel, Microsoft, Oracle are a fraction of what they used to trade at when I bought them.

  I guess I really need to study this more if I want to go down this route.

  Cheers
• 153 martibab September 6, 2013, 4:21 pm

  This is a really terrific resource for those considering this approach to investing. One question I have is on the spread or diversification you would recommend within a particular asset class. For example, I am particularly interested in ethical/SRI index trackers in the equity class and I note that both L & G and Vanguard have appropriate funds. Would you think that just one of these funds would be adequate in a passive portfolio, or would you recommend several different funds?
• 154 emanon September 19, 2013, 2:21 pm

  what are the differences in the naming conventions of the funds.

  i.e.

  Blackrock AM emerging markets equity tracker D ACC
  Blackrock AM emerging markets equity tracker A ACC

  Blackrock FM emerging markets equity tracker A ACC
  Blackrock FM emerging markets equity tracker D ACC

  i understand that acc means interest is re-invested in order to aid the compound effect but everything else seems inappropriate and confusing
• 155 roconnor September 27, 2013, 2:35 pm

  Can anyone explain why in David Swensens’s Ivy League Portfolio the bond allocation has been split ?
  15% Vanguard UK Government Bond Index Fund
  15% Vanguard UK Inflation Linked Gilt Index Fund
  Would it not have been easier to put the whole of the bond allocation in the Inflation linked product ?
• 156 TimA November 5, 2013, 1:34 am

  Tim Hale Smarter Investing 3rd Edition just came out.

  Sell Gold and Fish futures! Buy cheap Korean whisky and a small Brazilian G-String and go live in a cave in Thailand…

  Compared to 2nd Edition of the book, the 3rd edition has “suggested” portfolio on page 142 “Global Style Tilts”
  o- EM is now split 2/3 EM, 1/3 EM small+value.
  o- Commodities (synthetic futures commodity ETFs) are relegated to an “off-menu-asset” watch list due to synthetic worries!

  Tsk!

  Actually these are worthwhile changes IMO. The 4th Edition will have 2% “frontier markets” for (the lack of) correlation. And why not if the trackers can do it!

  Great book, highly recommended. Worth an update.
• 157 rhinestone November 6, 2013, 2:15 pm

  Other points from the 3rd edition Hale on global tilts:

  – suggested funds / funds for consideration are included for the first time IIRC
  – bond allocations on global tilts are moving toward shorter duration funds – there are not too many candidates in some areas… with active fund suggested for one
  – bond allocations on global tilts are also factoring global as well as UK bonds in terms of asset allocation

  Plenty of scope for Monevator article – indeed I would welcome your thoughts here!

  Also the view on commodities was that they were a good diversifier in theory but in practice the funds available do not meet the mark (e.g. counter party risk) – so hence dropped from AA for the moment but on watchlist for future as new funds become available.
• 158 The Accumulator November 8, 2013, 6:58 pm

  Thanks Rhinestone. Will buy the third edition as soon as I’ve got some spare time to read it.

  What’s the argument for investing in global bonds now, whereas in the past Hale argued the currency risk wasn’t worth the volatility in the bond allocation?

  Is he persuaded by the increased diversification, especially in a low interest rate world.

  Hale and Swedroe were the only two passive investing gurus arguing in favour of commodities and even Hale was ambivalent in the 2nd edition. Bernstein and Ferri are steadfastly against commodities.

  Swedroe’s argument for commodities applies to very specific circumstances and funds (one of the two he recommends is DFA while the other is an active Pimco fund). As such he doesn’t make a strong case that’s easily replicable by UK DIY investors.
• 159 Rhinestone November 9, 2013, 5:18 pm

  @accumulator

  The global bonds are an option for diversification, but his view is they should short dated and hedged back to GBP sterling by the fund manager (whether conventional bonds or index linked).

  Short dated uk corporate bonds are mentioned as an alternative / complementary asset with short dated uk govt gilts for uk bond exposure.
• 160 The Accumulator November 10, 2013, 10:49 am

  Thanks, Rhinestone. Have downloaded the Kindle edition and am devoting most of the weekend to reading it. Your comment made me think, “Hey, no time like the present!”
• 161 Neil November 11, 2013, 4:43 pm

  I found the new portfolio structure not as well laid out as the previous, came away still not clear on the structure. Will await for a monevator-over to see how it could look! One thing I’d like to see in the portfolio samples, is a version just with ETF’s and a version just with funds. Sometimes due to broker costs people will prefer one over the other.

  Great work, thanks!:)
• 162 roconnor November 14, 2013, 8:08 pm

  I’m interested in following this type of investing,however back in 2009 before I knew about passive investing, my IFA invested my reasonably large amount of savings in three managed funds.
  I would now like to unwind this situation and invest them in a portfolio of passive funds as per this article.
  I’d be interested to know whether there are any does/don’ts relating to ‘being out of the market’ ? i.e. should I withdraw the money gradually over several years and reinvest it or just bite the bullet and be done with it?
  My main concern is being out of the market for too long in case it encounters wild fluctuations during the transition from one product to another.
• 163 The Accumulator November 15, 2013, 8:24 am

  Hi roconnor,

  Here are a couple of pieces that might help with your conundrum:

  http://monevator.com/switch-to-cheaper-index-funds/

  http://monevator.com/what-are-the-risks-of-being-out-of-the-market/
• 164 roconnor November 15, 2013, 11:36 am

  Hi Accumulator.
  Thanks so much for highlighting these articles.
• 165 seville July 18, 2014, 12:11 pm

  Hi there, I’m confused at to which fund I should buy

  During university I had an HSBC FTSE All-Share tracker (with the minimum £50 per month going into it) and it worked out really well – I had a few extra quid once I sold it (to pay for the job search etc.)

  Now I’m looking to start it up again but can’t decide which is best – the HSBC one or the Vanguard (FTSE All-Share) one?

  I’m confused about the following topics;
  – Turnover rate (is it higher or lower for HSBC or Vanguard?)
  – OCF (again which is better?)
  – Tracking error
  – Trading fees (if I pay in £200 p/month is this counted as “trading”?)

  Despite its low TER, it seems the Vanguard one has a lot of extra costs related to it including buying through a platform (last time I bought form HSBC I just went into the branch and filled out a form).

  I just want something simple but reliable to put away about £200 per month for the time being? Which is the best option for me do you think? Thanks
• 166 The Accumulator July 18, 2014, 6:08 pm

  @ Seville

  I think I’m right in saying that HSBC’s direct service now charges platform fees, so that’s a wash these days. If you buy or sell and investment then that counts as trading fees. Some brokers won’t charge trading fees: http://monevator.com/compare-uk-cheapest-online-brokers/

  I use Vanguard funds over HSBC but that doesn’t make them right for you. Here’s some more info on the topics you mentioned:

  http://monevator.com/turnover-trackers/
  http://monevator.com/the-ongoing-charge/
  http://monevator.com/tracking-error—a-hidden-cost/
  http://monevator.com/how-to-choose-the-best-index-trackers-costs/
• 167 David August 25, 2014, 1:02 am

  Thanks for the article. I too was looking into ethical/Socially Responsible Investing and found to my surprise that the Vanguard SRI includes British American Tobacco shares! What do you think about that?
• 168 mike October 9, 2014, 5:39 pm

  I notice that all the portfolios are all UK focused. Why is this? Would it better to have a split between UK and US Equity as your core investment, and the same for UK and US Bonds?
• 169 The Investor October 9, 2014, 7:11 pm

  @mike — They are not all UK focused. Domestic equities range from 10% to an outlier at 60%. Most are in the 20-30% range.

  If you add in UK bonds they may look more domestically-focused. This is because bonds are there to add ballast to your returns and to protect you if/when equities fall, rather than deliver a big return. They are the so-called ‘risk free’ asset.

  Buying overseas bonds and equities exposes you to currency risk. In the case of equities this is usually considered a worthwhile trade-off, and even a source of return and diversification over the long-term. But considering government bonds are there to reduce risk, it’s debatable whether adding currency risk to your government bond holdings is a good idea.

  Hence the focus on UK government bonds.

  The best reason to diversify government bonds is if you don’t near-100% trust your government to repay them. I don’t think that’s a credible worry in the UK. But some of the portfolios do include global bonds if you fancy them.
• 170 MedicineMan October 28, 2014, 2:15 pm

  Hi, having read Tim Hale’s book, he emphasises the importance of reflecting the world market and not playing it safe with currency by increasing your UK holdings – bonds are your safety net. Yet he seems to have a disproportionate amount in his portfolio in the UK. Any thoughts?
• 171 The Investor October 28, 2014, 3:31 pm

  @MM — Yes, as I just discussed above! 🙂
• 172 MedicineMan October 28, 2014, 3:34 pm

  Yup, I see your comments but they seem to address UK vs overseas ownership of bonds, not shares. Why does Tim Hale advocate reflecting the world market with your share spread but then seemingly not do so with his model portoflio?
• 173 The Accumulator October 28, 2014, 7:29 pm

  Only Tim Hale will know but it seems to me that most people find it very difficult to avoid home bias. There’s something incredibly comfortable about investing a good dollop of assets in your own turf. The other reason to do it is that you’re getting on in life – you don’t want the volatility of currency risk hitting your portfolio as you’re about to draw down on it.
• 174 ric June 2, 2015, 5:55 pm

  hi, can you please tell me the ticker symbols for items in number 5. Harry Browne’s Permanent Portfolio? thanks.
• 175 AtlanticSpan August 24, 2015, 12:11 pm

  In light of the current turmoil in the markets,I thought it best to dig out this article to reassure myself that I have a plan and that I should stick with it.
  gulp !!
• 176 The Investor August 24, 2015, 1:38 pm

  @AtlanticSpan — Yep, plans are for when markets go down as well as they go up. The time to change them is on boring Sunday afternoons when one almost forgets the market exists it’s been so dull for months, and a person finds themselves wondering if their risk profile has or should change. Not on days the market falls 5% and they suddenly discover fear.

  (I am saying “one” etc because as you will understand we can’t give anyone specific financial advice 🙂 ).
• 177 AtlanticSpan August 24, 2015, 2:05 pm

  Yes, I agree. I’ve only been investing for five years,and this is my first ‘trial by fire’. As much as I’m tempted to read the Morningstar,City AM and Motley Fool websites,I think i’ll attempt to read A Tale Of Two Cities (again) or force myself to start that 3000 pc Jigsaw that has been under the bed in the spare room since the Christmas before last !! I’ll await your updates.
  Thanks for your reply.
• 178 RaviC October 14, 2015, 4:28 pm

  Must be time for an update to this page. There are some really low low cost funds / ETFs out there
• 179 Mark Senior November 5, 2015, 5:53 pm

  It would be marvellous to see a 2015 update of this article, many changes in ETF and Index land since first written.
• 180 Jon S December 6, 2015, 3:08 am

  Is there any long term (20+ years ) data about the different allocations. I suspect the 50:50 bonds:equities will be ok for most of us real people.

  I look at the Trustnet page and think why didn’t I make 30% this year like that obscure fund made, then I remember the two rules:

  1. If you can’t manage a 50% loss in value, don’t invest.

  2. When it’s your money at risk trust no one but yourself.

  DYOR
• 181 The Accumulator December 6, 2015, 12:53 pm

  Hi Jon, Not that I’ve seen in the UK (though there’s tons of this stuff for the US). For the UK, you can DIY it using the stats here:

  http://monevator.com/uk-historical-asset-class-returns/

  Or see page 59 of this report for long-term returns on a globally diversified portfolio:

  https://publications.credit-suisse.com/tasks/render/file/?fileID=AE924F44-E396-A4E5-11E63B09CFE37CCB

  The third rule is that there’s always an asset class / fund that’s doing better than yours. The problem is, it’s rarely the same one:

  http://monevator.monevator.netdna-cdn.com/wp-content/uploads/2015/03/UK-Asset-Returns-Table.jpg

  http://monevator.com/15-year-table-of-uk-asset-class-returns/
• 182 MS March 22, 2016, 2:07 pm

  Hi all,

  I’ve been following this discussion with great interest. I’d be curious to have your opinion on the following ETFs considering the current markets conditions:

  GBDV
  XGSD
  VHYL
  USDV
  IDVY
  SGLD

  Many thanks!
  SLXX
• 183 MS March 22, 2016, 2:10 pm

  Sorry, the ticker SLXX ended up at the bottom of my message and looks like a signature rather than an ETF. SLXX = iShares Core £ Corporate Bond UCITS ETF.

  Thanks!
• 184 Bellabeck August 20, 2016, 3:37 pm

  Dear Monevator, Any chance you could do an update for us of your version of Tim Hale’s Global Style Tilts 4 Portfolio? Only the landscape has changed so much in the last couple of years and it would be great to read your ideas for a few ‘smart beta’ funds in there? My wish would be for some one to put together a model portfolio that took passive investing as its core and then added some Investment Trusts and/or alternatives (perhaps as themed ETFs) as satellites. I have started to do this for myself but it would be so helpful to see a model portfolio with today’s options and also current investment conditions taken into account i the ’tilts’. Please.
• 185 Hamish SH August 27, 2016, 2:45 pm

  I have a real sympathy for passive investing and portfolio allocation through ETFs but I wonder if it works with Bonds. My query is as follows. With falling yields and rising prices Gilts have been great. But how will a gilt ETF respond to falling gilt prices? If you hold the underlying asset then you lock into a tiny return to maturity but if the wheels fall off and gilts fall you can hold the asset to maturity and live with your tiny return. In the meantime if governments continue to buy gilts and push up prices you make a capital gain. However Gilt ETFs do not have a maturity so the only way for prices to adjust is through a fall in the value of the ETF – you do not have the option of holding to maturity. Surely that makes Gilt ETFs much more risky than buying gilts? I understand that they are buying the underlying assets, but unless the Fund is wound up and the assets distributed to shareholders who each wait for the redemption of the underlying asset which is not going to happen the only way that prices can adjust is through the quoted value of the ETF falling. Not a problem with shares which do not have a redemption date but with Bonds it seems to be a different ball game?
• 

  Mogul

  186 The Accumulator August 28, 2016, 8:46 pm

  Hi Hamish, with an individual bond, the price rises and falls in response to changing interest rates, regardless of whether you sell or not. In other words, if you buy a bond for £100 and the price falls to £90 then your investment has still made a capital loss of £10. If you need to cash in at that point then you realise the capital loss. If you can hold to maturity then ultimately the price of the bond will recover to its par value and you will make a nominal return. Either way, the capital loss exists until the bond price recovers.

  Same with a bond ETF. Its price reflects capital gains and losses along the way, but it’s all on paper until you sell. Moreover, if interest rates rise, your bond fund will buy new bonds bringing in higher levels of income which offset capital losses over time. If you hold a bond fund for its duration then you won’t make a capital loss. There’s a great post here on the subject: http://canadiancouchpotato.com/2011/07/07/holding-your-bond-fund-for-the-duration/
• 187 Laurence September 26, 2016, 3:15 pm

  Hi Accumulator
  Many thanks for this excellent resource. I have a query regarding the fixed income part of your model portfolio’s. By common consensus we are experiencing an asset bubble with gilts due to successive quantities easing programmes plus the Brexit effect. Also company bond fund (passive or managed) values are similarly inflated by investors seeking a decent return in the current low interest environment. Do you stick with advocating the use of sterling government bond allocations (whether it is Vanguard index linked or Legal & General All Share Gilt trackers) for passive investors taking the plunge now? I also saw a comment on this site that Tim Hale is currently advocating the use of managed bond funds but have been unable to find any further reference. I would be interested to see any substantive information regarding this. Thanks in advance and please keep up the good work.
  Best regards.
• 188 taccumulator September 26, 2016, 5:56 pm

  I understand your reluctance but if you’re not ready for the wild ride that is 100% equities then options are few and far between. Choices are:

  1. Use cash. Many investors are doing this and I do it myself. The expected 10-year return of bonds is their current yield. You can do better than that by putting money in current accounts – but obviously there’s a limit. Moreover, cash won’t appreciate like gilts in a recession so you lose the all important zig-zag buffer effect.

  2. Use a short-term gilt bond fund. SPDR and iShares have 0-5 year gilt funds. They are much less volatile than intermediate funds. You’ll give up some yield but not a huge amount.

  3. Use a Sterling hedged international bond fund. Vanguard do a nice line. A high-quality international bond fund doesn’t seem likely to make much difference though – given everyone’s printing money. Hedging can also add expense and won’t be 100% accurate.

  From memory, Tim Hale (3rd edition) talked about using a managed index-linked bond fund as there wasn’t a passive alternative. He wasn’t talking about managed bond funds as a solution to the QE quandary. Personally, I’ve nothing against using an active fund if the costs are circa tracker levels and if it can be relied upon to stick to the plan.

  Index-linked fund durations are now huge which makes them very volatile. If inflation runs wild, they are still the right place to be but I’d probably lower my allocation here and think more in terms of short-term gilt funds which will also do a job in an inflationary scenario as they’ll quickly recycle the proceeds of maturing gilts into new bonds with higher yields.

  Sorry, there aren’t any great answers to be had on this one.
• 189 laurence September 27, 2016, 10:49 pm

  Hi Accumulator
  Many thanks for your prompt and detailed reply. It is much appreciated.
  Out of the options listed the SPDR and iShares short-term gilt bond funds sounds like the most favourable. As they are ETF’s drip feeding is not an option but I will check if they have an accumulation option and if so will stick in a modest lump sum within this years ISA allowance. Take it easy.
• 190 subbuteo January 18, 2017, 1:53 pm

  Why not just have it all in a Vanguard LifeStrategy fund? The bulk of my investments is in this- I’ve followed the advice and kept it simple. Isn’t a basket of funds like these just replicating what Vanguard is already doing?

  I hold 100% and 80% LifeStrategy funds at the moment- do I need more? Am I being too lazy?
• 191 The Investor January 18, 2017, 2:09 pm

  @subbuteo — LifeStrategy is an excellent product and we’ve suggested it many times. (We were probably the first place in the UK to really highlight LifeStrategy at all).

  However — and this is NOT at all aimed at you personally — I am getting a bit fed up with people just saying “why not all LifeStrategy!” anytime they read about anything else on the site. Perhaps we need to do a post about why.

  For one thing it’d be pretty boring website if that was all we wrote about. 😉

  Ironically Monevator gets accused of being a front for Vanguard quite often as it is! (In reality they’ve never even booked an advert with us. 🙁 )

  Good luck with your investing!
• 192 The Accumulator January 18, 2017, 7:48 pm

  @ Subbuteo – Just investing in LifeStrategy is absolutely fine. That’s what it’s for. There’s no need to do anything else or castigate yourself for being lazy. Investing on auto-pilot comes highly recommended for most people – especially if you aren’t really interested in investing.

  Why might you do anything else? Well, you might decide that LifeStrategy’s particular asset allocation isn’t for you. Personally, I want more exposure to the emerging markets and less to the UK. But, this is fiddling around the edges. My outcome may be better or worse than LifeStrategy – nobody can know in advance. LifeStrategy’s allocation is very sensible, I just happen to enjoy investing enough to want to go that bit deeper.
• 193 subbuteo January 19, 2017, 1:06 am

  Thanks for the comments.

  @theinvestor a post on the benefits of investments other than LifeStrategy would be very welcome. I fairly sure your article was instrumental in my moving towards investing with Vanguard. Saying that, all the other articles are also well received and keep me on track so please don’t just become a Vanguard monologue 🙂 I have become a bit catatonic with investing and do want to do more.

  @the accumulator – I am happy that my investments are parked there for now. I agree, it seems a little boring, I read all the Monevator articles and keep thinking I should do more- even though the advice boils down to keeping it simple. I think it is time to start tinkering around the edges by looking to expand the range of investments with new allocations.

  Thank you both,
• 194 Aikaterini Aspridi May 1, 2017, 11:22 pm

  Hi

  could anyone explain the difference between the Vanguard FTSE UK Equity Index and the Vanguard FTSE U.K. All Share Index? Also, any advice on whether to use Vanguard Lifestrategy or Vanguard Retirement Funds?

  Many thanks
  Kat
• 195 The Accumulator May 2, 2017, 6:20 pm

  Do you mean the VG FTSe UK Equity *Income* Index fund? It invests in a subset of UK firms that are meant to deliver decent dividends. The All-Share index is more diversified and invests in a broader spread of UK companies.

  We can’t advise you on which fund to use and it really depends on your personal circumstances but we’ve written extensively on LifeStrategy and Target Date funds here:

  http://monevator.com/vanguard-lifestrategy/

  http://monevator.com/vanguard-target-retirement-funds/
• 196 MrSmith February 7, 2018, 10:56 pm

  Hello!
  An extremely helpful article thanks!
  I was wondering what you regard as the most flexible/low cost ISA platform currently available to setup one of these lazy portfolios within an ISA wrapper?
  Appreciate any thoughts, thanks!