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Fixing my portfolio and my brain: Confessions of a passive investor [Members]
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This is great. Thanks so much. I share your past fear of bonds, and now add another layer of confusion. There have been some recent articles on Monevator about building bond ladders, but I’m curious about how this arguably more labour-intensive method compares with simply buying a bond fund such as Vanguard’s UK Government Bond Index Fund. Does the fund represent the worst of all worlds?
Very very timely post for me.
Although I’ve just spent time rejigging my portfolio in a very different way!
I have – pushed myself to hold less cash and more equities. (im sure in hindsight this will simply turn out to be the age old private investor’s psychological achilles heel of buying high and selling low).
I have – eliminated my tilts to UK and small cap and instead gone for the lowest number of holdings. So mainly now just in single global equity index funds.
I have – swapped my bond index fund for short dated individual gilts
I have – rejigged my asset allocation between tax wrappers and GIAs so that I don’t hold any equities in the latter, only short dated gilts. This might be financially suboptimal but as with the other changes I am mainly motivated by the mantra ‘simplify, then simplify again’. So goodbye to annual CGT calculations. Hurrah!
Now you’ve got me thinking – should I buy gold? Commodities? Linkers? should I be less gung ho about increasing my equity allocation and exposure to the US? What even should my equity allocation be, given that I have secured income providing at least a third of my spending needs? (and in 10 years time it will likely be at least half)
My goal has been to essentially have one equity fund in each ISA and SIPP, and a ladder of short gilts in my GIA, plus some cash.
Any feedback welcome!
@Firesoon – there’s definitely a monevator post looking at comparison of bond funds with individually held gilts.
So ignoring property, I got a surprise the other day when updating my spreadsheet that I hold:
71% – Global Stocks (Via ETF)
17% – UK Bonds (Via ETF)
2% – Cash
5% – Private Business Equity
5% – BTC
I never intended to hold so much BTC, but that’s what happens when a gamble pops!
Including property:
4.4% – Global Stocks (Via ETF)
1% – UK Bonds (Via ETF)
0% – Cash
0.3% – Private Business Equity
0.3% – BTC
94% – UK Property (Own home and 1 x BTL)
I should probably sell my BTL at some point. The yield is comparable to Bonds, but with more risk. However the capital gain has been very favourable.
N.b. I’ve rounded numbers a little, and they always float around a bit
My split is roughly a 60:40 portfolio, based on the strong floor of DB pensions. It is pretty close to your Slow and Steady portfolio and quite different from the wealth preservation portfolio you describe here.
Emotionally, I can’t do gold. I can understand where the gains come from in equities and bonds, but gold is just a speculative bet. Something I can’t bring myself to do.
The case for avoiding commodities is similar but not as extreme. Having spent my formative years in a business that made extensive use of commodity futures for their intended purpose (securing future commodity supplies at a known price), I always found the antics of professional commodity investors weird. Again, it was largely driven by speculative betting and added no value I could discern.
So, my defensive assets are bonds and cash. Roughly 10% global Gov’t bonds, 10% UK Gov’t bonds, 10% index linked (inc. NS&I certificates). Cash is a bit low at the moment and needs building up again towards 10% (note: if I add in my partner’s cash holdings that we consider separately, our cash is 17% of total assets, so no immediate need to do anything).
The thing I should do is switch to a linker ladder. I know I should. I have read the Monevator stuff on how it all works, but I don’t feel confident in doing so. It all seems like a lot of work.
And the pressure to do so is muted. From the beginning (2015), I have unitised my portfolio. and seen the unit price rise steadily from £100 to £182. Eyeballing the data, I could put a fairly convincing straight-line through it. So, I have a feeling of – if it ain’t broke, don’t fix it.
I will keep pondering a linker ladder, but not sure I will ever do it.
Thanks for the article.
We are both retired and have 4 isas and 2 sipps. I decided I would make life simpler by assigning an objective to each pot, eg for immediate income, to pay care fees in deep old age etc. It hasn’t helped ! I find it hard to switch brain modes when looking at each one. Still onwards I’ll plod. The recent pension iht switch hasn’t helped either as I have to find a way of retaining assets to fund my part of the inheritance and change my will. On the bright side I might not live until 2027/75 years old in which case no change needed.
I bought a couple of bonds to hold directly. The IL is in my wife’s name and although short duration might be good, the faff of buying by phone doesn’t make we want to do this too frequently so I went for a 2032 maturity.
Still grumbling about only seeing clean prices….
@TA do commodity funds pass the “don’t buy what you don’t understand” test? I know Monevator has published some excellent guides about them but they still seem pretty opaque.
Thanks TA, this is diamond! (No, that’s not another asset class!)
I’m doing a similar Pot thing to Paul_a38. I turned 59 last week so need to complete 8 years till I receive my State and Civil Service pensions. That’ll give me a floor of £2k a month, adequate if the kids are successfully launched (Huh!) and just the two of us.
Over the next 8 years I’ll fill my personal allowance from the SIPP using up a money market fund and fixed income. That’ll cover my contribution to the family budget.
Once that’s exhausted and I receive my pensions, my SIPP will be for emergencies and totally discretional spending. It’ll comprise HSBC global tracker for growth (50%) and 4 equal defensive assets – gold, commodities, BHMG and then cash in Premium Bonds.
I have an ISA which I’m planning on using for dividends to fund my personal spending, currently VHYL as it’s the broadest based dividend index. This also is a slight tilt away from the almighty US.
Though I’m wondering if the juicy yield of VanEck Morningstar Developed Markets Dividend Leaders (TDIV) might be better or is it a value trap? It’s all traditional industries of course, not much growth potential (though better than VHYL I think over the last 7 years). Any thoughts?
Great informative article -rather follows on from Saturdays post
Staying the course here (wife and I both 78) so race nearing its end
Equities have gone up a percentage or two in the Asset Allocation-bonds down in the same way -essentially no change (holding equities/bonds/cash only) as once again we head into the maelstrom!
Portfolio done its job-so far!
xxd09
Have you considered splitting your gold holding with Bitcoin? They’ve both got zero (or close to) intrinsic value but this might be considered added diversification (or foolhardy depending on your opinion). Personally, I’m struggling to add either one to my portfolio.
Thanks @TA, fascinating and very timely as just doing some early spring cleaning My main (outside of HL workplace pension) ii SIPP got a bit big, so split it in two (with AJ Bell). Whilst I have more to benefit from the highly educated collective here than vice-versa, I am now;
64% global equity (of which 14% tilt – multifactor and small caps, no home bias)
14% diversifiers (gold and commodities)
22% Bonds (infl. linked, global and med gilts)
Plus cash. Property covered by house, equity release from which is part of the running-out-of-money plan. This spans three SIPPS and one ISA.
Sadly no DB. I served 18 months in local authority (as much as I could take!) many years ago, contributing minimally to the pension fund. I tracked it down only a few years back, and could only then transfer or withdraw. Despite having contributed only about £3k, it transferred out over £30k! Should have stayed a bit longer.
Plan to feed bond funds from equities as retirement approaches. I like @Paul_a38’s ideas of having different pots to fulfil different requirements, nice research project. Similarly to @old_eyes, understand the benefit of the linker bond ladder, but sounds like a high involvement retirement project!
Always top notch.
2 more years: have you split your SIPP so monies are spread across platforms, as a safety measure?
Have everything (GIA, ISA, SIPP) in ii till this week and planning on moving ISA to Lloyds and gilts to Lloyds GIA just to platform-diversify.
Any views on platform diversification from others?
Thanks all for articles and comments/ very educational to one who is still fumbling in the dark
All this political and economic uncertainty seems to have many of us sorting our affairs/investments.
I moved all my DC pots to II mid last year and left them mostly in cash.
Finally bit the bullet last week and built a 8 year gilt ladder close to the HRT limit – combined with the TFLS in a few weeks should get close to fully draining by the time DB starts. GRY was around 4.5%, hopefully i can forget about it, and think about ISA investments.
The tax benefits of ISAs are starting to look too-good-to survive many more years.
I looked at my long term projection and it showed a ~6% tax rate (me and wife combined, inc ISA draw down at 6% pa). This is totally out of sync v workers brining in the same gross. NI on pensions is coming too.
I started with a spreadsheet. X
Ooops I timed out. Meant to say I started out with a spreadsheet, X on the yearly income, y for ages. Blocked out SP, me and wife 8 yes apart, then infilled with individual UK linkers to get floor. 1no. IT for a specific spend, and a SWR pot that provides variable income. A fair bit of cash and about 25% equity which will hopefully grow as we age. Main aim is for me not to fiddle as I’m the weakest link..
@Wildlife – yes, that’s exactly why I split my ii SIPP. Having lived through my parents’ pain with Equitable Life, thought it a prudent mitigation for relatively small premium. It also forces some diversification, as AJB needs ETFs, HL workplace needs funds but will flip to ETFs on retirement when preferential rates cease, and ii (SIPP)/ iWeb (ISA) aren’t fussy.
I would add that my experience with all of these providers, albeit AJB only just joined, has been very good so far. Mrs 2my has a small Vanguard SIPP – they have also been very good. Proof of the pudding though; pulling the plug (fingers crossed) in 12 months when it’s bound to get a lot more complicated.
Well done @Boltt, and indeed anyone else, on the gilt ladder. I’m rather intimidated but wonder about the possibility of a fixed term annuity to cover the gap between retirement and SP?
Love the chunky and courageous global multifactor allocation, although a 15 percent target is a bit high for me (I’m at 10, but also have a dash of small cap value and the low volatility anomaly).
I’m surprised and I guess reassured by the emphasis on a secure floor and non equity allocation in these comments. Perhaps I hang out too much with gung-ho accumulators who seem to think less than 100% equities is for wimps.
I’ve always felt I carried too much cash and not enough risk assets. Looking at my asset allocation now, I’m actually 75% equities, 15% cash and 10% gilts. Oops. Looks like I’ve overcome my cautious nature!
But then I have a DB floor income which is pretty generous, with two state pensions and another smaller DB later. So ultimately I think the investment portfolio will only need to cope with a 2% withdrawal rate. I can’t decide whether that means I should dial risk back or dial it up!
@2my, the gilt ladder is quite easy. The hardest bit is tracking down yield to maturity data – about a decade ago when I first learnt about investing you could get this on the government DMO website, now they don’t produce it.
I needed to revise what I’d learnt about coupons and redemption values but then the actual purchases were much easier, just online purchases like anything else. Its no harder than a ladder of cash deposits (apart from finding the data on returns. Not that I actually used that in my choices, I just bought the lowest coupon I could with gilts with varying redemption dates in the next 4 years. I am about to find out what happens when the first one matures!).
I am just buying short dated vanilla gilts to go in my taxable account. Maybe I will have a look at the index linked ones too.
@TA, don’t you worry about the complexity of your portfolio?
I know you are somewhat younger than me, but my experience of looking after my dad’s finances really impressed upon me how important it was not to have too many accounts or too much complexity. Hence my simplify, and simplify again mantra.
Its not just about consideration for those who will manage our estate (hopefully not for many decades). I just don’t really want to have to spend more of my time managing the damn stuff!
I’m due to start drawdown in the next year or so as my wife stops work. I do have some self-employment income but it only covers about 25% of spending and is very variable. We have 7 years to SP, my wife will have a small DB pension, I just have DC. In my industry employer contributions were very rare, in fact I only received employer contributions with the advent of auto-enrolment.
I have one ISA which is just the 80/20 LifeStrategy fund, I intend dialling that down but don’t get round to it.
I have two SIPPs, the first was opened quite recently and is very streamlined, four etfs in total, 60% global equities, 20% medium gilts, 10% short gilts and 10% TIPs. However the second which I’ve had for about 20 years was suffering from far too many positions so before Christmas I sold quite a few ITs and increased bonds and money market exposure. The intention is to replicate approximately the first SIPP but I’m keeping a few ITs for which I retain perhaps an irrational fondness, as they were some of the first things I bought eg SMT, PNL, RCP.
We have about 15% in cash as well which is about 5-6 years spending.
I’ve thought about a gilt ladder but am put off by complexity. We may also move abroad which is an extra consideration.