Sign-up to Freetrade [1] via this link and we can both get a free share worth between £3 and £200.
Whether you’re one of the nearly 200,000 people who’ve signed up to Freetrade’s commission free trading app and are excited about the money making possibilities ahead – or you’re looking for an online trading alternative to Robin Hood after the US giant scrapped [2] its UK launch plans – now is a good time to think about your Freetrade [1]* investment strategy.
- One option is to dive in at the deep end, watch a lot of sketchy YouTube videos, and get burned [3] punting stocks based on internet rumours and tips.
- An alternative is to follow the advice [4] of one of the greatest investors of all time – Warren Buffett – and follow a passive investing strategy [5].
Passive investing works [6]. It keeps your costs low, helps prevent you being wiped out by a bad run, and harnesses the best evidence [7] for long-term success in the markets.
You can put together a passive investing strategy on Freetrade [1] using its commission-free Exchange Traded Funds [8] (ETFs).
ETFs are low-cost investment funds that enable you to quickly diversify across global markets, because each ETF can combine thousands of shares (or other assets) into a single vehicle.
By using ETFs as your building blocks, you can put together a strong, diversified portfolio [9] with a handful of trades that’ll set you off on the right foot.
You just need to know where to start.
Freetrade ETF model portfolios, made by Monevator
Model portfolios offer a customisable framework that investors can use to sense-check their ideas.
Model portfolios can also be used off-the-shelf to get you going. You can refine your positions later, once you’ve had a chance to do more research.
The type of portfolio you build depends on your personal circumstances:
- Your financial objectives [10]
- Your risk tolerance [11]
- How critical your investments are to your financial future [12]
- Your age and investing time horizon [13]
The right approach for you depends on how those factors mesh with your financial situation. There is no universal answer. But different model portfolios enables us to illustrate useful rules-of-thumb.
The ETF components of each of the portfolios below are chosen from the Freetrade Investment Universe [14].
These ETFs are commission-free with Freetrade and traded on the London Stock Exchange.
Freetrade’s minimum trade value is £2. In reality, the minimum trade size when creating these model portfolios is likely to be determined by the ETF’s share price. This is because you can’t trade a fraction of an ETF share on most UK platforms, including Freetrade [1].
Freetrade’s ISA costs £36 a year, which is very reasonable. There’s no charge for holding your ETFs in a taxable1 [15] account, but we’d urge you to open an ISA [16] for the long-term benefits.
Here’s a couple of quick notes on the tables below to help you read them:
- Asset class [17] – Assume the asset class is equities unless otherwise noted. For example, ‘Global’ means ‘Global equities’ unless we refer to specific asset classes such as bonds, property, or gold. The bold figure is the percentage of your portfolio’s value to be held in that asset class.
- ETF name – You can quickly identify each ETF by using its ticker – the four letter identifier in brackets.
- OCF – The Ongoing Charge Figure [18] (OCF) is the main annual cost levied by the ETF’s provider for management services. The OCF is the simplest way to compare ETF costs. The OCF is expressed as a percentage of your holding, although there are other costs [19] of ownership.
Let’s get on to the portfolios!
The KISS (Keep It Simple Stupid) portfolio
| Asset class | ETF name | OCF |
| 70% Global | Vanguard FTSE All World (VWRL) | 0.22% |
| 30% UK government bonds* | Vanguard UK Gilt (VGOV) | 0.07% |
*Alternatively: £-hedged global bonds = iShares Global Government Bond ETF (IGLH) OCF 0.25%.
Investing does not have to be complicated. Most investors eventually conclude that complexity only offers the illusion of sophistication and they’re actually better off keeping things straightforward.
This two ETF portfolio ensures that you’re diversified across the two main asset classes that will drive the bulk of your investing results. The global equities ETF offers maximum stock market diversification and growth potential in a single fund, while the gilt ETF [20] is the most important defensive asset for UK investors.
A more cautious, older, or inexperienced investor could place more weight on bonds and less on equities.
The High Risk portfolio
| Asset class | ETF name | OCF |
| 50% Global | Vanguard FTSE Developed World (VEVE) | 0.12% |
| 15% Emerging markets | iShares Core MSCI Emerging Markets IMI (EMIM) | 0.18% |
| 15% World small cap | iShares MSCI World Small Cap (WLDS) | 0.35% |
| 20% Total global bonds | Vanguard Global Aggregate Bond (VAGP) | 0.1% |
Younger or more risk tolerant investors may wish to concentrate more of their portfolio in equity sub-asset classes like small cap [21] and emerging markets [22] that have historically outperformed the wider stock market at times. Your hope is you catch a big wave of out-performance. The trade-off is that risky sub-asset classes can trail the wider market for a decade or more, and expose you to bigger losses during downturns.
Similarly, the Global Aggregate Bond ETF is more aggressive than the gilt ETF.
VAGP includes corporate bonds [23], which can offer greater returns during growth periods but are also riskier [24].
All-Weather portfolio [25]
| Asset class* | ETF name | OCF |
| 50% Global | Vanguard FTSE All World (VWRL) | 0.22% |
| 10% World** property | iShares Developed Markets Property Yield (IWDP) | 0.59% |
| 10% Gold | HANetf The Royal Mint Physical Gold ETC (RMAP) | 0.22% |
| 15% UK government bonds | Vanguard UK Gilt (VGOV) | 0.07% |
| 15% Inflation-resistant government bonds | iShares £ Index-Linked Gilts (INXG) | 0.1% |
* Gain extra protection against deflation and fair-to-middling inflation [26] by allocating 10% of your portfolio to cash [27]. Hold the cash in a bank account rather than on a trading platform.
**The term ‘World’ typically denotes developed world markets whereas ‘Global’ incorporates emerging markets, too.
The All-Weather concept diversifies your portfolio across every worthwhile main asset class. The idea is that you’ll always have at least one asset that performs in every economic environment short of the Apocalypse:
- Equities and property [28] for growth.
- Government bonds [29] (and cash) for recessions.
- Inflation-resistant bonds for high inflation conditions. (Note, that the index-linked gilt [30] market is widely thought to be subject to structural distortion at present.)
- Gold [31] for when nothing else works.
Middle-of-the-Road portfolio
| Asset class | ETF name | OCF |
| 50% Global | Vanguard FTSE All World (VWRL) | 0.22% |
| 10% UK* |
SPDR FTSE UK All Share (FTAL) |
0.2% |
| 40% UK government bonds |
Vanguard UK gilts (VGOV) |
0.07% |
*Alternatively: iShares Core FTSE 100 ETF (ISF) OCF 0.07% is less diversified than FTAL but considerably cheaper.
The 60:40 equities:bond portfolio is the happy medium of investing portfolios. Its tilt towards equities makes it pro-growth, but the significant slug in bonds provides welcome relief during stock market crashes [32] when investors flee to safer assets.
Note, that a dedicated UK equities ETF isn’t necessary – nor necessarily best practice [33] – but many investors feel more comfortable holding a generous allocation in their home market. VWRL also contains a small slice of UK plc.
The Withdrawal portfolio
| Asset class | ETF name | OCF |
| 35% Global | Vanguard FTSE All World (VWRL) | 0.22% |
| 15% UK |
SPDR FTSE UK All Share (FTAL) |
0.2% |
| 5% Global property | iShares Developed Markets Property Yield (IWDP) | 0.59% |
| 5% Gold | HANetf The Royal Mint Physical Gold ETC (RMAP) | 0.22% |
| 20% UK government bonds | Vanguard UK gilts (VGOV) | 0.07% |
| 20% Short-term UK government bonds and/or cash | iShares UK Gilts 0-5yr UCITS ETF (IGLS) | 0.07% |
Investing is much trickier for retirees [34] who need their wealth to last them the rest of their days [35]:
- Equity holdings are required for long-term growth but are typically pared back [36] at the beginning of retirement to reduce early exposure to market crashes.
- Strong UK equity holdings can make sense for retirees to help manage currency risk [37].
- Short-term gilts [38] or cash pay near-term expenses.
- Global index-linked bonds [39] are a good defence against inflation but aren’t available through Freetrade.
Income portfolio
| Asset class | ETF name | OCF |
| 50% Global high yield* |
Vanguard FTSE All World High Dividend (VHYL) |
0.29% |
| 20% UK high yield |
SPDR S&P UK Dividend Aristocrats (UKDV) |
0.3% |
| 30% Total global bonds |
Vanguard Global Aggregate Bond (VAGP) |
0.1% |
*Alternatively: SPDR S&P Global Dividend Aristocrats ETF (GBDV) OCF 0.45%. GBDV has a higher dividend yield than VHYL but a worse total return over the lifetime of the two funds.
Income investing [40] is a popular strategy for managing wealth. The idea is to live on your dividends and interest while leaving your principal untouched. Advocates of this strategy favour high-yielding stocks to amp up their income payouts. The equity ETFs in the table aim to aggregate firms with strong dividend track records.
Socially Responsible Investing (SRI)
Freetrade does not yet have extensive SRI/ESG [41] (Environmental, Social, Governance) ETF options. You’re limited to replacing your global equities and UK equities ETFs with:
- MSCI World Socially Responsible ETF (UC44) OCF 0.22%
-
MSCI United Kingdom IMI Socially Responsible ETF (UKSR) OCF 0.28%
Investing for children [42]
Newborns and very young children probably aren’t going to need the money anytime soon – even in an unforeseen emergency (it’s your job to deal with those).
They also aren’t prone to the performance pressure inherent in checking the stock market every five minutes on a trading app.
Therefore, the best bet for the kids is to go all out for growth – as long as you promise not to freak out [43] when a stock market slump hits town. If you keep your head then it will probably have blown over by the time the kids tap into their portfolio. That means:
- 100% Vanguard FTSE All World (VWRL)
- Then start putting the brakes on by proportionally adding bonds [44] 10 years before the money is needed.
Not worth it
There are large and well resourced marketing departments that earn their keep by pandering to investors eager to cash in on the latest trends: think funds dedicated to AI, cyber security, robotics, ageing populations, or the rise of China.
Typically this kind of diversification isn’t worthwhile [45] – and at best a total crapshoot [46] – because you know nothing [33] that the rest of the world doesn’t already know.
The big money is big because it sees the trends before you can. They have swooped in and bid up the prices of the best firms long before Reddit got a sniff of it.
Still, if you must put 5% of your money into big tech then there’s an ETF for that:
- Invesco NASDAQ 100 ETF (EQQQ) OCF 0.3%
The reason you don’t have to worry about the smart money when you’re investing across the wider global market is because you’re not betting on the trend.
You’re creaming off the profits made by the entire market – the sum of human productivity.
FCA regulation
Freetrade is regulated by the UK’s Financial Conduct Authority. Here’s why that matters [47].
Investing essentials
There’s much more to learn about investing than we’ve been able to cover in this linkfest. Here’s some cornerstones to look up just as soon as you can:
- Useful investing basics [48].
- Comparing the past performance of one fund or stock versus another is irrelevant to your results [49].
- Asset allocation [50] is as much art as science. Get the big picture right and don’t worry about the odd percentage point or two.
- Automate [51] your investing.
- Drip-feed [52] your money into the market.
- Use your tax shelters [16].
- Rebalance [53] your holdings to control risk.
- Take less risk [44] as you get older or have achieved your objectives. Don’t get greedy.
- To find out about other investing platforms [54].
- To find out about other cheap ETFs [55].
- To sign up to Freetrade [1].
Take it steady,
The Accumulator
*Sign-up to Freetrade [1] via our link and we can both get a free share worth between £3 and £200. Monevator editor The Investor is a shareholder in Freetrade.
- Non-ISA. [↩ [60]]