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9 lazy ETF portfolios for UK investors

An ETF portfolios is to construct

Update: We have a much newer and shinier and up-to-date version of this article on lazy portfolios for UK investors. Click the link to read it!

Most investors — even those who pick shares and should know better — would do well to get their stock market exposure via cheap index trackers.

Invest via an exchange-traded fund (ETF) – which are basically index trackers you can buy and sell on the stock market – and you’ll also benefit from lower annual charges and the freedom to sell in an instant.

Buy a few ETFs to cover several asset classes and you can create a diversified ETF portfolio in less than 15 minutes!

With dealing costs of under £100 and no stamp duty to pay on ETFs, creating your ETF portfolio will cost you a tiny fraction of what a private wealth manager or full service broker would charge, and the chances are you’ll do just as well over time — likely better, considering the ETF portfolio’s low costs.

If you rebalance your holdings annually – cheap and easy with ETF portfolios — then you’ll manage your state-of-the-art portfolio in less time than it takes to eat your Christmas turkey.

The big decision is what to hold in your ETF portfolio.

Understand there is no perfect portfolio. Complex asset allocation strategies aren’t proven to be more effective than rough-and-ready ones.

Instead, numerous writers have offered their own version of the lazy ETF portfolio. Each claims to deliver most of the diversification benefits that ETFs can offer for minimal time, effort, and/or cost.

In this post I’ll outline nine such ETF portfolios for UK investors.

I’m even lazier though, and I’m basing this article on one the Oblivious Investor blog first ran that used US ETFs. The author, Mike Piper, has kindly allowed me to riff off his piece (I think he’s relieved to see me not raving about banks again!)

If you’re a North American investor you should definitely check out Mike’s article for the US originals.

Some notes on creating a UK ETF portfolio

  • I’ve used Barclays iShares ETFs to keep things simple; they’re the most well-known exchange traded funds in the UK, and you can research them all at one site.
  • I‘ve generally used a FTSE 100 ETF in place of a UK All-Share ETF because the latter is not available from iShares. You might use a UK All-Share index fund (as opposed to an ETF); the results will be very similar, since the FTSE 100 dominates the All-Share. (Over the long-term the FTSE 100 might do slightly better or worse).

Using investment trusts definitely increases risk, due to how investment trusts can trade at a discount, and how they can diverge from market returns. My other options were to go for Euro- or Dollar-denominated ETFs, introducing more currency risk, to suggest managed funds and higher fees, or to change the portfolios.

I like investment trusts, especially those I’ve picked, but I accept their use isn’t ideal here. (Don’t blame me: Write to iShares!)

1. Allan Roth’s Second Grader ETF Portfolio

  • 60% FTSE 100 (ISF)
  • 30% FTSE Developed World ex-UK (IWXU)
  • 5% iBoxx £ Corporate Bond ex-Financials (ISXF)
  • 5% FTSE UK All Stocks Gilt (IGLT)

With 90% in stocks, this is an ETF portfolio for younger investors. Roth likes ETFs because they’re simple and cheap. He thinks adults over-complicate things.

The US version uses just one bond ETF that tracks the whole market. The only iShares equivalent is Euro-denominated, so I’ve split the holding across two Sterling ETFs to do the full job.

(If you’re a purist, split the corporate bond holding again between ISXF and SLXX to get the financials in the latter).

2. David Swensen’s Ivy League ETF Portfolio

  • 15% FTSE 100 (ISF)
  • 15% FTSE 250 (MIDD)
  • 5%: MSCI Emerging Market Equity (IEEM)
  • 15%: FTSE Developed World ex-UK (IWXU)
  • 20%: FTSE EPRA/NAREIT UK Property (IUKP)
  • 15%: FTSE UK All Stocks Gilt (IGLT)
  • 15%: £ Index-Linked Gilts (INXG)

I’ve previously posted an Ivy League ETF portfolio in detail.

This time I’ve split the 30% weighting to domestic shares between the FTSE 100 and the UK mid-caps. You could do the same for the Roth portfolio above if you like.

Note the absence of corporate bonds; Swensen doesn’t like them.

3. Rick Ferri’s Core Four ETF Portfolio

  • 36% FTSE 100 (ISF)
  • 18% FTSE Developed World ex-UK (IWXU)
  • 6% FTSE EPRA/NAREIT UK Property (IUKP)
  • 20% iBoxx £ Corporate Bond ex-Financials (ISXF)
  • 20% FTSE UK All Stocks Gilt (IGLT)

Ferri says you only need a few asset classes before you get diminishing returns. I’ve had to add a fifth Beatle to his core four to cover the UK bond market.

4. Bill Schultheis’ Coffeehouse ETF Portfolio

  • 10% FTSE 100 (ISF)
  • 10% The Edinburgh Investment Trust (EDIN)
  • 10% BlackRock Smaller Companies Trust (BRSC)
  • 10% Aberforth Smaller Companies Trust (ASL)
  • 10% FTSE Developed World ex-UK (IWXU)
  • 10% FTSE EPRA/NAREIT UK Property (IUKP)
  • 20% iBoxx £ Corporate Bond ex-Financials (ISXF)
  • 20% FTSE UK All Stocks Gilt (IGLT)

I love the clean 10% breaks in this ETF portfolio.

Schultheis’ believes it’s more fun to loaf about drinking coffee than worry about the markets. For most people he’s probably right.

Note the use of investment trusts in my version of his ETF portfolio.

I’ve chosen the Edinburgh Investment Trust to substitute for a Value-based ETF; iShares has a Euro-based value one, but no Sterling one. EDIN is run by renowned manager Neil Woodford and pays around 6% a year. It does have a tiny bit of debt though. I’m confident it fills the gap.

The two small cap trusts are riskier. The BlackRock trust is a general small cap picker, the Aberforth Trust has a distinct value-ish tilt.

These trusts will increase the volatility of your ETF portfolio, and the potential for market out- or under-performance.

Finally, there’s the usual drill of splitting bonds across the two UK ETFs.

5. Larry Swedroe’s Big Rocks ETF Portfolio

  • 9% FTSE 100 (ISF)
  • 9% The Edinburgh Investment Trust (EDIN)
  • 9% BlackRock Smaller Companies Trust (BRSC)
  • 9% Aberforth Smaller Companies Trust (ASL)
  • 6% FTSE EPRA/NAREIT UK Property (IUKP)
  • 3% FTSE Developed World ex-UK (IWXU)
  • 6% iShares DJ Asia/Pacific Select Dividend (IAPD)
  • 3% iShares DJ Euro STOXX Value (IDJV)
  • 3% Rights and Issues Income Trust (RIII)
  • 3% MSCI Emerging Market Equity (IEEM)
  • 40% iShares FTSE Gilts UK 0-5 (IGLS)

This ETF portfolio seemed fussy in the US version; the UK one is a dog’s dinner.

You should know that I’ve taken extra liberties, due to the lack of ex-UK global dividend or small cap value options.

I think my choices get across what Swedroe is looking for in terms of adding some international diversity and focusing on dividends and smaller companies, but it’s not a great match-up with the all-ETF equivalent.

6. Harry Browne’s Permanent ETF Portfolio

  • 25% FTSE 100 (ISF)
  • 25% FTSE UK All Stocks Gilt (IGLT)
  • 25% ETFS Physical Gold (PHGP)
  • 25% Cash (High interest savings accounts)

Browne’s Permanent Portfolio is getting a lot of attention these days, doubtless due to the huge rise in the price of gold; I don’t remember hearing about it between 1985 and 2000, when gold was in a bear market!

My cynicism aside, there’s no denying this is a simple and diversified ETF portfolio, with gold adding something extra if you fear for paper currencies (in which case you should probably hold gold in your cellar).

I’ve used a non-iShares ETF; PHGP is backed by bullion, rather than just contracts.

7. William Bernstein’s No Brainer ETF Portfolio

  • 25% FTSE 100 (ISF)
  • 25% BlackRock Smaller Companies Trust (BRSC)
  • 25% FTSE Developed World ex-UK (IWXU)
  • 12.5% iBoxx £ Corporate Bond ex-Financials (ISXF)
  • 12.5% FTSE UK All Stocks Gilt (IGLT)

Another one for risk-taking investors in their 20s, 30s and young-at-heart 40s, though I’d probably ditch the corporate bond holding and go for 25% government bonds myself.

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

  • 50% iShares MSCI World (IWRD)
  • 25% iBoxx £ Corporate Bond ex-Financials (ISXF)
  • 25% FTSE UK All Stocks Gilt (IGLT)

For fun, Mike included this ETF portfolio in honour of the Nobel prize winning father of Modern Portfolio Theory.

When once asked how he invested, Markowitz said: “I should have computed the historical co-variances of the asset classes and drawn an efficient frontier…Instead, I split my contributions 50/50 between bonds and equities.”

Further proof, if you need it, that complex allocation is for the classroom, not the real world.

9. Ben Graham’s ‘Mr Market’ beating ETF portfolio

  • 25-75% FTSE 100 (ISF)
  • 25-75% FTSE UK All Stocks Gilt (IGLT)

Note: The allocations can only add up to 100%! (E.g. 30% ISF and 70% IGLT).

As the ultimate Oblivious Investor, Mike couldn’t include a Benjamin Graham ETF portfolio, since the latter believed it might be profitable to vary your equity/bond holdings depending on the market’s bull or bear moodswings.

Graham didn’t say it was easy, mind.

The danger is you increase equity exposure at exactly the wrong time – when investing feels safe and the market has risen for years. In Graham’s world, that’s the time to move towards bonds.

Because he knew it was difficult, Graham urged readers never to go below 25% for either asset class. In practice, simply rebalancing  between the two once a year would be hard to beat.

Note that Graham passed away before ETFs were invented, but this ETF portfolio gets across the spirit of his fabulous book The Intelligent Investor.

{ 25 comments… add one }
  • 1 Dan Gravell October 26, 2009, 5:36 pm

    Why choose ISXF over SLXX? To me, there’s a whiff of faddishness about ISXF. Why not an X-retail? X-agriculture? X-businesses starting with the letter ‘T’? I agree with Swensen though, I am unconvinced as to how uncorrelated corporate bonds are with equities.

    I know the whole point of this is to create lazy portfolios, but using these equity trackers does run the risk of over concentration on the larger caps. Rather than introducing faddish funds I’d like iShares to consider different fund structures from another dimension, e.g. not market cap weighted, maybe some value weighted ones.

    Also, as you said above, a small cap tracker would be gratefully received. I’ve gone Rights & Issues myself, after looking into Aberforth and Blackrock.

  • 2 Lemondy October 26, 2009, 9:40 pm

    Nice writeup!

    Yeah, surprising to see corp bonds in so many of these. I’ve been buying corp bond funds (“junk” especially) when they were particularly unpopular but can’t see that I’ll hold them for the long term with anything > 5% allocation anyway. The capital growth I’ve got has been very similar to the FTSE though a bit less volatile.

    In a few cases I’d say it’s cheaper to use OEICs than ETFs, if you can – UK index trackers particularly (Fidelity & HSBC have funds with v. low TERs). The L&G gilt fund is v. cheap too. Dealing charges with ETFs can tip the scales towards OEICs if you plan to rebalance at least once a year, depending on the size of your portfolio.

    I’m glad I’m not alone in picking EDIN as the way to get a “value” tracker for UK equities. IUKD was another choice I looked at on that front but it has a strangely high portfolio turnover, and the sector allocation was not so different to the FTSE 100 (Woodford seems to do an excellent job of being contrarian). It was fun to discover that EDIN has at worst equivalent fees to the widely-promoted OEIC equivalent (1.6% IIRC), and at best much lower (0.6%, if he doesn’t beat the benchmark). Why the heck does anybody buy the OIECs?

  • 3 The Investor October 26, 2009, 11:02 pm

    Great comments, thanks guys.

    Just quickly, I’m sure SLXX would probably do very similarly to ISXF in most circumstances, so take your point Dan. SLXX has more subordinated / lower grade issues than ISXF though, it’s not just ex-financials.

    The tilt towards large-caps is an issue, and a consequence of the UK market I’d imagine compared to the US. As I did with Swensen you could split ISF and MIDD to capture more of UK Plc.

    Re: OIECs, not sure if it was rhetorical Lemondy but for a start they can advertise, and that obviously attracts people who literally don’t know better.

    A more sensible reason to choose them over ITs is the absence of discount risk with an OIEC. I imagine financial advisers far prefer OIECs for that reason (less angry clients!). Indeed do they even get commission from investment trusts — I suspect they don’t.

    There’s also gearing that ITs are free to use, but I doubt most people are aware of this let alone the risk it introduces.

    Personally I’d choose ITs any day though, and have rarely invested in funds (Gold and General being one exception), index trackers aside.

    Right, off to watch Evan Davies chatting up Warren Buffett on BBC2.

  • 4 Dan Gravell October 27, 2009, 12:17 am

    > Right, off to watch Evan Davies chatting up Warren Buffett on BBC2.

    Just finished watching this myself. I was half expecting a micro blog from you tomorrow on this subject!

  • 5 The Investor October 27, 2009, 12:25 am

    What did you think of it Dan? I didn’t really learn anything new — but as I just quipped on Twitter that may be because i know more than is healthy about Warren Buffett already!

    That’s not true actually – I was surprised to hear he hasn’t got a calculator in his office. (I knew he didn’t have a computer, of course). Do you think he has an abacus? Or log tables?!)

    Not a bad idea for a blog post, but always a danger of it turning into a hagiography – I really do admire the man. Other difficulty is out of town on business all week, with intermittent Net access.

    Sadly I’ve made Monevator a site of long and rambling posts, rather than speedy quips and funny photos I can upload from my iPhone so updating is difficult. Hoisted by my own petard, etc!

    Warren would have thought ahead…

  • 6 Dan Gravell October 27, 2009, 10:15 am

    Well it was better than I expected… I was fearing a BBC populist programme similar to the way Horizon treats science. But at least they mentioned Ben Graham a few times.

    A couple of things that stood out to me…

    Effect on his family. Strikes me that Mr Buffett has endued into his offspring one of the healthiest attitudes to money I’ve heard. To hear his son not wishing for inheritance, and his daughter highlight exactly what they have gained from him as a father (hint: it wasn’t money) was very refreshing.

    The stuff about derivatives at the end. I’m a bit confused by this. Now, I’m guessing the beeb aren’t giving us the full picture here because it can be complicated (doesn’t have to be: http://bentilly.blogspot.com/2009/10/what-are-financial-derivatives.html ) and I’m not sure exactly what derivatives Mr Buffett is trading. I wonder if he has been forced into this as his company’s wealth has grown so large, in an effort to keep up with the 20% annualised growth. Are these derivatives earning generators in some way, and how has he measured the downside? My current take is that he has spotted outstanding value in the security price alone, and is essentially speculating (gulp!) on those prices, listening to Mr Market for both price and value. I personally don’t like this approach, and would rather he just say “sod it, it’s 7% annualised from now on”. Apologies, this is all opinion, I’ve made a lot of assumptions there!

    A great man. He is not only humble, but he seems to have a real awareness of his own use to society. He realises he is not a ‘maker’ per se, someone that can change the world by creativity or craftsmanship. Instead he has a mind finely tuned to take advantage of capitalism, and best of all he understands his responsibilities in giving back.

    He really needs to eat more vegetables though.

  • 7 Lemondy October 28, 2009, 10:19 pm

    Nice segue from ETFs to Warren Buffet’s dietary preferences 😉

    I thought it was a very interesting documentary, and that Buffet seemed slightly uncomfortable when answering the question about derivatives. I found an article talking about the derivatives, FWIW:


    I’ve always found the “speculating” vs “investing” thing borderline hypocritical, glad Evan brought that up. He makes a lot of his money out of insurance/underwriting – those are surely speculation, or at least, a way to profit out of other people’s speculation.

  • 8 yolanda February 25, 2010, 9:10 am

    Hi, great blog – I stumbled across it a few weeks ago.

    I have £2k to play with. Considering charges, is it worth following one of your above examples? For example:
    60% (of £2k) FTSE 100 (ISF)
    30% (of £2k) FTSE Developed World ex-UK (IWXU)
    5% (of £2k) iBoxx £ Corporate Bond ex-Financials (ISXF)
    5% (of £2k) FTSE UK All Stocks Gilt (IGLT)

    Or is this really only good if you have £10k+ to play with?

  • 9 The Investor February 25, 2010, 9:51 am

    @Yolanda – Thanks for kind comments, glad you’re enjoying the blog! I can’t really give individual advice about whether an investment is right for someone specifically.

    I can say though that with a typical discount broker’s dealing charge of say £12.50 a time, it would cost you 2.5% to get that portfolio running (£50/£2000), which is quite high. Of that you’d be spending £25 to invest just £200 in the Bond ETFs – very expensive! You might investigate Halifax’s Sharebuilder service, which charges just £1.50 a deal, with timing restrictions. It’s well-suited to liquid shares like ETFs.

    £10K would be a more suitable amount for that distribution, I agree. I you have a minute you might take a look at my article on getting started in investing. (Again, please remember I’m not an adviser – sorry for the disclaimers but decisions really are down to readers).

    Do stick around and comment some more if you get a chance!

  • 10 yolanda February 26, 2010, 9:30 am

    Thanks for your reply. I will check out Halifax’s Sharebuilder service. Im going through all your blog articles! Theres so much information on investing its easy to get overwhelmed, so Ive limited myself to 4 websites that I read on a regular basis: thisismoney, motleyfool, hargreaves and monevator! Keep up the good work!

  • 11 yolanda February 26, 2010, 9:33 am

    the only things I would say is – if you can – put a search feature on monevator. (Maybe you do have one and I havnt seen it yet.)

  • 12 The Investor February 26, 2010, 10:25 am

    @Yolanda – I recently added a search box to the sidebar to the right. It’s about halfway down, and in experimental mode (need to tidy up the design). Thanks for the feedback – I may have to move it up the screen I guess. Very pleased to make the cut for your reading, and a good idea to get a few views. Treat anything anyone says with a pinch of salt (remember I’m just one private investor) and look after your money!

  • 13 Steve April 16, 2010, 4:06 pm

    As a relatively new investor, I started in March 2009 with a hapharzard mix of equities and ETFs netting an overall 60% rise in the value of my portfolio. I know it wasnt clever, just lucky.

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

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

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

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

  • 14 The Investor April 16, 2010, 6:03 pm

    @Steve – No easy answers I’m afraid. Personally I hold no bonds at the moment. I do hold a fair bit of cash, which is not the same thing, but with bond yields so low I don’t see bonds as any safer.

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

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

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

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

  • 15 Steve April 16, 2010, 7:24 pm

    Does your not holding bonds mean that the portfolio structures which all have at least a quarter in bonds in not relevant today as it was back in October.

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

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

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

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

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

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

  • 16 The Investor April 16, 2010, 10:46 pm

    Hi Steve,

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

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

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

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

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

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

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

    Best of luck.

  • 17 Steve April 16, 2010, 11:13 pm

    Your posts have been extremely useful, and each link you add opens up a wealth of further information. Many thanks for that.

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

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

    Anyway, once again thanks.

  • 18 The Investor April 17, 2010, 1:47 pm

    Well, I’m really suggesting a beginner would have two ‘pots’ and two equal-sized regular monthly saving streams. One stream he puts into cash every month. The other he puts into an index tracking ISA, ignoring market fluctuations. After a few years, he re-evaluates where he’s at.

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

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

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

  • 19 Steve April 20, 2010, 4:50 pm

    I have decided to take a little more of an active role after all in my portfolio allocations and decided as a core to my portfolio to do something like the IVY league, but without the bonds for now. As I feel that I am a few years away from retirement I want to build up the portfolio as much as possible.

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

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

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

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

    Any ideas of what you would do?

  • 20 The Investor April 21, 2010, 9:20 am

    @Steve – I don’t profess to be an expert on anything, but I’m certainly not an expert on investing as an overseas investor. I believe the conventional wisdom is you should match your investment currency with your future liabilities, which in your case would be Euros. You don’t want to be 40% poorer in retirement just because the pound collapses relative to the Euro or similar.

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

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

  • 21 The Investor April 21, 2010, 9:24 am

    Sorry, I’ve just re-read your post and seen you’ve changed the Euros back to Sterling. Trickier!

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

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

  • 22 Nathan May 3, 2010, 8:32 am

    Hi – this is a really useful blog and thanks for posting it. Like other posters, I’m dipping my toes in the water and your posting is clear and concise.

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

  • 23 The Investor May 4, 2010, 9:20 pm

    @Nathan – I am not familiar with US ETFs (well, I know they exist! I mean the specific ETFs) so I can’t comment on those. Beware you may be taxed in a disadvantage fashion with US ETFs though, even if held within an ISA or similar.

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

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

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

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

  • 24 Marc Sattler July 27, 2010, 2:06 pm

    Have a look at ISIN DE0005561674
    The first german Dynamic Allocation Fund only based on ETFs!! April 2007 – June 2010 9,3% p.a.!

  • 25 Juanito April 26, 2014, 10:59 am


    Great blog and a lot of useful information. Any plans on adding some further info for European investors?

    I suppose most of the lazy portfolios could be translated into European versions with minimal efforts, e.g. Stoxx 600 Europe (yes, we do count the UK as part of Europe) + European gov bonds etc.

    By the way there are some interesting studies on M* showing that a naive 50/50 portfolio with regular rebalancing would have beaten most other complex strategies since 1926 and most cerntainly the average active multi-asset fund.

    Sunny greetings from Europe!

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