Our Slow and Steady passive portfolio

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• 1 Ransom January 6, 2011, 4:35 pm

  I have been unable to buy GB00B4MBFN60 (L&G Global Emerging Mkts Idx Acc) within my III ISA, it will however let me buy outside of the ISA. Most awkward:(
• 2 Marc January 6, 2011, 4:54 pm

  This resembles my plans closely – although I have a higher allocation of pacific ex japan & developing. Also not bothering with gilts presently, as I think inflation is going to make them a fairly ineffective investment for the forseeable future.

  BoE seems keen on raising interest rates at some point though, so from a passive investment PoV it is nice to have all angles covered.

  Low interest rates and high inflation is pretty depressing; rewarding those in debt by reducing its real value, whilst penalising those with cash savings. The effect on older people who can’t necessarily risk investing in stocks is what upsets me most.
• 3 Simon January 6, 2011, 9:38 pm

  I have been lurking around your blog for a month or so and researching EVERYWHERE (www and paper) to design my personal investment strategy. I pleased and also a bit pissed that you’ve come up with a virtually identical solution to mine. Pleased because I have obviously learnt something along the way, pissed as I could have just waited for this article to come out 🙂 A couple of questions though…

  The HSBC American Index follows the S&P 500 (unlike the other HSBC products which track more general indexes). Do you see this as an issue? When the fund gets big enough would you switch to an ETF tracking (for example) MSCI World USA?

  Once the portfolio gets big enough (and assuming that all avaliable UK ETFs and Index funds are still the same then as they are now) is there any benefit to switching from Index Funds to ETFs?

  Why 20% UK equities and 50% Developed World ex-UK? (This is the only real difference between our models – I went 35% UK 35% The Rest for no reason other than it lookss nice and feels like it shelters me more from currency fluctuations.)

  For anyone that cares I plan to stick to this portfolio until it gets to around £10k – hopefully in about a year – and then allocate 10% to a rotating asset class strategy (probably monthly changes) , all 10% invested in one asset class at a time selected by momentum. At the moment asset classes in the mix will be Wood, Water, Infrastructure, Clean Energy and Commodities (using as big, diversified and fluid a global index ETF as I can find for each asset class). The big reason for planning this strategy is to make me feel “active” without too much risk to the “passive” engine that I really believe in. I’d be interested in comments if that’s appropriate to this board / thread.
• 4 Alex January 6, 2011, 10:30 pm

  1. As ever, thanks for this.

  2. HSBC European Index Retail Acc: the TER p.a. of 0.37% is good. It’s certainly a lot better than that for the equivalent index fund from L&G, for instance.

  3. Now, I know here you’re not considering ETFs for your portfolio. However, I thought it’d be useful to bring to everyone’s attention a similar ETF, the db x-trackers EURO STOXX 50 ETF. The TER p.a. is even better – er, it’s zilch.
• 5 Tony January 8, 2011, 1:13 pm

  Thanks for this – I love models!

  @Simon – Once you’ve built your £10,ooo fund, are you saying that 90% of new money will continue to be invested according to your original strategy and 10% of new money to a “racier” ETF? I’d have thought this would be sensible; and would give you a degree of control and keep you interested.

  If you’re saying that every month you’ll switch 10% of your entire portfolio from one fund to another e.g. from Wood to Water, this goes against the whole concept of passive investing. It could be a fast way to lose money (I appreciate that you could gain with superior knowledge and timing). If this is your plan, wouldn’t you be better keeping it simple by having a passive portfolio and using a separate spreadbetting/CFD account to take advantage of short term trends in commodity prices? You’d also be able to use gearing and have control over stop losses and targets (although I gather most people end up losing their money).

  p.s. I’m no trader, so this is meant in good will.
• 6 Simon January 9, 2011, 12:20 pm

  @Tony

  Thanks for comments, all taken in good will!

  I think I should say that I have alternate investments (property, collections and two seperate pension plans) so – all things being equal – I’m covered for retirement plus I have a cash war-chest big enough to keep me going for 40 weeks at my current rate of spending (this will have grown to cover 52 weeks by the end of 2011). The purpose of this particular portfolio is to learn a little about the markets and hopefully to build enough money so that in 11 years (aged 55 – 11 years from state retirement age ) when I review my retirement options again I’ll have some more flexibility.

  I will run the portoflio inside an ISA to 1) be tax efficient, 2) to limit myself to max of ~£10k invested per year. Effectively this means that I’ll add £1,000 to the portfolio most months of the year.

  My plan is that once the captital reaches £10,000 I’ll take 10% (£1,000) and invest it in one asset class (that class with the highest momentum on that day – selected from the menu of classes mentioned above plus a global REIT that I forgot to mention before). One month later I’ll allocate £100 for my rotating 10% (eg £100 = 10% of my £1,000 monthly lump sum). I”ll stick this £100 in cash (gilts) if the rotating asset happens to be over 10% of the entire portfolio – otherwise I’ll see which asset from my menu has the highest momentum on day. If the winner is the same class then the £100 gets added (minus the £1.50 dealing fee on iii.co.uk) and I’ll wait another month. If a new asset class is the winner I’ll sell all of the previous holding and invest it all in the new class (so invest approx 10% of my entire portfolio in one asset class) The dealing fee to do this will be between £1.50 and £20 depending on timing. In the meantime the rest (90%) of my portfolio is in the buy and hold setup outlined before, as this is all in load-free index funds there are no dealing fees.

  I’ll consider rebalancing the whole thing every year. When the total portfolio gets to £20,000 (in about two years from now) I may consider investing my rotating 10% equally across the top two asset classes (rather than the top one) – by that point I should have a better idea of typical monthly turnover (an hence dealing costs).

  Lots of the ideas that I used (stole) to create this “strategy” can be found on this blog (for the passive part) and at http://davesbrain.blogs.com/mindmoneymarkets/2010/07/momentum-investing-links.html for the rotating bit. I haven’t seen my exact plan anywhere else (which alost ceratinly means its a bad idea!!)

  Does that all make sense mechanically now? Of the course the bigger question is anyone thinks that it makes sense financially?

  Note that I have NO IDEA if this will work. This is my first venture into “self select” investing. I’m not stupid and as well read as I can be in a month or two. The only thing that would give me sleepless nights is if someone else reads this and is daft enough to copy the idea and as a consequence they lose their money (as shown before I can afford to lose mine!) So please don’t make my mistakes!!

  All comments or questions, positive or negative welcome!
• 7 The Accumulator January 9, 2011, 6:43 pm

  @ Random – That’s weird. The iii website says it is ISA compatible:
  http://www.iii.co.uk/factsheets/?type=detail&mex=LGGLEM

  @ Marc – Understand your thoughts on gilts. Although a passive investor devises their asset allocation based on their investment principles, rather than upon their crystal ball. In other words, if you believe that gilts reduce volatility and that you’d be very happy to have some if the world double-dipped, then they should be part of your portfolio. It’s easy to say, I know, harder to do.

  @ Alex – Like your thinking! I’ve just done a quick fund comparison pitting the trading costs of the ETF versus the TER of the index fund. The index fund just squeaks it. Outperforming the ETF by 0.07% over 20 years. In other words, a miniscule difference, so you could go either way. Two considerations: the ETF is swap-based so exposed to counter-party risk, and the TER is 0% because the ETF pays for it by lending out their securities. It’s conceivable that Deutsche Bank may not make enough every year to wipe out the TER, but then I guess they would take it on the chin if that happened (rather than the investors) – that 0% is such great marketing.

  @ Simon – I’m personally happy to track the S&P 500 as representative of the broad US market. I’d rather bank the cost savings than worry about which index might perform best.

  The only advantage to swapping to ETFs (under the circumstances you propose) is if you want exposure to an asset class that you can’t get any other way e.g. property. One thing’s for certain, though, the index tracker market will change, and the portfolio will have to change to take advantage of any opportunities that arise.

  I’d ideally base my asset allocation on the total investable global market. In which case the UK should be more like 10%. But as you say, currency risk, so I based the 20% loosely on Tim Hale’s Home Bias portfolios (his book – Smarter Investing – is a great read for any UK passive investor).

  I’m interested in your technique to control your ‘active side’. Here’s some thoughts I wrote recently on keeping yourself passive: http://monevator.com/2010/12/21/passive-investing-tips/

  What’s made you choose those sectors for your momentum play? And do you know, for example, how much infrastructure is already in your passive portfolio? What happens if your active 10% takes a nose-dive? Will you rebalance money from the rest of the portfolio?

  I’ve certainly considered the possibility of diversifying my portfolio into narrower sectors. Currently I’m entirely in broad market segments. I think playing with momentum would work against my personal psychology. My longer-term plan is to ensure my portfolio is as diversified as possible and to try and find non-correlated sectors that are largely absent from my current set-up.
• 8 Simon January 10, 2011, 9:37 pm

  @Accumulator

  Thanks for explaination of UK % holding, I’ll try and find Tim Hale’s book. The logic makes great sense and I’ll have a good think if I want to change my allocation along those lines.

  As you say the whole point of the “active” 10% of my plan is to keep my grubby little fingers off the “passive” 90%. I might well lose money from my 10% so I want some fun but I know that money will “buy” my discipline elsewhere.

  If at any point the active pot falls below half of its total book value I’ll give up (it will be around £500 by that point and fees kill the stragety completely then) and put what’s left into the passive portfolio and try to find alternate work for my devil’s hands.

  Regarding rebalancing… When I rotate to a new asset class (ETF) my current ETF is either more than (“OVER”) or less than (“UNDER”) 10% of my entire portfolio. If is is OVER I will only put 10% (of my entire portfolio) into the new asset class (putting the profit into my passive slow burning money making machine – lol); if the current ETF is UNDER I will only transfer the value of the curret ETF plus that month’s £100 investment minu fees into the new class. In other words I’ll try to lock in profits and hope the system can fight it’s own way out of losses.

  At the end of the year I’ll rebalance the entre portfolio IF I decide to continue with the strategy. (Because there is no cost to me trading any of the indexes in the 90% passive portfolio I’ll rebalance that whenever any one asset grows beyound 20% of it original alloocation – eg if a 10% allocation gets to 8% or to 12%).

  I’ll decide whether to continue the strategy based on the profit of the active part of the portfolio (including any profit taking). If the active part beat money in my cash ISA (curently 2.8%) I’ll keep the strategy going with 5% of my portfolio (eg because of ongoing investments that should mean back to around a £1,000 pot); if the active part beats the FTSE 100 I’ll keep the strategy going with the same 10% of my portfolio (eg around a £2,000+ pot); if the active part beats the FTSE 100 for the year by 50% (unlikely!!) I’ll consider allocating 15% of my portfolio and going for a two asset class rotation.

  I picked the asset classes based on themes that I think could form a bubble or a rapid cyclical rise. I’m not trying to add diversification to my passive portfolio – I’m deliberately looking for big slow bubbles that I can catch and HOPEFULLY jump off onto a new bubble before the first one pops. For this reason I’m looking for maximum global / currency diversified within a class (not easy).

  I looked for classes that I know are very cyclical (commodities, wood, infrastructure with it’s heavy utility bias, REITs) or just sound cool (!) so that taxi drivers can tell passengers about them (clean energy, water, infrastructure again). Also the classes must have had a crazy year at some point (eg show that they are prone to bubbles or at least strong rises). Big recent years for these classes are: water 37% in 2006; global REIT 40% in 2006 & 33% in 2004; wood 23% in 2004; clean energy 76% in 2007; global infrastructure 39% in 2006; I can’t find a number for global commodities but you get the point. Of course I am aware that every asset died in 2008. For comparison FTE 100 grew 6.7% in 2004; 16.7% in 2005; 10.7% in 2006; 2.3% in 2007. (All figures from “Exchange Traded Funds and Index Funds – How to use tracker funds in your investment portfolio” by David Stevenson. I’m sure that Mr Stevenson would consider my strategy supid, it’s certainly not mentioned in his excellent book.)

  Actually I keep thinking that Emerging Markets fits well with this group and is better placed here than in my passive portfolio.

  At the moment I’m avoiding country specific ETFs (politics and currency fluctuations around a bubbling country scare me). Similarly I don’t understand commodities enough (including gold and oil) to pick anything other than a global mixed basket. Perhaps if this works well I’ll find more classes to consider – global small caps; emerging market infrastructure; global nuclear energy. Suggestions welcome!

  I’m sure that a huge part of my passive and active portfolio depend too much on the USA – but don’t we all?

  A final thought… if “catching a bubble” doesn’t sound clever enough, another way to look at it is that I don’t understand the markets or economics (I really don’t!) I’m a passive investor and therefore happy to follow the group decisions of all of the active investors out there. These guys only survive in the long term if they are very clever or very lucky. I like the idea of trusting my money to clever, lucky people. For example I have tried and can’t get my head around backwardation or contango BUT I can tell when lots of clever and lucky people think think that commodities are a good buy. I’ll follow them while constantly (ok, actually once a month) trying to judge when to jump off the roller coaster.

  I hope that all makes sense. Please feedback if you feel like it.
• 9 Tony January 10, 2011, 9:58 pm

  @Simon – Wow! Even more complex than I’d imagined. I can see that you’ve defined a strategy that meets your needs and you’ve decided an appropriate level of risk based on all your investments and savings. So long as you have the time to do this and enjoy doing so, then good luck!

  It would probably be easier to invest your £1000 in one or two undervalued shares or investment trusts and hope that they grow over time. Obviously, you have to select the right investment, but I think you’d enjoy that!
• 10 The Accumulator January 10, 2011, 10:27 pm

  @ Simon – I concur with Tony. The complexity of it will keep you busy and it seems like that’s exactly the effect you’re after. It also sounds like you’re having a whale of a time working it all out, which again, is another of your key objectives. I hope it works out for you. Just promise me you’ll resist the temptation to siphon off more ‘passive assets’ if the active part flops 😉
• 11 Simon January 11, 2011, 8:05 pm

  @Tony & Accumulator

  Thanks for the feedback. Maybe I’ll try and get back in 18 months or so and tell you if it has worked out. As you suspect I’m enjoying the planning stage!!!

  Keep up the good work and I promise not to cheat 🙂
• 12 Ben January 12, 2011, 10:21 pm

  Very timely post on the blog as i’ve just finished reading Hale and had come up with a portfolio independently of this one that was pretty similar.

  Financial Product | % of Portfolio | Cost (TER %)
  HSBC American Index (Acc) | 33 | 0.26
  HSBC European Index (Acc) | 16 | 0.37
  HSBC FTSE All Share Index (Acc) | 8 | 0.27
  HSBC Pacific Index (Acc) | 13 | 0.37
  Legal & General All Stocks Gilt Index Trust (Acc) | 30 | 0.25

  all set up and ready to go on monthly direct debit with h-l

  will let you know how its gone in 20 years time

  great blog – keep up the good work
• 13 The Accumulator January 13, 2011, 8:09 pm

  Thanks for sharing, Ben. I love seeing other people’s asset allocations. What made you go for those %s? And no emerging markets for you?
• 14 William January 13, 2011, 8:14 pm

  I see that you have mentioned the L&G All Stocks
  Gilt Index Trust (Acc). Using HL will add 0.5% + VAT to the AMC
  (TER) if purchased via them. An alternative would be the new HSBC
  fund, HSBC UK Gilt Index Fund which has a AMC of 0.25% (estimated
  TER of 0.27%). Through HL this is all it costs to hold. I wonder if
  anyone knows whether HSBC still plan to launch a Global Bond Index
  Fund and a Emerging Markets Index Fund as these were both
  previously mentioned as being planned in conjunction with the UK
  Gilt Index Fund?
• 15 Ben January 14, 2011, 8:29 pm

  The asset allocations are simply based on global market capitalisation figures (e.g. 100% global equity Hale p.166), but my ‘rest of world’ is only the HSBC pacific fund at the mo, will diversify that a bit now I’ve seen the other options presented (e.g. emerging markets, Japan etc.). The gilt allocation is based on a combination of age and risk tolerance neither of which I’ll bore you with.

  William, thanks for the heads up on the charge, It had crossed my mind that it might attract the 0.5% fee but I hadn’t followed it up. I’ll double check the situation with them. Either way I’ve got a little time to iron out these issues before the first payment goes out.
• 16 William January 15, 2011, 1:47 am

  My understanding is that HL apply the 0.5% + VAT on most of the index funds on their website unless there is a high TER on the fund. However, they do not do this to the HSBC funds as I understand they still get a commission from HSBC.
  Ben, in fairness HL do make it clear on their website which funds attract this extra charge.
  HSBC appear to have gone quiet on the Emerging Markets Fund and the Global Bond Fund. In recent months they appear to have concentrated on the launch of their ETF range.
• 17 The Accumulator January 15, 2011, 9:54 am

  @ Ben – what source are you using for your global market capitalisation figures? I only ask out of interest, not because I’m challenging your figures.
• 18 The Investor January 15, 2011, 11:03 am

  Great comments all.

  To be constructively provocative, I somewhat question the strategy of having so much of a portfolio overseas, given currency risk and the way the UK index is already strongly tilted to international global trade.

  It’s hard to think of an Black Swan impact to UK shares that wouldn’t also hit developed markets ex-UK. And most internal ones (like swingeing rises in CGT, say) would also your overseas ETFs.

  Personally I’d rather have at least 50% to 60% of my portfolio in the currency I intend spending it in (UK sterling), unless I was investing abroad specifically to take tactical advantage of sterling strength.

  I suppose it partly depends on how you intend to use your money, and how flexible you can be with it. But currencies can easily move 10-20% in a year, which would rather undo a lifetime looking to save 10 basis points off TERs et cetera if it came at a time when you were forced (or strongly wanted to!) to repatriate your funds.

  Perhaps Hale has numbers to show that’s a groundless fear, but 8% in the UK? Not for me. (Although I guess with Gilts you’re getting closer to 40%).
• 19 Ben January 15, 2011, 3:56 pm

  @ accumulator

  the global market capitalisation figures originate from the MSCI World Equity Index

  @investor

  you could look at currency risk as a further opportunity for diversification, remembering it can work for you as well as against.

  Section 9 on portfolio construction in Hale covers it in some detail outlining the pros and cons better than I can.

  Over the long term you might imagine it would even out.
• 20 The Investor January 15, 2011, 5:59 pm

  @Ben – Yep, absolutely agree about diversification benefits of currency risk and have written about it before.

  My worry is the cliff face nature of the risk – a lot of people here are talking about retirement portfolios. Perhaps the answer is to move more money back to the UK steadily over the final decade, in the way that you would traditionally move to fixed interest.
• 21 The Accumulator January 15, 2011, 5:59 pm

  @ TheInvestor – it makes more sense for passive investors who’s underlying aim is to capture the market. Moreover, as a passive investor you would be gradually switching from equity to domestic bonds as your target date for the cash loomed ever larger. So you shouldn’t be subject to an enormous currency swing against your portfolio at your very hour of need.

  I don’t think of diversification purely in terms of Black Swans. The FTSE could underperform the S&P 500 by a smidge for the next decade. Who knows? And who knows if the current global correlations will persist decades into the future? It’s hard to imagine not, but few see paradigm shifts coming. Regardless, UK positions don’t have to be held purely in the FTSE 100 or All-Share.
• 22 The Investor January 16, 2011, 1:14 am

  @TA – Yes, switching to bonds will be a big help, provided they’re sterling-denominated bonds, of course.

  The main issue I’m flagging is that currency swings can do more in a year than say the US versus the UK is likely to do in even a few years. The pound was north of $2 just 2-3 years ago, and in the midst of the flight to safety it dropped to (from memory) something like $1.40. So that’s a 30% change in barely 18 months.

  That change was good for UK investors holding US assets when it began, but obviously it can work the other way. Allie it to a declining market, and currency changes can easily see more than 50% of your holdings vanish in just a year or two.

  This is all fine over a 20-year horizons, perhaps. Swings and roundabouts. But there’s no talk of systematically reducing this risk as the portfolio (and investor!) ages and matures, so I’m just flagging it up for the unwary. 😉

  Yes, currency risk can be a positive as well as a negative, but I’d predict if you’re about to buy an life term annuity with a portfolio that’s lost 20% in 12 months due to a strengthening pound, the fact that some newly-minted Belgium or Californian OAP has benefited the other way from the swings and roundabouts will be cold comfort. 🙁

  As you say, the issue is avoiding being exposed to the risk in your “hour of need”. I guess I’m flagging up that particular concern with these portfolios. Fine in your 30s and 40s, but if as you get into your mid-50s and 60s, internationally diversified portfolios have to think about how they’ll repatriate the funds.

  It’s not really about the returns, it’s about the fact that Tesco and M&S take £££s, not Euros or Yen. You have to spend it one day, and as a UK citizen it’ll be in pounds. That is an extra-dimensional factor beyond normal risk concerns. You want to be able to afford your pie and pint in your old age! 😉

  To conclude, absolutely not a reason to avoid overseas exposure even close to retirement, but a reason to be aware of the risks and to react to your changing age profile.
• 23 William January 16, 2011, 2:26 pm

  Firstly, I wan to thank you for your blog which I discovered in last year (2010). I have found it to be most informative. Also it caters for the UK investor. American personal finance sites and blogs although good are written for the US population.
  Secondly, going perhaps a little of message – I would welcome any news on HSBC and their proposed Emerging Markets Index fund and the Global Bond Index fund. HSBC indicated that these would be launched in conjunction with their UK Gilt Index fund (this launched October 2010). HSBC have gone very quiet on these and I have yet to find someone in HSBC to address this. Given their attack on fees on their passive range and their positioning for post RDR business I am perplexed on their silence.
• 24 Louis January 19, 2011, 11:01 am

  Great post. I’m looking to move over to some ETF funds I
  noticed that a few people are using interactive investor
  (iii.co.uk), would anyone particularly recommend/denounce them? Iv
  heard some mixed things regarding site access and technical issues.
  I would like to know how does the portfolio builder work? £1.50 per
  trade but £20 minimum? Also is there a minimum limit to start an
  ISA? both h&l and barclays want a minimum of £3000 to start
  an account I couldn’t agree more in regards to currency risk. Even
  though I’m a young investor I prefer to have the majority in my
  base currency. FYI this is my current asset allocation: UK –
  Large/Mid cap – Equity 50% Global Bond 14% UK Index Linked Bond 9%
  Corporate Bond 8% USA – Equity 7% Emerging Mkts 7% Small cap – UK
  5%
• 25 The Accumulator January 21, 2011, 12:18 pm

  Hi Louis,

  You’re right about the trade fee and trading minimum. No minimum limit to kick off your ISA. I think all brokers will attract their share of grumbles, you can get more opinion on iii here: http://boards.fool.co.uk/brokers-and-share-dealing-50070.aspx?mid=12142626&days=7

  I wonder why you hold global bonds if you’re not keen on currency risk?
• 26 stuart February 9, 2011, 10:40 am

  i was looking for a passive core/explore portfolio with low/charges isa

  and your choices hav given me the confidence to go with it
• 27 Henry May 5, 2011, 2:34 pm

  Thanks for writing this blog, the information on here is excellent. I have a query regarding your recommendation on using Interactive Investor:

  “Purchases: All funds can be purchased from Interactive Investor – the minimum contribution per fund is £20.”

  In another post, you advise of using Alliance Trust to purchase Vanguard Index Tracker funds because of cheap management fees? Which should I go for?
• 28 The Accumulator May 5, 2011, 9:14 pm

  Cheers for the support, Henry. The funds in the Slow & Steady portfolio can be bought from iii. I chose them specifically instead of Vanguard funds because you won’t pay any trading costs on the deal. That makes them very flexible and a good option for small contributions.

  Vanguard funds are the cheapest for management charges but you have to pay a trading cost to buy and sell. That only becomes worth your while if you can buy/sell in relatively large amounts.

  AT charge £1.50 for regular monthly purchases or £5 per quarter or £12.50 for a single buy/sell. I personally aim to keep trading costs at 0.5% or less of the trade: so that’s at least £600 per month to buy a Vanguard fund @ £1.50.

  You can use the fund cost comparison calculator on Candid Money to compare the costs of the different approaches. From memory, Vanguard worked out best for me if I held for 8-10 years or so (if the trading cost was 0.5%).

  AT also now charge an annual fee of £25 plus VAT on ISAs. iii don’t.
• 29 Henry May 10, 2011, 1:53 pm

  Thank you for clarification. I should have read your other post on Vanguard and their costs first. I’m in it for the long haul, so will opt for a selection of low cost Vanguard index trackers via Allliance Trust as outlined in an earlier post on cheap index trackers. Thank you again for this blog.
• 30 Rob Brennan February 15, 2012, 4:33 pm

  I’m trying to find some of the funds mentioned on the II website but when I search for them nothing comes up. Am I doing something wrong? Do I need to have an account to search? I just want to decide if I should swap my ISA over to them to be able to buy more funds than I can with my current L&G ISA but without being able to check the funds I want it’s not really worth it.
  I’m loving this site btw.
• 31 The Accumulator February 15, 2012, 10:09 pm

  Hi Rob,

  http://www.iii.co.uk/funds/fundfilter?task=show_fund_search
  Search by company name – HSBC Investments (UK) or L&G
  Click through to fund name

  For the L&G Gilt fund:
  Search using Mex code LGGTA or term All Stocks in home page search box. Click through to fund factsheet for prices.
• 32 Rob Brennan February 24, 2012, 3:51 pm

  So here’s a kicker for you. As I already have an ISA and funds with Legal & General I thought I might add some other funds including maybe the gilts mentioned here which is why I asked about them. Turns out from within L&G I can’t buy them as retail units. The minimum purchase from L&G is £100,000. Ouch! I was debating about whether I should open some more funds with L&G despite higher TERs for ease of use or transfer my ISA elsewhere. Seems they’ve answered the question for me.
• 33 Jimmy Jones May 31, 2012, 7:24 pm

  Hi Accumulator, are you going to move away from III before they screw you with the new £80 per year fee.
• 34 john June 2, 2012, 7:15 pm

  If III are going to impose an £80 annual fee, who will be the viable alternative? I’m second guessing a Vanguard LifeStrategy fund with H-L at £24 might be best although it doesn’t seem as flexible as the slow and steady portfolio.
• 35 Nathan June 5, 2012, 12:59 pm

  @ John

  At the moment, Cavendish Online would be a viable alternative- they carry all the funds in that portfolio and no charges at present.
• 

  Mogul

  36 The Accumulator June 5, 2012, 2:55 pm

  Yep, we’ve got a post going up tomorrow with a good range of options.
• 

  Mogul

  37 The Accumulator June 6, 2012, 11:21 am

  Hey, here’s our post on cheap discount broker options: http://monevator.com/no-fee-discount-broker-options/

  And here’s a post that explains what’s happened with iii and why: http://monevator.com/interactive-investor-fee-hike-rdr
• 38 Trevor November 29, 2012, 2:43 pm

  nice and neat portfolio. Thats exactly (or almost exactly) the kind of portfolio I`m trying to build in the coming days.
  Did you buy them via Hargreaves & L or Fidelity Supermarket?
• 39 The Accumulator November 29, 2012, 11:10 pm

  @ Trevor – the portfolio is hypothetical. You could buy it or something similar from any number of places including Fidelity or HL (though they charge platform fees). Cavendish Online, iWeb and TD Direct are all worth a look.
• 40 astateofdenmark February 18, 2013, 11:34 pm

  The links at the end of your passive investing guide (http://monevator.com/category/investing/passive-investing-investing/) have all died. Have they been moved?
• 41 The Investor February 18, 2013, 11:51 pm

  @astateofdenmark — Huge thanks for alerting us to this, there was a bug at play. Should all be fixed now.
• 42 astateofdenmark February 19, 2013, 9:37 am

  No problem, they are working.
• 43 ringingup March 30, 2013, 12:32 pm

  I’m building a similar portfolio to start investing in a S&S ISA before then end of this financial year. Then I will also start contributing monthly.

  However, I’m remodelling the portfolio to decrease the level of risk, using the same funds but distributing the investments on a 55% Equity (25% UK, 25% North America, 5% Emerging Markets) vs 45% Gilts.

  Now the question is… is it too risky to invest the whole lump sum of £5640 of this year’s allowance?
• 44 Nathan March 30, 2013, 2:07 pm

  Not looking good for passive investors is this whole RDR thing…

  The new HSBC trackers, the “C” class, that replace the ones in this portfolio look to have a 0.1% lower TER… but also attract the 0.25% platform charge making them more expensive overall.

  Fidelity (Cavendish) have both at the moment, and the higher cost of the new ones is evident on their funds selector tool.
• 45 ringingup March 30, 2013, 2:14 pm

  I can’t seem to find any of the “C” class ones on Cavendish Online?!
• 46 James October 31, 2013, 11:40 am

  Hi Accumulator / Investor,

  I’m doing a similar strategy, but unless I’m mistaken, it’s slightly cheaper to use a world ex-UK fund than have so many separate funds?

  e.g. I’m using HSBC FTSE All Share @ 0.27% for my UK Equity, but L&G International Index Trust @ 0.37% for my non-UK Equity. This seems to be both easier AND cheaper.

  I calculate the weighted TER of mine to be 0.35% vs. 0.41% for yours.

  Have I missed something somewhere?

  Thanks!

  James
• 47 The Accumulator October 31, 2013, 1:10 pm

  Hi James,

  The costs on this version of the portfolio are a little out of date. The latest version – using clean class funds – has a weighted TER / OCF of 0.18%.

  http://monevator.com/the-slow-and-steady-passive-portfolio-update-q3-2013/

  All the same, I essentially agree with you about using package deal. I personally use Vanguard’s Dev World ex UK fund for my international allocation. TER: 0.3%.

  The ease of use and lack of trading fees / rebalancing issues are worth the sliver of extra expense in my view.
• 48 James October 31, 2013, 9:30 pm

  Thanks for such a quick reply!

  Reassuring to know we’re thinking along the same lines.
• 49 john November 22, 2013, 3:43 pm

  Accy & Jimbo,

  What about Vanguard’s FTSE All World ETF at .25% instead of your FTSE All Share and International ex-UK combos?

  I was looking to offset 70% of equity with 30% of iShares Global Inflation-Linked Bonds ETF (.25%) so long as it’s Sterling hedged.

  I’m sure that will cover me most ways going forward at the most cost effective way.

  Also one query on trading, do you factor the trading percentage as a percentage of the overall funds worth i.e 2 trades of £600 at £1.50 is .5% but as a percentage of a fund that is 4800 that .125% right?
  So if that continues, for instance, under the jurisdiction of Charles Stanley I make that out as a total annual charge of .625% initially, with that figure coming down as, hopefully, the value of the fund goes up?
• 50 Mike Rodent March 29, 2017, 1:34 pm

  I am very interested in your site and the advice on it.

  Thanks for giving this specific fund recommendation advice (of lot of tracker investing advice is rather unspecific). Over the past year I have moved several £100 000s from cash (and property) into mainly (90% of them) passive funds, most of them US Index trackers, essentially the usual suspects: HSBC US Index, Vantage S&P 500, etc. At this stage I have several confusions as a newbie passive investor: 1) why would I want to invest in Japan or China or emerging markets? I can understand investing in USD-, £- (were it not for Brexit) or €-held stock. But Far East indices seem to go all over the place, as do their currencies… and I’m never going to want to live in that part of the world… 2) for me one of the BIGGEST PROBLEMS EVER is identifying the funds people are talking about: you actually quote the “Fund identifier” (aka ISIN) ref no. above. Most “recommenders” don’t … and it’s a huge source of confusion (for me) because so many funds have incredibly similar names but turn out to be as different as chalk and cheese.

  My biggest puzzle at the moment is how to diversify my passive investing without putting much in the UK or the Far East. Europe might be OK … maybe EU funds might even be quite cheap at the mo with concerns over Brexit effects. What do you think about diversification into trackers pertaining to a particular geographical + non-geographical sector? Eg. US financial funds index, or US tech funds index, if one exists?
• 51 Mike Rodent March 29, 2017, 7:45 pm

  Hello Accumulator…

  Thought I’d take a look at this: HSBC European Index ISIN: GB0000469071. (Incidentally Cavendish told me it’s “not available to buy in an ISA any more as it is the old style bundled fund so you would have to use the new clean version of the fund if you want to use the HSBC European Index Fund”, which is ISIN GB00B80QGH28… I wonder what they mean by “clean”: it’s the same manager and fund size…).

  My question is: how do we ascertain that a fund like this is indeed a “tracker”. Just because of the word “index” in the name, and the low charges? When I look here (http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000OOB2) it’s actually quite confusing as to what it does: “The fund seeks to provide long term capital growth by matching the return of the FTSE Developed Europe excluding UK index. The fund seeks to invest in companies that make up the FTSE Developed Europe excluding UK index.” This suggests quite a bit of active “picking and mixing”… do you delve into this question of what constitutes a tracker anywhere on your site?
• 52 The Accumulator April 2, 2017, 8:55 pm

  Hi Mike, re: your question about diversification, this piece is probably the most succinct and rational explanation of passive global diversification I’ve ever read: http://monevator.com/why-a-total-world-equity-index-tracker-is-the-only-index-fund-you-need/

  Everything I’ve read about industrial sectors leads me to believe that they’re not a good idea because you’re not rewarded for the concentration risk you take.

  Here’s a piece on naming conventions: http://monevator.com/fund-names-explained/

  Basically, if a fund has the word index in its name then you are usually in business. If the factsheet says it seeks to match the return of a certain index then you can rest easy, it’s an index fund.

  Clean funds – in olden days, um before about 2012, you could buy funds that included broker or IFA commissions within their management charge. The financial intermediaries could then pretend their services were free although really they got their payment via the backdoor from the fund – this was ‘dirty’. Now all funds you can buy are ‘clean’. Clean in the sense that you can see what they charge you for their services, while the intermediary – broker or IFA – is obligated to tell you what they charge. So it’s all out in the open, smelling fresh.
• 53 Marnix Volckaert November 20, 2018, 10:20 am

  Hi Accumulator,

  with a risk of asking something that you have explained somewhere in detail without me finding it, I have a beginner question about your quarterly reporting: how do you compute these numbers given that you are adding to the portfolio every quarter? I have a similar portfolio and accumulating strategy, and wish to produce the kind of quarterly reports you make. But by simply looking at the value of each fund every quarter, most of the ‘gain’ comes from buying more, not from fund performance. So when you say ‘value last quarter’, do you mean the value of that fund as if you had already owned x shares of it at that time, even though you only bought up to x in this quarter?
  Have you already explained somewhere how to create these kind of reports, or would you be able to explain it a bit more? Perhaps it is of use to people starting out with similar slow and steady portfolios…
  Thanks!
• 54 The Investor November 20, 2018, 11:07 am

  @Marnix — You’re quite right — new additions of money have to be accounted for if return figures are to be correctly calculated! If I recall correctly @TA does it with software. I prefer to do get under the bonnet for myself to do it the way fund managers and others do, by ‘unitizing’ my portfolio.

  It’s a bit of fuss to set the initial spreadsheet up but very easy to maintain after that, and allows direct comparison with similarly tracked funds (e.g. Pretty much all published fund data is unitized).

  Here’s a primer:

  http://monevator.com/how-to-unitize-your-portfolio/
• 55 Marnix Volckaert November 20, 2018, 12:16 pm

  @The Investor, thanks for the pointer about unitizing a portfolio, very helpful! It’s funny you decribe setting up the spreadsheat as a bit of fuss, because it sounds like something I’d enjoy doing coming saturday night, haha. Such is the life of a mid 30’s investing nerd with wife and kid… 😉
• 56 The Investor November 20, 2018, 1:49 pm

  @Marnix — In that case I strongly recommend it! Much better than relying on a black box solution, you see all the money going in and out and get a real feel for the snowball as it starts to grow. Also makes it easier to track your savings (new money in) and any money you take out in a separate sheet over the years, so you can see over time how much your net savings is driving your overall wealth growth versus your investment returns — and possibly course correct if required.
• 57 The Accumulator November 29, 2018, 1:11 pm

  @ Marnix – to create an annualised return that is money weighted I use Excel’s XIRR function. Unitised returns (which I don’t use) are time-weighted. i.e. all time periods are weighted equally, irrespective of how much money is invested when. A money-weighted return does not attempt to eliminate the effect of contributions and withdrawals: on the contrary, it specifically adjusts for them. Time periods in which more money is invested have more of an impact on the overall return than equivalent time periods in which less money is invested.

  Some good pieces here on XIRR:

  http://whitecoatinvestor.com/how-to-calculate-your-return-the-excel-xirr-function/

  https://onedrive.live.com/view.aspx?cid=826E19AB9B5B8CE9&resid=826e19ab9b5b8ce9%21137&wacqt=sharedby&app=Excel

  http://www.experiglot.com/2006/10/17/how-to-use-xirr-in-excel-to-calculate-annualized-returns/

  Or, there are some links to ready-built portfolio tracking software and spreadsheets in the portfolio tracking section of this piece:http://monevator.com/financial-calculators-and-tools/

  To answer your original question: Value Last Quarter is value of funds including any new money invested last quarter.

  Value This Quarter is then the % change in value of funds just before I invest new money this quarter.
• 58 The Investor November 29, 2018, 1:11 pm

  Note: The above comment was from The Accumulator, who is having trouble posting today. I will change the author attribute ASAP! 🙂
• 59 Craig Graham February 10, 2019, 7:39 pm

  Thank you for your ongoing work in finding the best value funds out there. I would put forward an alternative to the Vanguard Lifestrategy Funds (0.22% charges) using Blackrock Consensus Funds. Neither are strictly speaking passive funds (as you pointed out) but both pretty accurately track various global equity indices. Blackrock Consensus 100 is available at a headline rate of 0.24%, but through HL (where my employer pension sits) there is a loyalty bonus (in the form of units) which reduces the net ongoing charge to 0.11% – half that of Vanguard. This seems to be available to all but of course broker charges need to be taken into account. Geographic distribution and asset allocation looks very similar to Vanguard 100.

  Interestingly, HL also offer Blackrock Consensus 85 at 0.09% – BUT surprisingly the geographic asset allocation differs considerably from Consensus 100 with a much greater UK weighting – so I have ignored that one.

  So, I combine Consesus 100 with Vanguard Global Bond Index at 0.15%, resulting in what I think is a well diversified and cheap portfolio. I’m probably missing exposure to smaller companies but its a pretty easy 2 fund approach. I hope this may be of some interest to your readers. Keep up the invaluable work.
• 60 The Accumulator February 14, 2019, 10:00 pm

  Thanks Craig, it makes sense to take advantage of those HL discounts when your employer pension is with them. I’ve always been put off by the Consensus funds remit to change asset allocation at the drop of a hat – though I wonder if they ever actually do?

  There are some other fund-of-fund options too, including a interesting looking one from Fidelity. I’ll take another look at them soon now I’m back on the blog trail.
• 61 Samuel Pike May 26, 2019, 12:32 pm

  Thank you for this, I look forward to reading the entire series. I have a beginner’s question though…

  Am I right in thinking that, whilst is is possible to have multiple ISA funds, it is only possible to contribute to one cash ISA and one S&S ISA per tax year?

  If that is right, how are you able to open and contribute to 7 simultaneously? Is this where the platforms come in to play (TD direct and / or iWeb) ?

  Many thanks in advance,
  Sam
• 62 The Accumulator May 26, 2019, 1:11 pm

  Hi Sam, yes one S&S ISA per tax year. You can have as many funds as you like within a single ISA. There’s a good description of the rules here: https://www.moneyadviceservice.org.uk/en/articles/stocks-and-shares-isas
• 63 Matthew Layton May 28, 2019, 10:54 am

  Hi, thanks for your articles – the series sounds great and I’m interested in starting. I’m aware this started in 2011 and things have changed a lot since then. My question is what funds would you start with as of now (I’m 8500 to invest now and 1000 to invest quarterly and 20 year term). Common sense tells me to start from the most recent quarterly post, but is the asset allocation I should use different to what is currently on there (since the values are higher after 8 years of investing and 12 years left of term). Thanks
• 64 The Accumulator June 2, 2019, 4:48 pm

  Hi Matthew, the asset allocation on the latest article stands up. You could start with a simpler portfolio though, see this piece for more ideas:

  https://monevator.com/asset-allocation-types/

  Also, re: equities/bond split:

  https://monevator.com/how-to-estimate-your-risk-tolerance/

  https://monevator.com/asset-allocation-construct/