What caught my eye this week.
I read this week of a successful US hedge fund that’s closing down because it finds the work too onerous.
“Soul sapping” in its own words.
It wasn’t the challenge of hunting for good investment ideas that did for the Echo Street’s hedge fund, apparently.
That was “joyful”, it said. (Something I can personally well believe).
Rather it was a requirement to manage volatility – to “smooth the ride” – that has seemingly ruined the business of managing billions and making millions as a hedge fund.
Institutional Investor quotes from an Echo Street letter to clients:
“Why is the environment for hedge funds getting harder?” the September 9 letter said.
“Managers live inside the box defined by their risk constraint. They can do whatever they want, as long as they stay inside that box…
If that box includes a need to ‘smooth the ride,’ then that box gets tighter and smaller every year.
As the techniques we use to smooth the ride get discovered, they no longer smooth.”
Interesting.
Of course, I don’t expect abundant sympathy for Echo Street’s management. It’s hard to bust out the tiny violins for fund managers paid a fortune because they have a few too many bad days at the office.
Besides, the firm may be closing its hedge fund and returning money to clients, but the business itself isn’t shutting down – it will continue to offer long-only funds.
So in that respect a decision like this is just opting for an easier life. It’s pushing the difficulty of reducing volatility through diversification or other strategies back to the customer.
Which is what makes it relevant from a Monevator perspective.
We’re all bemoaning the difficulty of properly diversifying a portfolio in today’s low-yielding, more correlated world.
For example, to just mention the phrase ‘government bond’ in a post here is to set off a torrent of anguish in the comments below.
Perhaps it’s not reassuring to hear that a winning hedge fund with resources far greater than our own also sees the difficulty – albeit through a prism of regulation and box ticking.
Not reassuring, but it’s surely telling, no?
Maybe we just need to accept that the best way to ‘smooth the ride’ on today’s investment journey is to try to keep our eyes on the distant finishing line, and to try not to look out of the window – at our portfolios – any more often than we need to.
The view from the Channel Tunnel isn’t very enticing. But Paris is still glorious when you finally get there.
Have a great weekend!
From Monevator
The Accumulator: I hit my FI number – Monevator
From the archive-ator: Financially independent in 10 years: A plan [2013] – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
Boris Johnson: UK is now seeing a second Covid-19 wave – BBC
UK interest rates likely to fall below zero in 2021 – Guardian
Shares tank on fears of another UK national lockdown – ThisIsMoney
Royal Mint to stop production of £2 and 2p coins due to excess stock – Guardian
Co-op to open 50 new stores after lockdown prompts “exceptional” demand – ThisIsMoney
Renters fleeing central London in ‘race for space’ – Guardian
Charting the Covid-19 effect on Fintech – Andreesen Horowitz
Products and services
Skipton’s 1.2% paying best buy account sold out in three days – Guardian
NS&I going paperless; will stop sending Premium Bond prizes in post – ThisIsMoney
Revolut saga spotlights concern over digital banks’ service standards [Search result] – FT
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
Switching bonuses rise to as much as £125 for current accounts – Which
What do negative interest rates mean for savers and borrowers? – ThisIsMoney
How one Blackrock model portfolio tweak unleashed a flood of ETF demand [US but relevant] – Morningstar
Homes for sale with a thatched roof [Gallery] – Guardian
Comment and opinion
Happy – Indeedably
Watch out for pension milestones at 55, 65, and 75 – ThisIsMoney
Merryn S-W: Best option for the FCA to boost fund market is to leave well alone [Search result] – FT
How are institutional investors ever going to hit their return targets? – AWOCS
Swedroe: Sport, investing, and the paradox of skill – Evidence-based Investor
9 ways to grow your wealth [US but relevant] – Of Dollars and Data
Tim Harford: Can you put a number on it? [Search result] – FT
Time, creativity, and wealth – Abnormal Returns
Want $870,000? – Humble Dollar
Steps to take if you’re afraid of running out of money in retirement – MSN
Naughty corner: Active antics
Investing is easy? – Compound
HGCapital Trust: A tech trust in disguise – IT Investor
Big investors are desperate to know what amateur trades are doing – Bloomberg via MSN
Dividend cut in a FIRE portfolio – Getting Minted
Covid-19 corner
The work from home backlash is upon us – A Wealth of Common Sense
6,000 new cases a day estimated in England – Sky News
North East England Covid-19 restrictions start – BBC
London at risk of curfew and lockdown – Evening Standard
New fear grips Europe as cases top 30m worldwide – BBC
Israel enters second national lockdown; first country to do so – Guardian
Small steps you can take now to prepare for a winter pandemic – Vice
Engagement with anti-vaccine Facebook posts trebles in one month – Guardian
London’s New Year’s Eve fireworks cancelled due to virus – Sky News
Kindle book bargains
Radical Uncertainty: Decision Making for an Uncertain Future by Mervyn King – £0.99 on Kindle
How Innovation Works by Matt Ridley – £1.99 on Kindle
The Deficit Myth: Modern Monetary Theory by Stephanie Kelton – £0.99 on Kindle
How to Get Rich by Felix Dennis – £0.99 on Kindle
Off our beat
How the pandemic broke online shopping [US but relevant] – The Atlantic
Escaped prisoner tried to hand himself in seven times – Guardian
The billionaire who wanted to die broke… is now broke […ish] – Forbes
Tesla battery day: Has Musk already ‘leaked’ the revolution? – Clean Technica
Technology’s revenge effects – Farnam Street
Trees, birds, ponds: Mexico City’s ancient lake reclaims airport – Gulf News
And finally…
“Habits are the compound interest of self-improvement.”
– James Clear, Atomic Habits
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Comments on this entry are closed.
Keeping our eyes on a distant finishing line is a sensible thing to do if the finishing line is in fact distant. What to do though when you cross the finishing line, do not have a pension and have to live off your savings? This question is why I am looking forward to future posts from The (De)Accumulator as he grapples with the realities of achieving FIRE.
I am reading Todd Tresidder’s “How much money do I need to Retire?” at the moment. He raises some interesting points about the timing of retirement and sequence of returns risk. He points out that the success of a safe withdrawal rate is determined by asset valuations and subsequent growth at the point of retirement. Although none of us have a crystal ball it seems reasonable to believe that we are at a vulnerable point right now after a long bull market, high valuations, low interest rates and inflation. A fall in asset prices, negative real interest rates and higher inflation and those of us having to retire on savings (as opposed to an actual pension) will be in a fair bit of trouble.
Buy a Global Equities Index Tracker and a Global Bond Index Tracker Fund hedged to the Pound in the asset allocation suitable to your age
Work hard at your day job, save as much money as you can and live frugally
That’s it
You will do better than over 80% of investors
xxd09
@ Cat793 – outcomes are correlated with asset values rather than determined by. I take your point though. For sure, I’d rather be FI with asset values at lower levels but then it would have taken longer to get there. If you retire in the aftermath of major stock market crash then you can look forward to better expected returns, and have reason to chance a higher SWR, but your pot will be lower than if the crash had not occurred.
It’s always scary out there. Imagine the list of worries we’d write if retiring in the 1970s just before the bull markets of the ’80s and ’90s.
I’m not one for blind optimism though. I think it’s your active engagement with the subject that’ll help you pilot a safe passage through the future, and you obviously have that in spades.
@cat793 & @TA:
This fairly recent post by ERN, albeit from a US perspective, may interest you both:
https://earlyretirementnow.com/2020/07/15/when-can-we-stop-worrying-about-sequence-risk-swr-series-part-38/
FWIW I entirely agree with “I think it’s your active engagement with the subject that’ll help you pilot a safe passage through the future”
I agree – we’re all going to have to accept higher short term volatility to even maintain real capital value, let alone grow it. But this short term volatility diminishes greatly if we focus on the long term. It’s much easier said than done, of course!
Thanks for the tip about King and Kay’s Radical Uncertainty being 99p on Kindle. John Kay was interviewed on an Investors Chronicle podcast this week – worth a listen and the book sounds interesting. As my contribution to the torrent of anguish you requested , I can’t resist sharing this quotation from the podcast:
“People in the financial world often confuse managing risk with achieving certainty. The man who is going to be hanged tomorrow has certainty, but not security. And actually people who are saving for their pensions by investing in long term bonds at the moment are doing much the same thing: you get the certainty [that] you will have a very low standard of living in retirement. That’s not my idea of minimising risk.”
@Cat793 – one solution of course is a glide path. I’m 54 and can’t see myself doing another 2 or 3 years, let alone 13. So about last November I moved from 100% eqities to 75% bonds and 25% equities. Each year I’ll move 5% from bonds to equities. 5% is about what I need to survive for a year. So as I get nearer State Pension Age, I reduce my F.I. exposure as I need less secure capital to get me there and that role is undertaken by State Pension) and increase my risk portion.
I see very little upside in markets at the moment (so don’t fear missing out) and a lot of downside (which I want to protect against.)
Last March I thought I was a market timing genius
@C strong – “accept higher short term volatility to even maintain real capital value” – surely accept less potential gains to maintain real capital value and dampen the volatility?
Although, of course, I will have to keep and eye on potential rate rises.
But I can’t see that very soon.
I read somewhere that “you can’t eliminate risk, just transform it from one form to another” or something similar. Ho-hum.
I very much believe in the “smooth the bumps” approach. Or to use a Buffettism “Rule No. 1: Never lose money. Rule No. 2: Don’t forget rule No. 1”. I prefer to focus on not losing money, since making money is easy. The stochastic upward drift of assets does the heavy lifting for you.
While I think focusing on the ‘far horizon’ works well when you don’t need to touch the capital for decades, most of us aren’t in that privileged position. If you are a investor with say £1mm and want to take £40k/annum out, then you can look at that like borrowing £1mm at an interest rate of 4% forever. It’s effectively your asset portfolio’s cost of funding. From that view, you are like a (modestly) leveraged investor. And leveraged investors simply cannot ignore path dependence. Sequence of return risk is the enemy. That’s nothing to do with worrying about short-term volatility. It’s because of how geometric compounding works. It can just take too long to recover from a much lower starting point: lose 50% and you need to make 100% to get back to and by then the NAV drag of that funding cost has killed your portfolio. Big downside volatility is like a tax that suppresses your CAGR.
Moreover, while you don’t need to worry about day-to-day volatility, you do need to be cognizant of the fact that the daily vol of your portfolio can be an indicator of the potential for major drawdowns. If your portfolio moves on average 1%/day then, taking account of fat tails, that’s probably a VaR north of 30%+ annualized. So at least once every 20 years, you should expect to drop 30%+.
I’m in my early 50s and new to investing, xxd09’s wisdom resonates well with me. I’ve always had to live frugally but I’m lucky enough to be in a position to begin investing small amounts.
I would like to congratulate anyone who reached their goals, becomes FI or who invests well in the pursuit of obtaining a good retirement. Doubt I will ever be in a similar position however no sour grapes as I would certainly do the same.
Slightly off the point (but feels relevant) one thing I’m interested in knowing (for curiosity purposes only), does anyone have (or researched) a portfolio using passives / smart-beta passives to reduce volatility/ increase return and are able to reduce bond allocation (75/25 instead of 60/40) and does it perform as expected.
I recently noticed Siegal-wisdom tree portfolios being offered to US advisers which claim to do this but can’t find what ETF holdings the portfolios has, how they managed them and if they would work in the UK. For something which is claimed to be open architecture there seems to be a lot hidden. I realise some smart factor ETFs don’t always significantly do better than standard passives so I’m a little sceptical. On the other hand wisdom tree has an emerging markets ( non government company) tracker ETF which appears to do well in some reviews.
I’d be very interesting to see what people think and how such a smart-beta type portfolio would perform against standard passive index tracker portfolios using historical data up to the present day.
Anyway, great website and feedback. I feel I’ve learned a lot. Thank you everyone who contributes.
Isn’t that the opposite to a usual glidepath. Interesting approach.
New to investing.
does anyone have (or researched) a portfolio using passives / smart-beta passives to reduce volatility/ increase return and are able to reduce bond allocation (75/25 instead of 60/40) and does it perform as expected.
You seem to have a better grip than me.
@TI thanks for including Deficit Myth by Stephanie Kelton. 99p great bargain , been wanting to read it.
@Griff – if that’s aimed at me, it is I suppose. But it’s not my work, Big ERN and his Early Retirement Now’s SWR series:
https://earlyretirementnow.com/safe-withdrawal-rate-series/
What I need, as a potential retiree, is to protect my capital. As ZX states above, if I retire with a big equity exposure (my naive take on a volatile portfolio) and the there’s a big drawdown, I’m toast.
@ Bal – if you reduce high quality bond allocation in exchange for more exposure to diverse equities then you may expect a higher return over time – though that’s not the same as saying you’ll increase your actual returns. You’ll also likely increase the risk / volatility of your portfolio.
You don’t need smart beta, you can do that with any vanilla, low cost global equities tracker.
I guess you’d prefer lower volatility equities that get you a good return at lower risk though? A quick rough and ready comparison of iShares MSCI World Min Volatility vs iShares MSCI World suggests that the low vol smart beta ETF is working as advertised. The low vol fund generally trails (but not always) its full-blooded cus, and generally draws down a little less (but not always).
The thing you need to know is that smart beta is not guaranteed to work. The metrics that it’s based on can fail you for a few years, 10 years, 20 years or forever. A smart beta allocation is itself a risk because it comes with associated extra costs over what you’d pay for a vanilla fund.
I’ve invested in smart beta (also known as factor investing) funds and generally they haven’t delivered over the last 10 years. I didn’t invest in min volatility though.
My heartfelt recommendation is to only get involved in this if you’re prepared to do lots of research into how it works and what the pitfalls are.
These links will get you started:
https://monevator.com/return-premiums-introduction/
https://monevator.com/low-volatility-premium/
I didn’t realise people were reviewing ETFs. That is total BS. ETFs can’t be rated like that.
Hi guys,
Thank you to everyone for feeding back. I’ve done a lot of reading but don’t have experience.
I was very curious but skeptical on what I’ve read on factor / smart beta ETFs but they looked promising to my untrained eye (don’t want to pass over hard earned for the promise of magic beans).
@The Accumulator – Thank you for sharing your smart beta experience and about low vol. Yes, you pitched me correctly I’m basically looking for a balance between lower volatility / best return on my modest investment without dramatically increasing too much risk or cost.
Disclaimer: Equities aren’t my area.
In terms of information coefficients (cross sectional correlation of factor signal to forward returns) and information ratios (excess return/excess risk) then, in the post GFC period, Low-Vol(Size), Quality and Income(Dividend) factors have performed well vs. market in both long and long/short strategies. Value(High-Vol), Growth and Momentum(Sentiment) haven’t really performed in long format and all underperformed as long/short strategies.
CAPM suggests that Low Vol stocks should underperform the market in the long run. Most models are wrong but some are useful. CAPM is not even useful. Low vol factors have actually shown the strongest resilience since the 1980s. People posit behavioural viases such as the low beta of such stocks restraining benchmark-tracking long-only institutional investors from overweighting them. Or the Lottery Effect (investors overpay for high beta stocks to win big). To my untrained eye, the secular decline in bond yields and the long duration exposure of low-vol factors seems a clearer explanation. This factor is the only one that has become more volatile post GFC, probably due to herding.
During this cycle, Value has performed unusually poorly. The prolonged period of low interest rates is likely one of the key reasons behind this. Moreover, value factors significantly underperform in slowdown phases of a business cycle and most of the last ten years, in growth terms, has been a bit like an extended slowdown. Value does exhibit positive skew, unlike most others factors. As such Value could act as a good hedge at cycle turning points.
I’ll be laughing if Value brings it home. C’mon Value. C’mon. [Starts screaming himself hoarse like his house is riding on the 2.30 at Chepstow].
Value Factor
I’m uncomfortable with these tech valuations, Amazon has a PE of over 200 now which is hard to justify. My main equity allocation has been Vanguard All Cap Global which has recovered to pre Covid levels recently despite headwind from dollar weakness. However, the fund is heavily weighted towards tech. Last week I sold half and bought Vanguard Value Factor Global with a PE of c. 10 to give myself some protection and as an alternative to bonds.
I’m definitely in the “ignore the bumps” camp.
100% vanguard all world, buy and hold, never sell until money needed.
@Accumulator – thank you for the links, v interesting reading. So from what I have read my understanding is:
low volatility may mean being concentrated more on a few sectors which in turn may be over priced when the strategy becomes a fad and can mean a less diversified portfolio. Low volatility performance could be more due to market anomalies rather than evidenced market conditions.
Having a portfolio which has exposure to cycling between value, profitability and quality factors may be more desirable as some of the gains from low vol can be captured due to the value factor with the companies in the index.
However quality & profitability can be measured in various ways which may affect the real world returns depending on the measures used. Value may include cheaply priced companies for a good reason (possible extinction, debt issues,etc.) and is currently struggling at the moment.
Please correct me if I’ve misunderstood any of what I’ve read. If all the above is correct I can see why you give caution when looking at smart beta / factor products.
This leaves me thinking to just not fret the bumps in the road for now and go back to a simple choice: A multi asset fund using trackers and live with their choice of allocation and rebalancing or pick a global tracker & global bond tracker but initially live with maybe not being able to balance it correctly at the start but this could be changed over time to reduce the possible volatility and accept there is not really a better alternative. The latter is possibly my preference.
@Griff (comment #10)
Whilst what Brod is suggesting is somewhat counter the orthodoxy, it is not without foundation: the Accumulator himself discussed this way back in 2013.
I thought people might be interested in today’s Professional Pensions article on sustainable withdrawal rates:
https://www.professionalpensions.com/news/4020467/ultra-low-interest-rates-qe-%E2%80%98broke-drawdown-rule%E2%80%99
@ Griff / Brod / New Investor – rising glidepaths have been subject to plenty of scrutiny since – to cut a long story short they can help under certain conditions but – you might have guessed it – are no sure thing. IIRC they are most likely to help if you’re unlucky enough to experience a particularly bad sequence of returns. Which is exactly when you’d want the help. If you’re not that unlucky then a rising glidepath may lag the alternative.
@ Bal – yes that’s right. I’d add that like quality / profitability, there are different ways of calculating value, low vol and the other factors. Sometimes one variation can outperform the others but it’s impossible to predict in advance so some fund shops offer products that use a diversified metric for a factor. Multi-factor ETFs offer exposure to value / low vol / quality / momentum / size etc in one handy package. It’s important to know that factors really outperform as long-short portfolios but the funds available to retail investors are overwhelmingly long only portfolios. Factor premiums are much less impressive in long only form.
The whole business comes with the health warning that factors may cease to work permanently or may weaken once widely understood. For example, an academic performing statistical archaeology may be able to show a set of equities was brilliant historically before the secret was outed. But the trade may lose potency once the whole world knows and pumps up the price of those equities via an easily accessible public investment vehicle such as an ETF.
My own research led me to the conclusion that factors should be diversified just like other equity markets. My personal experience over 10 years has been disappointing but then I knew that was possible. Sadly costs are certain but results are only known in hindsight.
@accumulator – thank you for confirming my understanding is basically correct and providing additional detail and your experiences to help increase awareness of the potential shortfalls of factor strategies. A good pair of vanilla index trackers is now clear to me more prudent for many reasons (including reduced volatility).
BlackRock MyMap portfolio series are offered in risk profile levels and currently seem to be performing slightly ahead of most other multi asset funds using trackers (for cost, volatility & performance), but not much of a track record or how they’re tinkered with. Vanguard Life strategies currently seem to be trailing MyMaps and not sure on their UK bias. HSBC global strategies are also tinkered with and a bit below MyMaps in performance. Does anyone know if there is anything else that should be considered.
I would prefer to use two global trackers as I’d like to know a little more about what’s going on under the hood of the portfolio. Checking on cheap trackers Vanguard global all cap index and Vanguard global bond index seem the best pair. There doesn’t seem many other comparable trackers that are not ETFs (Any suggestions would be gratefully appreciated).
My basic calculations (which could be incorrect) also seem to show MyMaps still perform slightly better when allocations are balanced in a similar way (using MyMap starting allocations).
Have thought about a few other options such as using a developed world tracker or use a developed world ex UK (UK FTSE seems to be currently suffering – did consider the option of adding trackers at a later point as the portfolio develops) however both of these have varying levels of reduced diversification which could increase potential volatility.
So still on the fence regarding either fund of funds (i.e. MyMaps) or a couple of good global trackers for diversification but grateful with what I’ve learnt so far.
@TA. I downloaded the 2020 copy of JPM’s US Factor Reference Book. It’s 329 pages of dense tables and charts covering over 100 factors, grouped into the six I mentioned above. The 2011 version is linked here http://www.thinkfn.com/ficheiros/JPUSFactorReferenceBook.pdf.
What always hits me is how cyclical the factors are. Value does well in the last stages of a recession with most of the benefit coming from the short leg (i.e. expensive stocks significantly underperforming cheap stocks), and during early stages of a recovery with the majority of the gains coming from the long leg (junk rally). Momentum has had a tendency to accelerate during the later phase of a cycle (i.e. winners take all … say hello to those FAANGS etc). Or how correlated some of these factors are to bigger macro variables: rising falling VIX, steepening/flattening yield curve.
It’s also noticeable how weak the signals are. The information coefficient (IC) on a good factor is like 3%, a brilliant one 5%. The hit rates are at best 55% in long/short format, much lower in long format. Noticeable compared to the 2011 handbook, hit rates and ICs have fallen. I also see that 20% of US equity AUM now resides in various quantitative strategies termed smart-beta or factor investing (compare with another 35-40% in passive funds).
The old joke in my quant strategy team was that smart-beta was a nailed on way to turn 3%/annum alpha into -1% beta. That was 15 years ago. That’s probably somewhat unfair but when this amount of information is so easily available and so much AUM is now deployed into them, it’s hard to imagine huge outperformance.
@ Bal – For fund-of-funds options (alternatives to MyMap or LifeStrategy) there’s a round-up here:
https://monevator.com/passive-fund-of-funds-the-rivals/
For a vanilla global equity tracker paired like a fine wine with a fishy bond fund, here:
https://monevator.com/low-cost-index-trackers/
[I’m joking about the fish]
My early thoughts on MyMap when it was fresh out of the box:
https://monevator.com/blackrock-mymap-fund-of-funds/
You’re in the right ballpark with LifeStrategy or MyMap or a twinset of global equity/bond trackers. There’s not enough data to go on to know whether MyMap’s performance edge will last (you need at least 5 years) so think more in terms of best fit with your investment philosophy and need for simplicity vs complexity.
To tell an embarrassing story: after all my research I decided to chance my arm with factor investing. Excess premiums will be mine! Meanwhile, I put my mum into VG LifeStrategy as she hadn’t done the research and seemed to feign death every time I tried to talk to her about it. Her results trounced mine. For shame!
@ ZX – thank you for the link. I’m OK to read 329 page pdfs now that my time will soon be my own 😉
It sounds like the pros saw us retail investors coming even 15 years ago. John Bogle did sound the alarm though. Given information asymmetry and my lack of agility in the market I decided my best bet was to pick the ETF with the least correlated combo of factors I could find in one package: value / momentum, quality / momentum, quality / value, size / quality / momentum in FSWD.
I read about low vol acting like some kind of perpetual bond but you didn’t tell me that interest rates were going to fall through the floor did you, EH?
How come growth didn’t perform? I thought growth kicked ass due to big tech eating the world?
@ Bal – To put the tin lid on it, I wrote this post about the various elements that whittle away factor premiums to a sliver. Yes, I get invited to all the parties.
https://monevator.com/why-return-premiums-disappoint/
@The Accumulator – Thank you for your generousity in providing the benefit of your experience, links and helpful guidance.
Your link regarding disappointing return premiums also makes a great deal of sense and I heartily agree about MyMap’s lack of track record.
At the end of the day I’m looking for something fairly basic, generally has a good chance of a respectable return for a low cost which is straightforward to rebalance (if required).
I’m still on the fence a bit about whether to choose a fund of funds or pairing two global trackers. Neither appears to be a bad option but I’ll need to decide to go one way or the other at some point fairly soon to avoid procrastination.
I wonder if anyone here has experimented by running both a fund of funds vs a pair of global trackers side by side to see what the real total returns (after fees/ costs) were.
@xxd09 – you appear to advocate a global tracker pairing. Would you be willing to add a few words of wisdom regarding your experience or choice of global trackers and with the benefit of hindsight would you do anything differently?
@The Accumulator – thanks again for all your advice and positive comments. This website has helped me a lot to avoid making a number of rookie mistakes. No doubt I still will make mistakes but hopefully a few less than I might of left to my own devices.
Also all the articles and follow up comments from everyone is great reading and helps to highlight various view points. Thank you all 🙂
Bal-I only have 3 funds and have been in this position for a long while -over 10 years
Aged 75- retired 18 years
30/65/5-equity/bonds/cash
Vanguard Global Bond Index Fund ex UK 26%
Vanguard FTSE AllShare Index Tracker 4%
Vanguard Global Bond Index Tracker Fund hedged to the Pound 65%
Cash 5% ( 2 years living expenses)
I would advocate this position from the word go but had to arrive at it through learning and plus the fact that Index Trackers were not available when I started my investing career
(A lot of middle of the road funds were in fact expensive closet index trackers)
A Global Equities Index Tracker Fund and a Global Bond Index Tracker Fund hedged to the Pound is all you need-Vanguard is who I use-there are others
Your asset allocation in bonds is your age minus 10-a rough guide
Simple cheap easy to follow
Beats over 80% of equivalent active portfolios
Concentrate on your day job.save money and invest it.live frugally
That’s it
xxd09
@xxd09 – Thank you for sharing your knowledge and experience. I really like the idea of a portfolio that is simple to follow (something I might be able to mirror) and adjust the allocations as time goes on using a small number of funds that are low cost.
Could I ask a couple of questions please:
a. is the Vanguard Global equity Index ex UK you use the FTSE developed world ex UK fund or is it a different one?
b. If you were to hypothetically re-evaluate your equity index tracker would you have a preference towards something like Vanguard’s global all cap index tracker or stick with a cheaper developed world index tracker.
From what I’ve read Vanguard do seem to offer some excellent trackers which have really good index tracking errors.
I really appreciate all the wonderful feedback and learning from people’s viewpoints and experiences. Thank you 🙂
I use the Vanguard Developed World ex UK (VVDVWE)fund
If I was starting now I would use a Global Equities Index Tracker -more diversified
There are also ETFs available which do essentially the same job and would give you more choice
Probably fine tuning is less important than being diversified as much as possible ie global
Doing it as cheaply as possible
Then staying the course through thick and thin or downturns and bubbles!
xxd09
@xxd09 – Thank you for clarifying and for the good advice.
@ Bal – you’re welcome.