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This former hedge fund manager reveals how you can invest for life in five quick videos

Photo of Lars Kroijer hedge fund manager turned passive index investing author

I have spent years looking for the best way to get people interested in investing – and to teach them how to do it once they’re hooked.

Some methods work better than others.

But with bribery expensive and the threat of physical violence a clear violation of my parole conditions, video has proven to be about the best gateway for would-be investors who can’t be persuaded to read a book (which is quickly becoming nearly everyone, let’s face it).

Videos about passive investing are especially useful, because there’s not really much to it that needs detailed explanation

Save regularly into an index fund or two, rebalance when things get out of whack, and beat the vast majority of managed funds – it’s an offer most people can’t refuse.

Of course, you and I know there are loads of niggles and quirks that can expand those basics into a book (or a 2,000-article blog!)

But let’s not scare the newbies by revealing we’re really Dungeons & Dragons style nerd-lords of investing, eh?1

Investing explained in five simple videos

Bottom line: When friend of Monevator Lars Kroijer told me he was working on a new video series, I smelt the chance to win new blood to the investing cause.

His five-part video series, which I’ve published below, goes from 0-to-invested in a little bit more than 60 seconds – but much less than an hour.

So why not send this article to the investing virgin in your life today?

It’s as easy as watching cat videos or Lululemon yoga workouts, only it’s about, um, index funds!

Beats hitting someone over the head with a copy of Investing Demystified or Smarter Investing any day.

Video 1: Why index funds? An overview from Lars Kroijer

Most people – whether professionals or private investors – have no chance of beating the markets in the long run, especially after fees and other costs.

Video 2: You can’t beat the market or pick market-beating funds

Far too many people believe they can beat the market – and far too few people have any incentive to tell them otherwise.

Video 3: You only need one cheap world equity index fund

So you’ve decided you don’t want to try to beat the market or waste money paying a manager to fail to do so. Fear not – by investing in a world equity index fund you can achieve global gains at the lowest possible cost.

Video 4: How to adjust your portfolio to suit your risk tolerance

Vary the proportion of your portfolio that’s allocated to the lowest-risk assets – cash and government bonds – to best reflect the stage of life you’re at, and the risk you’re able to bear.

Video 5: Implementing your low cost index fund portfolio

How to select the right products for your hyper-efficient best-in-breed passive portfolio, and how to keep your strategy on track.

Still not had your fill of Lars Kroijer? Read Lars’ posts on Monevator, or check out his book, Investing Demystified.

  1. No offense to D&D-ers: Both The Accumulator and I have done time in the caverns with a dozen D6 and a Vorpal Sword of +3 slashing. []

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{ 58 comments… add one }
  • 1 Gregory August 16, 2016, 9:16 am

    Great! Lars’s book is one of my favourites. He is the global Jack Bogle.

  • 2 Adam August 16, 2016, 10:53 am

    This is a great set of videos. Thank you.

    Which world equity fund do you suggest I invest in?

  • 3 Fremantle August 16, 2016, 11:23 am
  • 4 AtlanticSpan August 16, 2016, 1:39 pm

    Thanks for sharing these videos. Lar Kroijer is the modern day John Bogle. I have one misgiving about the Vanguard All-World ETF and that is that it’s domiciled in Ireland. I personally would be wary of buying Eurozone domiciled funds until BREXIT has been sorted out. I actually phoned Vanguard in the UK to query how this might impact UK investors,but the person I spoke with was unable to advise me about the future ramifications.

  • 5 IanH August 16, 2016, 2:30 pm

    These look great. I’ve watched the first one and it was a good precis of the main thesis of Lars’s book. Coincidentally there is a similar series of videos by Mark Hebner on passive investing (Index funds: the movie) being trailed at evidencebasedinvestor presented by Robin Powell, who I think produced the videos as well. Like Lars’s video series the latter I believe are linked to a forthcoming book by Hebner. Maybe Lars’s videos will have a UK angle to them as his book does that will make them a little more relevant to monevator readers, but Hebner’s ones are good too.

  • 6 Marco August 16, 2016, 9:12 pm

    Thanks Lars, the videos are brilliantly simple. I’m 100% on board with your suggestions since I read your first article.

  • 7 pad August 17, 2016, 2:43 am

    Thanks, these video clips are great. The argument that if we have no edge we should just buy a single world tracker seems impeccable to me. But then I’m confused about a one thing that gets discussed here on this site. Why should we rebalance, not between equities and bonds – I get that, but between whatever allocation between geographical regions we start out with, and how things turns move over time? Shouldn’t we just go with the flow of capital allocation when, say, emerging country equities start pulling ahead of Europe/USA etc, rather than rebalance? Surely rebalancing is basically claiming we believe our initial allocation of capital is better than what the markets are telling us now? Ot maybe I’m just being dense?

  • 8 Marco August 17, 2016, 8:05 am

    Pad, if you buy the world equity tracker you will always hold the market weighting of the respective countries. If China is 5% but becomes 50% then that is what will be in your tracker.

  • 9 magneto August 17, 2016, 9:54 am

    @pad
    “Surely rebalancing is basically claiming we believe our initial allocation of capital is better than what the markets are telling us now? Ot maybe I’m just being dense?”

    No you are far from dense!!!
    This is a fundamental investment question/dilemma.
    Go with the flow or rebalance?

    Maybe one pertinent question to ask is, which policy makes the investor more comfortable and so then able to ‘stay the course’?
    (Whatever that course may be).

  • 10 Lars Kroijer August 17, 2016, 10:23 am

    Thank you so much for the nice comments. Monevator is really the first place the videos have been published so very encouraging to get good feedback (although I would never pretend to be John Bogle who is a huge hero of mine and someone who has done more good in the world than most Nobel Prize winners). Thanks for heads up on Robin’s videos – I’ll send him an email. Re rebalancing, the ETF providers do that as the index changes (typically quarterly). I think the main issue with the world equity trackers is the overrepresentation of US, both vs actual market cap, but also as fraction of world GDP. Don’t have a good answer other than it will get better over time, and that the largest US companies are more global in nature (Facebook, Google, etc.) than ever in history. And that it is a hassle to assemble the better ratios yourself (plus hard to get right).

    Know it is a lot to ask, but it would be great if you share the link to the videos.

    Thanks again!
    Lars

  • 11 John August 17, 2016, 10:41 am

    @pad – It depends on what you are trying to do with your portfolio. If you are trying to hold a portfolio that represents the world’s stock markets then you would want your holding of growing economies to increase if their share of the global stock market value increases.

    If you have decided on 5% China and don’t want to increase that even if Chinese listed firms became 25% of the global market then clearly you’d want to behave differently.

  • 12 Balfy August 17, 2016, 2:59 pm

    @IanH

    Found the videos you referred to at

    http://www.indexfundsthemovie.com/

    Very good viewing.

  • 13 SemiPassive August 17, 2016, 5:33 pm

    Lars, having recently bought, read (and lent!) your excellent book I have a question about your “risk free” asset allocation which essentially appears to be short dated gilts for UK investors.
    Since the book was written yields have dropped even further to the level where not only does it not match inflation but ETF fees outweigh the yield, and even directly buying gilts the dealing charges effectively wipe out any future yield.

    So how do you feel about holding cash as an alternative? The alternative of longer duration bonds obviously increases interest rate risk.

    Disclosure: my current asset allocation is 50% equities, 20% mixed bonds (e.g. IGLT, SLXX, HYLD), 20% cash, 10% gold. Despite you hating gold I’m not selling it 🙂

  • 14 bandh August 17, 2016, 7:55 pm

    Surely now isn’t the time to be piling into ‘safe’ assets such as bonds and gilts?

  • 15 Lars Kroijer August 17, 2016, 9:11 pm

    I don’t really have a problem with cash as an alternative, but be careful with holding too much of it. Keep in mind that the government guarantees cash, but only up to a certain limit, and I wouldn’t be surprised if future disasters could see haircuts to bank balances (like Cyprus almost did). To be fair this is miles from the case with UK. Don’t worry re gold either. Loads of friends hold it. I just don’t think it does a lot for you (bit like Bitcoin I think). There is a section on it in my book which I can perhaps do a blog on if Mr/Mrs Monevator think it is a good idea?

    Agree re terrible returns from safe assets. But also don’t think those are the assets where you hope/expect returns. No free lunch.

    Hope that helps a little. Cheers

  • 16 EUOrphan August 17, 2016, 9:13 pm

    Lars
    I read your book and liked it. Thie videos are great for educating my daughter who has the attention length of a gnat. 🙂

    I have found, there is no fundamental basis for rebalancing, it still appears to be a financial fashion statement.

  • 17 FatButFun August 17, 2016, 9:28 pm

    Ex Real Estate Fund Manager turned early retired/stay at home Dad. Great fan of low cost investing and anyone that promotes them. I do my best to explain the benefits of low cost investing and low cost platforms to anyone that will listen – but few people do – despite them claiming to be envious of my being retired in my 40’s.

    A couple of things surprise me – the lack of home bias and the recommendation to ignore real estate (and commodities). Being UK based, I would worry, perhaps too much, about the level of US exposure and also think that real estate really can add something to the mix, due to its bond and equity like components. It’s just a pity that any exposure you can buy as a tracker exposes you to the real estate equities, and not the underlying real estate performance

    I am assuming you have done the math on adding a real estate and commodities tracker to your risk chart in order to disregard them?

  • 18 hariseldon August 17, 2016, 10:17 pm

    Very well presented and persuasive videos, goldilocks ,not too long, not too short.

    I have a little concern over a single region dominating, not so much US now but a Japan 1989 situation. I have taken a view with my portfolio to sub divide the World tracker into its regional constituents, with a typical % allocation to each region, which is an average of the last few years and let it run with no set rebalancing, its cheaper , about .125% against Vanguard World at .25% as well!

    Over time it will be very similar to a world tracker but I have the ability to apply the brakes on a region if necessary, Japan 1989, USA 1999 etc
    I choose to make very few such decisions, as they are very difficult, but only to act when I view a market as extremely expensive/cheap not because it has grown bigger/smaller due to economic changes over time.

    The UK would have had a much larger market share in a World Portfolio 100 years ago and we have to see that such developments occur all the time.

  • 19 Lars Kroijer August 18, 2016, 7:06 am

    @Fatbutfun – the problem w/the book/videos was the difficulty of making it right for everyone. A major reason I said to leave out real estate is that many regular investors are already exposed to it far more than they should be via their house/flat (relative to overall wealth). Also, typically that exposure is based locally (it’s where you live obviously) so the correlation risk with other non-investment assets (your job, etc.) is very high. Finally as you say, it is very hard to get the kind of cheap and broad exposure that I think someone without edge should aim for. The real estate stocks or funds tend to be very concentrated (and expensive) themselves. For those running large endowment style funds I think there is a much stronger case for including real estate, particularly commercial. Also keep in mind that the returns (using the Case Schiller index) from real estate has not necessarily been that great. Obviously London has been a huge success, but there are many failures too. Hope that makes a bit of sense.

    @hariseldon – really good spot re putting it together yourself. Some of the global trackers implicitly overcharge for emerging markets (ie US/Europe you can buy at 0.1% suggesting global should not cost more than 0.2%, etc.). Just be careful you don’t become an index picker instead of stock picker, or essentially a macro trader. Often the trading costs, tax, hassle add up to far more that you realise over time. You are also right that you buy the biggest stocks/country at the peak and it is not hard to point to cases where the nightly have fallen. But that goes back to point of edge. By de-selecting Apple (or lowering weight) you essentially claim edge by saying that those who have included it are missing that it is overpriced.

    But you are also right re Japan. I took a class at university in 1993 on Japan and basic lesson was that we should try to do everything that they do as they are about to take over the world. Didn’t quite turn out that way 🙂

  • 20 Stefan August 18, 2016, 9:19 am

    @pad, @EUOrphan – I think there is a case for rebalancing. I’ll step through it, let me know at which point you disagree.

    Rebalancing maintains your desired asset allocation. The asset allocation is determined mainly by risk tolerance. Therefore rebalancing ensures the portfolio matches our ability to take risks.

    You said you understand why rebalancing stocks vs bonds makes sense (i.e. the equity risk premium is why we rebalance). Now let’s move to rebalancing scenarios involving just stocks.

    Does rebalancing an large cap equity tracker vs small cap tracker make sense? I think yes, because small cap is expected to be riskier so again we want to maintain our asset allocation. This is the same reason as rebalancing stocks vs bonds.

    Now let’s move to geographic regions. Does rebalancing a developed market equity tracker vs emerging markets tracker make sense? If you believe in an equity risk premium for emerging markets, then again we must maintain an asset allocation to prevent the portfolio from becoming too risky.

    Should we rebalance between individual country markets? In theory the same equity risk premium thinking can determine asset allocation and rebalancing decisions here too. In practice we need to draw the line between asset classes (and their riskiness) somewhere and individual country markets is far too fine-grained for me personally.

    I hope this shows why at least in theory rebalancing makes sense.

  • 21 EUOphan August 18, 2016, 9:26 am
  • 22 Amit August 18, 2016, 10:53 am

    Lars – a great book and great videos. As was reading your book, I was searching for what your views might be on something like a passive target retirement fund, like the Vanguard ones. From reading, I don’t think I could conclusively say what you think though – so I thought I’d ask you through this forum.

  • 23 Stefan August 18, 2016, 12:08 pm

    @EUOphan – Careful, that is a red herring. The article you linked to investigates whether rebalancing results in greater returns:

    “The assumption that rebalancing provides a benefit in increased return is encapsulated in the phrase “the rebalancing bonus.””

    Increasing returns is not the primary purpose of rebalancing stocks vs bonds.

    In my comment above I explicitly said rebalancing is for managing risk. I didn’t say that a rebalanced portfolio would achieve greater returns.

    Although the effect on returns is an interesting question, returns are not the reason for rebalancing. Otherwise rebalancing just amounts to a trading strategy…

  • 24 magneto August 18, 2016, 12:10 pm

    There is absolutely no reason can think of, why an investor should not have allocations to both Global Funds PLUS individual geographical regions. That reflects our present portfolio policy with exposure to UK/Global/USA/Asia Pacific/Europe/EM, each with their own Constant Ratio Allocations. The Global weighting as suggested by Lars, is by far the largest allocation.
    Sort of a compromise then?

    On whether ‘to rebalance or not to rebalance’, it is possible for an individual position, added to on lows, reduced at highs, over some years to end up with a negative book cost!
    Then as my hero Buzz Lightyear might say the capital gain on book cost is “beyond infinity”.
    There is a snag with this logic!!!

  • 25 EUOphan August 18, 2016, 12:51 pm

    @Stefan
    So the real question is what risk(s) are we trying to address and is rebalancing really the best approach to be dealing with those risks ?

    I suspect that the risk that rebalancing is trying to address, may not be the best approach to tackling that particular risk. This may also be specific to each investor as well.

    This may explain why it is still a live topic.

  • 26 Stefan August 18, 2016, 1:21 pm

    @EUOphan – An example of how rebalancing manages risk is a retirement portfolio in drawdown. Imagine you are drawing an income from the portfolio so you cannot tolerate massive fluctuations.

    The S&P500 lost 50% of its value during the Great Recession (2007-2009), see [1]. That’s the kind of scenario that an asset allocation like 50 stocks/50 bonds can address, because now that loss would only amount to 50 * 50% = 25% of your portfolio instead of a full 50% drop.

    Now on to relabancing:

    If an imaginary portfolio is 100% in Brazilian small cap ETF then you won’t sleep well at night because that’s a risky asset class. But you are a reasonable person and only allocate 10% to the Brazilian small cap ETF and the rest to FTSE All-Share Index in year 1 of retirement.

    Even if Brazil collapses you’d lose only 10% of your portfolio. Phew! Risk managed.

    But after a few years of not rebalancing, your portfolio is now at 30% Brazilian small cap ETF and 70% UK FTSE All-Share Index because all the Brazilian small companies benefitted greatly from the olympic games, whereas the UK got so weighed down by all the gold medals they won that the All-Share index didn’t keep pace :).

    Brazil is now at 30% vs the intended 10% allocation. At what point does the risk begin to keep you up at night? Maybe you start to get nervous because the portfolio has become lopsided.

    This is where rebalancing comes to the rescue. If a 10% allocation was your risk tolerance level then rebalancing allows you to maintain it.

    This is a silly example but I think it’s not too uncommon that people end up overexposed to certain assets.

    I agree that the risk and the details of rebalancing are specific to each investor, but I think the general idea of maintaining a split between various asset classes to manage risk does makes sense.

    There are alternatives for managing risk. They work outside the porfolio like state pensions, insurance/annuities, liability matching, etc. For someone who has these things maybe their risk tolerance within the portfolio is high enough that they don’t need to rebalance.

    [1] https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%9309

  • 27 EUOphan August 18, 2016, 1:52 pm

    @Stefan
    I agree. Managing risks using rebalancing when underexposed to the traditional fixed income products may not be the best approach for certain risks and for certain investors.

  • 28 EUOphan August 18, 2016, 3:20 pm
  • 29 magneto August 18, 2016, 5:13 pm

    Surprised the ‘Rebalancing Bonus’ debate, like the tooth fairy enigma still rages on.

    While not called a ‘Rebalancing Bonus’ at the time; certainly as early as the 1940s, a rebalancing outperformance was known to be optimised at 50/50, with rebalancing at peaks/troughs (as might be expected) and quantified. This was established utilising a two asset portfolio, one asset stable, the other volatile, over a horizontal complete market cycle for the volatile asset.

    We in the real world, are fortunate in having at our disposal more possible asset positions/combinations than two, and the possiblity of -ve correlations occuring.

    As referred to in links, if one asset offers a higher return (not being on a horizontal trajectory), then in a two asset portfolio, it makes sense to shift from 50/50 towards the more favourable asset. This brings us back to our old friends the 60/40 or 70/30.

    But apparently the debate still rages?

  • 30 Lars Kroijer August 19, 2016, 6:12 am

    @Amit – personally I think if you can get access to a Vanguard world tracker product (or one of the ones that automatically rebalances) you’ll be doing very well. Do consider your tax circumstances though.

    On the rebalancing, professional investors always say stuff like “retail investors always sell at the bottom” which I think is a little unfair. First of all, it presumes they know what the bottom is which they don’t, and second, it is natural that risk tolerances changes in a huge draw down. At least broad trackers get away from concentrated geographic risks that used to be more painful. Brazil is a great example of that. One of my best friends lives in Brazil and has seen his company investment, house, bonus, pension, etc. plummet all at the same time. Hurts badly…

  • 31 Stefan August 19, 2016, 9:25 am

    @EUOphan – The same thing as last time applies to your new link: the article focuses on outperformance of buy-and-hold vs rebalancing.

    It deals with expected returns and sure enough, riding it out in the risky asset with a higher expected return can deliver better results in the end. That is exactly why people with a high risk tolerance (e.g. long time horizon) choose a higher exposure to risky asset classes!

    Again, I’m not arguing that rebalancing is bound to outperform buy-and-hold.

  • 32 Hariseldon August 19, 2016, 9:43 am

    @Stefan
    I understand your argument with regards to rebalancing between regions but consider a country specific, total market US tracker, in this case you are letting winners , win and thus you end up with Apple at 3%.

    If you had rebalanced Apple down on its climb over the last fifteen years or so it would have been a mistake.
    Here is an interesting link to the “overachievers” and why owning them matters, makes a very strong argument for owning the haystack.
    http://awealthofcommonsense.com/2016/05/the-sp-500-is-the-worlds-largest-momentum-strategy/

    I’m not disagreeing with your point about rebalancing between regions but it is not a given, you must differentiate between the rise of Japan in the late 80’s, where rebalancing away from Japan was a great decision but had you stuck with the country weight of the World in 1901 it would have been an error, to say the least.

    Perhaps a quantitive measure, in your situation, then Brazil tripling would presumably have made it very expensive.

  • 33 Gregory August 19, 2016, 10:49 am
  • 34 William III August 19, 2016, 1:26 pm

    Oh, it seems I am a macro-trader! I own a very simple portfolio of Vanguard equity index funds and am currently underweight US, overweight emerging markets & Europe. I based this on a table of CAPE & PB ratios from Star Capital that was in the weekend readings a while back. Does someone have any evidence to share that shows that such strategies underperform?

  • 35 Stefan August 19, 2016, 1:34 pm

    @Hariseldon – I use market-weighted indexes myself so I agree :). I rebalance between stocks and bonds to suit my risk tolerance. Nothing fancier than that.

  • 36 hariseldon August 19, 2016, 5:38 pm

    @William III
    You need to be very cautious with CAPE and P/B ratios particularly comparing different regional areas, there can be significant differences in methods and I read an interesting scholarly article on the US Cape ratio which showed significant distortions occurred post 2007, with changes to the US accounting principles, particularly with respect to Mark to Market.

    Value investing which is basically what you are advocating works really well in some periods of time and not in others, its had a bad run recently so you might be coming up for a lucky break or you might not…..

    I think the point of these videos is that such decisions can be very difficult and you are trying to beat a whole bunch of other smart people.

    So no proof of underperformance of your method but do you have proof of outperformance ? I’m not suggesting that you won’t do well but mechanical methods often work well in one time frame and not another.

  • 37 Raj August 20, 2016, 7:59 am

    Lars,

    Thanks for this video and for your book. Would you say that the Vanguard LifeStrategy range is adequately deversified globally? I have heard talk that it is too US-centric.

    Also, would you suggest paying off any outstanding mortgage before investing?

    Thanks

  • 38 ConfusedSaver August 20, 2016, 1:56 pm

    I currently have around £40k “saved” in various savings accounts, with the misguided and lazy intention of saving for a housing deposit (a fruitless endeavor for where I live – London)

    Would it be wise to start pairing back the amount I save towards a deposit and start investing instead? At the moment I save roughly £500 a month, and over the past few years that’s solely just gone towards this nebulous idea of a housing deposit, but as interest rates have collapsed over time, and the nimble claws of inflation take hold and scrape away its slice, I’m feeling a bit disheartened….

  • 39 Bellabeck August 20, 2016, 3:23 pm

    Lars, the videos are really good, and the information conveyed very clear. I recall from attending one of your talks last year that you were also updating your book. Is the update for the Kindle version only or will the paperback be reissued, and if so, when?

  • 40 JohnD August 20, 2016, 7:23 pm

    In the present investment climate and with the approach outlined above, it does almost seem to me that the challenge has switched from fund-picking in the equity space to ‘fund-picking’ amongst cash/FI/bond assets.

    Other than straight cash where with the recent rate cut it’s difficult to secure more than 1% even pre-tax and with sovereign bond funds seemingly having nowhere further to go, just where does one look if the ambition amongst FI is to do anything more than just retain the real value of this pot? I guess corporate bonds still have some mileage, but all I can think of for significant sized investments other than property are:

    A limited tranche of capital in peer-to-peer of one sort or another, where real growth of 2-3% might be possible, albeit with the risk that there’s not a major recession with consequential widespread defaults.

    And Premium Bonds, which should do at least as well as straight cash, and with an admittedly tiny but nonetheless real chance of larger returns.

    Anything else?

  • 41 hariseldon August 20, 2016, 10:38 pm

    @JohnD
    For the safety part of the portfolio I think the emphasis is return of your capital rather than return on your capital.

  • 42 Finance Solver August 20, 2016, 11:12 pm

    Index funds.. a surefire way to get average returns which will put someone into early retirement! I love Vanguard index funds because it’s so cheap to purchase them. I should have started putting my money into index funds when I first started but as long as I’m learning, that’s all that matters right?

    Great videos, really helps out any investor at any skill level because the ideas are so profound.

  • 43 hariseldon August 21, 2016, 8:18 am

    @confused saver.
    The regular savings habit is good, well done. There is big difference between cash and equity investment regarding timescales of when the money is required and the investment return likely.

    If you believe that housing is out of the question then regular saving into a tracker is a good thing but don’t rush to put all your cash in as well.

    A good chunk of cash is a very useful asset in its own right, it provides options and the best time to deploy cash is when things look bad.
    Once you start regular equity saving then its important to keep doing it through thick and thin, ignore the fact that markets are high or low, I’m presuming your relatively young and have a long time horizon ahead.

    Consider tax sheltered accounts , Pensions ( little flexibility and your tied in but good incentives) ISA’s my favourite and perhaps the new lifetime ISA if it gets going.

    Back to property, think about buying with a pal, if your a couple maybe with another couple even ( that needs thought though!)

    I bought my first house with a guy from work, 100% mortgage back then , I moved under a year later, (change of profession and location), sold the house for a 25% uplift and we both moved on the housing ladder with a proper deposit.
    Buy a house and let rooms out, many friends did this and some still do (more for social reasons but it provides extra tax free income)

  • 44 John August 21, 2016, 9:17 am

    I’m glad to see lars mention the large US % in world equities in the comments above. Firstly, brexit made us all feel like investing legends but next time the gbpusd move could go the other way (and we’re not getting paid for that risk). Secondly it seems likely that Country allocations are not done purely on risk/return principles by other investors, therefore better diversification may be possible. I’m only talking about holding a 25% ex-us etf here so i broadly agree with the above.

  • 45 JohnD August 21, 2016, 9:25 am

    @hariseldon
    ‘For the safety part of the portfolio I think the emphasis is return of your capital rather than return on your capital.’

    Sure, but I guess your overall attitude to risk is part of the picture too. If you believe that the cash/FI part of the portfolio needs to be essentially zero-risk then cash, no more than £75K per institution, etc is presumably the solution.

    But if a small/limited element of risk (but clearly small relative to the equity component risk) is acceptable then FI bonds etc are traditionally part of the solution. Problem is that it’s difficult to see where bonds in general can go right now. So my view is to have a substantial proportion of the low-risk, non-equity pot in cash and then to look around for whatever else is in the (relatively) low-risk frame. So the overall risk-rating of your non-equity pot would still be pretty low, but it would include some limited elements of slightly higher risk.

  • 46 Hariseldon August 21, 2016, 10:21 am

    @JohnD

    The difficult part of the low risk portfolio is the very low yield/high prices of many bonds, it does not make much sense and thus keeping the duration very low makes sense or cash.

    Clearly equity prices are elevated because of low yields on bonds but presumably the economic conditions that might cause a rise in bond yields ( fall in prices) might help equities and counterbalance the loss of the support given by low yielding bonds.

    Perhaps bonds are in a bubble? the talk of this time is different is always the precursor to the opposite !

  • 47 JohnD August 21, 2016, 12:00 pm

    @Hariseldon
    I think we’re agreed that traditional bonds are not an appealing prospect at present for the low-risk pot. So, my original question (a few posts above) was what else, apart from cash and bonds, is worth considering for the low-risk element and assuming significant sized investments, eg £5-10K plus. My two suggestions were a limited exposure to peer-to-peer lenders and Premium Bonds. I was really wondering whether I’d overlooked anything else worthwhile in the relatively low-risk space, but very possibly the answer is no.

  • 48 Marco August 21, 2016, 1:03 pm

    I think the posts here show that people still think they can outsmart the market. How do you know government bonds are a poor investment? Do you know something that institutions with far greater resources don’t? Sure you can buy premium bonds but if the pound devalues by 20% you will regret not investing.

    I would say cash/premium bonds for non investment holdings where the cash may be required short term

  • 49 JohnD August 21, 2016, 1:36 pm

    No, I don’t personally think I can outsmart the market at all. I’m happy (at least fsvo happy) to admit that I was wrong about eg gilt funds a year or two back and lost out (to a modest extent) because of that.

    But this is more a question of logic in my mind re eg gilts. With interest rates really close to zero at the shorter end and not too much above even at the longer end then, like many I guess, I’m just struggling to see how it is possible that there can be any worthwhile appreciation in value or returns, at least until the interest rate climate improves somewhat. If someone can point out the error in my thinking then I’ll be delighted to listen.

  • 50 Hariseldon August 21, 2016, 1:49 pm

    @Marco
    Gilts are returning less than 1% typically, that is not a great return and quite possibly will be less than inflation and that makes it a pretty poor investment, I can tell this without the backing of a large research department! 🙂 limited upside and significant potential downside , compared to an equally secure instant access cash account from Virgin at 1.15% that I hold.

    Your comment about losing 20% from a possible devaluation by investing in premium bonds is suggestive that you favour unhedged bonds in a foreign currency, this could work out well but foretelling currency movements is difficult, they can do unexpected things and in general the currency effect on global bonds is viewed as an unrewarded risk.

    I don’t think that I can outsmart the market but I can see that risk premiums can fall or rise in extreme conditions that can allow someone with a different view or timeframe to take on additional apparent risk and be rewarded for taking that risk.

    If I had gone the route of a 20% bond. 80% equity Life-strategy fund, then I would let it run, but I have always taken a more equity heavy approach but I stick to it through thick and thin and it’s worked out ok for 26 years now, thats my risk profile.

    Its clear with hindsight that a traditional 60:40 portfolio would have worked out pretty well over this time frame or a 100% bond portfolio, the problem comes when you jump horses mid way !

    I believe the principles in this video series are very sound and my investment approach broadly follows this approach.

  • 51 magneto August 21, 2016, 4:10 pm

    @JohnD

    Yes. The Fixed Income problem is one we are all struggling with at present.
    Call me ‘old fashioned’ but I too find difficulty investing in an asset with negative real yields, to thus see capital after inflation, wasting away in purchasing terms.

    But perhaps those wiser than us, who are today buying Gov’t Bonds at -ve real yields and even in some countries with -ve nominal yields, see the possiblity of deflation coming to the rescue, after a brief inflationary spurt? Or that the possible -ve correlation is worth hanging on for?

    Presently our portfolio on the FI side (asuming RPI running at 1.5%), contains :-
    Short Term IG Corps (circa 1.1% real yield)
    Infrastructure ITs (circa 3.6% to 4.2%) as IL Gilt proxies.
    But neither is likely to offer -ve correlation with Stocks, altho the former’s volatility is limited by short duration.
    We sold our final tranche of Gilts this year, too early!!

    Have dabbled in to P2P but did not find that area comfortable mainly due to illiquidity, although using an IT can overcome that particular drawback.
    Only today at my wife’s insistence did we look again at the P2P and specifically the IT P2P, but did not like the look of the underlying financials. The Investor’s articles on P2P also were helpful.
    But the ITs remain an option when liquidity valued!

    Again all other ideas welcome.

  • 52 Naeclue August 21, 2016, 6:52 pm

    Great videos and really interesting comments and links. I have been following something very close to this strategy for over 20 years so you are preaching to the converted. I was going to raise 2 objections but the last video spiked my guns.

    The first thing I was going to say was that once the equity fund gets to a reasonable size, it becomes much cheaper to hold separate geographical trackers. Added to that, holding the US equities as a US listed ETF inside a qualifying SIPP means you can save on the US dividend withholding tax.

    The second thing is similar. Once your gilt fund reaches a certain size it becomes cheaper to simply hold a gilt ladder and FSCS protected cash deposits. For example, just hold 7 6 through 12 year gilts, then once per year sell the shortest dated gilt for a 12 (ish) year gilt. You are only turning over one seventh of your portfolio per year at low cost and not paying a fund manager to hold your gilts.

    I manage my own global index portfolio slightly differently than simply following whole market allocations, for the reason that Hariseldon has raised. I lived through the Japanese equity bubble and so I apply a cap to different regions. For example, I do not allow my Japanese trackers to exceed 12% of the overall allocation to equities.

  • 53 Naeclue August 21, 2016, 7:20 pm

    The links to articles by Michael Edesess are very interesting. However, I think he is too dismissive of Bernstein. All Bernstein is really saying is that if bonds returned an annualised 2% over 20 years and equities 6%, then a 50:50 annually rebalanced portfolio can be expected to return more than the average 4% annualised. There are good theoretical reasons for this and it is empirically observed. The difference between the simplistically expected average of 4% and the actual return is what Bernstein calls the Rebalancing Bonus and I do not see anything wrong with that as it is more likely to be positive than negative.

  • 54 Naeclue August 21, 2016, 7:57 pm

    A quick anecdotal point on the bonds not worth buying debate.

    In January, Instead of mindlessly sticking to plan and rolling my 5 year gilt into a new 12 year, I did some clever thinking and worked out that I would be more likely to benefit by putting the cash into deposit accounts.

    I have just checked and discovered that had I stuck to plan, not only would I have accrued around 2.3% in interest, I would be sitting on a 10% unrealised capital gain.

    We are at times our own worst enemies.

  • 55 Lars Kroijer August 22, 2016, 12:33 pm

    Thanks for the continued comments. I’m going to do a Q&A and comments section on the site and these comments are v good for that. Just finishing 2nd edition and helpful for that as well (will be out in appx 5 months depending on how quick the publisher is). Certainly agree on free argument w/ world tracker. For some reason I don’t think there has been enough pricing pressure on those trackers compared to S&P500, etc., but in time the costs for world trackers will also come down. I’d really caution everyone to spot trends/ avoid peaks/ etc. Not so much b/c you may be systematically wrong, but more because it tends to lead to a lot of trading which gets very expensive over time, including because of taxes.

    For those of you who are London based I’m giving a talk later in the year that will be open and you are welcome to come along. Send me an email on lars@kroijer.com if you want me to add you to the list.
    Thanks again!

  • 56 Daniel August 24, 2016, 9:41 pm

    Great videos, really nice presentation. I have a few questions.

    Since only 1 in 10 funds best the market, does that suggest that Susan should hang it up and also buy a passive world index tracker? Of course she makes a great living running her fund because she is paid on assets rather than outperformance. But does the fund exist solely because of the naivety of retail investors who invest in her fund because they foolishly believe she will outperform the market net of fees? Is it all a giant waste of time (at best; or a massive fraud at worst)? Is most of the financial sector a vast waste of resources (from the vantage point of society as a whole)?

    Also, if market prices reflect all available information and analysis, does that suggest that a random but diversified portfolio of individual stocks should do about as well as Susan’s fund or any of the others? If 90% of funds underperform anyway, and if market prices reflect all available information and analysis, then are my chances as an individual stock picker really much worse than Susan’s, despite her credentials, connections and resources, or am I stretching the point? Not that it would be a good idea, of course; I’m just curious on the theoretical matter.

  • 57 The Rhino September 8, 2016, 4:06 pm

    does have anyone have any minimal (say 2 to no more than 4 ETFs) UK ETF based example portfolios that could be considered Kroijer-esque?

    I want to have a crack at re-structuring my SIPP from funds to ETFs to cap ad-valorem expenses

    It has to be simple though as it would be replacing lifestrategy (if only VG would release LS ETFs they would be the answer to my prayers)

  • 58 Paul nkight September 10, 2020, 1:50 pm

    Just looking at the comment above and also looking at sub 10 line portfolio and if possible even less in ETF.

    Thinking of maybe going with L&G global or Amudi and then adding a bit of EM
    Have global hedged bonds at moment and some UK but wonder what others are doing to get a Lars like portfolio

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