What caught my eye this week.
A few of you have been asking what happened to our pal Lars Kroijer? And it’s true, there was a time when you couldn’t turn to Monevator without tripping over another great article by the ex-hedge fund manager turned index investing ultra.
Well, I’m pleased to report that Lars is well and so are sales of Investing Demystified. However there are only so many ways you can urge people to buy a global index tracker (tell us about it!) and I get the sense he’s enjoying a bit of a break.
Never one to ignore a hint, however, I was able to penetrate Lars’ chill-zone defenses and persuade him to make another appearance on this website.
Instead of an article though, Lars wants to do something different – a real-life Q&A where he responds to reader questions.
Lars suggested doing it live, but I watched too much Blue Peter as a kid for that and feared a calamity. So instead he’ll record a video answering your questions and we’ll post it here.
Of course that does mean we need some reader questions to ask him…
So, what would you like to know from a man whose career improbably straddles the spectrum from successful hedgie to best-selling passive investing author? Asset allocation, overseas bonds: yea or nay, whether the hedge fund world is really as witty as Billions, do they eat Danish pastries in Denmark – all fair game I reckon.
Please ask a few good questions in the comments below. Otherwise we’ll have to pad out the Q&A with karaoke requests, and nobody wants that…
From Monevator
Can you invest your way onto the Rich List? – Monevator
From the archive-ator: A mortgage is money rented from a bank – 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
Pound slides to four-month low as Brexit talks end – BBC
BT to hand £500 of shares to each of its employees – ThisIsMoney
What matters most for our life satisfaction? [Data] – Office for National Statistics
US birth rate lowest in three decades, despite improved economy – Associated Press
(Click to enlarge)
The 150 apps that power the gig economy – The Visual Capitalist
Products and services
ETF veteran hits out at negative-fee ‘gimmick’ launch – CityWire
Swap gold for Bitcoin, says fund that has $1.2bn in Bitcoin – ETF.com
Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter
Will anyone save the investment trust saving scheme? – IT Investor
A dive into investment trusts that yield 4% or more – ThisIsMoney
Charlie Bilello: Bitcoin has generally been a poor hedge against equity declines – via Twitter
Fidelity’s new 0% index funds versus Vanguard [US but interesting] – Budgets are Sexy
For sale: Homes used as TV and film locations [Gallery] – Guardian
Comment and opinion
Why keeping up with inflation isn’t enough – SL Advisors
The avocado principles [Month old but worth it] – Seth Godin
Who can you trust with your money? [Search result] – FT
Larry Swedroe: Emerging markets need time – ETF.com
Would being richer make you happy? [Podcast] – ThisIsMoney
…actually, money can buy happiness – A Teachable Moment
The not so obvious reasons why people want to achieve FIRE – Financial Samurai
Power of two – Humble Dollar
What should you do with an inheritance? – A Wealth of Common Sense
Why a lack of competition is rubbish for investors [Search result] – FT
Meb Faber interviews valuation guru Aswath Damodaran [Podcast] – Meb Faber
If ‘Hot Hands’ do exist, what then? – Morningstar
Is buying expensive stocks – priced above 10x sales – ever a good idea? – Alpha Architect
Brexit
Tory-Labour Brexit talks end without deal – BBC
Labour’s Brexit tactics are failing spectacularly – Guardian
Is there a single Blue Rinse Tory who doesn’t fancy a knee-trembler with Boris Johnson? – Guardian
Kindle book bargains
My Morning Routine: How Successful People Start Every Day Inspired by Benjamin Spall – £1.99 on Kindle
Trump: The Art of the Deal by Donald Trump – £1.99 on Kindle
So Good They Can’t Ignore You by Cal Newport – £0.99 on Kindle
The Personal MBA: A World Class Business Education in a Single Volume by Josh Kaufman – £1.99 on Kindle
Off our beat
Goal! The football league that helped one man lose five stone – Guardian
What happens when a podcast addict goes cold turkey for two weeks – Fast Company
Air pollution is slowly killing us all, new global study claims – Clean Technica
Manchester restaurant accidentally serves £4,500 bottle of wine, but wins on social media – CNBC
And finally…
“Wealth is not an absolute. It is relative to desire. Every time we yearn for something we cannot afford, we grow poorer, whatever our resources. And every time we feel satisfied with what we have, we can be counted as rich, however little we may actually possess.”
– Alain de Botton, Status Anxiety
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Comments on this entry are closed.
A question for Lars. Given UK tax laws on pensions, ISA, CGT etc and a retirement portfolio in the range 20-40 times spending split between SIPP, ISAs and taxable accounts what is sensible way to manage the portfolio for withdrawals?
am I old (at 36) but I’ve not heard of even 20% of those apps and sites?
a blessing of being a paid & obedient employee perhaps?
Good on you mentioning a de Button quote – status anxiety is a great book.
Lars, how do you think the climate emergency will impact the global economy over the coming decade and should we avoid investing in sectors which are risky such as the oil & gas sector?
Lars, which index fund can I invest in to become an alpha male??? I want that status.
Do you ever get the itch to be ‘active’? Something that seems like the most obvious play in the world, feels very oversold, just bound to be a chance to make an easy return? I ask as someone who’s bought and dog-eared both editions of Investing Demystified…so, ever occasionally take the chance on a perceived edge to “go get rich”?
Hi Lars, investing demystified is great and I’ve adopted everything in your book to the letter, however I’m having a hard time in building a spreadsheet that I can use to keep tabs on my index trackers, having watched your you tube series I know you love a good excel spreadsheet
Please could you advise which stats us who own index trackers should be concerned with and the simplest way to track our performance?
To give you a brief overview, my portfolio is held with Vanguard consisting of 65% in the Global All Cap Index (the broadest and cheapest I could find) along with 35% of UK long duration Gilt fund (matches my time horizon)
Cheers!
Hi Lars, I believe we are well due a recession and most asset prices are highly overvalued due to QE. Another consequence of devaluing fiat currencies worldwide by unending central bank money printing is that there are ever more paper claims on future resources than there are resources to redeem those claims. At the same time, to live off investments you need positive real returns without self-defeatingly high risks. Given that situation then, what can we invest in now if expectinging a crash and related loss of faith in fiat currencies is just around the corner, thus giving a perfect storm of no job income, loss of investment capital and limited day-to-day funds to live through a troubled period of savage inflation?
Diversity has its limits in protectiveness and equally not everyone can sit on a mountain of cash or retain recession-proof employment. So what is the best thing to do to maximise resilience to get through a period of serious pain? Thank you.
A question for Lars. What books on investment have had the greatest impact upon how you see the financial world?
JimJim
Re The avocado principles.
Doesn’t point 4 undermine the other 3 points? Surely you should be selling your ripe avocados to others who aren’t so organised.
Although from the authors perspective, it’s better for all his readers to give him free ripe avocados, so maybe this is just an indication that he doesn’t follow his own advice?
How would Lars future proof a drawdown portfolio to guard against mental frailty?
I’ve simply invested my drawdown DC pot in VLS and some cash (because I’m not sure I have enough knowledge to do any better). It’s fine now to think about risk levels, selling funds, drawdown amounts but I reckon I might find even managing a simple drawdown account difficult in 10 or 15 years. Any thoughts to add to Monevator’s recent post/discussions?
Hi. Just wonder do you see any place for investing in smart global ETF’s such as UBS FTSE RAFI developed 1000 or HSBC Economic scale worldwide over a normal global tracker? Not a plug for those funds as I am sure there are other providers following the same index’s or other smart beta products. (I fell for minimum volatility)
Hi Lars. Thanks for all the info. I have followed your advice and have a portion of my savings in one global index tracker fund. This is however in a developed markets fund. What are your thoughts on the importance of also investing in the emerging markets too?
Thank you so much Lars. I have no doubt that following your advice will make my family millions better off by the end of my life (hopefully many decades away as I’m only 40!)
I have now hit almost 1 million and am still adding to my vanguard all world ETF and rebalancing old non equity investments into it as they mature.
My question is: I am 40 and will retire at 50/55. I have a very good defined benefit pension with the NHS. Otherwise, I have very high ability, and willingness to take risk. I would not worry if there was a 50% drawdown in the markets and would continue to buy. My job is recession proof. Do you think 100% equities is okay for me, even though I will likely end up with far more money than I need (but I can give it to my kids one day).
Hi Lars, thanks for sharing all these great insights about investing. Can US/EU/UK government bonds still be considered as minimal-risk bonds given the current high level level of debt ? Wouldn’t an ETF combining government bonds from several Western countries with the highest credit rating make more sense, even for a US/EU/UK investor ?
Questions for Lars:
1) I live your rational investment idea and I’m 90% convinced. My only concern is around exchange rates. I’m UK based and sterling is relatively weak at the moment. Is it a bad time to be buying a global index tracker? I know I shouldn’t try to time the market, but this is a long term issue.
2) I invest a fixed sum every month. What’s the best way to track the performance of the tracker? My platform shows the total value and total cost of the units of the index tracker, so it only shows an average performance; is there a better way?
Lars, your arguments for the advantages of passive investing are persuasive. But what, in your view, are the best arguments against passive investing?
in a low interest rate and demographic time bomb economy for the current euro Japan markets does lars think we should invest more in growth economies or is the current allocation good enough. Second question is gold or bitcoin a better safe haven if so what would seem a good allocation of these assets?
Lars – your two fund approach is so simple, so practical and so easy to adopt.
So I’m keen to understand your feelings towards moving to a single fund such as Lifestrategy 60 that will always rebalance to your chosen risk profile.
Hi Lars. Great book, it convinced me that I wasn’t sufficiently diversified, geographically speaking. And your youtube channel has turned me into an spreadsheet nerd – I never thought I could become so fascinated and absorbed by the humble excel, but I’m now an addict!
My question is; I’m on the cusp of retirement and probably the biggest risk I face over the next decade or so is sequence of returns risk. What are your latest thoughts on the best way to handle a stock market meltdown in the early years of retirement?
Lars, if you could get one message out to people which wasn’t relating to investing – what would it be and why?
And a second question, if I may, what is one surprising thing you’ve learned in the last year.
Dear Lars (or Monevator), I loved your articles and book, thank you! I have been following your advice and investing in broad global indexes. I’m a British teacher living in Asia. As a non-resident, I cannot add to ISAs or invest with a UK brokerage, so all my investments are in a Luxembourg based brokerage. My question is, once I return to the UK and transfer my investments/cash. What tax implications will there be? Is there any way I can shelter some of it from tax?
Dear Lars,
What do you currently recommend for UK investors as the bond part of their passive portfolio? Is it still UK gilt funds?
Thanks
Adrian
Lars,
Thank you for sharing your wealth of knowledge via Monevator and your fantastic book Investing Demystified . I am a UK investor and would like to ask your opinion on opting for a Global Bond Index Fund as my minimal risk asset rather than Gilts?
After looking at the standard deviation of both, it seems that Global Bond Indexes are in general far less volatile than Gilts. Other than currency risk, are there any other factors that I should consider?
Thanks
Stephen
Dear Lars
By advocating Global Passive Investing, can I ask if you feel comfortable ignoring any form of social governance i.e. you are providing capital to companies regardless of their attitude towards their employees, shareholders, the environment etc.
Thank you.
Lars, in your view, what is the biggest downside to a global equity index fund such as VWRL?
VWRL is an index ETF, not a fund. Details man!
Haha, fund/ETF then! 🙂
ETFund
Lars
Until recently I was investing for my risk-free component, using Vanguard’s VGOV etf, which has a risk rating of 4 and a TER of 0.15%
I have switched to AGBP and Vanguard’s equivalent non-etf fund, both of which are cheaper, are hedged to the pound and carry a lower risk rating of 3. Vanguard recently produced a compelling paper suggesting that an internationally diverse local-currency-hedged bond fund should offer lower volatility than gilts. The hedged etfs were not available when Investing Demystified came out, so I would be interested to know if you agree with Vanguard’s findings and would now switch from the local to the global hedged bond funds for safety. Thanks
For Lars; Further to the question about using a hedged bond fund, The hedging of a global fund to sterling presumably has a cost related to the differing interest rates between currencies and with interest rates higher in the US than the UK would this not have a detrimental effect with respect to costs using overseas bonds with a significant dollar exposure?
Hi
Dear Lars
It is best to buy a world index tracker as per your previous posts. what is your view on buying individual sectors when they are down by more than 20 percent.
thanks
Questions for Lars
1 Ultimately I am assuming that the rational investor would invest in the cheapest broadest tracker I.e. A global ETF. However does this not represent a massive concentration in the index tracking ability of Vanguard or Blackrock; the index creators e.g. FTSE and most importantly the honesty and standing of a few custodians?
2 market cap weighed trackers get stuffed by the private equity funds when they float overpriced IPOs. Maybe this wouldn’t represent a big % but it sticks in the craw
3 by definition if we were to all to go passive as the rational approach suggests and there was no active investors there would be no price point. At what stage does the passive investing total cause markets to become inefficient or the power of an ever decreasing number of active investors to determine price too great
4 most global index frackers have a min company size – what are the implications about the supply of capital to small caps in the perfect rational investing world?
Thanks
Q for Lars, Is there a place for Gold in an asset allocation probably replacing some of the bond allocation based on diversification, hedging benefits and the improvement in safe withdrawal rates (seen since 1970).
Q for Lars (2), Is there any case for a UK investor to have a home equity bias in their asset allocation?
Hi Lars
I have lots of shares in the company I work for (and had various ISA’s and a tracker that I had to sell). I’m a newbie to ‘proper’ investing and have left it too late to make the most of compounding (early 50’s).
1. I’m planning to set something up for my daughter instead but want to make sure she doesn’t touch the capital so it can grow (learning from my mistakes). I read somewhere that you have to pay capital gains or inheritance tax on a trust fund. Is there a tax efficient way to set this up please?
2. Now a real newbie question. I keep reading about how investing can provide a regular income, make money while you sleep etc. I get that you could get interest on savings and share values go up (and down). Apart from dividends from some shares (once or twice a year), which isn’t that much even with lots of shares in my company, where does this ‘regular income’ come from? …or does regular mean once or twice a year here?
Income from shares comes from dividends and capital gains. You need to sell them to get the capital part of the total return out
@Lars – is it reasonable to tilt more to small cap simply due to having a larger risk appetite than the market? I’m not saying that I think things are mispriced, just that I don’t depend on it as much as most people do or need it anytime soon. I’m not aiming for risk adjusted returns, just total returns. I do it for sport.
Its vanguard global small cap I use
Also is vanguard safe enough to not worry about fscs protection limits? Otherwise I’ll have to use more expensive platforms too
@Lars (or anyone else!),
I have bought your book and buy in to most of what you proposed, however I noted that currency risk didn’t get much of a mention. It feels to me that there is currently a very significant currency risk associated with making overseas investments due to the current weakness of the pound which seems to be bumping along its ‘floor’ value (i.e. don’t anticipate it will devalue further). It would seem pretty likely that the pound is likely to recover some strength during the next 5-10years, once whatever transpires from Brexit actually happens and the uncertainty evaporates. To me this presents a very real and significant currency risk on any overseas investments I choose to make now and one that would likely exceed any gains on those stocks. This leaves me with either only investing in the UK, which you don’t advocate as I live and spend in the UK so already heavily invested in the UK, or using overseas investment funds that are hedged to GBP, which are relatively few and have higher costs. Any thoughts on how to diversify in this current situation would be most welcome.
thanks! Dave.
@all — Lots of great questions, cheers! Realistically already too many for Lars to answer alas but we’ll see how he gets on! 🙂
Lars, I’m thinking of following Investing Demystified for the pension element of my portfolio (and have already done so for the equity portion), the bit I’ve always struggled to get my head around is to ensure the bond duration element of the portfolio matches my time horizon through using a bond index fund. The only way I could envisage matching my time horizon is to buy the appropriate bonds directly from the UK DMO. Can you suggest any ways of doing this easily using bond index funds. Many thanks! DMS
(P.S. Apologies in advance if I’ve misunderstood your book).
Hi Lars, if I understand your position correctly, you don’t think that indicators such as CAPE ratios have predictive power and should be used to allocate resources. This is in line with efficient market theory. Currently, the very high CAPE of the S&P 500 (around 30 against historical average of 16) could suggest some reallocation from US shares to European/developing markets shares or to bonds, but I guess you would not avail this type of strategy under any circumstances? Thanks, Ludo
Hi Lars if evey dollar/ pound is invested intelligently but there is home bias how do you explain this paradox. My concern is with the price of American stocks and there home bias distorting a world index. Love your work Brett.
Hi Lars, I need to invest for imminent drawdown. In terms of the bond allocation, a lot of financial commentators seem to advise using strategic bond funds rather than passive funds. There is also an implication that an etf structure isn’t appropriate for bond holdings. Is there any merit to these assertions ? Cheers.
Hi Lars,
One of the things I’ve always wondered about passive investing is what happens if everyone starts doing it? Would this mean returns would not be as good as they have been in the past?
Lars Question Note:
Rather than ask another question, I’d like to second the question from @diy investor (uk). I’d just add to notes/angles to expand it:
– How can we put pressure on companies to get true ex fossil fuels index trackers (not the pathetic L&G attempt which still includes oils majors) so investors can continue to go passive and make help climate change. Can Lars’s next mission be to use his influence to help tackle climate change by lobbying for fossil fuel divestment opportunities for everyone?
Thanks!
Hi Lars
What do you think of the late Jack Bogle’s warning that index funds are becoming ‘too big’ and that the major index-fund managers will have too much voting control, which may not be in the best interests of the market/investors?
I’ve read his book, benefited from it, seen the light, or more pertinently the evidence, in relation to performance around trackers versus actively managed funds, the costs drag and the importance of global diversification. But I still don’t understand bonds. My dual question please would be: 1) Lars, do you still recommend bonds to act as the water on the whisky of a global funds tracker, given the continued risks to bond prices? Why not just hold cash in an interest bank account? 2) Could you point me to a simple explanation of gilts- everyone preaches the mantra of holding bonds, I know I just don’t understand the subject enough to have decided what I’ve decided by omission!
@Lars,
Read the book but just wondered if you have an updated recommendation for the rational investor etf/fund available now for a UK based investor (before i take the plunge!).
Thanks.
Question for Lars. Firstly many thanks for your contribution to this site plus your excellent book Your ideal model for bond exposure in a rational portfolio is (for a Brit) Gilts- UK government bonds. Given the distortions in the Gilt market caused by quantive easing/Brexit creating an incredibly negative outlook on Gilts I have elected for a mixture of cash/Jupiter Strategic Bond Fund/Henderson Strategic Bond Fund. I am interested on your views on my choices.
Hi Lars
1a) in addition to the Vanguard 60/40, what type of Bonds and Gilts would you invest in as
a young-ish 80 yr something.
1b) What % would you allocate to the portfolio.
1c) Where would you invest.
Question for Lars: I loved your book and built my asset allocation around it. But in one respect I’ve been a huge pillock: I was reluctant to invest the appropriate lump sum in a US tracker, so I left that portion of the portfolio in cash. It’s a large amount of money relative to the overall portfolio, and the cash isn’t making me any interest (Hargreaves Lansdown doesn’t have any good options for storing cash in a SIPP). This was a few years ago now and the expected “great moment to invest in US stocks” hasn’t materialised, and I expect I would have been better off biting the bullet at the time.
The question is: what would you do now?
Edit to my post 47. Scratch my second question. Just found a May 19 Monevator Bonds article, linking to others. Still find it the most opaque subject, relative to equities though!
SteveL- trying to time the market in this way in my ISA is my frequent error too, and I too have erred by waiting for a significant market fall in recent years. It’s like waiting for a sale. It’s particularly enticing with larger sums to invest. Whatever you do or don’t do, Sod’s law will apply. I believe there’s research out there comparing drip feeding versus one off purchases, and the differences are not much. Except if the latters occurs just before a huge rise or fall in the markets!
Hi Lars
A bit niche for this audience, but can you point me in the direction of some good literature and/or a good platform for passive investing living in Denmark? My mum’s portfolio in Denmark is invested through the bank, which just seems ludicrously expensive and complicated.
Thanks
Christian
Steve, did dec 2018 mini crash not tempt you in?
1) Lars, what are your views on risk-parity portfolios in an attempt to protect from market downturns and sequence of returns risk?
2) Given that more and more capital is allocated to private companies and private companies can fund their business from private investments for a long time without the need to go public these days, will this affect our future market returns? And what would you suggest passive investors do to avoid being left out?
I am a big fan of Global index trackers and ETFs. However, what I didn’t realise until recently is that the funds are not currency hedged. Should I be concerned about this and if so, which fund should I be buying?
Lars,
As a big fan of the passive approach I am struggling though to justify why I don’t invest in consistently high performing and popular (albeit expensive) funds such as Fundsmith Equity or Lindsell Train Global. Any thoughts?
Hi Lars,
First, many thanks for sharing your thoughts on investing.
My question is : You offer lots of guidance on selecting the right minimal risk asset, but I can’t seem to find your rationale on why we need it. Be great to hear your views on that.
(Apologies if it has been shared before and I missed it).
Lars:
I have read Investing Demystified and have set up a passive portfolio based on information in the book – many thanks! I have a couple of questions:
1) In some of the higher risk portfolios in the book there is an allocation for Foreign Government Bonds. I really struggled to find one product (ETF or index fund) that would fit the criteria for this. Are you aware of any product suitable for this allocation?
(I ended up going for an SPDR emerging markets bond ETF [ticker EMDL] – I wasn’t that happy with the choice, but thought it was more important to get the portfolio set up than put things off any longer + it’s a fairly small % of my portfolio)
2) Once a passive portfolio is set up, what do you consider a minimal maintenance schedule? How do you track your investments and how often do you do this? Do you go back on a regular basis and look for new ETFs/index funds with lower charges, more ideal coverage of the intended asset class, etc?
Many thanks
Hello
Two questions for Lars
1. What about hedging for bonds?
2. What about the value premium? Exposure to value companies can be achieved for cheap nowadays, for example buying vanguard value factor etf (cost 0.22%)
Thanks
Jack
I recently read Investing Demystified and indeed this year’s ISA money went into starting a simple 3-holding portfolio based on the ideas.
I am curious about the derivation of the proportions of commercial bonds and sub-AA government bonds held in the more complex portfolios (10% and 7% respectively for the “C” risk portfolio for example). Clearly these come from a modern portfolio theory approach and crunching some volatility and returns numbers for those assets to compute those proportions as being optimal… but that begs the question how long a timescale the data feeding into the calculation was taken over (are we looking at last 5 years or more like last 5 decades?), and how stable the numbers are… how many years or decades into the future might you need to get before rerunning the calcuation produces a significantly different result?
I see Vanguard have made their gbp-hedged global bond index tracker into an ETF, VAGP. Like iShares’ AGBP it has an OCF of .10% and it is a monthly distributor, so six times the frequency.
VAGP is not hedged back to GBP….
VAGP is hedged to GBP, Stephen.
Curiously, Vanguard’s product listing states distributions for VAGP will be monthly but the linked KIID states these will normally be quarterly. I have emailed them for clarification.
Apologies Onedrew, you are correct !
As a heads up, if you have Vanguard passive and other managed funds on the same platform, the Vanguard funds can be moved to them by setting up an account with Vanguard who will then arrange a partial transfer of all Vanguard funds to their platform which has an annual fee of £0.15% which to me would be a 50% saving on fees.
I would also ask your thoughts on the number of platforms used for a portfolio. I currently have the one but I seem to recall someone saying that for the sake of security they have at least three.
Lars,
Thank you for your excellent books & sound advice.
My question is this: as an ex hedge-fund manager, what is your take on the new-fangled ETFs that seek to mimic hedge-funds? Is that even possible? Will these funds ever be an appropriate vehicle for the truly passive investor?
Tony.
Hi, is there an ETA for when Lars’ Q&A Video will be published?
Cheers,
Harps
Yes, to second Harps comment above:
When Lars?
It’s been a while since the request for questions – hope I didn’t somehow miss Lars giving his answers.
Hi guys, I’m in contact with Lars, lots going on with summer et cetera but we’ll get some answers back eventually. 🙂