Share this page:
Stay connected:
Welcome to the Citywire Money Forums, where members share investment ideas and discuss everything to do with their money.

You'll need to log in or set up an account to start new discussions or reply to existing ones. See you inside!

Notification

Icon
Error

Investment strategy for twilight years
D Chadwick
Posted: 03 February 2018 12:26:36(UTC)
#1

Joined: 22/05/2017(UTC)
Posts: 3

Thanks: 7 times
Was thanked: 5 time(s) in 2 post(s)
At a stage of life when I am about to enter my eighth decade, my thoughts are focussing on two possibilities that all of us will face at some point.
Advancing years will inevitably increase the odds of either a) a swift demise (accident/heart attack) or b) a mental decline making investment decisions impossible. My wife has never shown an interest nor an aptitude for financial matters, so in the event of a) I have arranged for our portfolios currently run by me through a low cost platform, to be transferred to a wealth manager.
However, in considering b) I wonder if my thoughts below might mean that this expensive option can be avoided.
My requirement is for capital growth and over the years I have gradually changed my investments from 100% equities to 100% Investment Trusts and funds having belatedly recognised that the likes of messrs Smith, Train & Anderson have somewhat superior stock picking skills to me! These three (Fundsmith, LT Global Equity, and SMT form the backbone of my investments but I have up to 20 or so other specialist ITs that I dip in and out of occasionally. On the basis that these three have superior 3 & 5 year returns than most of my other choices I am considering selling all these 20 holdings and re-investing the proceeds into the favourite 3.
I see the advantage of doing this would be that in the event of either a) or b) there would be no need to pay 3% or so to a wealth manager to supervise our investments and my wife and accountant could both cope with supervising a simple 3 holding portfolio.
I recognise that there will be a loss of diversification but surely the number of holdings and lack of overlap in all 3 gives sufficient cover and spread of "themes" that will outweigh the 3% cost of the alternative?
Thoughts please, and most importantly, if anyone agrees with my plan, what % would you suggest I end up with for each?
4 users thanked D Chadwick for this post.
Mickey on 03/02/2018(UTC), Tim D on 03/02/2018(UTC), Keith Cobby on 03/02/2018(UTC), Andrew Smith 259 on 13/02/2018(UTC)
Mickey
Posted: 03 February 2018 12:41:49(UTC)
#2

Joined: 21/06/2010(UTC)
Posts: 507

Thanks: 1404 times
Was thanked: 505 time(s) in 248 post(s)
I recently looked at similar issues. In the thread, a post made to the effect that perhaps my wife would enjoy/ be better at, investing if she had to do it. That set me thinking and I discussed this with her. The outcome was that my wife would not be interested but I imagine that in some cases this may not be the case.

Anyway, the final decision was that in the event of my demise, rather than select a few core IT's and hold onto those, my wife will transfer everything to a Vanguard Life Strategy fund held direct with Vanguard UK. Most likely the VLS 80 or 60 will be her choice.

This means that in the event Messrs Lindsell etc cease to be active, there will be no worry or concern for my wife to find an alternative, nor will we be paying costly fees to anyone.

The Vanguard fund would most likely underperform a selection of active IT's such as SMT but for peace of mind, ease and reasonable security, it will be low-cost Vanguard rather than forcing my wife to get involved with something that she simply is not interested in.

Hope that helps,
Mickey
5 users thanked Mickey for this post.
D Chadwick on 03/02/2018(UTC), C Blockley on 03/02/2018(UTC), Tim D on 03/02/2018(UTC), Mr Helpful on 04/02/2018(UTC), Andrew Smith 259 on 13/02/2018(UTC)
D Chadwick
Posted: 03 February 2018 13:12:39(UTC)
#4

Joined: 22/05/2017(UTC)
Posts: 3

Thanks: 7 times
Was thanked: 5 time(s) in 2 post(s)
Thanks for this Mickey - I have not come across this product, so I shall look into it further with interest. I can see the attractions from an "administration" point of view and this is very valuable information.
In the event that my wife will not want or need to spend the proceeds (wishful thinking perhaps?) this looks promising, but a quick look at the annualised returns, around 10% with Vanguard, compared to my favourite 3 of around 20% might not be so attractive to my kids if she lives as long as her mother has done.
Back of a cigarette packet calculation based on a nominal £100,000 starting figure results after 10 years with £259,000 at 10% and £619,000 at 20% annualised return. I recognise that this is a ridiculous comparison, and will not apply, but nevertheless the difference is difficult NOT to take into account.
1 user thanked D Chadwick for this post.
Mickey on 03/02/2018(UTC)
Alan Selwood
Posted: 03 February 2018 18:40:19(UTC)
#5

Joined: 17/12/2011(UTC)
Posts: 2,554

Thanks: 502 times
Was thanked: 4021 time(s) in 1498 post(s)
The 3 issues that I can see in this situation are:

a) Longevity of administration

b) Longevity of performance like today's

c) Overall administration ease

Now as far as (c) is concerned, there is very little in practice to choose between 1 tracker global tracker fund and 1 or 2 or 3 active funds, so I would not rate this as a serious issue.

With (b), there is no way of telling, but if you put yourself in the shoes of a management company that has a seriously big investment trust or fund, they are not likely to be totally unprepared for future changes in global circumstances.
For example, Terry Smith said about a year ago that if he was not there, he has an able deputy who could do roughly the same without him, and the sorts of company in which the investments are made are selected for their durability and profitability. He said that if a replacement manager did nothing for a year or two, it should not make much difference, because the basic policy is to buy what is durable and profitable, and then do nothing unless individual companies wander off course.
With a trust like SMT, we're talking big, big money involved, with a reputable firm with lots of good staff, and the firepower and desirability as an employer to buy in talent. If Anderson fell off a yacht, I don't suppose it would cause an immediate crisis, and they already have lots of skilled fund managers in house if they didn't want to look outside straight away.
With Nick Train, you are probably not on such a widespread talent ground as SMT, because it's more of a boutique firm than that.
I suspect that if you stuck to 3 investment trusts of fairly global remit, and run by the larger investment houses (Baillie Gifford, Henderson, JP Morgan, BlackRock, Schroders, Fidelity, for example) you could reasonably expect them to always have talent in house or capable of being drawn into the fold if an existing manager or team moved away or died.

When it comes to (a) longevity of administration, there are no firm, guaranteed answers : Go back to 1970, for example, and read a list of fund managers then operating, and compare with today's, and there won't be much overlap.

If I wanted longevity of administration, I might look at Foreign and Colonial, Witan, Baillie Gifford, Henderson, and perhaps a few others - any IT that has been around since 1900 onwards is probably going to keep going, even if in different hands.

You could of course go the bespoke route through a stockbroking firm, and leave it to them to handle the investment selection and the administration of the account ready for the accountant to do the tax part: For this style of operation, if it was me doing the research, I might be interviewing firms like the following to see how they stacked up in relation to my needs:
Redmayne Bentley, Blankstone Sington, Bordier UK, and a few others. (NOT St James Place, or those run by banks, etc). A Private Client Stockbroker with local offices and not too high a level of charges, continuity of local face-to-face care, being some of the priorities.
5 users thanked Alan Selwood for this post.
Tim D on 03/02/2018(UTC), D Chadwick on 03/02/2018(UTC), Mike L on 04/02/2018(UTC), Guest on 08/02/2018(UTC), Andrew Smith 259 on 13/02/2018(UTC)
Tim D
Posted: 03 February 2018 20:21:52(UTC)
#6

Joined: 07/06/2017(UTC)
Posts: 317

Thanks: 1177 times
Was thanked: 475 time(s) in 206 post(s)
The OP might want to ponder Warren Buffet's plans for what to do with his fortune and provide for his wife in the event of his demise. This can be found in the 2013 Berkshire Hathaway letter to shareholders. At the end of a bunch of stuff about how most investors should go down the passive indexed route, there's this:

Quote:
My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.


I imagine the sums involved are such that Mrs Buffet could afford to live comfortably off the bonds even if the equities suffered a mighty crash, but the approach can obviously be adapted for personal tolerance for risk and geographical market preferences.

Lars Krojier has a whole book out advocating this government bonds + cheap index trackers approach.
4 users thanked Tim D for this post.
King Lodos on 03/02/2018(UTC), D Chadwick on 03/02/2018(UTC), Mike L on 04/02/2018(UTC), Guest on 08/02/2018(UTC)
Keith Cobby
Posted: 03 February 2018 20:28:20(UTC)
#7

Joined: 07/03/2012(UTC)
Posts: 463

Thanks: 275 times
Was thanked: 713 time(s) in 287 post(s)
One third in each of F & C, SMT, Bankers.
1 user thanked Keith Cobby for this post.
D Chadwick on 03/02/2018(UTC)
King Lodos
Posted: 03 February 2018 20:48:46(UTC)
#8

Joined: 05/01/2016(UTC)
Posts: 2,325

Thanks: 458 times
Was thanked: 3414 time(s) in 1356 post(s)
I think Buffett's advice with the tracker is by far the safest.

I've no idea whether SMT will go on being a great investment .. If you were trying to design a strategy to put you in every bubble over the past 3 or 4 decades, it would be what they're doing now: investing in hype, optimism and high valuations.

I can't guarantee Fundsmith and LT .. There was a period of 28 years over which the old 'nifty fifty' (stable, loved consumer stocks) failed to make a positive return – then again, they were very expensive, and my own feeling is Fundsmith and LT's limit with how far they'll let valuations go is a good safeguard against this

1 user thanked King Lodos for this post.
D Chadwick on 03/02/2018(UTC)
Mr Helpful
Posted: 04 February 2018 10:37:23(UTC)
#3

Joined: 04/11/2016(UTC)
Posts: 473

Thanks: 523 times
Was thanked: 588 time(s) in 284 post(s)
Mickey;56424 wrote:

I recently looked at similar issues. In the thread, a post made to the effect that perhaps my wife would enjoy/ be better at, investing if she had to do it. That set me thinking and I discussed this with her. The outcome was that my wife would not be interested but I imagine that in some cases this may not be the case.

Anyway, the final decision was that in the event of my demise, rather than select a few core IT's and hold onto those, my wife will transfer everything to a Vanguard Life Strategy fund held direct with Vanguard UK. Most likely the VLS 80 or 60 will be her choice.
Mickey


Also very drawn to this option.
But what holds me back is :-

1. Will Vanguard and the particular fund chosen be around in x years time?
Probably more so than others, but strange things happen

2. My heirs are interested in money, so with a copy of the Investment Plan they have a guide to refer to, which inter-alia identifies the core 11 (current) portfolio, and the methods for moving money about.
If one or two ITs or tracker ETFs ceased to exist, others are pencilled in as replacements.

3. Have never been convinced by the Constant Ratio (CR) Investment Formula used by the VLS funds and the so-called passive brigade, as it makes little sense unless the investor is completely clueless.
The Variable Ratio Investment Formula (a la Ben Graham), has proved its' worth over quite a few decades, saving us from disaster on more than one occasion.
If we had adopted the CR, then we would probably not be financially independent today.

However having expressed these strongly held views, there are certainly worse choices than the VLS funds, and I could be wrong, as only time will reveal the final wisdom or other.
3 users thanked Mr Helpful for this post.
Mike L on 04/02/2018(UTC), Mickey on 04/02/2018(UTC), D Chadwick on 04/02/2018(UTC)
Alan Selwood
Posted: 04 February 2018 11:26:46(UTC)
#9

Joined: 17/12/2011(UTC)
Posts: 2,554

Thanks: 502 times
Was thanked: 4021 time(s) in 1498 post(s)
As always, you can get better or worse results depending on the period over which you do the measurements. As long as you can somehow avoid that which becomes insolvent, there is usually recovery if you wait long enough, even though you may make less money than if you can duck and dive year by year.

To my mind, there is a lot to commend having a close-knit family with members who are highly-talented in different fields and supportive of each other, especially a hands-on practical person who can make things, a medic who knows how to cure those who are ill, a good cook, a person who can love and care for people and who is always there to cheer the others up, and someone who is always keen to learn and question everything around the group.

At least, those are the choices I would make in advance in deciding who was to be in MY family! (Not that we ever can choose in advance, just accept who we have and make the best of it).
2 users thanked Alan Selwood for this post.
Tim D on 04/02/2018(UTC), D Chadwick on 04/02/2018(UTC)
+ Reply to discussion

Markets

Other markets