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I'm really not doing a good job of this...
Posted: 25 February 2013 13:35:24(UTC)

Joined: 25/02/2013(UTC)
Posts: 1

I have a very modest amount of money saved up... about £20k currently in a S&S ISA, with about £10k per annum now going in. My investment strategy is diabolical. No, it's worse than that. It's non existent.

So, I have my money spread out over 12 or so funds. They're fairly diversified, but I do nothing with them, and they're chosen on the basis of little more than a hunch, or a 'top fund' indicator from the company I use. I don't monitor markets, move money around, and so on. I simply log in, see how things are doing and log out.

What can I do to develop a better investment strategy that's representative of my portfolio size. I mean, I don't want to spend hours a day on something this small, but I do want to be doing more and investing more wisely. What would you advise? Are there people I can follow on twitter to regularly get other opinions to learn from?

Any advice would be great.
Posted: 25 February 2013 14:42:43(UTC)

Joined: 10/08/2008(UTC)
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Given you seem to want a fire and forget portfolio, have you thought about just following an asset allocation strategy using simple low cost index trackers. You then have basically two setup criteria to deal with a) what the asset split will be, tailored to how much risk you are happy with and b) minimising the cost.

Finally c) you then need to carry out a rebalancing exercise every so often to bring it back into line with you risk profile. This could be a simple time based trigger, say reviewing it once a year or a % based limit such as if any asset is 25% out of balance from the original. You then sell and spread the proceeds around to bring the mix back into line As a matter of interest I have a number of accounts one of which is run very much as I've stated above, using fidelity, HSBC and L&G index trackers (~80K). I hardly look at it from one year to the next. Having had it running for 15+ years it's interesting to see that it really hasn't performed that much worse than the more actively managed accounts which hold all the so called star funds. My experience having tried to hold a sensible mix of sector I haven't got that much extra return for the effort involved.

The following link might help you with point a)

and some one like Cavendish online with b) and c)

.......... job done, time to put your feet up.

1 user thanked P L for this post.
Fred Wayman on 04/03/2013(UTC)
Alan Selwood
Posted: 25 February 2013 15:32:43(UTC)

Joined: 17/12/2011(UTC)
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Dear SJReynolds,

I think that if they were honest, most investors would have to confess that they lack perfection in what they do and how they do it, so you are not alone. At least you are interested enough to wonder how to improve.

There is one major problem with investing - you can't foretell the future. The best planning in the world can do nothing to overcome this problem.

But some general principles:

1. Most investment managers get to the top of each year's performance table either by luck or by taking greater risks. Check Citywire's or Trustnet's performance tables for yourself to verify how often a top performer continues to be a top performer. Sometimes, one year's top performer is the following year's bottom performer - this indicates that the manager concerned was either very lucky or over-specialised in what did well the first year, and had no predictive powers at all concerning what was going to do well the following year.
2. To see which managers are more consistent (and 'consistent' beats 'top-performer' over a period of years), look at performance tables which analyze each manager's position in discrete year by year chunks in his/her sector of the market. What you want to look for is a manager who in most individual years does better than his market sector, rising more and falling less.
3. Try to find a manager who trades his fund's holdings little - every transaction costs money, and some managers change the whole fund (or more) every year. One of my 'investment heroes' from the 1970s and 1980s hand-picked several hundred of what he thought were the best shares available at bargain prices, and barely changed the portfolio for around 15 years. He was regularly in the top 10 out of some 90 unit trusts then in existence during the whole of his tenure. How did he do it? He picked those companies in his market sector that were available in the market at less than what he thought the company was worth, then stuck with them until they got taken over, or became so over-priced compared with their intrinsic worth that he thought it sensible to let others buy what was no longer worth the money.
4. Try to diversify your holdings in such a way that whatever the markets do (in their unpredictable way), you do not have all your assets tied to what does worst that year - it may only be a temporary problem, but it can be very dispiriting if your total portfolio loses 80% one year because you happen to only be in bank shares and the year is 2007. The risk then is that you get so discouraged and sell everything, because you fear that you are then going to lose the rest. Generally speaking, you should have sufficient cash in hand to deal with emergencies, so you don't have to sell long-term performers to bail you out in the short term. This could be such items as replacing the car and domestic appliances, coping with unexpected redundancy, bailing out children who need financial help paying their mortgage after they suffer unexpected financial problems. Then with the remaining money, divide roughly 4 ways between (a) cash on deposit, (b) something with a fixed return over a fixed medium term period (index-linked National Savings certificates would be my choice here, but for the fact that the government has taken them off the market!), (c) property (you may well have covered this with your owner-occupied house), (d) equities such as shares, investment trusts, unit trusts & OEICs. There is also currently a reasonably good argument in favour of bringing a bit of physical gold into the equation, perhaps as part of (a) - in your case a few gold sovereigns may be sufficient.
By having this wide spread of types of asset, you should find that whatever the future holds, you will have something left in case of catastrophic market conditions, and cash in hand to buy equities when they are suddenly very, very cheap.
5. Most years, medium-size and smaller companies outperform large ones, and they may not in practice be as risky as many investment advisers make out.
6. A few funds that I would expect, over the long term, to do well, because of the market sector, the manager's skills, the management charges - this is not a recommendation, of course!
i). Marlborough Special Situations - manager Giles Hargreave [largely medium/small UK companies]
ii) M & G Recovery [buys unloved companies that have been through bad times, but which the manager thinks will survive]
iii) Murray International Investment Trust - manager Bruce Stout [a diverse global portfolio]
iv) Aberdeen Asian Smaller Companies investment trust - managed by Hugh Young and his team [Asian smaller companies]
v) First State Asia Pacific Leaders Trust - managed by Angus Tulloch's team, esp Jonathan Asante [Asian companies that are market leaders]
vi) Personal Assets Trust - an investment trust that concentrates on mainly UK & US large companies with also some fixed interest stocks and gold. Run for security, low risk, realistic targets for growth and income.
vii) Some generalist investment trusts that cover mainly the UK market, but include some global content: Lowland, Temple Bar, City of London, Bankers, Scottish Mortgage. All have been around a long time, and have quite low management charges.
viii) Fundsmith - a quite new but fast-growing fund that concentrates on 20-30 big companies, mainly US and UK that are long established with activities that require people to keep buying small-ticket from them (companies like Unilever, Domino's Pizza, Microsoft, Intercontinental Hotels Group).

Somewhere from all the above, you should be able to put together a good, durable portfolio that shouldn't need much attention. Try to hold chunks of £2,000 to £3,000 minimum to keep dealing charges realistic.

Hope that helps!
8 users thanked Alan Selwood for this post.
Nick Pendleton on 25/02/2013(UTC), Henry Barlow on 25/02/2013(UTC), Paul Davies on 25/02/2013(UTC), mark88man on 03/03/2013(UTC), noiansleft on 03/03/2013(UTC), Nick D on 03/03/2013(UTC), Guest on 03/03/2013(UTC), Interceptor on 07/03/2013(UTC)
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