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5 Year Investment £300k
Mary Smith
Posted: 26 July 2017 12:15:39(UTC)
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Joined: 26/07/2017(UTC)
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I would welcome views regading my current position. I have come into £300k which I want to invest for 5 years until I retire. Once invested I would not really want to change them or trade. The investments I would want to make would be as follows:

Bankers IT £30k
City of London IT £30k
Fidelity Special Value IT £30k
Murray Income IT £30k
Scottish Mortgage IT £30k
CF Woodford Equity Income Fund Acc £15k
CF Woodford Income Focus Fund Acc £15k
Fundsmith Equity Acc £30k
Invesco Perpetual onthly Income Plus Acc £30k
Vanguard Life Strategy 60% Equity Acc £30k
AJ Bell Passive Balanced Acc £30k

I'd be looking to us the AJ Bell Youinvest platform as I already have an account with them.

I'd be grateful for any help/opinions.
Keith Cobby
Posted: 28 July 2017 16:55:22(UTC)
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Hi Mary, it looks like a good spread and not too many holdings. There is some overlap with mine but we all have our favourites.
Tony Peterson
Posted: 28 July 2017 17:29:06(UTC)
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Mary

Why not backtest your planned portfolio against what might have been made from a direct holding in 10 representative FTSE 100 equities of your own choice?

Even the FCA is worried about the compounded effect of charges on savers' wealth prospects.
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kWIKSAVE on 29/07/2017(UTC)
King Lodos
Posted: 28 July 2017 17:53:36(UTC)
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I'd say the choice of stocks/funds is fairly arbitrary..

How well they've done in the past, doesn't tell you much about the future - on AVERAGE, every investor and fund averaged out together will return the same as a FTSE World Tracker .. Which you can buy very cheaply.

In practice, over 100% of your returns will come down to your Asset Allocation (being that anything else – from active fund fees to market timing – tends to be a net negative).


Consider markets are about the 2nd most expensive they've ever been, but could grind up perpetually, or crash rather severely .. Don't invest in anything without considering what a 60% drop in the stock market would look it on your portfolio – and then HOLD TIGHT .. Don't try and market time (unless you really want to be a trader).

I'd recommend perhaps Burton Malkiel's Random Walk Down Wall Street – latest edition – which has recommended asset allocations for whatever stage in life you're at .. They'll all do a far more efficient job at growing and protecting capital than anything short of a very academically planned and monitored portfolio of active funds or stocks.
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Tim D on 28/07/2017(UTC)
Tim D
Posted: 28 July 2017 20:54:44(UTC)
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Can't see anything I wouldn't be happy to hold in that lot (and indeed I do hold several of them).

However, the main thing which strikes me is that the only bond holdings are in the 3 multi-asset funds (the last 3 listed); I'm guessing that means only ~15% of the 300K is in fixed interest assets. Conventional dogma would be that that's rather low for someone just 5 years from retirement (for example, Vanguard's "Target Retirement" funds would have you at 50% bonds at the retirement date, and some "lifestyled" pension schemes would take you to 100% bonds&cash over the last 5 years pre-retirement)... but of course it depends a lot what you're actually planning to do with the portfolio in 5 years and/or whether you subscribe to the modern narrative that bonds are currently just "return free risk".

I'd also consider buying INC units instead of ACC for the funds. For one thing, assuming the portfolio isn't in a tax-free wrapper like a SIPP or ISA, it makes dealing with the tax simpler. For another, in a portfolio which isn't being added to further by external funds, it's useful to have all the cashflow being generated by the portfolio itself available for rebalancing, directing towards the currently most attractive holding, repairing weakened holdings or whatever.
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Money Spider
Posted: 28 July 2017 21:13:00(UTC)
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I concur with Tim D's advice of choosing INC funds over ACC funds (if you're buying funds). As I see it, there is no great advantage in choosing ACC funds other than automatic re-investment which you can do yourself and may indeed wish to use cash to re-balance.

I still have some ACC funds from a few years back when I was less informed (opinionated?) - a pain in the **** for CGT calculations (implicit re-investment of dividends increases effective cost of the fund for CGT). It also means you have to sell funds to get liquidity if you want to re-invest in something else.
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Mike L on 29/07/2017(UTC)
Tony Peterson
Posted: 28 July 2017 21:33:36(UTC)
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As I see it, the difference between stocks and funds has an eerie parallel with another contentious current.
issue - the difference between freehold property (you own it absolutely) and leasehold (others own it and you rent from them).

Those flogging property blur the issue of freehold/leasehold for their own benefit. Similarly those flogging financial products with their own interests at heart do not want you to know that you can be your own fund manager, just as you can own your own home outright.


Rishan
Posted: 28 July 2017 22:24:43(UTC)
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I haven't looked but I expect there are a lot of the same stocks in Bankers, City of London and Murray Income ITs...
King Lodos
Posted: 28 July 2017 22:32:28(UTC)
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Also, these might be some of the most expensive parts of the market today .. the search for yield potentially creating the biggest bubble in stock valuations.


Active funds are like leaseholds – you're paying someone to make decisions, and they might not be good ones .. My philosophy with active funds is they're fine, so long as they're making outsized returns .. Buy them and watch them like a hawk.

An ETF tracking a sector like Biotech however is ownership of part of the market for a fairly negligible fee .. The advantage being that you can get in or out of a whole sector very quickly/cheaply.
Tim D
Posted: 28 July 2017 23:21:25(UTC)
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Not very convinced by this leasehold/freehold analogy myself. As I see it, it's more like the choice of being a hands-on landlord who has to run around like a crazy thing attending to their properties and tenants, and one who hands all the work over to a lettings management agency and just lets them get on with it (at the cost of some of the yield of course). My sister-in-law went the former route, I went the latter; so far as I can tell she's paying herself sub-minimum wage for the time she puts in vs. costs saved, and my managers' tenant vetting and rent-setting skills are better than hers. But all power to anyone who wants to go full DIY in any field and learn the skills. While I'd never try to be a stock picking fund-manager myself, I suppose I'm effectively happily being a DIY fund-of-funds manager and find myself amazed that anyone would want to pay an adviser or wealth manager to tell them where to invest.
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john brace on 29/07/2017(UTC), Alan Selwood on 29/07/2017(UTC), Mickey on 21/08/2017(UTC)
King Lodos
Posted: 29 July 2017 01:00:05(UTC)
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I think it's the fee that makes active funds a bit less like ownership – in that the fee is constantly eroding the value of your investment.

You can see a 1% fee over 50 years almost halves the value of a fund compounding at 7% .. It really creates quite a high bar for managers to clear before you're really in profit.

And the problem with active funds is the market is basically active managers selling to each other – so there's no really easy way to ensure you're in the right funds.

What ITs often do is use leverage, which can give the impression they're beating the market, when in actual fact they're just exposing you to it at a higher level .. So if you had 75% in ITs, you might actually have 80% market exposure, which you could emulate a lot cheaper by just increasing your stock allocation and going passive.

There are no active funds I'd hold if I couldn't access my portfolio for the next 10+ years .. No matter what you're doing (active, passive or stock picking) MOST your return is just coming from Beta; some of it's coming from Systematic Beta; and a tiny bit typically is Alpha (which is where 90% of the fee goes) .. I use active funds a lot, but if I didn't have a way of identifying what was likely to outperform, there'd be no point at all.


Jeff Liddiard
Posted: 29 July 2017 10:03:36(UTC)
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I use active funds a lot, but if I didn't have a way of identifying what was likely to outperform, there'd be no point at all.

KL What is the way you identify active funds that are likely to outperform?

In addition, it would be interesting if you were to put your transactions on the 'Transactions' thread.

Tim D
Posted: 29 July 2017 10:20:09(UTC)
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King Lodos;49333 wrote:
I think it's the fee that makes active funds a bit less like ownership – in that the fee is constantly eroding the value of your investment.

You can see a 1% fee over 50 years almost halves the value of a fund compounding at 7% .. It really creates quite a high bar for managers to clear before you're really in profit.


OK yes I get it. In fact in my previous comment I did actually start writing something like "if funds were like leasehold it'd be like Mr. Fund Manager suddenly ended up owning all your stuff after 99 years". Then I thought "oh, wait, they pretty much would, but more stealthily...".

The 10 year lockin is an interesting thought experiment. Just scanned my holdings with that in mind and can't see a single active fund I'd want to keep (Woodford might be an exception if he was a bit younger, but surely he'll retire at some point; and of course if this exercise had been run a few years ago I might have ended up committed to his old Invesco fund and not following the manager). I'd want to be all VLS core plus some passive region/sector bet satellites.
Alan Selwood
Posted: 29 July 2017 11:06:29(UTC)
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Mary Smith;49207 wrote:
I would welcome views regading my current position. I have come into £300k which I want to invest for 5 years until I retire. Once invested I would not really want to change them or trade. The investments I would want to make would be as follows:

Bankers IT £30k
City of London IT £30k
Fidelity Special Value IT £30k
Murray Income IT £30k
Scottish Mortgage IT £30k
CF Woodford Equity Income Fund Acc £15k
CF Woodford Income Focus Fund Acc £15k
Fundsmith Equity Acc £30k
Invesco Perpetual onthly Income Plus Acc £30k
Vanguard Life Strategy 60% Equity Acc £30k
AJ Bell Passive Balanced Acc £30k

I'd be looking to us the AJ Bell Youinvest platform as I already have an account with them.

I'd be grateful for any help/opinions.


Although you may have specific reasons that you haven't revealed for only wanting to invest for 5 years, until you retire, I think that in most cases investors in your situation should be taking a much longer-term view.

Life does not really change at retirement half as much as many wealth managers and asset allocation 'experts' would have you believe, apart from the increased leisure time and lack of salary.

Someone in my own family was over 99% in equities at age 97........! (in this case I did think far too much risk was being taken on, but in practice this ultra-high % in equities did make the most money!!).

There is an article in today's FT about longevity, and it is quite startling to read the proportion of people of various ages who can be expected to live to age 100.

If you change your investment portfolio bias much between your working and your retirement years, you risk running out of money in later years.

I would invest in something like your present portfolio and try to retain it for all your remaining years if you can, simply adjusting gradually where you need to (for example, by moving little bits towards holdings that generate a higher income if you simply cannot live on what the portfolio is generating). But be aware that golden geese keep laying golden eggs that in their turn grow into golden geese that lay more golden eggs, but killing the occasional golden goose boosts your current food source at the expense of the cornucopia of food you will get in future years! (If you follow my convoluted metaphor!)
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Tony Peterson
Posted: 29 July 2017 13:06:36(UTC)
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Alan

I am not surprised that your relative with 99% in equities was making most money from investment. In today's economic and political climate the only way you can improve on this - aged 97, 79, or 19, would be to be 100% in equities.

And not through middlemen. The cumulative effects of managers' charges can seriously damage the compounding effect of growth. Not that I expect a lot of you to agree with me.

I've been 100% ( or nearly) in equities since the credit crunch - and I find the average fund manager very very easy to outperform.
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King Lodos
Posted: 29 July 2017 20:20:52(UTC)
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Alan Selwood;49342 wrote:
Someone in my own family was over 99% in equities at age 97........! (in this case I did think far too much risk was being taken on, but in practice this ultra-high % in equities did make the most money!!).


I still think it's the biggest mistake and misconception in investing.

Risk means a wider distribution of possible outcomes – positive and negative .. Betting on one asset class is the kind of risk that pays off until it doesn't.

Here's 100% US Stocks (one of the best markets to be in), vs 50% Stocks, 25% Bonds and Gold .. Not only do you make essentially the same return over nearly 50 years, that were particularly good for stocks, but you make very similar returns each decade .. While stocks go through good periods and bad periods, and you could easily get 2 or 3 bad decades in a row.


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Mr J
Posted: 30 July 2017 08:10:06(UTC)
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I have a supplementary question here, which is how do you cater for the problem that self management depends upon the mental capability of the self. I worry that as years roll by there is an increasing risk that I and my family will 'lose my mind' so to speak. A stroke may strike, dementia may come etc or indeed I may just become too out of touch. So how do people see this ?

Try to train your family in investment knowledge and skills ?
Set up some static portfolio on a for ever basis ?
Use a portfolio management service that can be trusted over 30 years plus ?
Create a family trust of some sort ?

I see this as one of the biggest problems families face. In my experience no family head wants to relinquish control even when they really should, and family members seem rarely to have a common interest in managing money for the shared good of the family. At some point someone is going to just sell the family silver for their own greed and stupidity. Must it be rags to rags in three generations ?
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Tim D
Posted: 30 July 2017 10:08:59(UTC)
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Mr J;49375 wrote:
I have a supplementary question here, which is how do you cater for the problem that self management depends upon the mental capability of the self. I worry that as years roll by there is an increasing risk that I and my family will 'lose my mind' so to speak. A stroke may strike, dementia may come etc or indeed I may just become too out of touch. So how do people see this ?


There was a nice article with some interesting comments over on monevator a few years ago on this topic: http://monevator.com/death-infirmity-investing/ . Nothing there that jumps out as a really good solution though.

"Try to train your family in investment knowledge and skills" would be my top priority, if it's possible. Even if it's just enough to understand the care and feeding of a 60/40 passives portfolio and why not to cash it all in and put it in a bank deposit account at the first sign of trouble.
Sara G
Posted: 30 July 2017 10:14:42(UTC)
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Mr J, that's an excellent question.

I have an older friend who has taken the decision to give up managing her investments directly in order to avoid this problem. She is still more than capable (both mentally and physically) but has taken the decision now to avoid the problem you describe, as her family situation is complex. So far she has no regrets and receives a good income from her portfolio - in fact she is planning a world cruise! There is an additional cost, of course, but for her that is the price of peace of mind and it is worth paying.

For myself I hope to keep at it for as long as possible - hopefully thinking about investing helps keep the mind sharp!

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David Trigg
Posted: 30 July 2017 12:04:04(UTC)
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King Lodos. While I agree with your point re shares being very high at the moment isn't a 60% fall a bit pessimistic - it would make the FTSE100 around 3000?

Also a world tracker will be biased towards the biggest stocks. If one were to go down that route would it not be best to split it equally between Large, Mid and Small cap trackers. But if your 60% prediction is correct they will only track down. The idea of active management is that a good manager will negate some of the downside risk. I recognise that cynics will say, with some degree of accuracy, that a lot of active managers are just highly paid trackers. Grateful for your view.
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