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Ideal number of investments
SAP
Posted: 13 September 2017 07:07:50(UTC)
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I have now managed to bring all my SIPPs and ISAs under one umbrella. I appreciate there may not be one suits all answer but, on overage, how many "investments" should aim for? I have in a total portfolio of £1.70m? Currently this is spread over 8 Funds/Investment trusts in UK/Europe/US and Emerging markets..

King Lodos
Posted: 13 September 2017 07:28:20(UTC)
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I think you'd be pretty close to optimum efficiency with two: Vanguard Total World Stock index and Vanguard Total Bond .. (you could get it down to one: Vanguard LifeStrategy)

This would give you basically every liquid financial asset in the proportion the market holds them, with a low fee and the great ability index funds have to constantly adapt to the world they find themselves in.

I'd add to that Gold .. Something like SPDR Gold ETF, at maybe 10% of your portfolio .. Gold is a great insurance policy on a portfolio – there are decades like the 70s where you really wouldn't want to be without it.


I'd actually see the larger risk with a large portfolio being the one umbrella .. At £1.7m, I'd be willing to give up quite a bit in efficiency to protect against disaster scenarios – like the firm you invest with going bankrupt, or internal fraud, or identity theft and someone hacking you.

So I'd be thinking about dividing between 2 or 3 investment platforms; investing directly with firms like Vanguard; maybe some in offshore hedge funds; a little physical gold; some direct share and property investment; etc. I think it's a different game over £1m.
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Mickey
Posted: 13 September 2017 07:39:21(UTC)
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Morningstar research has previously shown that 7 funds/IT's give the optimum risk v reward, holding anything over 7 failed to lower the risk. This low number of holdings can give a feeling of unease so I tend to hold around 10.
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The Spanish Inquisition
Posted: 13 September 2017 07:39:46(UTC)
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Hi KL, which LS fund would be best?, I was thinking LS60 if near retirement or LS80 with a longer time frame.
I agree totally about not keeping all your eggs in one basket, having a large sum in Northern Rock when it went tits up was scary to put it mildly.......Lesson learnt
King Lodos
Posted: 13 September 2017 08:19:47(UTC)
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The Spanish Inquisition;51055 wrote:
Hi KL, which LS fund would be best?, I was thinking LS60 if near retirement or LS80 with a longer time frame.
I agree totally about not keeping all your eggs in one basket, having a large sum in Northern Rock when it went tits up was scary to put it mildly.......Lesson learnt


I would say LS60, but it is a *little* difficult recommending it as strongly – over the medium-term – when bonds are so historically expensive.

So I think what I might do is recommend LS60, then add a satellite holding to get bonds down to about 30% .. So maybe a World Small-Cap tracker and/or Emerging Markets tracker.

Or for retirement, I might go LS80, and add perhaps 20% in short-duration bonds .. Vanguard do a short-duration bond fund (but very cash-like) .. I might opt for active there, and go with Royal London Short-Duration Inflation-linked and Short-Duration Credit.


When treasury bonds got nearly this expensive in the 1940s, they spent the next several decades returning effectively nothing above inflation .. So I'd see the role of bonds in a portfolio more as shock-absorbers going forwards .. They should still rise when stocks go down .. Gold, I'd see as airbags.

So basically what I'd do (and we are in uncharted territory – so I'm only guessing) is take the LS60, and add a 'barbell' – add a little in Emerging Markets and maybe Small-Caps (higher risk and reward), and add a little in cash or short-duration bonds to balance that out.

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The Spanish Inquisition on 13/09/2017(UTC)
The Spanish Inquisition
Posted: 13 September 2017 08:39:32(UTC)
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7 funds/IT's give the optimum risk v reward, holding anything over 7 failed to lower the risk

I think we're talking about a different type of risk when 1.7m is at stake. Market risk and systemic risk. I am leaning towards holding say 7 types funds but maybe splitting them with different management co's in different regions so if I had smaller co's then 50/50 HSL IPU etc for all funds. It might be something I ate but my stomachs telling me that if Korea nuked the US where my holdings were kept on a computer then Id have nothing left.
Now where did I put my tin hat?
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King Lodos
Posted: 13 September 2017 09:02:01(UTC)
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Terry Smith and Warren Buffett have argued that any more than about 7 stocks, and there's no real reduction in risk (obviously talking large-cap multinationals).

Buffett's got most of his portfolio in just: Heinz, Wells Fargo (bank stock), Apple and Coca Cola.. and that's a $600bn portfolio.

Buffett's someone who likes being 50% down though – and keeps 35% in cash so he can always buy more .. Most investors aren't that disciplined, and you obviously shouldn't try the same thing with your average Biotech or Housebuilder stocks.


That's certainly one way to go though – direct ownership in huge companies, likely to be around in 100 years .. and keeping another 35% cash, 10% bonds, to make sure you don't go poor overnight.

Generally when individuals and institutions get beyond a certain size, they'll own more in 'real assets' .. These are things that still hold value if the global financial system goes down, and hold up against inflation (always worth looking at how badly stocks and bonds did in the 70s) .. Property, physical gold, art, some put TIPS in this category, timber and forestry, farmland, cars, etc.

I've got some old synthesisers from the 70s (as real assets) which have gone up around 500-1000% over the past decade .. I Nike trainers have beaten the stock market so far this century .. Real assets are probably the ultimate diversification




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Jim Thompson
Posted: 13 September 2017 12:30:35(UTC)
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My dad, who I hasten to add leads a very different lifestyle to me, invest in property, cars, and some shares. He also has his company pension.

The property element involves living in the property, which him and his wife 'do up' and sell on for a profit 4 ish years later. This also gives him a job in retirement.

The cars element he succumbs too much to emotion. Eg. Ferrari 328 bought from the factory for £45k in 1989, and sold at a small loss. That car would fetch £80k today. He does get pleasure out of his cars though. However does the cost of insuring the thing make it anything but an investment in ones pleasure?

The shares element is managed by the bank (don't even go there!) and consists of US large caps. I would play the shares/funds element differently, and give it a higher weighting, but then I am a lot more interested in investing in the stock market than my father. That might be my job in retirement.

Art...imagine how you would feel if you had a collection of Rolf Harris originals, when the unthinkable happens...

As has been said, it might have been better to split your holdings to different platforms for security reasons.
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AJW on 14/09/2017(UTC)
Sara G
Posted: 13 September 2017 19:12:38(UTC)
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For me the number of funds is immaterial (I have 25). It's much more about sector weightings. So I have the following groupings with 1-4 holdings in each:

1. Core Global
2. Core UK
3. Asia / Pacific (including Japan)
4. Emerging / Frontier
5. Smaller Companies
6. Themes - Tech
7. Themes - Resources
8. Private Equity
9. Multi Asset
10. Hedging (cash, precious metals, cryptocurrencies)

The current split is essentially 'barbelled' - 40% in the higher risk groups, 20% in Core Global / UK and 40% defensive and/or uncorrelated.

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PaulSh
Posted: 13 September 2017 20:10:22(UTC)
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I tend to agree with Sara G in that for most investment sectors you don't really gain anything by having too many holdings. The danger is that by have too many you are just creating your own expensive tracker. However, this surely doesn't apply across the board.

For example, high yield bonds, debt and property. For these sectors you really do need to diversify as much as possible. Be careful with different bond funds/ITs from the same stable though as they may well have a high correlation which will frustrate your attempt to spread the risk as widely as possible.

But really, avoid cryptocurrencies like the plague right now. I know a lot of people got very rich some years ago, but the situation is far more complex now. It's made even more complex by the alleged attempted large-scale Bitcoin thefts by North Korea, which for sure Trump will try to stop by some means or other.
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King Lodos
Posted: 13 September 2017 20:14:14(UTC)
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I should say, for all I preach a simple approach, I currently have about 34 funds

AXA Framlington Financial Class Z - Accumulation (GBP)
Baillie Gifford Pacific Fund Class B - Accumulation (GBP)
Baring Korea Class I - Accumulation (GBP)
CF Ruffer Total Return Class C - Accumulation (GBP) *2
Fidelity Global Financial Services Class W - Accumulation (GBP)
Fundsmith Equity Class I - Accumulation (GBP)
GAM Star Credit Opportunities Class I - Accumulation (GBP) *2
Harbourvest Global Private Equity Ordinary Shares
Hawksmoor Vanbrugh Fund Class C - Accumulation (GBP)
Henderson European Smaller Companies Class I - Accumulation (GBP)
Henderson UK Absolute Return Class I - Accumulation (GBP)
JPMorgan Brazil Equity Class C - Accumulation (USD)
JPMorgan Emerging Europe Equity Class C - Income (GBP)
Lazard Emerging Markets Class A - Income (GBP)
Legal & General Global Technology Index Class I - Accumulation (GBP)
Legal & General UK Property Trust PAIF Class I - Accumulation (PAIF GBP)
M&G Property Portfolio PAIF Class I - Accumulation (PAIF GBP)
Marlborough European Multi-Cap Class P - Income (GBP)
Marlborough UK Micro Cap Growth Class P - Accumulation (GBP)
RIT Capital Partners plc Ordinary GBP1
Royal London Short Duration Credit Class M - Income (GBP)
Royal London Short Duration Global High Yield Bond Class M - Income (GBP) *2
Royal London Short Duration Global Index Linked Bd Class M - Income (GBP)
Schroder ISF Italian Equity (Inclusive - Class A - Accumulation (EUR) & Class C - Accumulation (EUR))
Class C - Accumulation (EUR)
Inclusive - Class A - Accumulation (EUR)
Utilico Emerging Markets Limited Subscription Shares
Utilico Emerging Markets Ord GBP
Vanguard Emerging Markets Stock Index Accumulation (GBP)
VT De Lisle American Accumulation - Class B (GBP)

Fidelity China Special Situations FCSS
Vanguard Emerging Mkts VWO
TR European Growth TRG
Russia ETF XMRC
Brazil ETF DBX6


But I churn my portfolio a lot – but it's almost all specialist funds offset by defensive funds, so even as a buy-and-hold portfolio, returns would look quite un-tracker-like
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Freddy4Skin
Posted: 13 September 2017 20:41:57(UTC)
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King Lodos;51083 wrote:
I should say, for all I preach a simple approach, I currently have about 34 funds

AXA Framlington Financial Class Z - Accumulation (GBP)
Baillie Gifford Pacific Fund Class B - Accumulation (GBP)
Baring Korea Class I - Accumulation (GBP)
CF Ruffer Total Return Class C - Accumulation (GBP) *2
Fidelity Global Financial Services Class W - Accumulation (GBP)
Fundsmith Equity Class I - Accumulation (GBP)
GAM Star Credit Opportunities Class I - Accumulation (GBP) *2
Harbourvest Global Private Equity Ordinary Shares
Hawksmoor Vanbrugh Fund Class C - Accumulation (GBP)
Henderson European Smaller Companies Class I - Accumulation (GBP)
Henderson UK Absolute Return Class I - Accumulation (GBP)
JPMorgan Brazil Equity Class C - Accumulation (USD)
JPMorgan Emerging Europe Equity Class C - Income (GBP)
Lazard Emerging Markets Class A - Income (GBP)
Legal & General Global Technology Index Class I - Accumulation (GBP)
Legal & General UK Property Trust PAIF Class I - Accumulation (PAIF GBP)
M&G Property Portfolio PAIF Class I - Accumulation (PAIF GBP)
Marlborough European Multi-Cap Class P - Income (GBP)
Marlborough UK Micro Cap Growth Class P - Accumulation (GBP)
RIT Capital Partners plc Ordinary GBP1
Royal London Short Duration Credit Class M - Income (GBP)
Royal London Short Duration Global High Yield Bond Class M - Income (GBP) *2
Royal London Short Duration Global Index Linked Bd Class M - Income (GBP)
Schroder ISF Italian Equity (Inclusive - Class A - Accumulation (EUR) & Class C - Accumulation (EUR))
Class C - Accumulation (EUR)
Inclusive - Class A - Accumulation (EUR)
Utilico Emerging Markets Limited Subscription Shares
Utilico Emerging Markets Ord GBP
Vanguard Emerging Markets Stock Index Accumulation (GBP)
VT De Lisle American Accumulation - Class B (GBP)

Fidelity China Special Situations FCSS
Vanguard Emerging Mkts VWO
TR European Growth TRG
Russia ETF XMRC
Brazil ETF DBX6


But I churn my portfolio a lot – but it's almost all specialist funds offset by defensive funds, so even as a buy-and-hold portfolio, returns would look quite un-tracker-like


Hey KL, I can't see any Japan in there. How come?
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satish mittal on 20/09/2017(UTC)
King Lodos
Posted: 13 September 2017 22:21:24(UTC)
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Freddy4Skin;51084 wrote:
Hey KL, I can't see any Japan in there. How come?


This is the thing: if I filled in all the gaping voids in my portfolio, THEN I'd have a FTSE World tracker .. Which is what I would do if I was more buy-and-hold.

It's strange how rarely Japan pops up on my radar .. India too .. The thing is, if they're not really on stronger momentum, or cheaper, or really de-correlate returns against something else, then (despite looking over-diversified) I'll not diversify for the sake of it
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Harry Trout
Posted: 14 September 2017 09:54:57(UTC)
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KL, thanks for posting your list, really interesting. I have a couple of questions if you don't mind.

I have a similar number of funds in my portfolio, we have a few in common and I am being more active in churning particularly in the last few months.

I have a small holding in Vanguard World ETF (VWRL) which I use as my benchmark and have invested small amounts in VWRL too. My total return target for the whole portfolio is a 10% compound annual growth rate CAGR.

I was interested to know if you have a benchmark or target CAGR and how your churning approach has compared?

I have been really pleased with VWRL and am actually finding it quite a challenge to beat. I have several individual investments that beat VWRL hands down but across the whole portfolio (which includes cash and bonds) it's a closer race.

I remember your quote (I think it was yours?) - "Don't just do something, stand there". This has stuck with me, hence the question.

You are welcome to tell me to mind my own business of course!


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The Spanish Inquisition on 14/09/2017(UTC)
Ludditeme
Posted: 14 September 2017 11:32:56(UTC)
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@KL

I follow your reasoning about Japan and not inadvertently wanting to become a world tracker, but what about the portfolio diversification/inflation protection of gold? I have noted that you regularly point out how it can help to protect against stock market troubles. Given the high cost of bonds and equities at present and also the risk of a significant market correction, what has made you stay clear of the shiny stuff?

Cheers!

"I'd add to that Gold .. Something like SPDR Gold ETF, at maybe 10% of your portfolio .. Gold is a great insurance policy on a portfolio – there are decades like the 70s where you really wouldn't want to be without it."
King Lodos
Posted: 14 September 2017 12:10:18(UTC)
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@Harry Trout

Happy to talk all day about my portfolio .. What I should say is my aim isn't to beat the FTSE World, but rather to avoid losing money .. My aim would be a maximum drawdown of 5% and something like FTSE World performance ideally (which GAM Star Credit Opps has achieved since inception – although it's a part of the market I don't know well).

These are my dollar-weighted stock returns over about 15 months – so they spike down when I'm holding more in stocks (as I am now) .. But it's been almost a 50% rolling return over 12 months.



What's put me ahead over this period is mostly low CAPE ratio regions (Russia, Italy, Poland, Hungary, Brazil) bouncing back .. Market timing with them has lost me a bit (vs buy-and-hold), but timing developed market trends (gold miners, the Trump trade and the European growth story) has been a net positive.

One thing I do is group all the funds in a certain theme together .. So I've got 5x European Funds (and there's some logic in that – e.g. I want to overweight Italy, because it's cheap; hold TRG so I've got at least some that I can trade quickly) but they're viewed as a single investment .. generally with a single chart, that I view dollar-weighted (which tells me how well I'm timing things).

So I'm really trading/churning themes (European Growth, Asia) .. which is probably simpler than having a portfolio of 8x stocks tbh
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King Lodos
Posted: 14 September 2017 12:23:16(UTC)
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Ludditeme;51105 wrote:
@KL

I follow your reasoning about Japan and not inadvertently wanting to become a world tracker, but what about the portfolio diversification/inflation protection of gold? I have noted that you regularly point out how it can help to protect against stock market troubles. Given the high cost of bonds and equities at present and also the risk of a significant market correction, what has made you stay clear of the shiny stuff?

Cheers!

"I'd add to that Gold .. Something like SPDR Gold ETF, at maybe 10% of your portfolio .. Gold is a great insurance policy on a portfolio – there are decades like the 70s where you really wouldn't want to be without it."


I actually sold out of gold 3 days ago.

I'm not really a buy-and-hold investor .. So my approach is more that I look at every open position, and ask myself if I'd open that position today .. And in the case of gold, the chart pattern and the easing of tensions in Korea (which I'm not really expecting to come to much) told me it was probably going down a bit.

Plus sterling's flying at the moment – so you can make quite a good return sitting on cash on days like today




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Mr Helpful
Posted: 14 September 2017 15:43:46(UTC)
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"All right," said Deep Thought. "The Answer to the Great Question..."
"Yes...!"
"Is..." said Deep Thought, and paused.
"Yes..!"
"Forty-two," said Deep Thought, with infinite majesty and calm.”

― Douglas Adams, The Hitchhiker's Guide to the Galaxy
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Simon Owen
Posted: 15 September 2017 06:59:50(UTC)
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Hi Sara

Would you mind letting me know your core UK & Global holdings. I think you hold LWI for UK for one.
Trying to decide on my core holdings in these categories at the moment.
Also I would be interested to know your resources holding as well.

Would someone mind explaining the "barbell" concept. I'm sure I should know, but........

Thanks

Simon
King Lodos
Posted: 15 September 2017 08:56:40(UTC)
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There's a good description of barbelling here:
http://www.investopedia.com/articles/investing/013114/barbell-investment-strategy.asp

If we say the investment universe spans the very low-risk (1 year Treasury bonds), to the very high-risk (start-ups, distressed debt, etc), then most people crowd in the middle – broad stock and bonds.

When you get an environment like today's – where markets are historically expensive, and future returns are likely to be below average – it can make sense to seek higher returns by moving up the risk spectrum: holding more Emerging Mkts; more Private Equity; more Junior Debt ... But then you're taking on more uncertainty (an 80% drop in an investment could be a disaster for someone about to retire) – so you balance the higher risk with ultra-low-risk investments .. And these limit your absolute losses, and, through regular rebalancing, turn 80% drawdowns into relatively pain-free buying opportunities


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