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Noob needs ISA and funds advice - 20k to invest asap
Theo Shackleton
Posted: 14 January 2018 22:24:46(UTC)
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Hi,

I want to get 20k into a stocks and shares isa before the end of this financial year and am starting from scratch.

I would try to drip feed as much as possible between now and then. Im happy to invest long term and don't need the money within five years or more.

I am interested in the Cavendish ISA. Low platform charge of 0.25% per annum, and fund TERs around 0.75% so I assume that means charges of around 1% a year, so I need a gross return of 3% to match savings income?

So what if I just follow their suggested ratios for these three types or model fund - income, growth, and tracker? See images below. So then I'd be well diversified. It would mean lots of funds but there are no charges for investing or exiting, and I do not want to be too active. Just check in some times. So I'd split the 20k between the three types of fund and follow their suggested fund ratios.

I'm a beginner and would be very grateful for your thoughts. 35 years old, loads of money in the bank and no property. Worried, very worried, about not being diversified enough and want to move away from cash. Any glaring problems with my proposal? Any funds I'm those lists better than others?










Thank you.
Theo Shackleton
Posted: 14 January 2018 23:07:11(UTC)
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Sorry, I had problems with the images. They should now be visible. All comments very welcome!
King Lodos
Posted: 14 January 2018 23:09:06(UTC)
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It's always a good idea to start investing .. I will say I don't like the look of their model portfolios – they're far too focused on Equity Income and Corporate Bonds: two parts of the market that have done well in recent times as yield from the safest assets (government bonds) has declined, but constrained and inflexible niches, with too much in the UK in light of current risks.

Be realistic about risks .. If you put money in today, you could find it on a negative return over 10 years .. It would've been the case from 2000 to 2009 .. But if you keep investing regularly (over many years – drip-feeding over months doesn't achieve much), these things balance out, and you should get a good result.

Over 5 years, I think you'd be safer with some or all in NS&I bonds (2.17%).

There are only two set-and-forget approaches to investing I'd recommend:

– Keep investing in Vanguard LifeStrategy 80 (very low cost – you buy the whole market .. it's the no-brainer, default investment .. 'Passive investing');

– or keep buying Fundsmith and Lindsell Train Global (nothing fancy, just buying and holding the best companies in the world, as per Warren Buffett).


Or do both .. Anything else is speculating .. Lump sum investing I'd usually recommend diversifying more, but regular saving, you can think of all the cash you're going to put in as the ultimate diversifier.
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Theo Shackleton
Posted: 14 January 2018 23:15:47(UTC)
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Thanks for the response. I'm happy to leave investments for a long time. I'm thinking of this as a long term approach. I only said five years because that seems to be the standard advice.

So you don't rate those funds listed above? I want a diverse range of sectors, types, and regions to balance out portfolio.
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King Lodos on 15/01/2018(UTC)
King Lodos
Posted: 15 January 2018 00:02:56(UTC)
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Well the most diverse thing you can do in stocks (at least literally) is to buy the whole market – which is what you get in a Vanguard fund.

When you buy a broad index-tracker (essentially what LifeStrategy is) you get every major stock in every country, sorted in order of size .. So you always hold more of what grows, and less of what shrinks .. Which means you'll never miss anything – the future Apple, the future largest economy – and it's very cheap to run, with no manager risk.

By contrast, when someone tries to diversify by buying lots of separate funds: UK Large-Caps, Asia Pacific Consumer, Vietnamese Gaming Peripherals, etc. all you're really doing is buying segments of this greater whole .. Or you could just as easily think of it as starting with the whole market, and taking large bits out – and paying a lot of fees for the privilege.

It's basically a way the fund industry justifies there being thousands of different funds, when we probably only need about 5.


The Fundsmith and Lindsell Train Global approach is similarly diverse, because you're investing in giant global companies that trade all over the world – but essentially strips out anything speculative, risky and potentially 'uninvestable': over indebted banks, oil drillers, etc. Which is an approach I prefer, but only slightly.

Now you can diversify away from stocks, but bonds are basically very expensive now, so really the only safe diversifier is cash (and perhaps gold as an alternative form of cash) – maybe Property, but a lot of property funds are just property stocks (again: just a thin slice of what you already own with a tracker), but I like Warehouse retail investment, so I bought Tritax Big Box and Aberdeen European Logistics recently – but I can't vouch for these as long-term investments – again they're very niche
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Mickey
Posted: 15 January 2018 08:57:19(UTC)
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Looking at your images it appears you want something low risk? If so, the Vanguard Life Strategy fund you would be looking at would be the 20% or possibly 40% option, neither of them would I want as a 35 yr old under most circumstances. The Vanguard 80% fund is a good choice for someone wanting a fire & forget fund but if you go for it make sure you are happy with the 80% stock market exposure.
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Theo Shackleton
Posted: 15 January 2018 10:08:01(UTC)
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Mickey;55409 wrote:
Looking at your images it appears you want something low risk? If so, the Vanguard Life Strategy fund you would be looking at would be the 20% or possibly 40% option, neither of them would I want as a 35 yr old under most circumstances. The Vanguard 80% fund is a good choice for someone wanting a fire & forget fund but if you go for it make sure you are happy with the 80% stock market exposure.


Hi Mickey,

Thanks for your input. Why would you not want either of those funds at 35? My approach to date has been savings (usually fixed rate bonds) so if I can improve on the measly returns there (like 2%) I'd feel that was an improvement at least. Obviously, the more I can make the better, but I know very little and do not want to keep anxiously checking and meddling. All the advice I've seen suggests being patient, drip feeding, and taking a long term approach is safest, unless something scary comes to light. So based on all of this, it seems the initial choice of fund, if basically diverse and managed well to date, would be best for me. What I'd like is something I can leave and check in on every so often. If I'm hearing bad press about a fund's management or performance is very poor then I'd be willing to shift funds... That said, there will always be ups and downs, so how do I know whether to exit a fund, or keep drip feeding to take advantage of the lower stock values?

Also, are the vanguard 20 and 40 you refer to more invested in bonds and things than stocks, compared to the 80?

Thank again
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Jeff Liddiard
Posted: 15 January 2018 10:15:50(UTC)
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There are only two set-and-forget approaches to investing I'd recommend:

– Keep investing in Vanguard LifeStrategy 80 (very low cost – you buy the whole market .. it's the no-brainer, default investment .. 'Passive investing');

– or keep buying Fundsmith and Lindsell Train Global (nothing fancy, just buying and holding the best companies in the world, as per Warren Buffett).


Or do both .. Anything else is speculating .. Lump sum investing I'd usually recommend diversifying more, but regular saving, you can think of all the cash you're going to put in as the ultimate diversifier.


KL What %? 25% Fundsmith, 25% LT Global, 50% LS80 or 33% each?
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Theo Shackleton
Posted: 15 January 2018 10:29:08(UTC)
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King Lodos;55406 wrote:
Well the most diverse thing you can do in stocks (at least literally) is to buy the whole market – which is what you get in a Vanguard fund.

When you buy a broad index-tracker (essentially what LifeStrategy is) you get every major stock in every country, sorted in order of size .. So you always hold more of what grows, and less of what shrinks .. Which means you'll never miss anything – the future Apple, the future largest economy – and it's very cheap to run, with no manager risk.

By contrast, when someone tries to diversify by buying lots of separate funds: UK Large-Caps, Asia Pacific Consumer, Vietnamese Gaming Peripherals, etc. all you're really doing is buying segments of this greater whole .. Or you could just as easily think of it as starting with the whole market, and taking large bits out – and paying a lot of fees for the privilege.

It's basically a way the fund industry justifies there being thousands of different funds, when we probably only need about 5.


The Fundsmith and Lindsell Train Global approach is similarly diverse, because you're investing in giant global companies that trade all over the world – but essentially strips out anything speculative, risky and potentially 'uninvestable': over indebted banks, oil drillers, etc. Which is an approach I prefer, but only slightly.

Now you can diversify away from stocks, but bonds are basically very expensive now, so really the only safe diversifier is cash (and perhaps gold as an alternative form of cash) – maybe Property, but a lot of property funds are just property stocks (again: just a thin slice of what you already own with a tracker), but I like Warehouse retail investment, so I bought Tritax Big Box and Aberdeen European Logistics recently – but I can't vouch for these as long-term investments – again they're very niche


Thanks for your considered responses, King. Very interesting.

The broad index tracker sounds like the kind of approach I'm interested in. So a range of sectors and regions to offer balance, and hopefully stacked more in favour of, to date, successful firms. Presumably, with the a drip feeding approach over time, I will be investing in emerging companies as well, that appear after I initially enter a fund?

So if you were me (I appreciate it's opinion and my risk - my attitude is summed up in my response to Mickey) and you wanted to beat savings, take a long term view, and be covered against shocks that might occur over time and in particular places, how would this sound:

40% in vanguard life strategy 80
Or their tracker listed in my first post - global ex UK ftse?

20% fundsmith

30% ns&i bonds (what's the 2.17% you mention)?

10% other

I'd like to include some precious metals and non UK currency. And property. I don't own my own property. But am concerned about how inflated these things seem to be. Also interested in buying gold coins as part of my strategy and hiding somewhere. Is there a tax on selling gold coins, the way cgt applies to jewellery?

Oh, and I haven't been paying into a pension so this is kind of my long term pension strategy. But also just about moving away from cash, especially sterling.

eilidh
Posted: 15 January 2018 10:33:26(UTC)
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What about Nutmeg? Low charges and several different risk portfolios.
Tim D
Posted: 15 January 2018 11:02:29(UTC)
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Theo Shackleton;55419 wrote:

I'd like to include some precious metals and non UK currency.


Personally at 35 I was virtually all-in on equities and for another decade. You have to be able to roll with the hits you'll take when another 2001 or 2008 comes along though.

Have you considered the Harry Browne "Permanent Portfolio"? 25% equities/25% precious metals/25% "cash"/25% long-dated bonds. Monevator had a good write-up recently. I started one myself with a bit of my portfolio last year... I was also worried about being all-sterling (or all USD for Harry Browne's original US-oriented version) for the cash and bonds; my solution described in 3rd comment there.
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Sara G
Posted: 15 January 2018 11:26:37(UTC)
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[quote=


Is there a tax on selling gold coins, the way cgt applies to jewellery?


[/quote]

My understanding is that gold coins are not subject to CGT as they are treated as currency.
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Theo Shackleton on 15/01/2018(UTC)
Jim S
Posted: 15 January 2018 12:29:23(UTC)
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Hi Theo

Well done for deciding to invest your ISA allowance & going down the funds route. You've already had some good advice, I think having Vangaurd LS80 as the core of your portfolio, or Fundsmith, or Lindsell Train Global equity or some combination is a good way to go.
If you are looking at a more risk managed holding, having say 20-25% in something like RCP (on a premium, but its well regarded) or another 'mixed' fund might be sensible. Or having around 5-10% in gold ETF (or precious metals as Tim) is another way.

To keep it simple, you could do 1/3rd Fundsmoth, 1/3rd LT Global, 1/3rd RCP, and then in future channel most of your top up payments to whicherver one is lower so they keep in balance.

But another thing I would think about in your shoes is using your pension allowance, especially if you are a higher rate taxpayer or will become one in the near future. The current tax rules are generous and won't last forever.

If your employer pays a matching contribution up to a certain %, make sure your own contribution is at least at that same %, even if you are on basic rate tax. If you are a higher rate taxpayer and can afford it, and if you won't need to cash in most of your savings before age 55 (for home deposit or whatever), then I would even go a bit higher. You will find the money you put in more or less doubles immediately (depending on the matching contribution and your tax rate). Also, look at what your pension provider does with your money (plus costs, fund performance) and what choices you have there. Then, once you have built up a reasonable pension pot with your workplace provider, you could transfer it into a SIPP as a lump sum and have that as another channel for saving, which you will have access to from age 55.

ISAs and pensions/SIPPs are both great ways to save, but they have different advantages and disadvantages, so I would first make sure you understand the rules and then pay attention to both, not just one or the other. My own experience (I am 51) was that I paid into ISAs for years (and PEPs in my 20s before that) and only recently started to put more in my pension. Nowadays, I pay over 1/3rd my wages into my pension for the tax benefit (this also lowers my income so I still get full child benefit), and I can take enough from my ISA to enable me to do that.
My main mistake though was for many years being too SIPP/property focused, and not overpaying into my pension up to my employer's matching contribution. That was a lot of 'free money' wasted.

Anyway, good luck whatever you decide & keep us posted!
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Mickey
Posted: 15 January 2018 12:49:21(UTC)
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Theo Shackleton;55414 wrote:
Thanks for your input. Why would you not want either of those funds at 35? ...
Also, are the vanguard 20 and 40 you refer to more invested in bonds and things than stocks, compared to the 80?

Hi,
The Vanguard LifeStrategy (VLS) funds have their equity/bond split shown by the % figure, at age 35 the guides usually say you should have 35% in bonds although some now suggest adjusting that lower due to higher life expectancy. So, at age 35 the VLS offer (for me) too high a proportion of bonds. Equities are more likely to give you higher growth over a long period of time.

If you include your cash savings in the portfolio then with the VLS 20 or 40 as your vehicle you will have a very high proportion of cash & bonds relative to your age.

It is very important to start off knowing your risk tolerance, you can find online calculators that may be of help, for example, https://www.standardlife.co.uk/c1/guides-and-calculators/assess-your-attitude-to-risk.page

I would also try reading Tim Hale 'Smarter Investing', he has some good stuff on risk profiling and portfolio building. It is quite heavy in places but well worth reading, you may be able to get it from the library.

We currently use Investment Trusts for our investments, but on my demise, my wife wants a simple no fuss portfolio. We have decided she should use the Vanguard LifeStrategy or Vanguard Retirement Date funds to be held direct through Vanguard UK. We may even move her 2018-19 ISA allowance into Vanguard as a starter.

If you want a no fuss, leave it alone and come back in 5 years portfolio, consider Vanguard. Note that there are similar choices available elsewhere.


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Theo Shackleton on 15/01/2018(UTC)
King Lodos
Posted: 15 January 2018 12:56:00(UTC)
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Jeff Liddiard;55415 wrote:
KL What %? 25% Fundsmith, 25% LT Global, 50% LS80 or 33% each?


If I was being neutral, I'd go: 50% LS80 (or a FTSE World Tracker); 25% each Fundsmith and LT.

That's 50:50 by active manager, and 50:50 active and passive .. But my backing of the Fundsmith and LT approach is mostly down to my own psychology: I worked out after all these years that holding good companies needn't feel any more stressful than holding cash.

So I don't know whether the approach will continue to outperform, and to an extent no one does – but the principle of holding good companies makes me a less nervous investor


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King Lodos
Posted: 15 January 2018 13:17:22(UTC)
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Theo Shackleton;55419 wrote:
Thanks for your considered responses, King. Very interesting.

The broad index tracker sounds like the kind of approach I'm interested in. So a range of sectors and regions to offer balance, and hopefully stacked more in favour of, to date, successful firms. Presumably, with the a drip feeding approach over time, I will be investing in emerging companies as well, that appear after I initially enter a fund?

So if you were me (I appreciate it's opinion and my risk - my attitude is summed up in my response to Mickey) and you wanted to beat savings, take a long term view, and be covered against shocks that might occur over time and in particular places, how would this sound:

40% in vanguard life strategy 80
Or their tracker listed in my first post - global ex UK ftse?

20% fundsmith

30% ns&i bonds (what's the 2.17% you mention)?

10% other

I'd like to include some precious metals and non UK currency. And property. I don't own my own property. But am concerned about how inflated these things seem to be. Also interested in buying gold coins as part of my strategy and hiding somewhere. Is there a tax on selling gold coins, the way cgt applies to jewellery?

Oh, and I haven't been paying into a pension so this is kind of my long term pension strategy. But also just about moving away from cash, especially sterling.


If you go here:
https://www.nsandi.com/our-products

– NS&I Guaranteed Income (or Growth) Bonds – 5 year term .. You can withdraw your money at any time, taking a 90 day hit on interest .. So it's a very flexible 5 year term, for 2.17-2.2% interest .. It might just about keep up with inflation (or might not) – so it's a way of preserving some value in cash.

I think the other Vanguard fund I'd look at would be:

FTSE Global All Cap Index Fund - Accumulation

An approach like you mention would be perfectly sensible .. I cannot overemphasise the importance of reading and knowledge, and finding the approach that appeals to your intellect.

One of the main principles of risk management is 'rebalancing' .. So if we say the Vanguard Global tracker is 100% market risk (let's say an average annual return of 10%, and maximum drawdown of 70%), then between that and cash, you can control your risk exposure very easily.

So if the largest drawdown you could tolerate was 35%, then you'd hold 50% Global tracker, 50% cash.

And 'rebalancing' is simply maintaining these allocations .. So if stocks rise a lot one year, you sell stocks to get your allocations back to 50:50 .. If stocks fall, you use cash to buy stocks, to get them back to 50:50.

And you can try these experiments on Portfolio Visualizer (I'd recommend using US Stocks as an analog for general market exposure, as it's a US site, and is the cleanest way to test principles):

https://www.portfoliovisualizer.com/backtest-asset-class-allocation

You can try adding gold and bonds – I think backtests are one of the best ways to familiarise yourself with potential outcomes .. Bonds are just less likely to be useful going forwards – I would avoid building a portfolio around them, as they won't work as well as they did since the 70s.

For books, I think The Little Common Sense Book of Investing is very good for the passive/Zen approach .. Meb Fabers books are very quick reads, and really interesting if you're thinking about holding lots of different assets (my favourites are probably the Ivy Portfolio and Global Asset Allocation).
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Theo Shackleton
Posted: 15 January 2018 21:12:47(UTC)
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Hi all,

Thanks so much for these brilliant and very interesting responses. Glad I found this forum! Really enjoyed reading them all, and with some further reading, it's all starting to make sense, and I'm quite excited about taking the plunge.

I'm going to have a closer look at the vanguard 80, fundsmith, and LTG funds shortly to try and understand them better.

Some questions that have come to mind...

A) do the latter two not overlap quite a bit, as they cover global companies, meaning I am not so diverse?

B) would these funds cause any problems in terms of needing to pay tax abroad on income from foreign companies?

C) if I drip feed in over time (so, assuming the isa amount) spread the 20k over twelve monthly instalments or 52 weekly... Presumably the latter is a more precise way to even out fluctuations?

D) just to make sure I've got this - suppose there's a big stock market dip - that would be a good time to shovel more money into those funds as the unit prices will have fallen? So if I take an occasionally active approach during big changes, I might bring future instalments forward to take advantage of a dip?

E) assuming I use the ratio of 50:25:25 between those funds, should the objective then, using rebalancing, be to maintain those ratios, moving money towards the lower one(s), over time, so those ratios are maintained?

F) what would 50:25:25 in relation to these funds basically equate to, 90:10 stock market:bonds?

G) I need to take advantage of the isa allowance at relatively short notice as I'm getting into this a bit late. This exposes me somewhat, right? Because I'll be shoveling the money into those funds between now and April rather than over a longer period of time. I guess this is unavoidable. Any thoughts?

H) what Jim said about pensions very interesting. I need to look into that. Although I'm contracting through an umbrella company. Any thoughts on decent private providers? Is it possible they'd just be investing in a similar way to above, or even less effectively?

I) What would be a sensible portfolio overall? What Tim posted about PP very interesting. Do you guys go 50:50 cash to shares, or some other variations?

I've basically been waiting for a long time for the housing and stock markets to crash but it doesn't seem to be happening. So I need to take action now to start diversifying. I'm just concerned about the fact that all the things I need to diversify away from sterling are so high, compared to the pound. So it seems I'm buying at the height of the market. I had a nasty experience doing that in 2007 with a house...
King Lodos
Posted: 15 January 2018 21:44:00(UTC)
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A) The kind of companies those funds invest in (and that sit at the top of the Vanguard) are so globally and sectorally diverse, it makes our simple notions of diversification: e.g. trading on the German stock exchange, somewhat irrelevant.

So a company like Apple or Microsoft generates revenue in every country, sells hardware, software, content, home speaker solutions, etc. and invests in hundreds of smaller companies, covering even more regions and sectors .. So these mega-cap stocks are really like globally diverse funds in themselves.

My reason for holding Fundsmith and LTG is just to reduce idiosyncratic management risk – if one holding went wrong, or a manager went insane, it would halve the impact of the unpredictable and unlikely .. Or you can be your own fund manager, and just buy the companies they hold yourself.

B) They handle all the tax

C) I don't think drip-feeding over 12 months helps .. It's such a short period, there's just as much chance you miss out half of a rally, and the market drops just as you finish drip-feeding – which would be even worse .. If you have an asset allocation that manages risk with cash or defensive assets, then the simple act of rebalancing ensures you'll buy more if markets drop – and if they don't drop (over this period) you'd have been better being all-in from day one.

Drip-feeding can be called time-diversification, and really it concerns investing over years and decades .. Maybe because you're learning, it would make more sense to go in slowly – I put £500 in originally, and knew a helluva lot more by the time I had £5,000 in.

D) In principle .. You never know when you're at the bottom of a market – it could fall 50%, then 50% of that .. I'd never try to time dips – I think it's better to be mechanistic: drip-feed a set amount, or rebalance to a set allocation.

E) Actually I wouldn't bother rebalancing between stocks at all – just perhaps top up to rough allocations .. You should find on Portfolio Visualizer, there's no real benefit to rebalancing between stock funds .. I'd just think of Stocks as Stocks, and rebalance between that and cash/other. (and which funds/regions you choose is the least important thing, so you long as you avoid duds)

F) It would, and that might be too aggressive an allocation for you .. You could consider holding lots of different funds (defensives, property, hedge funds, etc) but in principle I'd just maintain a psychologically appropriate allocation of your net worth in quality stocks funds and basically wait – the longer you stay in, the better things tend to get.

G) You can put money in your ISA and not invest it in stocks right away .. I've got quite a bit of cash sitting in my stocks ISA.


Re: a sensible portfolio

It really depends on your psychology, aims, knowledge .. Ben Graham said never less than 25% of your wealth in stocks; never more than 75% .. I think anything between that makes sense, and use the hypothetical maximum loss of 60-75% in stocks to calculate what's right for you.

Anything not in stocks, you could use cash, NS&I bonds, or you might like defensive funds, bonds, gold, etc.

You can view Warren Buffett's portfolio here:

https://www.gurufocus.com/profile/Warren+Buffett

Currently 56% Stocks, 8% Bonds, 36% Cash .. Having cash means you can always take advantage of market crashes – no need to try and time when to jump in .. Also note Buffett's had a great career investing almost entirely in 5 or 6 big US stocks (no need to cover a million bases).
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Mickey
Posted: 15 January 2018 22:03:27(UTC)
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I am always around 25% Cash, my wife usually 50%.

Core & Sattelite investing analysis suggests 70% in your tracker and the remainder in your active choices. I prefer lump sum investing but drip also has its merits, the last analysis that I saw suggested there was no benefit in drip investing but then on another day analysis will show there is a benefit, do whichever you feel most comfortable with.

Your original post suggested you wanted something simple and no fuss, recent posts suggest you are starting to complicate matters. Perhaps you should initially start off simple and just go for the passive Vanguard fund for this years ISA, alternatively, perhaps take a look at the John Baron Investment Trust site to get some ideas, you can get a free weeks trial at http://www.johnbaronportfolios.co.uk/site/subscriptionservice.php
4 users thanked Mickey for this post.
Theo Shackleton on 15/01/2018(UTC), Tim D on 15/01/2018(UTC), Mr Helpful on 16/01/2018(UTC), gillyann on 21/01/2018(UTC)
Theo Shackleton
Posted: 15 January 2018 22:05:27(UTC)
#25

Joined: 14/01/2018(UTC)
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King, you're an absolute legend. That is all a great help, and seems sensible advice. I'll check out those books you recommended earlier as well.

So what's your hunch about where things are heading?

It seems to me that the stock market is ridiculously high. But then again, fiat currencies remain very weak and central banks still seem to be hell bent on an easy credit policy. BoE has only returned to pre referendum level. Doesn't seem to be too many alternatives for people than the stock market. Hence why I'm here. So perhaps it will carry on.

The anti Trump liberal media smokescreen seems to be masking that the US economy is doing pretty well, and I reckon the euro zone is screwed. Always was. I heard Germany has been buying gold as well... Then the UK will be vulnerable in the short term following departure. If it actually happens. So I think I like the idea of having a good US focus, which presumably is covered by the funds we discussed anyhow.
1 user thanked Theo Shackleton for this post.
King Lodos on 16/01/2018(UTC)
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