High level investment strategy - thoughts

[Gpop321]

So I've read Tim Hale's book, and considered the constructive criticism of aspects of it, and generally I've gathered my thoughts.

My current position is that I'm with an active manager and have been for 10 years. I'm seeking to reduce my costs and improve performance by moving to a portfolio of trackers and ETFs. My target is to double my money within 10 years, though I can live with a shortfall of a 1.5X gain instead.

My high level strategy is this:

Three pots:
Two passive equities trackers (80% overall)

For growth with risk
Two to split company crash risk (so make sure they have different underlying custodians)
One All world developed markets
One with developing markets tilt

One Bonds ETF (20% overall)

The defensive element

My risk attitude comes out at 5/6 out of 7, and this feels in line with that.
Without going into individual funds etc, what are your initial thoughts about this strategy?

Cheers,
G

[scrumpyjack]

Yes seems sensible.

I would avoid active managers not only because of the fees but also they represent increased risk. Personally I have also always avoided bonds because I grew up in an age of high inflation, which could return, and I was rich enough to be able to calmly go 100% equities. The only time I ever bought substantial bond holdings was in the 80s when I had a large holding of Index Linked Gilts. I prefer to have a mix of ETF trackers (mainly All World) and Investment Trusts.

The main thing is to avoid fees. When they salami slice 1 or 2 percent a year off your assets, that is a hell of a headwind!

[tacpot12]

You might simplify matters further by selecting a Vanguard LifeStrategy fund as one of your 'equity' funds, and choose the amount of bond exposure you want as part of selecting which Life Strategy Fund you purchase. If you buy the same amount of another all equities fund as you buy of LifeStrategy 40, you will end up with portfolio that is 70% Equities and 30% Bonds.

Apart from that suggestion, your idea looks sound. I wish more people paid attention to the charges they are paying. Many people see 1% and think this is tiny, but if your total return is 7%, then it represents nearly 15% of your return!

[AndrewInDevon]

Well....I am not advocating any of these investments, but this graph illustrates the potential cost of passive v active, and a 'balanced 60/40' strategy v 100% equities.

https://ibb.co/NT4SLHS

Over 10 years...

- a low-cost 60/40 strategy would have delivered 88% (Vanguard)
- a low cost global index tracker would have delivered 219% (Fidelity World Index)
- a high cost active global fund of <30 stocks would have delivered 313% (Fundsmith)

Yes, fees are important. But performance trumps fees any day.

If you're aiming to be a long-term investor and don't need income in the short-term, then avoid conventional wisdom and ditch the bond component. take your future income from capital gains where tax is lower (unless its all in a tax wrapper of course).

My only advice is beware the fundamentalists - those who believe that passive and Vangaurd is the only true religion!

[Gilesyb27]

And you are entirely comfortable that Fundsmith is a fair representative of the likely return of an average active fund?

I'm pretty sure any global index tracker I chose 10 years ago would give a broadly similar result to the fidelity tracker, but I'm really not sure that we can presume that I would have chosen that fundsmith fund from all those available to me......

[clissold345]

...
My target is to double my money within 10 years, though I can live with a shortfall of a 1.5X gain instead.
...

An all world etf would have returned about 136% over the last ten years (that's the figure for SWDA) so why not buy two all world etfs (and nothing else)?

[AndrewInDevon]

Agreed. There's risk in fund picking. I only used Fundsmith as its large, popular and features in some of the major platforms 'wealth list/favourate funds' etc.

Here's a few more popular global funds....these returns are shown after management costs are charged to the fund....all are better than the low cost index tracker - at least over 10 years. You get a different answer if your time horizon is short-term (say 5-years).

https://ibb.co/FD6n7h3

For what its worth (which isn't much) I hold a mix of passive index trackers and active funds - so far my best performing fund is a 'high cost' active global fund, just ahead of my 'low cost' S&P tracker (after costs). But this outcome is partly a function of timing (entry and duration), as well as alpha.

[DrFfybes]

Agreed. There's risk in fund picking. I only used Fundsmith as its large, popular and features in some of the major platforms 'wealth list/favourate funds' etc.

Terry Smith's Fund is in those lists because he's donw pretty well, as did Neil Woodford, until he didn't.

Berkshire Hathaway have a pretty good long term track record.

Here's a few more popular global funds....these returns are shown after management costs are charged to the fund....all are better than the low cost index tracker - at least over 10 years. You get a different answer if your time horizon is short-term (say 5-years).

https://ibb.co/FD6n7h3

Have you filtered for high performers, or was that just a random selection?

How about these...
https://www.hl.co.uk/funds/fund-discoun ... ion/charts
https://www.hl.co.uk/funds/fund-discoun ... cumulation
https://www.hl.co.uk/funds/fund-discoun ... cumulation
https://www.hl.co.uk/funds/fund-discoun ... cumulation
https://www.hl.co.uk/funds/fund-discoun ... cumulation

There is no shortage of Managed Global Funds that have done bugger all over the last 5 or 10 years, even from your choice Scottish Mortgage was not a good buy 2 years ago.

I just had a brief look at Global funds on the HL Wealth List - their "suggested" funds. Couldn't find a single one that had beaten a tracker. Plenty that did that aren't on the list, perhaps the list will change with hindsight

We should keep an eye one your list for the next 5/10 years, it will be genuinely interesting to see if their outperformance continues.

Paul

[tjh290633]

Agreed. There's risk in fund picking. I only used Fundsmith as its large, popular and features in some of the major platforms 'wealth list/favourate funds' etc.

Terry Smith's Fund is in those lists because he's donw pretty well, as did Neil Woodford, until he didn't.

Berkshire Hathaway have a pretty good long term track record.

FCIT and ATST would be good and consistent comparisons.

TJH