Lootman wrote:Yes and no. If you want to know how you did relative to the market you invest in, then you would do as you do, and compare your returns to the FTSE-100 or All-Share as appropriate. That shows your share picking skills.
But there is another reason to benchmark your portfolio against an index and that is to check your asset allocation. That shows whether you chose the right markets to be in. And given the FTSE-100's dismal showing for over 20 years now, an approach that only invested in the FTSE-100 is going to have done badly in global terms. Comparing your returns to VWRL or something like that will reveal the opportunity cost of investing in only one country.
Put another way, you may have handsomely beaten the UK market but significantly under-performed the global equity market. During the time I have been investing the UK market cap has gone from being about 10% of global market cap to now being about 5% of global market cap.
That is a result of the FAANGS. I do not wish to invest in them. The reason for the 20 year performance of the FTSE100 is the dot-com mania in 1999 which drove it to a peak at the end of 1999. Avoiding the dot-coms avoided the fall afterwards. I fear the same may happen with the FAANGs. I have no wish to invest in any of Vanguards funds or ETFs. I have exposure to global markets through several of the companies in which I invest. I do not wish to invest in companies that do not have a London quote. Neither do I wish to get involved in foreign currencies.
If you invest overseas via ETFs then there is not a currency issue if you choose the GBP-denominated share class. Any currency issues are handled by the fund manager at institutional rates.
As for FAANGs and dot.com companies, there is a world of difference. Many dot.com companies had no P/E ratios because they had no earnings. Right now Apple is on a PE ratio of 18, which is fairly modest by most standards. It pays a dividend, as does MicroSoft (although MSFT is not in FAANG, it has certainly performed like one in the last few years). Never say never but the idea that companies like Apple and MicroSoft are going to collapse as companies and investments seems far-fetched.
I am not a HYP or UK-only investor like you. But if I were, I would still hold, say, 10% or 20% in a global ETF as a way of boosting returns whilst actually reducing overall risk.