Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Anonymous,MyNameIsUrl,6Tricia,staffordian, for Donating to support the site

Passive Portfolio

Index tracking funds and ETFs
diy12751
Posts: 4
Joined: September 24th, 2021, 2:39 pm

Passive Portfolio

#445059

Postby diy12751 » September 24th, 2021, 2:55 pm

Hi, fairly new to investing so please excuse if silly questions. I'm in my mid 30s and have got to the stage in life were I can afford to monthly contribute to a stocks and shares isa without need for withdrawal until retirement - finegers crossed around 55 or slightly later. I've been having a read about how actively managed investments over prolonged periods of time tend to at best keep up with passive investment and at worst significantly underperform. Having a look through investments options I have found the vanguard life strategy 100% equity:

Total Returns A GBP Accumulation - OCF 0.22%
Periods Ended 31 March 2021
(Annualised for periods over one year)
One Year 36.30%
Five Years 12.49%
Ten Years or
Since Inception 10.50%

Or was wondering whether a simpler portfolio as offered up by a user on a different post may fare

VHVG Vanguard Developed World 85%
VFEG Vanguard Emerging markets 10%
WLDS iShares MSCI World Small Cap 5%


Any thoughts on a long term portfolio seeking to maximise total return with accepting of volatility and risk are much appreciated!

1nvest
Lemon Quarter
Posts: 1556
Joined: May 31st, 2019, 7:55 pm
Has thanked: 189 times
Been thanked: 414 times

Re: Passive Portfolio

#445070

Postby 1nvest » September 24th, 2021, 3:19 pm

With such a long horizon a global tracker could be more costlier than the Vanguard products marketing machine figures suggest.

Hold US stocks for instance and the US levies a 30% tax on dividends, reduced to 15% under UK/US tax treaty. More broadly (global) and the average is around 20%. It can also be quite costly to buy into some markets (market makers spreads etc.).

Consider 30 years of accumulating, another 30 years in drawdown and a 8% mathematical/gross might be reduced to 7%, which equates to you taking on 100% of the risk for less than 60% of the reward. 1.07^60 / 1.08^60.

I'd be more inclined to pick 10 global mega-cap stocks that likely have scale/economies larger than some countries diversified across different business activities/sectors and accumulate to those, held in the most cost/tax efficient manner that you can find.

murraypaul
Lemon Slice
Posts: 474
Joined: April 9th, 2021, 5:54 pm
Has thanked: 72 times
Been thanked: 169 times

Re: Passive Portfolio

#445084

Postby murraypaul » September 24th, 2021, 4:06 pm

The top 10 US stocks by market cap 30 years ago were:


How would a portfolio of those stocks done in the last 30 years, compared to a global tracker?

(Top 10 US is easier to find than top 10 global, I don't think the results would be hugely different either way)

xxd09
2 Lemon pips
Posts: 236
Joined: November 19th, 2016, 2:44 pm
Been thanked: 152 times

Re: Passive Portfolio

#445095

Postby xxd09 » September 24th, 2021, 4:51 pm

I think you have realised that for the average investor index funds are the way to go
I wouldn’t get hung up on fine tuning
A global equities index tracker does the job for most of us-leave the gambling to those that enjoy it
Save as much as you can,keep costs as low as as you can and live frugally
Those last 3 are under your direct control
The index tracker and the stockmarket plus compounding will do the rest
John Bogle-the main originator of indexing -has easy to read books as does Lars Kroijer-Investing Demystified
xxd09

JohnB
Lemon Quarter
Posts: 1731
Joined: January 15th, 2017, 9:20 am
Has thanked: 255 times
Been thanked: 513 times

Re: Passive Portfolio

#445098

Postby JohnB » September 24th, 2021, 4:59 pm

You don't want a Life Strategy fund, just an ordinary tracker. Vanguard's whole world tracker, VWRL is a bit expensive at 0.22, their developed world VEVE is 90% of the market and only 0.12%. Other companies like Blackrock, HSBC and Fidelity have cheaper world trackers too.

The key words to look for are "UK reporting, GBP currency, and domiciled in European places like Ireland and Luxembourg"

GeoffF100
Lemon Quarter
Posts: 2509
Joined: November 14th, 2016, 7:33 pm
Has thanked: 70 times
Been thanked: 403 times

Re: Passive Portfolio

#445132

Postby GeoffF100 » September 24th, 2021, 7:14 pm

VHVG and VFEG track the FTSE indexes, which go down to a much lower market capitalisation than the corresponding MSCI indexes. For the UK, MSCI small cap is the smaller FTSE 100 companies and the larger FTSE 250 companies. Vanguard does sell a MSCI small capitalisation tracker, but they do not use it in their LifeStrategy funds, because of the duplication, no doubt.

You will find some videos about LifeStrategy here:

https://virtualfinancialclinic.co.uk/media/

The most relevant videos are:

* "LifeStrategy Changes" which shows how LifeStrategy costs have come down over time.

* "Bias Will Help" which explains why LifeStrategy has a "UK bias". (Further points are that UK listed company dividends are not subject to withholding tax; and having a home bias reduces portfolio volatility and thereby risk.)

* "What Now for LifeStrategy".

* "Too Many Bonds" may also be relevant, but you can afford 100% equities at your age, provided that you are not tempted to sell in a downturn. Risk means that you can lose money. It does not guarantee that you will make more money!

NotSure
2 Lemon pips
Posts: 222
Joined: February 5th, 2021, 4:45 pm
Has thanked: 126 times
Been thanked: 61 times

Re: Passive Portfolio

#445135

Postby NotSure » September 24th, 2021, 7:58 pm

diy12751 wrote:VHVG Vanguard Developed World 85%
VFEG Vanguard Emerging markets 10%
WLDS iShares MSCI World Small Cap 5%


The above looks like an excellent choice to get the ball rolling. If you swap the iShares for the Vanguard equivalent, you could start off by using a Vanguard ISA - say you are making 12 purchases (or even 24) of say £500 pcm, your account/dealing fees for the first year would be £4.50 all in. After a few years accumulation, you may find a better deal, but I think Vanguard are very hard to beat for the first few years, assuming you are happy to use their funds/ETFs.

And remember, the best case scenraio for you is a deep and prolonged bear market. If you find yourself underwater in a year or two, then toast your good luck and up your contribuitons ;)

GeoffF100
Lemon Quarter
Posts: 2509
Joined: November 14th, 2016, 7:33 pm
Has thanked: 70 times
Been thanked: 403 times

Re: Passive Portfolio

#445180

Postby GeoffF100 » September 25th, 2021, 7:42 am

The OP appears to be about 35 and hopes to retire at 55. he could use an ISA , SIPP, or both,depending on his circumstances. Vanguard LifeStrategy has already been discussed, and is a reasonable option. Another possibility is a Vanguard Target Retirement fund. The 2040 fund would be the most appropriate to meet the OP's stated aims:

https://www.vanguardinvestor.co.uk/inve ... _fund_link

That fund has 74% equities and 24% bonds. LifeStrategy 80 would be the nearest equivalent in the LifeStrategy range. Nonetheless, the OP could postpone retirement, potentially for another 20 years or more, if equities have a bad time over the next 20 years.

Hypster
2 Lemon pips
Posts: 202
Joined: November 5th, 2016, 9:53 am
Has thanked: 870 times
Been thanked: 74 times

Re: Passive Portfolio

#445246

Postby Hypster » September 25th, 2021, 12:40 pm

diy12751 wrote:VHVG Vanguard Developed World 85%
VFEG Vanguard Emerging markets 10%
WLDS iShares MSCI World Small Cap 5%


I think this is a good suggestion to get started. Personally, I would reduce the emerging markets to around 5% and add some Private Equity (say, HVPE) and Infrastructure (say, HICL). Perhaps a small holding of commodities too (say, CMOP).

1nvest
Lemon Quarter
Posts: 1556
Joined: May 31st, 2019, 7:55 pm
Has thanked: 189 times
Been thanked: 414 times

Re: Passive Portfolio

#445299

Postby 1nvest » September 25th, 2021, 5:00 pm

murraypaul wrote:The top 10 US stocks by market cap 30 years ago were:

How would a portfolio of those stocks done in the last 30 years, compared to a global tracker?

(Top 10 US is easier to find than top 10 global, I don't think the results would be hugely different either way)

3 oil, 3 motors ... should rather be spread across more sectors. More like this

XOM Exxon Mobil Corporation 10.00%
UNP Union Pacific Corporation 10.00%
PG Procter & Gamble Company 10.00%
GE General Electric Company 10.00%
MRK Merck & Company, Inc. 10.00%
KO Coca-Cola Company 10.00%
T AT&T Inc. 10.00%
IBM International Business Machines Corporation 10.00%
DD Dupont De Nemours Inc 10.00%
CAT Caterpillar, Inc. 10.00%

Click the asset drift tab in that link and that indicates Union Pacific (railroad) and a Caterpillar rose from 10% initial equal weightings to around 29% each whilst total returns compared to the broader S&P500 stock index.

I've striven to be impartial in that bunch of ten - that might reasonably have been selected in 1991. Had for instance Microsoft been held instead of IBM then MSFT would have risen to be 60% weighted

If you use just market cap/size alone without regard to sectors diversity, then Jack Bogle advocated buying the 50 largest at the time and thereafter just hold as-is.

murraypaul
Lemon Slice
Posts: 474
Joined: April 9th, 2021, 5:54 pm
Has thanked: 72 times
Been thanked: 169 times

Re: Passive Portfolio

#445316

Postby murraypaul » September 25th, 2021, 6:39 pm

But compared to a global equity fund, the portfolio had a worst best year, a worst worse year, higher volitivity, and lower overall return (CAGR of 6.55% vs 16.97%).

In the long term, unless you are interested in investing (in which case you probably wouldn't start at the passive investing board), it is hard to beat the simple suggestion of a low cost global tracker.

30 years is too long to pick individual companies and forget about them, the world moves on.

TUK020
Lemon Quarter
Posts: 1473
Joined: November 5th, 2016, 7:41 am
Has thanked: 474 times
Been thanked: 847 times

Re: Passive Portfolio

#445663

Postby TUK020 » September 27th, 2021, 4:49 pm

The Monevator site is worth a read. The following is a link to their passive investing page
https://monevator.com/category/investin ... investing/

diy12751
Posts: 4
Joined: September 24th, 2021, 2:39 pm

Re: Passive Portfolio

#446062

Postby diy12751 » September 28th, 2021, 6:41 pm

Thanks everyone for their replies and input much appreciated. I've had a look at the various options in particular life strategy and a self made as such portfolio combination of low cost global trackers.

Life strategy 100 Total Cost 0.22%

Vanguard U.S Equity Index GBP 19.54%
Vanguard FTSE Developed World ex-U.K Equity Index GBP 19.25%
Vanguard FTSE U.K. All Share Index Unit Trust GBP 19.21%
Vanguard S&P 500 UCITS ETF (USD) Accumulating 14.79%
Vanguard Emerging Markets Stock Index Acc 8.21%
Vanguard FTSE Developed Europe ex-U.K Equity Index GBP 7.65%
Vanguard ETFs FTSE 100 UCITS ETF (GBP) Accumulating 4.59%
Vanguard Japan Stock Index Acc 3.83%
Vanguard Pacific ex-Japan Stock Index Acc 1.88%
Vanguard ETFs FTSE 250 UCITS ETF (GBP) Accumulating 1.04%

Combination of low cost global trackers Total Cost 0.13%
VANGUARD FUNDS PLC FTSE DEVELOPED WORLD UCITS (VEVE) Weighting 85%
VANGUARD FUNDS PLC FTSE EMERGING MARKETS UCITS ETF (GBP) (VFEG) Weighting 10%
VANGUARD GLOBAL SMALL-CAP INDEX ACCUMULATION (GBP) Weighting 5%

Personally, I would reduce the emerging markets to around 5% and add some Private Equity (say, HVPE)
Addition of HVPE cost 0.41% bring total cost with weighting of 5% and reduction of Emerging Markets to 5% to 0.14%

I'd be more inclined to pick 10 global mega-cap stocks that likely have scale/economies larger than some countries diversified across different business activities/sectors and accumulate to those, held in the most cost/tax efficient manner that you can find.
1nvest if you were to pick 10 global stocks now out of interest what would you choose?

Out of the three different options I think I'm leaning towards the low cost combination VEVE, VWO, small cap index total cost 0.13%. Plan to hold them in an ii stocks and shares ISA availing of the regular investment so no trading fees through regular monthly investment according to weighting. Should be able to leave them for the next 30 years and let compounding take its affect!

All words of wisdom and guidance appreciated!


Return to “Passive Investing”

Who is online

Users browsing this forum: No registered users and 2 guests