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What do you think of my portfolio?

Index tracking funds and ETFs
GeoffF100
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Re: What do you think of my portfolio?

#474874

Postby GeoffF100 » January 20th, 2022, 9:26 pm

richfool wrote:What I am not clear on, (if one was to opt for VEVE instead of VWRL), is to what extent VEVE includes Asia Pacific? Does, for example, VEVE include: Australia, Singapore, Hong Hong, South Korea and Taiwan, but exclude China? And is Vietnam considered an EM?

Click on Portfolio data here:

https://www.vanguardinvestor.co.uk/inve ... g/overview

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Re: What do you think of my portfolio?

#474881

Postby Gumble » January 20th, 2022, 9:51 pm

GeoffF100 wrote:
Gumble wrote:Makes sense. So on that basis VHVG for developed tracker and VFEG for emerging, around a 90%/10% split should give the best value, most sensible way to achieve what I want. Am I right that these are the accumulating equivalent of VEVE/VFEM?
Re. Bonds, i admit I don't quite understand them, other than they are less risky, lower reward so my possibly naive thinking is that if I want to be in the market for say 20 years minimum then I don't want to put any money into something that isn't likely to make me much and can still lose.

The accumulating ETF's market spreads are wider than for the distributing versions. With AJB's relatively small 0.5% FX commission on dividends, it will take a long time to win back the increased spread.

Vanguard does not support the accumulating ETFs on its own platform. That might become an issue in the future if Vanguard cut its charges. Currently, AJB is much cheaper for a SIPP that is not in payment, but Vanguard is more competitive for SIPPs in payment, and offers more options.

If you are waiting 20+ years, you will probably be OK with 100% equities, provided that you are panic proof. You will only know that when the market crashes big time though. If you have bonds, you can potentially make a rebalancing profit, so they probably will not damp down the performance as much as you might expect.


So I should stick with VEVE and VFEM on the trackers over the accumulating versions in this instance?

I’m in intreagued about your bonds comment, let’s say I go with a bonds tracker too that you mentioned earlier. What % of my portfolio would you suggest, and when you say a rebalancing profit is possible, that’s where I’m lost. Would you be so kind as to give an example to help me understand?

Thanks again

xxd09
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Re: What do you think of my portfolio?

#474908

Postby xxd09 » January 21st, 2022, 12:28 am

The main point of bonds is to reduce volatility in your portfolio plus some growth hopefully
Volatility is not a problem while you are young and accumulating savings-100% equities is OK
However once you have a reasonable amount saved and certainly well before you retire you need to have the volatility of your portfolio under control (a market crash as you retire if 100% equities in your portfolio could be a disaster from which it would be difficult if not impossible to recover from)
A rough guide for % of bonds in your Asset Allocation-your age minus 10
Vanguard has a Global Bond Index Fund hedged to the Pound which fits the bill-I am sure there are others
Something to think about further down the investing road as you build a pot of savings
Keep reading and learning!
xxd09

GeoffF100
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Re: What do you think of my portfolio?

#474923

Postby GeoffF100 » January 21st, 2022, 7:41 am

Gumble wrote:So I should stick with VEVE and VFEM on the trackers over the accumulating versions in this instance?

I’m in intreagued about your bonds comment, let’s say I go with a bonds tracker too that you mentioned earlier. What % of my portfolio would you suggest, and when you say a rebalancing profit is possible, that’s where I’m lost. Would you be so kind as to give an example to help me understand?

HL gives the spreads today as VHVG 0.23% and VEVE 0.12% (VWRL is tighter by the way), a difference of 0.11%. The FX saving was 0.0007%. Break even is after 0.11% / 0.007% = 16 years. There is not a strong case for using the accumulating versions.

Suppose you have a target of 50% equities, and have £100K in equities and £100K in bonds. Suppose that the equities crash to £50K. You rebalance to £75K equities and £75K bonds. The equities double in price (i.e. recover to where they were initially). You have £150K equities and £100K bonds (a profit of £50K).

Alternatively, suppose the equities double to £200K. You rebalance to £150K equities and £150K bonds. The equities crash to half their value. You have £75K equities and £150K bonds (a profit of £25K).

The downside is that if the market falls and falls and falls, you keep selling bonds to buy equities. The cheapest and safest way to rebalance is not to sell anything, but to direct new money into whichever asset is underweight. (Or take from whichever asset is overweight if your are withdrawing money.) That is known as cash flow rebalancing. Vanguard and others have analysed various rebalancing methods, and cash flow balancing does well. Having the distributing rather than the accumulating versions of the ETFs would help by providing additional cash flows that can be redirected.

Here are the performances of Vanguard's various LifeStrategy funds:

https://www.thisismoney.co.uk/money/diy ... ecade.html

The article is, of course, a plug for their active manager advertisers, but is gives some idea of the performance hit that is likely for different percentages of bonds. You can easily estimate the pull-downs for various seventies of market crash.

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Re: What do you think of my portfolio?

#474956

Postby Gumble » January 21st, 2022, 9:50 am

GeoffF100 wrote:
Gumble wrote:So I should stick with VEVE and VFEM on the trackers over the accumulating versions in this instance?

I’m in intreagued about your bonds comment, let’s say I go with a bonds tracker too that you mentioned earlier. What % of my portfolio would you suggest, and when you say a rebalancing profit is possible, that’s where I’m lost. Would you be so kind as to give an example to help me understand?

HL gives the spreads today as VHVG 0.23% and VEVE 0.12% (VWRL is tighter by the way), a difference of 0.11%. The FX saving was 0.0007%. Break even is after 0.11% / 0.007% = 16 years. There is not a strong case for using the accumulating versions.

Suppose you have a target of 50% equities, and have £100K in equities and £100K in bonds. Suppose that the equities crash to £50K. You rebalance to £75K equities and £75K bonds. The equities double in price (i.e. recover to where they were initially). You have £150K equities and £100K bonds (a profit of £50K).

Alternatively, suppose the equities double to £200K. You rebalance to £150K equities and £150K bonds. The equities crash to half their value. You have £75K equities and £150K bonds (a profit of £25K).

The downside is that if the market falls and falls and falls, you keep selling bonds to buy equities. The cheapest and safest way to rebalance is not to sell anything, but to direct new money into whichever asset is underweight. (Or take from whichever asset is overweight if your are withdrawing money.) That is known as cash flow rebalancing. Vanguard and others have analysed various rebalancing methods, and cash flow balancing does well. Having the distributing rather than the accumulating versions of the ETFs would help by providing additional cash flows that can be redirected.

Here are the performances of Vanguard's various LifeStrategy funds:

https://www.thisismoney.co.uk/money/diy ... ecade.html

The article is, of course, a plug for their active manager advertisers, but is gives some idea of the performance hit that is likely for different percentages of bonds. You can easily estimate the pull-downs for various seventies of market crash.


OK so Index trackers are now decided upon, I understand it and feel confident on the plan.

Bonds - thanks for the examples, i'm understand the balancing examples and in these instances it works. I've also applied the same theory to 33% bonds (as i'm 43 and the rule of age-10 years) - and still a profit over 100% equities. I know that in other scenarios it will not always come out like that but now absolutely understand why bonds are recommended.

What I don't understand is how bonds work themselves, they trade like shares so can go up and down, but are fixed price bonds within the holding - I think that is what is not computing in my head. Using VAGP as the example, I see it when up 5% in 2020 and down 2% in 2021 so obviously less volatile, I'm coming round to the concept of holding some but cant invest in something until I understand it.

What would likely happen to bonds if equities went down 50%, is there a direct correlation (using history), I know that the real answer is 'who knows' but an educated guess will help me understand.

Thanks again

GeoffF100
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Re: What do you think of my portfolio?

#474958

Postby GeoffF100 » January 21st, 2022, 9:56 am

Gumble wrote:What % of my portfolio would you suggest...

Vanguard's answer for someone retiring in 2045 is here:

https://www.vanguardinvestor.co.uk/inve ... s/overview

That is 79% equity and 21% bonds, with the percentage of equities gradually decreasing over time. That will not be Vanguard's hunch. They will be following an industry consensus, because that is what is most likely to sell.

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Re: What do you think of my portfolio?

#474966

Postby mc2fool » January 21st, 2022, 10:25 am

GeoffF100 wrote:Suppose you have a target of 50% equities, and have £100K in equities and £100K in bonds. Suppose that the equities crash to £50K. You rebalance to £75K equities and £75K bonds. The equities double in price (i.e. recover to where they were initially). You have £150K equities and £100K bonds (a profit of £50K).

Only if bonds have gone up by a third too, from £75K to £100K. If not then you have £150K equities and £75K bonds, a profit of £25K.

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Re: What do you think of my portfolio?

#474984

Postby xxd09 » January 21st, 2022, 11:11 am

There is no perfect investment with an inverse correlation to equities ie as equities go up it goes down and more importantly vice versa
(A lot of investors spend a lot of time looking for this “Holy Grail” -property,commodities,gold etc but for the moment and historically bonds have done the business )
How could there be ? If there was we would all be rich!
Bond are much less volatile and less risky than equities-AAA bonds that is -Gov Treasuries etc
When your equities go down bonds go down too but much less allowing you to remain in some semblance of control of your finances/portfolio in extreme market drops which happen regularly
As for how bonds work -that is a long and complicated story .They are certainly more difficult to understand than equities
Time is short so I made sure I had a reputable fund manager-in my case Vanguard- and made sure that the bonds in the fund were mostly AAA
I am still learning about them!
xxd09

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Re: What do you think of my portfolio?

#474989

Postby GeoffF100 » January 21st, 2022, 11:21 am

mc2fool wrote:
GeoffF100 wrote:Suppose you have a target of 50% equities, and have £100K in equities and £100K in bonds. Suppose that the equities crash to £50K. You rebalance to £75K equities and £75K bonds. The equities double in price (i.e. recover to where they were initially). You have £150K equities and £100K bonds (a profit of £50K).

Only if bonds have gone up by a third too, from £75K to £100K. If not then you have £150K equities and £75K bonds, a profit of £25K.

Yes, my mistake.

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Re: What do you think of my portfolio?

#474992

Postby dealtn » January 21st, 2022, 11:27 am

xxd09 wrote:There is no perfect investment with an inverse correlation to equities ie as equities go up it goes down and more importantly vice versa

Inverse equity investments do this, as do short equity positions.

xxd09 wrote:Bond are much less volatile and less risky than equities-AAA bonds that is -Gov Treasuries etc


Historically bonds may have displayed less volatility (not much less, but that may be an argument about definitions). Can you say for sure that will hold for the future, especially from a bond valuation position that many would describe as extreme, and far from what might be considered "normal"?

xxd09 wrote:When your equities go down bonds go down too but much less allowing you to remain in some semblance of control of your finances/portfolio in extreme market drops which happen regularly


Not always. Often bonds and equities go in opposite directions, not the same but by different degrees.

xxd09 wrote:As for how bonds work -that is a long and complicated story .They are certainly more difficult to understand than equities

No Bonds are much easier to understand (and value). Their cashflows are nearly always known for a start.

xxd09 wrote:Time is short so I made sure I had a reputable fund manager-in my case Vanguard- and made sure that the bonds in the fund were mostly AAA
I am still learning about them!
xxd09

Sensible you have a fund manager that does much of that understanding for you (and you, judging by this Board, favour Passive Investing), but continue educating yourself as there is limited downside in doing so.

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Re: What do you think of my portfolio?

#474993

Postby GeoffF100 » January 21st, 2022, 11:30 am

xxd09 wrote:There is no perfect investment with an inverse correlation to equities ie as equities go up it goes down and more importantly vice versa...

Time is short so I made sure I had a reputable fund manager-in my case Vanguard- and made sure that the bonds in the fund were mostly AAA.

The prices of long dated government bonds are usually negatively correlated with equity prices. They usually rise in value (flight to quality) when equity prices fall, and vice versa:

https://monevator.com/are-bonds-a-good-investment/

British government bonds (gilts) have credit rating of AA-:

https://www.vanguardinvestor.co.uk/inve ... g/overview

We are no longer the prudent trustworthy country that we once were.

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Re: What do you think of my portfolio?

#475003

Postby GeoffF100 » January 21st, 2022, 11:45 am

dealtn wrote:Can you say for sure that will hold for the future, especially from a bond valuation position that many would describe as extreme, and far from what might be considered "normal"?.

There is not much that we can say for sure. Both bond and equity valuations are extreme (and indeed the valuations of other assets), and they could all come crashing down. Here is Vanguard's recent take on this:

https://www.vanguardinvestor.co.uk/arti ... sification

In the markets judgement, equities and bonds are fairly priced in relation to one another. The people who see the overvaluation of bonds and are blind to overvaluation of equities could be in for a painful lesson. Does anyone remember the Mid Cap Movers on the old board, just before the 2008 crash?

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Re: What do you think of my portfolio?

#475011

Postby xxd09 » January 21st, 2022, 11:56 am

Good Vanguard paper -puts what I was attempting to convey very well
xxd09

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Re: What do you think of my portfolio?

#475033

Postby Hariseldon58 » January 21st, 2022, 12:39 pm

GeoffF100 wrote:
Gumble wrote:So I should stick with VEVE and VFEM on the trackers over the accumulating versions in this instance?

I’m in intreagued about your bonds comment, let’s say I go with a bonds tracker too that you mentioned earlier. What % of my portfolio would you suggest, and when you say a rebalancing profit is possible, that’s where I’m lost. Would you be so kind as to give an example to help me understand?

HL gives the spreads today as VHVG 0.23% and VEVE 0.12% (VWRL is tighter by the way), a difference of 0.11%. The FX saving was 0.0007%. Break even is after 0.11% / 0.007% = 16 years. There is not a strong case for using the accumulating versions.

Suppose you have a target of 50% equities, and have £100K in equities and £100K in bonds. Suppose that the equities crash to £50K. You rebalance to £75K equities and £75K bonds. The equities double in price (i.e. recover to where they were initially). You have £150K equities and £100K bonds (a profit of £50K).

Alternatively, suppose the equities double to £200K. You rebalance to £150K equities and £150K bonds. The equities crash to half their value. You have £75K equities and £150K bonds (a profit of £25K).

The downside is that if the market falls and falls and falls, you keep selling bonds to buy equities. The cheapest and safest way to rebalance is not to sell anything, but to direct new money into whichever asset is underweight. (Or take from whichever asset is overweight if your are withdrawing money.) That is known as cash flow rebalancing. Vanguard and others have analysed various rebalancing methods, and cash flow balancing does well. Having the distributing rather than the accumulating versions of the ETFs would help by providing additional cash flows that can be redirected.

Here are the performances of Vanguard's various LifeStrategy funds:

https://www.thisismoney.co.uk/money/diy ... ecade.html

The article is, of course, a plug for their active manager advertisers, but is gives some idea of the performance hit that is likely for different percentages of bonds. You can easily estimate the pull-downs for various seventies of market crash.


With respect to the accumulating version, the spreads are cheaper for the non accumulating version but depending on the broker for the exact amount, you will avoid foreign exchange fees on income as it is reinvested on a constant basis, your money is put to work on an almost daily basis as the income is received from the underlying investments. The foreign exchange fees can clearly vary, , they may not be explicitly visible, but you are paying them..

EG with ii, VEVE pays dividends in US dollars, the FX charge is 1.5% (and you may have to pay up to £7.99 per reinvestment). Say £100,000 holding , yield is 1.4% and the FX charge is £21 (0.021%) that gives a break even point of nearer five years if you can use the 'free' monthly trades, sooner if you are paying to reinvest quarterly. The convenience of reducing transactions is a winner for me.

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Re: What do you think of my portfolio?

#475059

Postby GeoffF100 » January 21st, 2022, 1:40 pm

Hariseldon58 wrote:With respect to the accumulating version, the spreads are cheaper for the non accumulating version but depending on the broker for the exact amount, you will avoid foreign exchange fees on income as it is reinvested on a constant basis, your money is put to work on an almost daily basis as the income is received from the underlying investments. The foreign exchange fees can clearly vary, , they may not be explicitly visible, but you are paying them.

The OP is investing in an AJ Bell SIPP. The FX charge on dividends is 0.5%, which equates to 0.007% of the stock value for VEVE. As I have said, it would take about 16 years to win back the wider market spread. VHVG has not been on existence for long. I used Morning Star to compare the performances of the two funds from 31/12/20 to 31/12/21.

VHVG 122.64

https://www.morningstar.co.uk/uk/etf/sn ... entType=FE

VEVE 122.67

https://www.morningstar.co.uk/uk/etf/sn ... entType=FE

There does not appear to be a significant difference. Bear in mind that both stocks are quoted on the LSE and can go to a small discount or premium to NAV before the Authorised Participants can fix that. Perhaps both funds are accumulating under the skin and the distributing version sells stock to pay dividends.

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Re: What do you think of my portfolio?

#475099

Postby GeoffF100 » January 21st, 2022, 3:12 pm

If I plot both ETFs on the same chart with maximum data, I get:

VHVG 134.81
VEVE 134.87

Perhaps both funds accumulate dollars up until the dividend payment date, and the accumulation version then buys more stock. Nonetheless, the cost of buying the stock would not account for such a large difference. VEVE has done a little better, but we cannot really draw any conclusion from that. It is not clear why Vanguard does its best to hide away the accumulation versions.

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Re: What do you think of my portfolio?

#475130

Postby tjh290633 » January 21st, 2022, 4:22 pm

xxd09 wrote:The main point of bonds is to reduce volatility in your portfolio plus some growth hopefully
Volatility is not a problem while you are young and accumulating savings-100% equities is OK
However once you have a reasonable amount saved and certainly well before you retire you need to have the volatility of your portfolio under control (a market crash as you retire if 100% equities in your portfolio could be a disaster from which it would be difficult if not impossible to recover from)
A rough guide for % of bonds in your Asset Allocation-your age minus 10
Vanguard has a Global Bond Index Fund hedged to the Pound which fits the bill-I am sure there are others
Something to think about further down the investing road as you build a pot of savings
Keep reading and learning!
xxd09

With inflation, bonds are a certain recipe for capital losses and interest being eroded by inflation.

Market crashes are relatively infrequent, but most of them can be sailed through with little action needed and a quick recovery to the status quo. 2008-9 was different, in that a lot of companies stopped paying dividends and it was desirable to have a clear-out of some that were very slow to recover, but the effect was seen off in a couple of years from the bottom.

The important thing is not to panic. In general the market will right itself.

TJH

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Re: What do you think of my portfolio?

#475163

Postby GeoffF100 » January 21st, 2022, 5:53 pm

tjh290633 wrote:The important thing is not to panic. In general the market will right itself.

But it can take a long time:

https://finance.yahoo.com/quote/%5EN225/

...or if you had invested before World War 2 in Japan, hardly at all. Germany zilch. Nonetheless, panic does not work. You have to have a plan and stick to it. It is a good idea to write your plan down.

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Re: What do you think of my portfolio?

#475169

Postby GeoffF100 » January 21st, 2022, 6:01 pm

GeoffF100 wrote:If I plot both ETFs on the same chart with maximum data, I get:

VHVG 134.81
VEVE 134.87
AJ Bell shows the total return for last year as being the same for both ETFs. Ditto for VFEG and VFEM.

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Re: What do you think of my portfolio?

#475288

Postby tjh290633 » January 22nd, 2022, 11:12 am

GeoffF100 wrote:
tjh290633 wrote:The important thing is not to panic. In general the market will right itself.

But it can take a long time:

https://finance.yahoo.com/quote/%5EN225/

...or if you had invested before World War 2 in Japan, hardly at all. Germany zilch. Nonetheless, panic does not work. You have to have a plan and stick to it. It is a good idea to write your plan down.

It also takes a lot longer if you invest in trackers. Look how long the FTSE100 took to get back to its peak at the end of 1999. September 2016 in my records.

It pays if you do not follow fashion.

TJH


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