The Simple Path to Wealth

[Fluke]

I came across this Google talk yesterday in doing a bit of research into index trackers, it's from a couple of years ago, the interviewee is JL Collins who has a book called 'The Simple Path to Wealth' and it's all about indexing.

https://www.youtube.com/watch?v=T71ibcZAX3I

I was wondering what the UK equivalent of VTSAX (Vanguard Total Stock Market Index fund) to which he refers a lot might be. VWRL perhaps?

[Fluke]

Also, is there a more UK-centric equivalent of this book that anyone can recommend?

[AleisterCrowley]

I've got this book on my Fire/Kindle thing, and it seems pretty good so far
VTSAX covers the entire U.S. equity market I think, so the UK equivalent would be a bit narrow ?

[monabri]

https://investor.vanguard.com/mutual-fu ... file/VTSAX

"Product summary
Created in 1992, Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks. "

( all share US so VWRL is not the equivalent).

Asset class
Domestic Stock - General
Category
Large Blend
Expense ratio as of 04/28/2020
0.04%

Minimum investment
$3,000

[monabri]

Maybe this is the equivalent.

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

"The Fund seeks to track the performance of the Standard and Poor’s Total Market Index (the “Index”).
The Index is comprised of large, mid, small and micro-sized company shares in the US."

Note..OEIC fund ( as opposed to ETF).

[AleisterCrowley]

I was wondering what the UK equivalent of VTSAX (Vanguard Total Stock Market Index fund)
Equivalent covering all UK equities, or an equivalent UK-based fund covering all US equities (if VTSAX not available here)????

[Fluke]

Maybe this is the equivalent.

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

"The Fund seeks to track the performance of the Standard and Poor’s Total Market Index (the “Index”).
The Index is comprised of large, mid, small and micro-sized company shares in the US."

Note..OEIC fund ( as opposed to ETF).

Yes thanks, that looks like the closest fit.

[Hariseldon58]

In practice a US S&P500 tracker eg VUSA or CSP1 would give pretty similar results, with very low total costs to the US Total Market.

For a non US investor there is a lot to be said for the Vanguard Life Strategy ( the All World with a UK home bias), personally I think a Developed World Tracker is a pretty good investment,Vanguards VEVE ( 66% North America, 19% Europe, 14% Pacific) VEVE ( HMWO or SWDA are similar but a little more expensive)

As a solitary equity investment, a diverse low cost choice. Personally I prefer this to the more expensive VWRL which is basically 9 parts VEVE plus 1 part Vanguards Emerging Market tracker. I have a little caution on this, on the basis that the Emerging markets element is now has China as major holding, accounting standards may be lower than we would hope and the possibility that shareholders interests may not be as well catered for as in the Developed Worlds holdings.

[BrummieDave]

Quite a few posters here throw around names of US indices without necessarily or seemingly at least knowing what they are. I would suggest you read about the difference between the Dow, S&P and NASDAQ (which is both an exchange and a composite index), then drill down to the most popular tracked indices, Dow 30, S&P 500, and NASDAQ 100, and understand those, and then the respective ETFs, most of which are available with distributions or in accumulating form.

For example, VUSA distributes dividends quarterly, VUAG is the corresponding accumulating ETF.

Likewise read up about the difference between the global indices from MSCI and FTSE, and why some ETFs track one, and some the other. Again these trackers are usually available with distributions, or in accumulating form.

For example, VWRL distributes quarterly, VWRP is the corresponding accumulating ETF.

As this thread is about 'Wealth' I don't know why distribution paying ETFs are being quoted.

This link may help with my first point: https://www.fool.com/investing/general/ ... aq-an.aspx

This with my second: https://www.justetf.com/uk/news/etf/msc ... ap%20firms.

And then there's currency hedging versions of course, but that's a whole other discussion!

[GeoffF100]

As this thread is about 'Wealth' I don't know why distribution paying ETFs are being quoted.

The distributing versions give you a choice of where to reinvest the distributions. You could sell some an accumulating ETF to achieve that, but you would then be paying the spread, and might lose out if the ETF is trading at a premium to NAV.

[BrummieDave]

As this thread is about 'Wealth' I don't know why distribution paying ETFs are being quoted.

The distributing versions give you a choice of where to reinvest the distributions. You could sell some an accumulating ETF to achieve that, but you would then be paying the spread, and might lose out if the ETF is trading at a premium to NAV.

Don't wish this to descend into the usual LF argument based discussion that goes OT, but is that really consisent with a 'SIMPLE path to Wealth'?

For Wealth, I read TR, and for Simple, I read Accumulating.

[monabri]

As this thread is about 'Wealth' I don't know why distribution paying ETFs are being quoted.

The distributing versions give you a choice of where to reinvest the distributions. You could sell some an accumulating ETF to achieve that, but you would then be paying the spread, and might lose out if the ETF is trading at a premium to NAV.

Don't wish this to descend into the usual LF argument based discussion that goes OT, but is that really consisent with a 'SIMPLE path to Wealth'?

For Wealth, I read TR, and for Simple, I read Accumulating.

The equivalent accumulation fund for VUSA is , I believe, VUAG.

https://www.hl.co.uk/shares/shares-sear ... ts-etf-usd

[JohnB]

Accumulating is not simple if unsheltered and you need to calculate income or capital gains tax

[BrummieDave]

The equivalent accumulation fund for VUSA is , I believe, VUAG.

https://www.hl.co.uk/shares/shares-sear ... ts-etf-usd

Exactly what it says in my post three up from yours...

I quote "For example, VUSA distributes dividends quarterly, VUAG is the corresponding accumulating ETF."

[Degsy67]

I think many of the comments here are missing the point behind Jim’s Simple Path to Wealth. Don’t obsess about which fund is the UK equivalent of VTSAX. That’s not the nub of the strategy. At the heart of the argument is keeping investment simple through index investing. Build wealth through consistently buying real assets. Invest in global capitalism through regular purchases of a highly diverse fund which tracks global economics and capitalism.

The following is a great interview with Jim by Pete Matthew over at Meaningful Money:

https://meaningfulmoney.tv/2020/01/15/t ... l-collins/

If you want Jim’s own thoughts on investing if you’re based in Europe then take a look at this:

https://jlcollinsnh.com/2014/01/27/stoc ... europeans/

Degsy

[1nvest]

The financial sector is one if not the worlds largest value sector, it is well versed in extracting money out of peoples pockets. Products marketed as 'low cost' more often hide multiple layers of costs. For instance the ballpark average of dividend withholding taxation is around 20%, so even with a relatively low 2% average dividend/interest = 0.4%. Add on perhaps 0.1% fund managers expense fees and ... 0.5% of your money ... gone, each and every year. 8 years, 4% ... gone, often the equivalent of a entire years real (after inflation) gains. But not so much a case of 7 years out of 8 you receive the gains, 1 year out of 8 you gift the gains to another, but a win/win for the other, where they get their 4% no matter whether stocks had risen or fallen.

Stock investors nowadays seem to have lost the art of investing in stocks, to instead be investing in products provided in order to extract value (money from your pocket into theirs).

Many firms (stocks) issue Corporate Bonds, they borrow. Buyers of those bonds lend to the firm. So should you buy into a entity (stock) that in part borrows via selling Corporate Bonds, and separately also buy those Corporate Bonds? Somewhat comparable to buying both into a long stock position along with buying into a short stock position in equal measure - that just ties up money for nowt in return (and even less after others take their cut).

Yes those selling books or investment products have a vested interest to attract you to their products. Caveat emptor. Take 'not for profit' Vanguard group for instance, whose wage bill alone for those it employs amounts to around a billion/year, and that's just a tiny tiny amount of the broader overall value-extract.

Think about the fundamentals. A firms stock price might have been bid up to twice its book value (assets) in reflection of the profits it makes. Perhaps the firm makes 10% in profits, whilst investors are content to achieve a 5% reward. As part of that operation the firm borrows money, broad average being around half of its stock book value, so around 25% of its share price value. A 75/25 stock/bond investor is therefore lending (buying bonds) that match what the stock is borrowing via issuing Corporate Bonds. Hamlet - neither a borrower nor a lender be. Sometimes borrowers win, other times lenders win, net zero overall (bonds might in gross terms average out at pacing inflation). Being short bonds broadly compares to being long bonds over the mid to longer term, and whilst there is potential benefits arising out of firms borrowing in order to invest, investors being both long and short bonds in equal measure is wasteful use of capital.

Think about what you are buying into. Initially equal weight a bunch of stocks and left to run over time that will see the weightings drift. One stock/sector will do well and have risen to possibly dominate the index. Should you buy into that tilt? That's a prediction that the stock(s)/sector(s) that had done well up to that point will continue to be at or above average. Historically initial equal weighting has tended to relatively outperform tilted (cap weighted). Often gains arise out of the few doing incredibly well, most achieving nothing, a few doing poorly but where the few good-un's outweigh the bad-un's, such that most under-perform the broad average. That applies similarly to whether you bought into a few stocks, or the entire stock set. With the entire set you have less invested in the best case(s), so even though those best might have risen more, with less invested the benefit of large gains is dragged down compared to a few stocks where the best case had risen much less, but where you had more £££'s invested in that holding. Extreme diversification isn't required, you don't need thousands of holdings. Some of the richest individuals portfolios often have around 20 different stocks, a couple of stocks in each sector for diversification (concentration risk reduction).

Some stocks are global mega-caps. Have economics/finances that often exceed the economies of entire countries. For a passive style investment, buying initial equal amount into single stocks listed in your domestic stock exchange (so no withholding taxes) with business activities in different sectors - bought and held, can achieve comparable if not better actual outcomes than buying total stock market/total bond market funds. Bogle, the founder of Vanguard, indicated his ideal choice was for something similar - but where he also stated that Vanguard would never provide such a static product due to economies of scale issues. https://www.forbes.com/forbes/1999/0614 ... e012c56874

Bogle recommends the ultimate in buy-and-hold investing: a completely static portfolio. He would buy the 50 largest companies in the S&P 500 and then never buy another.

Note how when Professor Jeremy Siegel back-tested Bogle's idea ...

Result: the buy-and-hold approach beat the market three-quarters of the time and it never underperformed by more than 0.6% a year.

[monabri]

Would anyone advocate buying the 50 largest FTSE100 shares?

[1nvest]

Instead of adding risk on the bond side, some suggest moving the risk over to the equity/risk side and holding less in bonds. For instance instead of a global bond, split that down 50% cash (so less 'bonds') and 25% each stock and gold ...

https://tinyurl.com/yd45egxc



that's US data and 'cash' means US T-Bills (fully protected no matter how much is held).

[1nvest]

Would anyone advocate buying the 50 largest FTSE100 shares?

No. Better to initially equal weight across sectors, holding multinationals. For example (purely off top of head) HSBC for financials, VOD for tech, Unilever for consumption, BHP for mining/Australia, BP (oil/energy), Glaxo (pharmaceuticals) ...etc. Some of those are also listed in the US stock exchange.

Old school style - where when it was relatively expensive to buy/trade stocks, investors tended to hold relatively few 'blue chips', but selected to be diversified.

Initial equal weighting and one will go on to become the historic best performer of the set, the portfolio finds its own 'cap weighting' without having taken a biased initial stance (passive). Some like to rebalance back towards more equal weighted distributions periodically when sizeable drift become apparent (active - but relatively mildly so).

[1nvest]

Here's a quick-n-dirty portfolio that has a number of names that also list in London.

https://tinyurl.com/y7e6u7ck

I set that to draw a 2% SWR (inflation adjusted income/'dividend').

Set the no rebalance option (the default I've set is to rebalance) and the rewards were even higher, but that saw more volatility along the way. 7 stocks in that case, around 14% weighting each ... is a little bit heavy on the single stock risk side. But not that much more than how major stock indexes can have 10% weighting into single stocks, and that can become much more heavily tilted towards individual sector over-concentration.

Click the 'Exposures' tab in the Portfolio Analysis Results section and the last part of that shows a nice chart of sectors distribution. Above that, for the non-rebalanced version, it indicates that MSFT was the 'big-up' winner - Tech sector. And lo-behold the broader US stock index (S&P500) is quite heavily tilted towards Tech being the largest sector more recently. Not that means it deserves to be more heavily weighted than others going forward, over the next x years another sector could well prove to be the 'big-up' sector/stocks.

You could duplicate that set being held via the London Stock Exchange with just a few changes. Perhaps swap MSFT for VOD, BRK could still be held as it pays no dividends and as such incurs no US dividend withholding taxation. Glaxo instead of JNJ, TSCO instead of MCD. Also filling in the gaps of absent sectors exposure and perhaps also halving down each/some stocks - such as halving Glaxo and also including AZN, BP/Shell, VOD/BT ...etc. such that you might end up with perhaps 20 stocks, across 10 sectors and 5% per stock risk exposure.

If you were inclined to 60/40 global stock/global bond funds, then you might swap out that global bond for 50/25/25 cash/stock/gold as I outlined earlier, resulting in a overall 70% stock (something like as above), 10% gold, 20% cash. But where there were no ongoing yearly fund managers fees and no foreign dividend withholding taxes. Where that cash was < 85K protected levels, then it could be deposited into High Street Bank/Building society fixed income account, or wherever it was safe and returning more than recent relatively low Gilt yields.