Investing for long term growth?

[Aminatidi]

I have a S&S ISA which I recently opened and filled with this years allowance.

There's another £12k being transferred in from an old cash ISA which will be there whenever it transfers across, and the intention is that every year I'll be maxing out the allowance from existing cash plus future earnings.

I've several years salary in reserves as literal cash in the bank and have around 15-20 years ahead of me as a timeline.

This is where I am now:

Fundsmith 25%
Lindsell Train Global Equity 25%
RCP 25%
SMT 12.5%
Baillie Gifford Shin Nippon 12.5%

I don't especially want to be trying to juggle 12-15 funds/ITs which is why I've tried to keep things very simple but I accept I may be leaving things a little too simple.

Whilst I get this is a long term thing, and whilst I get I have cash in the bank, nobody wants to wake up tomorrow and see 25% wiped off their portfolio overnight so I'm after any input on how people would handle this going forward.

I'm thinking when there's cash in the ISA I should do something around smaller companies so I'm thinking F&C Smaller Global Companies for that part.

Then I'm open to options as I find myself debating between sticking with what is a pretty aggressive portfolio or getting a little defence in there with something like CGT or PNL at a similar ratio to RCP.

This is a long timeline so I also appreciate that nothing is set in stone.

All feedback is welcome

[Dod101]

That is an interesting and well balanced selection I think. I do not see it as being aggressive. Certainly Scottish Mortgage is rather aggressive but you have RCP which is very defensive and I doubt that the Lindsell Train fund or Fundsmith are aggressive. Overall if anything I think the portfolio is in danger of being too defensive and I would certainly not be adding PNL. It is in no sense a growth fund nor I think is CGT. You could add a smaller companies fund but I would leave it at that for a year or two and see how it does. Do not focus on the possibility of losses; these are inevitable. You are investing for long term growth and the stock market is the place for that but you need to take some risks and will occasionally suffer some short term losses.

You sound as though you may have too much in liquid reserves anyway; another reason why on your timescale you can afford to be a bit more aggressive than you currently are.

Dod

[ermintrade]

I pretty much agree with Dod101. I think you have the core of a good portfolio, and it's not particularly aggressive (apart from SMT). You have time on your side so you can afford to be a bit more aggressive. I think a good, diversified portfolio will have 10 to 15 holdings and still be perfectly manageable. Here are some of my personal choices for you to think about:

If you believe, as I do, that China is going to be the world's largest economy with an increasingly wealthy middle class, then have a look at Fidelity China Special Situations. Commodities tend to move in very long cycles. Increasing inflation tends to favour them, and commodities seem to be in an upswing at the moment. One IT in this area is Blackrock World Mining. Finally, so-called frontier markets are likely to do well over the long term. Special expertise is needed here and that is provided by Blackrock Frontiers IT.

[hiriskpaul]

Whilst I get this is a long term thing, and whilst I get I have cash in the bank, nobody wants to wake up tomorrow and see 25% wiped off their portfolio overnight so I'm after any input on how people would handle this going forward.

That rings alarm bells. The way you are currently investing could very easily lead to 25% being wiped out, although more likely over a period of months rather than overnight. Witnessing a 50% drawdown would not be the least bit implausible either. If you do not want to see 25%+ drawdowns, invest less aggressively. I think a core holding of a world tracker and just some small punts on funds such as the ones you have selected would serve most people better.

I notice you have selected funds that are recent winners. A question worth asking yourself is what you will do when they become recent losers, as all funds do. Will you be able to hold on because you have a strong enough conviction in the fund manager, strategy or theme, or will you dump the investments and go after different recent winners? The reason I ask is that you may unconsciously be following a well known retail investor strategy that involves buying high and selling low. Best not to fall into this trap.

[Aminatidi]

Whilst I get this is a long term thing, and whilst I get I have cash in the bank, nobody wants to wake up tomorrow and see 25% wiped off their portfolio overnight so I'm after any input on how people would handle this going forward.

That rings alarm bells. The way you are currently investing could very easily lead to 25% being wiped out, although more likely over a period of months rather than overnight. Witnessing a 50% drawdown would not be the least bit implausible either. If you do not want to see 25%+ drawdowns, invest less aggressively. I think a core holding of a world tracker and just some small punts on funds such as the ones you have selected would serve most people better.

I notice you have selected funds that are recent winners. A question worth asking yourself is what you will do when they become recent losers, as all funds do. Will you be able to hold on because you have a strong enough conviction in the fund manager, strategy or theme, or will you dump the investments and go after different recent winners? The reason I ask is that you may unconsciously be following a well known retail investor strategy that involves buying high and selling low. Best not to fall into this trap.

Yes to be very clear (and I could have been clearer) nobody wants to see that but I accept it could happen and this is money I absolutely don't need to get at for many years.

Fair point on recent winners as well but I'd like to think I've applied some reasoning around a mix of strategies and themes.

I'm curious on the world tracker comment as given my limited knowledge doesn't that have exactly the same set of risks (2008)?

My intention is very much buy and keep rather than chopping and changing

This nicely highlights the paradox in that some people say it's defensive and some people say consider what happens in a wipeout

[Aminatidi]

I pretty much agree with Dod101. I think you have the core of a good portfolio, and it's not particularly aggressive (apart from SMT). You have time on your side so you can afford to be a bit more aggressive. I think a good, diversified portfolio will have 10 to 15 holdings and still be perfectly manageable. Here are some of my personal choices for you to think about:

If you believe, as I do, that China is going to be the world's largest economy with an increasingly wealthy middle class, then have a look at Fidelity China Special Situations. Commodities tend to move in very long cycles. Increasing inflation tends to favour them, and commodities seem to be in an upswing at the moment. One IT in this area is Blackrock World Mining. Finally, so-called frontier markets are likely to do well over the long term. Special expertise is needed here and that is provided by Blackrock Frontiers IT.

Thank you, SMT and Shin Nippon were the "sort of punts" with those allocations but I'd like to think that I haven't been overly risky, kind of why I went with those three choices as I like Terry Smith and Nick Train's approach and, daft as it might sound, "old money" always survives hence the RCP chunk.

Mining scares the crap out of me for some reason, probably because for some reason I associate shares in mining with people losing money

[hiriskpaul]

Whilst I get this is a long term thing, and whilst I get I have cash in the bank, nobody wants to wake up tomorrow and see 25% wiped off their portfolio overnight so I'm after any input on how people would handle this going forward.

That rings alarm bells. The way you are currently investing could very easily lead to 25% being wiped out, although more likely over a period of months rather than overnight. Witnessing a 50% drawdown would not be the least bit implausible either. If you do not want to see 25%+ drawdowns, invest less aggressively. I think a core holding of a world tracker and just some small punts on funds such as the ones you have selected would serve most people better.

I notice you have selected funds that are recent winners. A question worth asking yourself is what you will do when they become recent losers, as all funds do. Will you be able to hold on because you have a strong enough conviction in the fund manager, strategy or theme, or will you dump the investments and go after different recent winners? The reason I ask is that you may unconsciously be following a well known retail investor strategy that involves buying high and selling low. Best not to fall into this trap.

Yes to be very clear (and I could have been clearer) nobody wants to see that but I accept it could happen and this is money I absolutely don't need to get at for many years.

Fair point on recent winners as well but I'd like to think I've applied some reasoning around a mix of strategies and themes.

I'm curious on the world tracker comment as given my limited knowledge doesn't that have exactly the same set of risks (2008)?

My intention is very much buy and keep rather than chopping and changing

This nicely highlights the paradox in that some people say it's defensive and some people say consider what happens in a wipeout

A World tracker carries market risk. If you buy and hold it you will get market returns, less 0.15% to 0.25% to cover costs, depending on which you choose (you can lower the running cost by buying a portfolio of regional trackers).

If you buy a managed fund, smart beta or focussed ETF tracker, you will get market returns plus or minus an amount that depends on the fund manager, strategy and/or theme. In other words, this route carries additional risk. It will also cost you more. There are plenty of people who claim this additional risk is worth paying for, although it is irrefutable that over the long term the vast majority of managed funds, smart beta, etc. Funds underperform the market and a mathematical certainty that the aggregate of all of them will.

There is an additional risk that retail investors face of shooting themselves in the foot. If an investor holds a world tracker and sees it significantly decline, because the market declines, they can lose confidence and bail out, only to buy back in at a higher level. The same is true of Active funds, but with the additional risk of seeing underperformance with respect to the market. As an example, Investors in Woodford's fund face this issue right now. The last few years have been abysmal for him, underperforming the market and his peers, some investors will be asking themselves whether to hold on or bail out. Bailing out may be a good thing to do, but it is impossible to know without the benefit of hindsight. But if you don't bail out how long are you prepared to continue to see poor performance? This additional risk, above normal market risk, can make it more likely that investors will churn their portfolios, with damaging results.

I am sure many investors start off with the view that they will hold a fund through thick and thin. Easy to say that, not easy to do during the thin.

[Aminatidi]

Yes understand all those points.

I'm looking at platforms that are flat fee so that the percentage fees are kept to a minimum, and on active v passive I guess you're basically into religion v anything rational else as you say everyone would be throwing their lot into a global tracker and sitting back for 20 years

Thick and thin.. couldn't agree more and of course if/when it happens that will be the test of nerve, and in spite of best intentions I don't think you truly know until it happens so no point second guessing myself too much at this point.

[hiriskpaul]

Knowing thyself is worthwhile. Are you the sort of person who can hold on to your convictions, or (like me) someone who trusts no one and questions everything? Having said that, I have managed to hold on to one IT for 27 years, although in all honesty I would have sold years ago but for the CGT hit.

A couple of thoughts on your portfolio. Firstly, it is heavily tilted to high p/b growth companies. That has been a great place to be during the current bull market, but over longer periods of time higher returns have actually been made by tilting the other way, to troubled or otherwise out of favour companies trading on low p/b's. The contrarian in me suggests that now might be a very good time to return to value investing. If you look for ITs that invest for value, you may well find lacklustre recent performance, but quite possibly trading at a healthy discount instead of the premiums you will be paying buying into currently popular growth ITs.

The second point is about small caps, known to have produced much better long term performance than large caps, so quite a sensible tilt IMHO. Why though focus so much on Japanese smaller companies? They might do well, but I don't see any intrinsic advantages these may have over the long term compared to say Chinese or US smaller companies. Your choice here reminds me of a fund I bought back in the 80s. I was drawn to a Japanese SC fund that showed phenomenal growth, something like 80% over the previous year alone. That continued for a little while but eventually it went into a significant decline. After several years it merged with another fund and I sold for much less than I had paid. Not saying it would happen again, but I now prefer to spread my SC allocation globally.

[Aminatidi]

Speaking of holding onto convictions, I recently remembered that about 10 years ago I opened an investment account with Interactive Investor and purchased some funds.

I couldn't even remember which as this was in around 2007 so not sure of the exact date but before the 2008 events.

I got the password reset letter today and logged in with baited breath and the numbers are £721.71 gain from a £984.82 original purchase of funds in the ISA and £194.05 gain from a £181.35 original purchase of funds outside of the ISA.

That seems respectable for something that I've literally not even checked for a decade

[hiriskpaul]

Speaking of holding onto convictions, I recently remembered that about 10 years ago I opened an investment account with Interactive Investor and purchased some funds.

I couldn't even remember which as this was in around 2007 so not sure of the exact date but before the 2008 events.

I got the password reset letter today and logged in with baited breath and the numbers are £721.71 gain from a £984.82 original purchase of funds in the ISA and £194.05 gain from a £181.35 original purchase of funds outside of the ISA.

That seems respectable for something that I've literally not even checked for a decade

Hard to say whether respectable or not as this depends on how the money was invested. Your ISA delivered 73%, non-ISA 107%. The MSCI World Index returned 155% between the end of June 2007 and yesterday (dividends reinvested). World small caps did a little better at 190%, but with more volatility. Individual markets within the World index varied considerably though, for example, the UK market was a laggard only managing 61%, although small/mid caps did better.

[ADrunkenMarcus]

The MSCI World Index returned 155% between the end of June 2007 and yesterday (dividends reinvested).

Thanks for sharing this data, hiriskpaul. It does put some context into the merits of long term investing, even if someone invested a lump sum a year before one of the world's biggest financial crises!

Best wishes

Mark.

[Aminatidi]

I have a feeling that as I've not even logged into the account for some years that II may have been taking some kind of account management fee from the investments themselves.

I can't be sure but as an example "ARTEMIS FUND MANAGERS HIGH INCOME QI INC" shows as down after ten years which doesn't make any sense.

I still think I need a couple more IT's to diversify a little.

Thinking Bankers and possibly F&C Smaller Global.

[cartsman2]

Hi hiriskpaul

I'm in a not dissimilar position to the OP, looking to invest cash for long term growth. Just looking at the MSCI World index - is the best way of investing to buy into an ETF that tracks this? Just looking through Selftrade it seems there are quite a few ETFs tha track it - Amundi, HSBC, UBS, etc.

Also, in terms of value investing, any particular ITs you'd suggest taking a look at?

Sorry for naive questions, just getting back into investing after a long break and I'm starting from almost ground zero and trying to educate myself.

[Aminatidi]

Well for what it's worth the latest iteration of "the plan" is to do this:

Fundsmith £10k
Lindsell Train Global £10k
SMT £10k
RCP £5k
CGT £5k
PNL £5k
HMSF £5k
BGS £2.5k

I think this puts me in a 60-70% equities and 25-30% "other" position and I'm hoping, other than SMT, possibly not such a turbulent time as simply riding the indexes.

@Cartsman2 "Fidelity Index World P" was what I was looking at when I was planning on simply going with a tracker.

[ADrunkenMarcus]

Well for what it's worth the latest iteration of "the plan" is to do this:

I particularly like the top three.

Best wishes

Mark.

[ermintrade]

Well for what it's worth the latest iteration of "the plan" is to do this:

Fundsmith £10k
Lindsell Train Global £10k
SMT £10k
RCP £5k
CGT £5k
PNL £5k
HMSF £5k
BGS £2.5k

You said you had up to 20 years ahead for your investment portfolio. Which makes me suggest that your latest iteration has too many very defensive 'capital preservers', particularly CGT and PNL. The problem is that these do comparatively badly during rising markets, and you therefore miss out on significant gains. A better strategy might be to hold cash and drip feed into your more aggressive ITs over time. So if markets drop, you buy them cheaper.
Regards
ermintrade

[Aminatidi]

Well for what it's worth the latest iteration of "the plan" is to do this:

Fundsmith £10k
Lindsell Train Global £10k
SMT £10k
RCP £5k
CGT £5k
PNL £5k
HMSF £5k
BGS £2.5k

You said you had up to 20 years ahead for your investment portfolio. Which makes me suggest that your latest iteration has too many very defensive 'capital preservers', particularly CGT and PNL. The problem is that these do comparatively badly during rising markets, and you therefore miss out on significant gains. A better strategy might be to hold cash and drip feed into your more aggressive ITs over time. So if markets drop, you buy them cheaper.
Regards
ermintrade

Thanks and agreed those ones are defensive but, and genuine question, as much as you can only go off average annual return since inception so much, each seems to be around 7%.

That doesn't seem terrible for something that should be comparatively stable and low risk?

Presume you mean just Pound Averaging over the year?

[ermintrade]

I would just rebalance the portfolio with new money every six months or annually. So holdings that have made the least gain, or dropped in value get the most new money. And, personally, I would keep RCP and ditch CGT and PNL. Of course, occasionally an IT might need to be dropped because of poor performance and replaced with something else, but I think this would be relatively rare. As you get nearer to retirement you could tilt the portfolio towards more defensive and income producing holdings.

[Aminatidi]

As it is I'll probably be topping up 2 funds each quarter simply because that's what II bundle with the "trading credits" system and I'm cheap unless there's a really good reason to drop a tenner

Curious on the reasoning for ditching CGT and PNL as I simply figured it's diversification of IT's that appear to have produced similar annual returns over the long term (usual caveat: historical).