Ideal asset allocation

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We have had many questions about peoples current asset allocation and many say that their overweight in certain areas, which skew what people are actually trying to achieve

I was wondering what is the ideal asset allocation people are aiming for and what types of assets? Feel free to drill down to detail the assets classes, include your home if that's what you do.

If you can state why you choose those assets, if there has been any major changes and why and where you are in your life that may effect your choice

If you can give any idea on the levels of return or what you feel have been your best and worst choices, that would be appreciated

It's just a bit of fun, try not to take it to seriously and respect others choices

[GeoffF100]

Your question is unanswerable. The answer depends on people's circumstances. If everyone had the same objectives, currency, costs and taxes, there is a theoretical answer. The theoretically optimum portfolio is the market portfolio. The market portfolio is a capital weighted portfolio of all the investments available.

[Cookie]

Your question is unanswerable. The answer depends on people's circumstances. If everyone had the same objectives, currency, costs and taxes, there is a theoretical answer. The theoretically optimum portfolio is the market portfolio. The market portfolio is a capital weighted portfolio of all the investments available.

I am not asking for a consensus on an ideal asset allocation, but interested in what others see as there ideal asset allocation (ie what are you currently targeting?). Yes, everyone's circumstances are different, but everyone can benefit from seeing what others do and relating it to your own circumstances, it may result in questions and discussions on what people currently do and why, spark new ideas and things people might not have considered. Or we may all be in the same sinking boat even and be fighting over the same life jackets!

As mentioned, its not so serious a discussion, just a "whats your strategy, this is mine, I do this because.., I am moving form this and getting into this because.."

[tjh290633]

Your question is unanswerable. The answer depends on people's circumstances. If everyone had the same objectives, currency, costs and taxes, there is a theoretical answer. The theoretically optimum portfolio is the market portfolio. The market portfolio is a capital weighted portfolio of all the investments available.

It seems an odd definition of the optimum portfolio. Even trackers do not cover the market, only certain sectors. There may well be certain assets that are best avoided, or are avoided because of ethical or religious convictions.

As you say, it is horses for courses. Including our residential property, we are about 50% equities, 45% property and 5% cash. That is very rough, as we would have to sell the house to know it's actual value.

TJH

[JNC3]

We have had many questions about peoples current asset allocation and many say that their overweight in certain areas, which skew what people are actually trying to achieve

I was wondering what is the ideal asset allocation people are aiming for and what types of assets? Feel free to drill down to detail the assets classes, include your home if that's what you do.

If you can state why you choose those assets, if there has been any major changes and why and where you are in your life that may effect your choice

If you can give any idea on the levels of return or what you feel have been your best and worst choices, that would be appreciated

It's just a bit of fun, try not to take it to seriously and respect others choices

This is impossible to answer. You would also need to consider the investors Human Capital as well as assets and investments. 'Do you have a high paid job and an advancing career ahead', "are you at the start of your career or towards the end". Are you living off your investments. ?

I think you need to narrow it down to say compare just 'Retirement Portfolio asset allocations ' where people are actually living off their investments.

[Cookie]

We have had many questions about peoples current asset allocation and many say that their overweight in certain areas, which skew what people are actually trying to achieve

I was wondering what is the ideal asset allocation people are aiming for and what types of assets? Feel free to drill down to detail the assets classes, include your home if that's what you do.

If you can state why you choose those assets, if there has been any major changes and why and where you are in your life that may effect your choice

If you can give any idea on the levels of return or what you feel have been your best and worst choices, that would be appreciated

It's just a bit of fun, try not to take it to seriously and respect others choices

This is impossible to answer. You would also need to consider the investors Human Capital as well as assets and investments. 'Do you have a high paid job and an advancing career ahead', "are you at the start of your career or towards the end". Are you living off your investments. ?

I think you need to narrow it down to say compare just 'Retirement Portfolio asset allocations ' where people are actually living off their investments.

The answer is simply what is "your" ideal asset allocation and if you have time, why. Not what is the ideal asset allocation. Apologies if this was not clear

[bluedonkey]

I do love a good meta-discussion!

[bluedonkey]

But in the interests of contributing more positively ...

Home, probably 55%
Retirement equities portfolio 40%
BTL 5%

5 years from retirement, very little new capital being added.

[SalvorHardin]

Asset allocation is highly dependent upon age, requirement for income and attitude towards risk. I’m retired and I don’t have any income other than what my portfolio generates (roughly 1.5% yield). But I aim for roughly 95% in equities with the rest in cash and nothing in bonds. Some of my larger investment trust holdings have quite a bit in bonds (e.g. Murray International) but I have never bought a fixed-interest investment in my 35+ years as an investor.

Growing up in the 1970s when inflation was rampant has caused me to favour real assets. Also I reckon that my stockpicking skills can outperform the market in the future (I’ve been doing pretty well since the early 2000s). I can cope with a 50% fall in income and capital with barely a shrug. My main concern is the long-term preservation of the real value of both capital and income. The biggest change in asset allocation happened when I retired; I gradually top-sliced across the board to buy investment trusts to generate sufficient income for me to live on.

The equities are currently split roughly: 30% British, 25% American, 10% Canadian, 5% European and 25% Investment Trusts. Though when I say “British” what I really mean is UK-quoted; the vast majority of my British shares are multinationals whose UK sales make up a small proportion of their total (e.g. Unilever) and companies with little or no business or assets in the UK (e.g. Macau Property Opportunities, Ocean Wilsons Holdings). The UK-focused part is barely one-fifth of the 30% and most of this is in the shares of Central London commercial property specialists. Nowadays any surplus cash gets invested outside the UK - this is a reaction to the possibility of a Labour government which would make me strongly consider emigrating.

No passives (if I invested mostly in passives I'd still be working!). My investment trusts tend to be those which passive investors cannot realistically replicate such as Law Debenture, private equity trusts, together with trusts which were bought at large discounts to their NAV (e.g. Caledonia) and those which run highly focused portfolios (e.g. Finsbury Growth & Income).

P.S. (added a bit late). Almost half of the Canadian shares is my "insurance policy" - a portfolio of Canadian quoted small gold exploration companies whose assets are located in Canada. Wars, etc. tend to push up the demand for gold and small gold explorers can be highly geared to the spot price.

[tjh290633]

Including our residential property, we are about 50% equities, 45% property and 5% cash. That is very rough, as we would have to sell the house to know it's actual value.

TJH

To add to that I have just calculated our income from various sources.

Pensions: 61.5%
Equities: 37.4%
Cash: 1.1%

Retired, aged 84.

TJH

[bobsmydog]

Just been rejigging our portfolio for the next 12 months and working out asset allocation of our liquid assets:

Fixed income 21%
Property shares and REITS 9%
Gold 0.6%
Equities 47%
Cash 22%

Of which equities:
UK 18%
Europe 17%
Asia 9%
Other Emerging 4%
Global 52% (mainly aggressive)

Cash is too high but that's because the rejigging isn't complete yet! Intend to bring this down to about 10% as and when I see buying opportunities.

Retired, both aged 67, home - no mortage, 2 basic state pensions, 1 small sipp pension in drawdown, no works pensions.

Hoping this will provide income and growth with lowish volatility. Any comments welcome

[bluedonkey]

Hi Salvor,

Thanks for an interesting post. Also interesting that we have posters representing such a wide range of investment styles on these boards, e.g. yourself, TJH, Geoff100, and so on. That is a "good thing"!

As I'm currently interested in putting more into collectives, I noticed your mention of Law Debenture as a type of IT that you could not easily replicate yourself. So I hot-footed it over to the http://www.theaic.co.uk site. LD's top holdings appear to be fairly well known quoted UK equities.

Best,
BD

[GeoffF100]

It seems an odd definition of the optimum portfolio. Even trackers do not cover the market, only certain sectors. There may well be certain assets that are best avoided, or are avoided because of ethical or religious convictions.

It is not a definition of an optimal portfolio, it is a mathematical result, given the (not very realistic) assumptions. It is assumed that all investments are available to everyone and are all liquid and infinitely divisible. The basic reason why that portfolio optimal is that is only portfolio that everyone can hold. It is assumed that everyone has the same objectives, which include risk tolerance and ethical considerations. CAPM is the simplest model of this kind.

[SalvorHardin]

As I'm currently interested in putting more into collectives, I noticed your mention of Law Debenture as a type of IT that you could not easily replicate yourself. So I hot-footed it over to the http://www.theaic.co.uk site. LD's top holdings appear to be fairly well known quoted UK equities.

Hi bluedonkey,

Law Debenture is is the sum of two parts; an investment trust and a wholly-owned Fiduciary Services business. This business makes a significant contribution to the dividend; Law Debenture's 2017 dividend was 17.3p, roughly 45% of which effectively came from the Fiduciary Services business' profits (see the table on page 4 of the 2017 annual report). Unless someone is prepared to set up a similar business they cannot replicate Law Debenture (though they can replicate its portfolio).

https://www.lawdebenture.com/investment-trust/

For many years Law Debenture's shares traded at a premium to its NAV to allow for this business. A couple of years ago they incorporated it in the published NAV so they now trade at a discount. The annual management charge on the portfolio is just 0.3% of the NAV (I have seen some sites over the years incorrectly treat the cost of running the fiduciary services business as part of the annual fee and end up with a stupidly large AMC).

[GeoffF100]

I am at the opposite end of the spectrum to SalvorHardin. I retired at age 50. Prior to that, I only invested in bonds. I did not need to take any risk. Since retiring, I have invested some of my money in equities. My investments have done well. Unlike SalvorHardin, I do not attribute my good results to skill. I am certain they were due to luck.

[JNC3]

In order to get a full picture a person's asset allocation I believe you would need to also capitalise the value of any Guaranteed DB pensions in payment plus add the capitalised value of state pension if it was in payment. To capitalise the value of my DB (index linked) pension I have just multiplied the annual income x 20. I consider my DB Pension (inc widows pension) to be equivalent in risk to Safe Guaranteed Bond.

I am 64 and retired. Don't get the state pension for another 2 years. Our Total investments are:

House we live in : 25%
UK & Global Equities: 35%
High Yield Bond ITs: 3%
Investment Grade Bond ETFs: 2%
Capitalised value of DB Pensions in payment: 30%
Cash Deposits: 5 %

My wife is 57 and plans to carry on working for a few years but she spends most of what she earns but is building up a small DC pension !

[JNC3]

By the way I should have said my wife is working part-time.

Our 35% Equity allocation shown above are all in six low cost Vanguard etfs - regionally split as follows :-

UK 16%
Europe 20%
USA 37%
Asia 7%
Japan 10%
EM 10%

Regards JNC3

[GeoffF100]

The net present value of my pension rights depends on how long I live and the rate of inflation, but I have made a stab at that:

House 8%
Capitalised pensions 27%
Bonds 30% (66% conventional / 33% index linked)
Equities 35% (42% UK / 58% overseas)

I doubt whether that is much help to anyone else. I plan to increase my bond allocation and move more of my equity investment overseas, but that will be a slow process.

[PinkDalek]

... As you say, it is horses for courses. Including our residential property, we are about 50% equities, 45% property and 5% cash. That is very rough, as we would have to sell the house to know it's actual value. ...

I recall trying to work out at TMF what percentage of my equities were backed up by property valuations themselves. I gave up!

Retired, aged 84.

I had no idea you retired last year, Terry, but, not being in paid employment myself, I've never been so busy.

[tjh290633]

I had no idea you retired last year, Terry, but, not being in paid employment myself, I've never been so busy.

It wasn't last year, PD, but I soon learnt that being retired is a full-time job.

TJH