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First steps in investing

Investment discussion for beginners. Why you should invest your money, get help getting started
tjh290633
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Re: First steps in investing

#219188

Postby tjh290633 » May 3rd, 2019, 10:13 am

Madmike wrote:Thanks for clarification. I had a look at Vanguard’s page and for the amounts I want to invest it works out cheaper than other brokers. I’ve been considering their products anyway. As it’s stands the choices are VWRL or LifeStrategy.
All you guys have been a massive help.


I would avoid Life Strategy. It's a concept that has long passed its sell-by date. Go 100% equities.

TJH

Madmike
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Re: First steps in investing

#219203

Postby Madmike » May 3rd, 2019, 10:52 am

Thanks TJH,

That’s been my preferred choice. I works out slightly cheaper too. I’m tempted to invest a fraction in FCIT or Lindsell Train Global Fund tho.

Regards
Mike

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Re: First steps in investing

#219238

Postby AJC5001 » May 3rd, 2019, 12:17 pm

tjh290633 wrote:I would avoid Life Strategy. It's a concept that has long passed its sell-by date. Go 100% equities.

TJH


But there is a 100% equity option in the Lifestrategy funds. So what part of the concept has passed its sell-by date - the ability to have some in Bonds or something else?

Adrian

hiriskpaul
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Re: First steps in investing

#219243

Postby hiriskpaul » May 3rd, 2019, 12:26 pm

That is just TJH's opinion, someone who quite probably has never bought a bond or bond fund. In no respect has a balanced fund passed its sell-by date. Even Warren Buffett has advised his wife to only hold 90% in equities after he has gone (an S&P 500 fund), with the other 10% in short dated bonds.

It is very easy to get carried away with an equities cannot lose attitude when you look at the returns over the last 10 years (even 40 years), especially now 2008 has dropped out of the 10 year history! At some point, stock markets will suffer large falls and next time they might not bounce back so quickly. For you this may not matter as you have a long investment horizon and can keep investing from earnings. We have not really had a truly awful period in the stock market since the mid 60s to mid 70s period, so outside most investors memory. It could happen again and be much worse, but for you a large fall in the not too distant future would be beneficial. Just don't throw in the towel next time the market drops by 40-50%. Keep on investing. I was just reading that quite a lot of UK investors made large withdrawals from funds in December, following the fall in the Autumn, and missed out on the spring rally. Exactly what not to do when the market drops.

As AJC5001 says, you could always go for Lifestrategy 100 for all out equity risk. It does overweight UK equities though, which might not be what you want. Alternatively there is the FTSE Global All Cap Index Fund, which is very similar to VWRL, but in OEIC form.

tjh290633
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Re: First steps in investing

#219312

Postby tjh290633 » May 3rd, 2019, 3:49 pm

The concept of Life Strategy investing is that you make a gradual shift from equities to bonds as you near retirement, in order to minimise the risk of a fall in value of your fund when you are having to buy an annuity.

Nowadays buying an annuity is an activity which has almost vanished, along with the lifestyle concept.

In the past, erosion of income by inflation for those with fixed incomes has been the cause of much suffering and deprivation. Inflation linked annuities did help, but the low interest regime of recent years have made the annuity route one that very few would contemplate.

Every fall in the market for the last 60 years or so has been followed by a recovery. Not always reflected in index figures because of the changes in composition caused by the market fall. This is one reason why trackers are not the best route to adopt.

TJH

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Re: First steps in investing

#219353

Postby dealtn » May 3rd, 2019, 5:51 pm

Advocates of Bond/Fixed Income investing tend not to recognise that whilst equities have had a broadly upwards only direction over the past many (cumulative) years, the same is also true of that alternative asset class. This is generally due to the significant drift lower of interest rates over this period. This trend is not something that can perhaps be relied upon to continue, and with it the near total absence of losses from Fixed Income investing.

By all means use alternatives to equities for diversification purposes, but do so with eyes open to the fact that alternatives might also deliver greater volatility than in the past, and potential capital losses too. With negative real yields, another concept not fully appreciated by everyone, I would hope that those advocating investing, or currently invested in, Fixed Income appreciates the irony of the claims that equities "might" be overvalued.

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Re: First steps in investing

#219394

Postby AJC5001 » May 3rd, 2019, 9:24 pm

tjh290633 wrote:The concept of Life Strategy investing is that you make a gradual shift from equities to bonds as you near retirement, in order to minimise the risk of a fall in value of your fund when you are having to buy an annuity.


I wondered if that was the problem when I looked at the Vanguard site

You have confused the Life Strategy concept https://www.vanguardinvestor.co.uk/investing-explained/what-are-lifestrategy-funds?intcmpgn=aworldofopportunity_lifestrategy_icon
with what Vanguard call their Target Retirement Funds https://www.vanguardinvestor.co.uk/articles/latest-thoughts/how-it-works/funds-that-last-a-lifetime?intcmpgn=olt_featuredhome_link.Only the latter adjust between equity and bond percentages.

tjh290633 wrote:Nowadays buying an annuity is an activity which has almost vanished, along with the lifestyle concept.

In the past, erosion of income by inflation for those with fixed incomes has been the cause of much suffering and deprivation. Inflation linked annuities did help, but the low interest regime of recent years have made the annuity route one that very few would contemplate.


But Annuities provide a guaranteed income for the life of the annuitant, however long or short, in return for the capital you spend. It won't fall by 50% when the stock market has one of its hiccups. https://www.hl.co.uk/retirement/annuities. This can be used to provide the base income to cover the regular household bills (preferably with an inflation linked annuity) whilst more risky investments that retain your capital can be used for the 'fun' parts of retirement.

Adrian

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Re: First steps in investing

#219402

Postby Itsallaguess » May 3rd, 2019, 10:29 pm

tjh290633 wrote:
The concept of Life Strategy investing is that you make a gradual shift from equities to bonds as you near retirement, in order to minimise the risk of a fall in value of your fund when you are having to buy an annuity.


But you don't *have* to shift.....

It's perfectly possible to take advantage of any of the low-cost, well-diversified Vanguard Life Strategy options and simply *stay put*.....

I think that in terms of out-sourcing some portfolio-management, they are a very good option for regular investment through thick and thin...

Cheers,

Itsallaguess

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Re: First steps in investing

#219427

Postby JohnB » May 4th, 2019, 3:59 am

Things not mentioned. Read the articles at monevator.com. Buy Tim Hale and Lars Krojer's books to decide if you are a passive investor. Unless you get a discount from your broker for monthly investing, do it quarterly, cycling through the funds you have. ETFs often have lower charges than funds. Don't have more than 50% of your investments with any one broker or fund manager

Why have you decided not to have a SIPP in addition to your company pension?

Write a spreadsheet to track things, but don't obsess over gains or losses over periods less than 5 years

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Re: First steps in investing

#219429

Postby Urbandreamer » May 4th, 2019, 6:38 am

JohnB wrote:Things not mentioned. Read the articles at monevator.com. ....Unless you get a discount from your broker for monthly investing, do it quarterly, cycling through the funds you have. ETFs often have lower charges than funds. Don't have more than 50% of your investments with any one broker or fund manager
....
Write a spreadsheet to track things, but don't obsess over gains or losses over periods less than 5 years


Many brokers do discount "regular" investements at monthly intervals, however this does not prevent using that facility to invest quarterly and cycleing the investments. On the 10th my broker will be buying a quantity of shares in a single company for me. The OP could use the same method for a S&P ETF for the same £1.50. Like me he could then cancel the "regular" investment. When funds have built up he could reinstate it, but this time using a FTSE ETF. I will be doing the same, but buying something different.

On the subject of spreadsheets, I can't recommend HYPTUSS* enough. While it is intended to support the HYP methodology, some simple tweeks make it easy to benchmark your portfolio against the FTSE100 and all share makeing it useful for those who don't. I personally think that it's worth unitising the spreadsheet from day one, and wish that I did so long ago, rather than as recently as 2015.

*HYPTUSS is linked and discussed on TLF here
viewforum.php?f=27

hiriskpaul
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Re: First steps in investing

#219453

Postby hiriskpaul » May 4th, 2019, 9:27 am

tjh290633 wrote:The concept of Life Strategy investing is that you make a gradual shift from equities to bonds as you near retirement, in order to minimise the risk of a fall in value of your fund when you are having to buy an annuity.

You are talking about lifestyle funds here. The Vanguard Lifestrategy funds are not lifestyle funds. I can see the confusion with such a similar name.

Lifestyling was a sensible strategy when people were forced to buy annuities on retirement because it immunises the final annuity from changes in interest rates. If gilt prices rise as the retirement date approaches, annuity rates will fall, but the annuitant has a bigger pot to buy an annuity with. If gilt prices fall the size of the pension pot falls, but annuity rates rise. If instead everything was kept in shares a fall in the stock market would not be likely to coincide with a rise in annuity rates. Often the reverse is true, so not only would there be a smaller pot to buy the annuity with, but annuity rates would drop as well.

I agree that the main purpose of lifestyling is now gone now annuity purchase is no longer compulsory, but still makes sense if anyone is forced to buy an annuity, or wants to.

Again though, nothing to do with Vanguard Lifestrategy funds, which are just balanced funds.

hiriskpaul
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Re: First steps in investing

#219461

Postby hiriskpaul » May 4th, 2019, 9:55 am

dealtn wrote:Advocates of Bond/Fixed Income investing tend not to recognise that whilst equities have had a broadly upwards only direction over the past many (cumulative) years, the same is also true of that alternative asset class. This is generally due to the significant drift lower of interest rates over this period. This trend is not something that can perhaps be relied upon to continue, and with it the near total absence of losses from Fixed Income investing.

By all means use alternatives to equities for diversification purposes, but do so with eyes open to the fact that alternatives might also deliver greater volatility than in the past, and potential capital losses too. With negative real yields, another concept not fully appreciated by everyone, I would hope that those advocating investing, or currently invested in, Fixed Income appreciates the irony of the claims that equities "might" be overvalued.


No, bonds (investment grade bonds) will always provide positive returns to maturity (unless yield at purchase is negative). Over the short term they can of course fluctuate in price, but a very bad year for intermediate dated bonds might mean a drop of 10%, but a very bad year for equities means a drop of 40% or more, with no guarantee of a quick bounce back. A very bad year for equities very often coincides with a very good year for bonds and that is the main investment case for investment grade bonds. They are not bought as a source of return, but for stabilisation/risk reduction.

Non investment grade bonds on the other hand behave much more like equities and can produce both high returns and high losses. My initial purchase of B&B bonds were 10 baggers over just a few years. I have also suffered 50%+ losses on some high yield bonds.

The value of both bonds and equities are degraded by inflation.

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Re: First steps in investing

#219467

Postby Madmike » May 4th, 2019, 10:07 am

Thanks for the input everyone :)

Taking into account all the above I decided to open an account with Vanguard and drip feed into VWRL or its OEIC equivalent (no dealing fees and 0.15% account fee). I’d also like to set up another account with HL and invest in Lindsell Train Global - less regular payments (extra income/ overtimes etc.) They offer discounted fund charge of 0.51% and no dealing fees on funds. Just curious to see how one perform against the other. I’m really glad I found this board :)

Regards
Mike

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Re: First steps in investing

#219468

Postby nmdhqbc » May 4th, 2019, 10:16 am

Madmike wrote:I’d also like to set up another account with HL and invest in Lindsell Train Global - less regular payments (extra income/ overtimes etc.) They offer discounted fund charge of 0.51% and no dealing fees on funds.


They're sneaky ones those H and L. They save you 0.2% and then charge you 0.45% for holding the fund. Go to iWeb.

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Re: First steps in investing

#219473

Postby Madmike » May 4th, 2019, 10:39 am

Lindsell Global isn’t available via iWeb, only UK equity with higher OCF plus dealing fees and initial fee.

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Re: First steps in investing

#219479

Postby Vince56 » May 4th, 2019, 11:07 am

I've just looked and IWeb now has LT Global.

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Re: First steps in investing

#219481

Postby Madmike » May 4th, 2019, 11:15 am

Ca you post a link please. I’ve just checked again and can’t see LT Global.

Cheers
Mike

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Re: First steps in investing

#219516

Postby dealtn » May 4th, 2019, 1:57 pm

hiriskpaul wrote:
dealtn wrote:Advocates of Bond/Fixed Income investing tend not to recognise that whilst equities have had a broadly upwards only direction over the past many (cumulative) years, the same is also true of that alternative asset class. This is generally due to the significant drift lower of interest rates over this period. This trend is not something that can perhaps be relied upon to continue, and with it the near total absence of losses from Fixed Income investing.

By all means use alternatives to equities for diversification purposes, but do so with eyes open to the fact that alternatives might also deliver greater volatility than in the past, and potential capital losses too. With negative real yields, another concept not fully appreciated by everyone, I would hope that those advocating investing, or currently invested in, Fixed Income appreciates the irony of the claims that equities "might" be overvalued.


No, bonds (investment grade bonds) will always provide positive returns to maturity (unless yield at purchase is negative). Over the short term they can of course fluctuate in price, but a very bad year for intermediate dated bonds might mean a drop of 10%, but a very bad year for equities means a drop of 40% or more, with no guarantee of a quick bounce back. A very bad year for equities very often coincides with a very good year for bonds and that is the main investment case for investment grade bonds. They are not bought as a source of return, but for stabilisation/risk reduction.

.


Not sure I said anything that required a "No", nothing too controversial in what I said.

Indeed I think you are a little dismissive in your "very bad year for equities..." when such a fall has occurred just once since 1900, in 1974, which was followed by a rise of approx. 140% (depending on your index) in 1975. Granted there is no guarantee of "a quick bounce back", but I made no such claim anyway. Incidentally Gilts also had a negative return in 1974, so I don't hold much stake for your claim that "a very bad year for equities very often coincides with a very good year for bonds" either. By your definition we have witnessed a single "very bad year" for equities, and in that solitary instance it wasn't accompanied by a good year for bonds, let alone a "very good" one.

All I was pointing out, to those who might be persuaded that alternatives to equities are appropriate, is to recognise that such diversification should be considered carefully, and not taken as fact that it is a good thing, and that volatility and equity correlation are not simple, and indeed analysis of the recent past might not be reflective of the likely future, given the recent history of such markets where we have been through a deflationary period, with QE, which may well prove to be a significant outlier to what might be considered normal.

The thinking behind gradually moving from equity to bonds (or cash) as retirement was approached was considered sensible when living in a time of pensions being a savings vehicle to buy an annuity on a single date. Those days are in the past, and whilst equities are no doubt still a volatile investment class, the rigidity of such thinking is diminished.

I am far from dismissing diversification, particularly to any making their "First steps in investing". I am saying that for any in such a position they should question any advice considered as a truism, and in particular when these are based on events of the past, which I believe are of less relevance given where we are now, which looks different to much of the period of market history.

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Re: First steps in investing

#219558

Postby hiriskpaul » May 4th, 2019, 5:46 pm

dealtn wrote:
hiriskpaul wrote:
dealtn wrote:Advocates of Bond/Fixed Income investing tend not to recognise that whilst equities have had a broadly upwards only direction over the past many (cumulative) years, the same is also true of that alternative asset class. This is generally due to the significant drift lower of interest rates over this period. This trend is not something that can perhaps be relied upon to continue, and with it the near total absence of losses from Fixed Income investing.

By all means use alternatives to equities for diversification purposes, but do so with eyes open to the fact that alternatives might also deliver greater volatility than in the past, and potential capital losses too. With negative real yields, another concept not fully appreciated by everyone, I would hope that those advocating investing, or currently invested in, Fixed Income appreciates the irony of the claims that equities "might" be overvalued.


No, bonds (investment grade bonds) will always provide positive returns to maturity (unless yield at purchase is negative). Over the short term they can of course fluctuate in price, but a very bad year for intermediate dated bonds might mean a drop of 10%, but a very bad year for equities means a drop of 40% or more, with no guarantee of a quick bounce back. A very bad year for equities very often coincides with a very good year for bonds and that is the main investment case for investment grade bonds. They are not bought as a source of return, but for stabilisation/risk reduction.

.


Not sure I said anything that required a "No", nothing too controversial in what I said.

Indeed I think you are a little dismissive in your "very bad year for equities..." when such a fall has occurred just once since 1900, in 1974, which was followed by a rise of approx. 140% (depending on your index) in 1975. Granted there is no guarantee of "a quick bounce back", but I made no such claim anyway. Incidentally Gilts also had a negative return in 1974, so I don't hold much stake for your claim that "a very bad year for equities very often coincides with a very good year for bonds" either. By your definition we have witnessed a single "very bad year" for equities, and in that solitary instance it wasn't accompanied by a good year for bonds, let alone a "very good" one.

All I was pointing out, to those who might be persuaded that alternatives to equities are appropriate, is to recognise that such diversification should be considered carefully, and not taken as fact that it is a good thing, and that volatility and equity correlation are not simple, and indeed analysis of the recent past might not be reflective of the likely future, given the recent history of such markets where we have been through a deflationary period, with QE, which may well prove to be a significant outlier to what might be considered normal.

The thinking behind gradually moving from equity to bonds (or cash) as retirement was approached was considered sensible when living in a time of pensions being a savings vehicle to buy an annuity on a single date. Those days are in the past, and whilst equities are no doubt still a volatile investment class, the rigidity of such thinking is diminished.

I am far from dismissing diversification, particularly to any making their "First steps in investing". I am saying that for any in such a position they should question any advice considered as a truism, and in particular when these are based on events of the past, which I believe are of less relevance given where we are now, which looks different to much of the period of market history.

Sorry if I my post appeared very dismissive. Quite right, no reason to start with the word no. Completely agree with you about making too much reliance on the past by the way, that applies to bonds and equities.

Regarding 1973/74, not all gilts went down, it depended where you were on the yield curve. At the long end they most definitely crashed, but intermediates did ok and short dated did well. Although in real terms they all lost because inflation was spiking at the same time. In the 8 subsequent calendar years in which the FTSE allshare lost money, long gilts made money in 7 and shorts/intermediates in all of them. I think the one thing that can be guaranteed is a lack of correlation between equities and sort dated bonds. Short dated bonds will plod on churning out positive nominal returns unless we get negative bank rates or defaults by major developed countries.

One scenario that might play out is something similar to 1973/4. Rising inflation, rising long gilt and US Treasury yields and a collapse in the stock market. Complete speculation of course. We might carry on as we are with minor corrections for 20 years or more. Anyway, I think it is always worth questioning advice, but I am not sure what the alternatives are to diversification for anyone not prepared to put everything into equities and hope for the best. In the 1973/4 scenario and every stock market fall since, short bonds/cash would have been a good diversifier, but that does mean having to accept a very likely negative real return on the bonds/cash.

I largely gave up trying to guess what was going to happen some time ago, having got it wrong so often in the past, so now just stay diversified across global equity markets, sectors, duration, currencies, credit rating, etc. I am not going to be right, but hopefully not massively wrong either. That is what diversification gives me.

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Re: First steps in investing

#219564

Postby starquake » May 4th, 2019, 6:10 pm

Should reply on why I change annually my tracker.. I don't sell up - that would be crazy. I do it more for diversification so I'm not 100% Vanguard. So I may use Vanguard one year, Blackrock next. Then switch back. At moment, checking right now, I've currently got 2 "passive" tracker funds. I expect to start another iShares passive next year. All similar low-cost affairs, but given I'm on a provider (ii) who are flat fee annually - diversifying across funds is fine. It'll also mean if there every is redemption pressures (as there can be with OIEC funds) I am diversifying my risk of being able to "get out". I also realised i missed disclosing the Blackrock earlier by name. I do try to keep OEIC low though, as I am preferring ETF nowadays.


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