New member with 400k to invest

[AndrewInDevon]

I am a soon to retire with a comfortable pension and will be mortgage free. I will have £400k to invest which I want to do without any drawings for at least 5-6 years, after which I will then re-evaluate my objectives but will probably migrate to regular drawings/taking income at that stage.

I am financially literate but a novice investor. I don’t have much in the way of ISAs as I am a spender rather than a saver, I’ve been reliant on having an excellent pension.

What do you think of my planned portfolio….

OGC Model
Vanguard UK Equity Income Index 0.14% 25% 100,000
Vanguard US Equity Index Fund 0.10% 15% 60,000
Vanguard FTSE Europe ex UK ETF 0.10% 10% 40,000
iShares Japan Equity Index Fund class D 0.08% 8% 30,000
Passive. 58% 230,000

Fundsmith Equity T Class 0.94% ISA 8% 30,000
Smithson Investment Trust 0.90% ISA 8% 30,000
City of London Investment Trust 0.74% ISA 5% 20,000
Greencoat UK Wind plc. 0.87% 8% 30,000
Capital Gearing Trust 0.80% 8% 30,000
Royal London Sterling Extra Yield Bonds 0.84% 8% 30,000
Active 43% 170,000

Total Cost 0.43% 100% 400,000

[Lootman]

Pretty good for a beginner. A couple of thoughts:

Nothing in Asia ex-Japan nor in emerging markets. Deliberate?

Your choice of a UK index fund is an equity income fund but your other index funds have no focus on income. Given the natural high yield of the UK market anyway, you could instead go for a normal UK index fund. Also that overlaps with your choice of City of London IT.

[monabri]

UKW is too attractive a target for a possible Labour government re windfall tax and with those current net margins (no pun intended) of 90%+ " they can afford it !" comes the cry from the street.

[DrFfybes]

Personally I'd go more passive, and choose global rather than just US.

You could take a mix of VUKE, VHYL, VEVE. BRKB pays no dividend, which as it sound like it is unsheltered may be a consideration.

I know little about most of those particular ITs, however CTY is a dividend darling, but performance capital wise over the last decade has been abysmal. Personally I would replace with ATST.

I'd also structure the investments such that the lower dividend ones are outside any tax wrapper and migrate the biggest growers into an ISA as and when I could, but you might have different preferences and requirements regarding tax.

Paul

[monabri]

Won't there be a need to report excess reportable income (ERI) with the VG funds outside an ISA?

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[MDW1954]

I agree: the omission of Asia-Pacific looks really odd. I'd ditch Japan and add an Asia-Pacific (excl Japan) index tracker -- given that you're into Vanguard, that would be VAPX.

UKW looks odd, too. (I hold.) If you want that sector, buy a trust that straddles wind/ solar/ storage/biomass/ whatever.

MDW1954

[AndrewInDevon]

Really helpful!

I did have an Asia Ex-Japan in at one stage but I deleted it because (a) I can’t really get my head around that part of the world (so on the basis that if you don’t understand it, don’t invest in it!) and (b) I am trying to keep the number of funds at 10 or less! I also thought I was taking diversification too far. But your points are well taken and I will reflect on them

I’ve also been in a rollercoaster about the allocation to the UK and USA and have only recently toned down my planned allocation to the US, towards the UK. The sentiment appears to be moving against the US as over- priced, possible recession ahead and the growth of tech may be passed its peak, whereas the UK market is under-priced….there have been significant fund withdrawals in the US and some US fund managers now turning to other global markets….. so I’ve read in the FT!

I am torn between low cost trackers and investment trusts…the concept of which appeals to me. I look into the Alliance Trust instead of City of London.

[Dod101]

Really helpful!

I did have an Asia Ex-Japan in at one stage but I deleted it because (a) I can’t really get my head around that part of the world (so on the basis that if you don’t understand it, don’t invest in it!) and (b) I am trying to keep the number of funds at 10 or less! I also thought I was taking diversification too far. But your points are well taken and I will reflect on them

I’ve also been in a rollercoaster about the allocation to the UK and USA and have only recently toned down my planned allocation to the US, towards the UK. The sentiment appears to be moving against the US as over- priced, possible recession ahead and the growth of tech may be passed its peak, whereas the UK market is under-priced….there have been significant fund withdrawals in the US and some US fund managers now turning to other global markets….. so I’ve read in the FT!

I am torn between low cost trackers and investment trusts…the concept of which appeals to me. I look into the Alliance Trust instead of City of London.

Alliance is not much followed here which I think is a shame. I have held it for about 30 years and in its latest incarnation it is doing quite well. It has avoided the fate of that other self managed Scottish trust Scottish Investment Trust which did absolutely nothing for years and ended up being put into liquidation with its assets taken over by JPM Global Growth. Alliance is no longer self managed and Willis Towers Watson have a global mandate and are carrying it out quite well. It is of course very different from City of London and cannot be compared, the one being a pure UK income play and the other global growth. I have always avoided City of London because it does pretty well what most of us can do ourselves. You probably know how Alliance operates. People do not like its multi stock picker approach but its costs are not that different from others at around 0.61%.

Dod

[dealtn]

I am a soon to retire with a comfortable pension and will be mortgage free. I will have £400k to invest which I want to do without any drawings for at least 5-6 years, after which I will then re-evaluate my objectives but will probably migrate to regular drawings/taking income at that stage.

I am financially literate but a novice investor. I don’t have much in the way of ISAs as I am a spender rather than a saver, I’ve been reliant on having an excellent pension.

What do you think of my planned portfolio….

You don't give us any information regarding your objectives, other than no income required, and will review in 5-6 years. Nor do you give any background on your risk appetite.

You have a comfortable pension, no need for income (or housing), rather spend than save. Carry on spending and enjoying it might be the answer, including that £400k you have built up.

Hard to answer!

[scotia]

I am a soon to retire with a comfortable pension and will be mortgage free. I will have £400k to invest which I want to do without any drawings for at least 5-6 years, after which I will then re-evaluate my objectives but will probably migrate to regular drawings/taking income at that stage.

Its a guessing game - but as long as you stick (as you have) with mainstream investments, you are unlikely to go far wrong.
Looking at your passive choices, personally I don't go for UK Equity Income funds - in general their past total return has been poor. I also hold a much larger investment slice in the USA than in the UK. Over 5 years an S&P 500 tracker has returned 89%, while a FTSE 100 tracker has returned 29%. OK - perhaps the US market has overheated, but I'm certainly glad I increased my USA slice some years ago. I also hold Vanguard ETF world trackers VWRL and VEVE which both add to my US bias.
On your active choices, Fundsmith has been one of my favourites - with a 76% total return over 5 years. I think the Class T is for investments over £1M - you will probably get the Class I. I also hold Smithson - but it has been disappointingly volatile. I don't hold City of London - it falls into the UK equity income sector - with a 30% total return over 5 years. I do hold some global ITs - both F&C IT and Alliance Trust have performed reasonably with a 54% total return over 5 years. I don't hold bonds, nor do I hold "wealth preservation" funds
But possibly my best advice is to point you to the Hargreaves Lansdown site (http://www.hl.co.uk) for information - which is freely produced for all comers - whether or not you are an HL customer. My apologies if you already know this. For example if you select Funds, and choose Fundsmith, then Charts and Performance - you will get performance data displayed over 5 years, and you can select other Funds, ITS, ETFs, Indices and shares for side by side comparison. Happy hunting
Statistics listed above were obtained from the HL site, and hopefully transcribed accurately. Notification of any errors would be appreciated.

[GeoffF100]

That is an incredibly high risk portfolio, and far more complicated than is necessary.

A packaged fund like Vanguard LifeStrategy or Vanguard Target Retirement is all that you need. They already contain everything (in varying weights). You do not gain additional diversification by adding more funds.

As far as risk is concerned, I suggest that you consider what would happen if your equities became worthless, and your bonds retained their value. In a severe crash, your equities would probably still be worth something, and your bonds would not be unscathed, but it is a good sanity check nonetheless.

Keep it simple. Do not take unnecessary risk.

[Dod101]

That is an incredibly high risk portfolio, and far more complicated than is necessary.

A packaged fund like Vanguard LifeStrategy or Vanguard Target Retirement is all that you need. They already contain everything (in varying weights). You do not gain additional diversification by adding more funds.

As far as risk is concerned, I suggest that you consider what would happen if your equities became worthless, and your bonds retained their value. In a severe crash, your equities would probably still be worth something, and your bonds would not be unscathed, but it is a good sanity check nonetheless.

Keep it simple. Do not take unnecessary risk.

The portfolio may be more complicated than necessary but I do not see it as 'incredibly risky'. All investing is risky.

Dod

[DrFfybes]

That is an incredibly high risk portfolio, and far more complicated than is necessary.

A packaged fund like Vanguard LifeStrategy or Vanguard Target Retirement is all that you need. They already contain everything (in varying weights). You do not gain additional diversification by adding more funds.

As far as risk is concerned, I suggest that you consider what would happen if your equities became worthless, and your bonds retained their value. In a severe crash, your equities would probably still be worth something, and your bonds would not be unscathed, but it is a good sanity check nonetheless.

Keep it simple. Do not take unnecessary risk.

It might be slightly complicated, but risky?

As Dealtn says, The OP has gien no indication of risk appetite, however as he is "soon to retire with a comfortable pension and will be mortgage free" then their risk may be less than we image. They don't seem to need their savings and if their pension is a DB scheme or annuity that covers their needs then that could be considered the equivalent of a lot of Bonds held in a diverse portfolio. Our DB schemes cover the vast majority of our income, the rest is several years' top up in cash reserves, and equities.

Not often I disagree with Goeff, but unless you have a planned need for an amount of cash at a specific date, I'd avoid the Target Retirement funds as these are old fashioned style funds geared towards wealth preservation (but lower growth) towards the 'target date', which were how people were supposed to invest when they cashed it in and bought an annuity.

But, going back to the OP, these replies are just people's own opinions. We all have different aims, risk profiles, approaches, and circumstances. A 55 year old with 3 children about to leave uni will have different aims to someone unmarried and chlidless and 10 years older.

Paul

[tjh290633]

That is an incredibly high risk portfolio, and far more complicated than is necessary.

A packaged fund like Vanguard LifeStrategy or Vanguard Target Retirement is all that you need. They already contain everything (in varying weights). You do not gain additional diversification by adding more funds.

You are a prolific advocate of Vanguard funds. I would suggest that having one of them as your sole investment is the most risky approach possible.

Diversification of investments is not the only consideration. Risk of failure of the managers of a fund is another. It may be minimal, but you also have the risk of US Government action affecting your investments.

You have a myopic outlook.

TJH

[GeoffF100]

Not often I disagree with Goeff, but unless you have a planned need for an amount of cash at a specific date, I'd avoid the Target Retirement funds as these are old fashioned style funds geared towards wealth preservation (but lower growth) towards the 'target date', which were how people were supposed to invest when they cashed it in and bought an annuity.

No, that is not correct:

https://www.vanguardinvestor.co.uk/arti ... ement-fund

Vanguard clearly believes that their Target Retirement Funds are appropriate for drawdown. We do not know much at about the OP's risk tolerance or capacity to absorb risk. Nonetheless, there are plenty here advocating 100% equities. Is the OP happy to lose most of his £400K in a crash, and not see it recover in his lifetime? The Target Retirement funds may be conservative, but they certainly a sensible option.

(For what it is worth, I am not mirroring the Target Retirement Fund equity percentage, but my circumstances are not at all typical.)

[GeoffF100]

You are a prolific advocate of Vanguard funds. I would suggest that having one of them as your sole investment is the most risky approach possible.

It is not all uncommon to have one pension provider (apart from the state). I do not know of any who do not sleep soundly at night as a result. I think Bitcoin is a lot more risky.

[Alaric]

Vanguard clearly believes that their Target Retirement Funds are appropriate for drawdown.

Older forms of target retirement funds would attempt to blend into a portfolio whose capital value would rise or fall with annuity rates. Vanguard reduce to about 25% to 30% equity and then keep that percentage, so drawdown orientated. A high proportion of fixed interest is likely to help stabilise the running income from the fund, which may be what a drawdown client is seeking.

[GeoffF100]

Vanguard clearly believes that their Target Retirement Funds are appropriate for drawdown.

Older forms of target retirement funds would attempt to blend into a portfolio whose capital value would rise or fall with annuity rates. Vanguard reduce to about 25% to 30% equity and then keep that percentage, so drawdown orientated. A high proportion of fixed interest is likely to help stabilise the running income from the fund, which may be what a drawdown client is seeking.

There are still lots of pension plans that progressively move to 100% bonds at the retirement date to hedge against rises in annuity prices. There were lots of articles in the press recently criticising these plans for doing that when bond prices fell. That criticism was misplaced, because these plans were doing what was intended. (It may well be more sensible for the OP to buy an annuity rather than go into drawdown, but we cannot make that judgement from the information that we have.) A cynic might say that Vanguard Target Retirement Funds are drawdown oriented because Vanguard would lose business if their investors were to buy an annuity.

[EthicsGradient]

Not often I disagree with Goeff, but unless you have a planned need for an amount of cash at a specific date, I'd avoid the Target Retirement funds as these are old fashioned style funds geared towards wealth preservation (but lower growth) towards the 'target date', which were how people were supposed to invest when they cashed it in and bought an annuity.

No, that is not correct:

https://www.vanguardinvestor.co.uk/arti ... ement-fund

Vanguard clearly believes that their Target Retirement Funds are appropriate for drawdown. We do not know much at about the OP's risk tolerance or capacity to absorb risk. Nonetheless, there are plenty here advocating 100% equities. Is the OP happy to lose most of his £400K in a crash, and not see it recover in his lifetime? The Target Retirement funds may be conservative, but they certainly a sensible option.

(For what it is worth, I am not mirroring the Target Retirement Fund equity percentage, but my circumstances are not at all typical.)

That link does not appear to work (unless, perhaps, you need to have signed up with Vanguard). A search for the Google cache or on archive.org also fails.

[XFool]

...Try this: https://www.vanguardinvestor.co.uk/articles/latest-thoughts/retirement/why-your-pension-likes-a-target-retirement-fund

Now it doesn't work directly. Um... But the link is valid.

You can find it from here: https://www.vanguardinvestor.co.uk/investing-explained/our-latest-thoughts/retirement

Keep clicking on: "Load more articles (29)" until you find it.