tjh290633 wrote:If you want low costs, the answer is to be your own fund manager. Not easy with a small portfolio, but you can build up to it gradually. When PEPs began you could only subscribe £2,400 in the first year, £3,000 the next then £6,000 after that. Individual shares at first then they allowed funds in. Percentage fees at first then capped, nowadays fixed at a low value, like £40 per year. You will pay far less than any fund or IT charges, but you do have control.
You do have the problem of choosing what to buy (or sell) but it is not hard to beat the market over the years. My belief is that nominally equal weighting, within limits, is a better way than market weighting, which fund managers have little choice about. Rebalancing, when needed, provides a ratcheting effect on dividend income.
Selection criteria depend on what you are looking for, but diversification between sectors is a priority.
TJH
Terry's (TJH) and his HYP style is a great coach IMO.
Fundamentally diversify across sectors/stocks in around equal capital value weightings, selecting by value (slightly above average dividend yields - but best to target secure firms that are more inclined to recover sooner or later than dive out of existence). And roll that - looking to reduce those that have done well, price risen and/or dividend yields declined to being at/below average, reducing sectors that have done well, add to those that are lagging (direct toward maintaining equal weightings but in a loose manner).
If for instance each year you were seeing 5% dividends and another 5% from sales (reductions of the better performers where value had been outed) and reinvesting that 10% back into value additions (or top ups), then you might both average-down the average cost of stock over time in addition to seeing top end (growth).
Terry does periodically report yearly best/worst rankings of his holdings and multi-year sometimes see the prior years worst being the next years best and the differences are large. Capturing even a small amount of that effect can compound to significant amounts over time.
Maybe start small, £30K with £10K in each of three sectors/stocks, and over time widening that to more sectors, maybe £90K 9 stocks, then double up on the number of stocks in each sector £180K 18 stocks. Then maybe onto 3 per sector (27 stocks/£270K) and thereafter start increasing the average £ per stock. Along with value rotation type 'trading', redeploying top-sliced gains plus dividends into value, and that can total return compound at a decent rate. Maybe each year just let dividends and savings accumulate and then reduce some of the best gainers to supplement that cash pot amount - and then look where to share that combined cash pot around.
Terry's rules are along the lines of cutting stocks that cut their dividends, reducing stocks that have grown to a capital value of 1.5 times the median of all holdings value by selling down around half of those relative gains (sell enough such that the stocks value is 1.25 times the median stock value) ...etc.
In some ways its very similar to how Warren Buffett operates, he sees his role as asset deployment where after cash has build up through dividends/disposals (reductions) he looks to deploy that cash where there is apparent value at the time. Terry is all-in stock, Buffett however also likes to keep back 10% in cash for if/when the whole market dives, or for the occasional occurrences of where a stock might be selling for 50p on the £1.
When you can work both the top and bottom ends overall rewards can be very good. If stocks broadly gain 10% and you capture that, whilst having traded in a manner where you started with 100 shares but ended a decade with 110 shares through 'trading' (value), then you compound at over a 10% faster rate than the 'average'.
From personal observation Terry's advice to equal weight is very sound IMO. The FT100 stock index for instance has tended to lag due to becoming excessively overweighted into stocks/sectors that have then endured hits, dragging down the whole. Tech stocks pre dot.com bubble bursting, financials pre 2008 financial crisis ..etc. Reduction of such bias to more equal weighting means a lower hit/loss, leaving you more relatively ahead. The FT250 as a benchmark is IMO a better choice, as that catches stocks that are possible value candidates i.e. fallen out of the FT100, ejects those that have performed well into the FT100, and is deep/broad enough that the holdings are comparable to being more equally weighted (no single stock being more than 2.5% of the total portfolio ... type effect, whereas at times the FT100 might hold 10% in single stocks, and several such large stocks in the same sector. The FT250 also holds a broad bunch of Investment Trusts, that adds to overall diversity. In US scale the UK FT250 is small, and also has some value like characteristics, small cap value in the US is suggested as being more volatile (risk) and as such expected to be more rewarding overall.