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I've held a small percentage of bonds in my portfolio for years, and they have always niggled me a bit. I finally came to the conclusion recently that they do not serve a useful purpose for my circumstances, and they're not a source of interest (in the intellectual sense) to me. When I emailed my stockbroker about this decision, I did comment to her that the timing of my decision was somewhat ironic given what is going on with bond markets globally at the present time. I still hold two bond funds, but will dispose of them whenever the money is needed for investing elsewhere.
I'm retired with my main pension being indexed linked to CPI, for which I am very, very, grateful, and a full State Pension (the older cheaper version), the annual increments of which are subject to the vagaries of government. Currently, my basic living costs are substantially less than my pension income, and I'm able to put money into savings most months of the year. I am therefore both happy to live with, and can cope with, market/portfolio volatility.
I do wonder whether you might be wise to diversify your holdings a bit. I know that the companies behind your funds are large and well respected, but there is potentially some safety in not having "all your eggs in one basket". You could argue that I'm potentially over diversified - I don't have any tracker funds, but I currently have thirty six holdings in my portfolio. Whilst I'm not adverse to adding new holdings, one of my current aims is to go through my ISA portfolio in particular and increase the size of individual funds using the dividend income as it comes in.
However, our funds are concentrated in predominantly US companies, which introduces individual country risk for us, but that is conscious and carefully considered personal decision vs the commonly rolled out advice of “invest globally”. Most market cap weighted global funds are 60-70% US holdings, unless they are a strategically themed managed fund. This choice is a known risk for us.
The other "eggs in one basket" risk we face is asset class risk by being invested in 100% stocks and shares only, but again, after consideration of that main asset classes of government/company bonds, commodities, real estate and cash, it is a deliberate and conscious personal decision. In fact not holding cash until just before retirement has proven to be a smart move, in light of this years's 10% inflation, the purchasing power of any cash I had accumulated for retirement before now would have been eroded significantly already!
When you say you have 36 holdings, do you mean funds or individual assets? If it's funds that contain hundreds or thousands of individual assets it sounds an awful lot to me. Having 36 individual funds in a portfolio must make annual asset allocation and rebalancing quite time consuming and you may be paying more in fees that necessary, especially if they are managed mutual funds. Have you checked if there is any overlap in the underlying holdings and keeping an eye on your total fees across the funds? There is a huge drag on a portfolio over time between say 0.2% annual fees and 1-2%, assuming long term market average returns.
Personally, if I wanted to hold a global selection of market cap weighted stocks I would hold a single low fees global total market index fund such as Vanguard's VWRL or equivalent. If I wanted multi-asset I would hold one low cost index fund for each asset class only.
You mentioned emailing a “stockbroker”. Personally, the thought of that makes my teeth itch . I'm not sure I understand the purpose of needing a stockbroker these days with the plethora of online platforms.
I would also entirely agree with you that a number of my funds are invested to some degree in the same companies, but their overall investment portfolios do vary. I was being a little cheeky mentioning my stockbroker as I'm aware that you prefer to manage your own investments and savings. However I started investing many years before ordinary mortals had either computers at home, let alone access to an internet that actually functioned at any sort of speed. I also learnt a long time ago that I wasn't able to do a job with long hours, involve myself with home life, and keep a regular eye on the financial markets. This was brought home bluntly to me when ordinary investors were allowed access to the options market. I only experimented with a small amount of money for about year, but soon realised that the time scale for 6 or 9 month options disappeared remarkably quickly, and this was wasting money and I didn't have the time to allocate to it. I know that there are costs to using a stockbroker, but I'm happy to continue. My portfolio has done well particularly in recent years to the extent that I begun to feel a bit uncomfortable in 2020/2021 when valuations rose sharply, and when I also knew that Covid and lockdowns were making life very difficult for many people - including my daughter being furloughed twice and then made redundant from her first job.
Bear in mind the FSCS limit
Also some Index ETFs are "synthetic"
There were some worries that they might unwind in a way causing extra losses under certain market conditions
Berkshire Hathaway (Warren Buffet) have piled $4.1BN into Taiwan Semiconductor Manufacturing Co Ltd stock
Having international stock funds can expose a portfolio to fx variations, which can be good or bad depending on the prevailing winds. It has been favorable to hold US stocks from the last decade as the pound has dropped in value against the dollar, but that's not always been the case.
Internet wisdom appears to recommend against currency hedging equity/stock investments. Even if you hold a global index tracker you are typically only 4% UK so 96% exposed to fx variations. I have access to a hedged and non-hedged global index, but don't hold either currently.
So, should you overweight in UK stocks? forget about it? or balance an overseas equity portfolio with UK based bonds/gilts?
I wouldn't be moving GBP to USD at the moment - it's very likely the USD will drop further against GBP In the next few months because it's swung too far. We've been piling into GBP over the last few weeks (thanks Liz...) and are now looking at investing in USD again now GBP is stabilising and the markets are going up a bit after the midterms.
But soon everyone is going to announce recessions and all bets are off. Bonds could be a good call at that point, but only if you get into them early enough.
As always, things are never completely straight forward. Look at this year, even through we're in a bear market, and the prices of many funds are down in price to some degree compared with the last high point (end of last December/early January), a few are in positive territory like my American fund due to the 20% increase in the Dollar against Sterling.
Also, how do you view the value of receiving dividends? I did check earlier this week. Interestingly, although the capital value of my ISA portfolio is down a little at present, the dividend income is up 20% compared with the last calendar year. As I mentioned in an earlier post, I've recently invested this year's accumulated dividend cash into increasing 3 of my holdings -- two after they'd dropped in price for no obvious reason ( both subsequently gone back up again), and in my American fund, which is actually up in value this year. I hope to benefit in the future from the compounding effect of reinvesting dividend income in terms of both in capital and in income growth.
Dividends can "feel" safer in downturns as you get a regular income even as the capital value decreases but as you have suggested dividend funds don't have the same level of growth in the upswings.
I've been pondering the fx variances today and saw some data that suggested there is no advantage to hedging vs non hedging to your local currency over the long term. Some times the fx moves in your favour and you feel the benefit of the lower value home currency, as in UK domiciled US funds this year, the drop in a UK S&P500 fund (or may be into a small gain as we speak) vs the US index is favourable, but in other times the weakening dollar can work against you and you may wish you were hedged.
I have come to the conclusion that it's best to decide to hedge or not hedge and stick with it for the long term. I am non-hedged and will stay that way and take any strengthening of the pound on the chin in the short term.
@ToneControl isn't a fan of this chap but I think he makes some good data driven points
His argument against the idea that good dividend companies must be good companies to invest in is quite correct (I certainly go along with the Warren Buffet opinion he references), and I have no interest in pursuing high dividend returns. However, he does not argue that you should avoid dividends entirely, and he does not talk about the reinvestment of dividend income, which I would hope you agree can be one of the factors that significantly increases the capital value of a portfolio in the long term.
In your dilemma, isn't an auto accumulation fund vs a manual reinvestment of dividends from an income fund going to have pretty much the same result or as near as damn it in tax free environment? What would be the remaining variables once taxes are removed? Timing of the re-investment and internal costs within the fund? I'm not sure I understand the real difference.
My wife's SIPP holds VUSA ETF which is income only so the dividends have to be manually invested each quarter but need to be rounded down to the ETF unit price and any balance left as cash until next time, so not as efficient as an acc fund.
Supportact said: [my style is] probably more an accumulation of limitations and bad habits than a 'style'.
https://www.forbes.com/sites/jonathanponciano/2022/12/27/tesla-stock-crash-worsens-losses-top-895-billion-as-rival-carmaker-warns-of-challenging-weeks-ahead/