“very safe investments” are Bonds. Are there Bonds that yield 8/9%?
Wise words. My understanding is that you cannot beat the market and are better off to pay lower fees over the years and accept the market returns. Voila VG and their indexes.
IIRC, we have 3 funds and about 25 stocks. One fund is mostly Canadian with some US, one is mostly US with some Global, and one is US with more Global. Cash-wise, It’s about a 75/25 split, stocks to funds. My IFA is always very interested in who the people are that are managing each fund, which is one of the points to research when buying a stock as well. The experienced ones know when to dump some holdings or when to add some.
We don’t buy bonds. I feel that bond investments are for large firms that move very large amounts of money around and protecting their funds from any drop is paramount. Bond returns behave almost opposite to stock returns and we would have to sell the stock and buy bonds, and then back again, as the market sentiment changes.
I believe one could say that a safely invested portfolio has industries that are somewhat timeless, in that they are products and services that will always be required, and that bounce back well as they will always drop at some point. And also ‘safe’ is a well-managed, well-watched, portfolio.
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Would you explain the difference between investment trusts and open-ended unit trusts please.
It might be interesting to take a few points where you had a successful portfolio in the past and work out what would’ve happened to your investments if you had left them in that pattern and not made changes.
You could also make a similar comparison, but include fees for buying and selling to make it more realistic.
Also, you could compare what would’ve been the result, if you’d put all of your investment into a single Vanguard passive fund with a very global spread of stocks for the entire 10 years, compared to the actual result you have got in your active fund with the fees you’ve incurred.
If you do any such tests with your advisor please do let us know what the results are.
Because of compound growth, even a fee of, say, one percent can make a big difference to the outcome of an investment over a multi year period.
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Ah, yes, like fizzy drinks, statins, and guns! 
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IIRC, James Stack in a YT video gives evidence to claim that passive funds beat 73% of active funds.
Were you not tempted to select two or three passive global funds rather than just one, in order to spread the risk a little wider?
Also, how does your global passive fund avoid becoming outdated in some way as the years pass and the global economy changes?
Does passive in this case mean that the fund managers can never make any changes of any sort to the stocks and bonds that are in the fund?
Surely they must make changes to bond holdings as these come to term, etc - and to stocks if say a company changes in some profound way, such as a major scandal or change of strategic focus?
If you take 5 global index trackers that follow the same index and view the performance over the last ten years then they are all similar as they follow the same benchmark. So I see no point in ever needing more than one, better to compare cost and platform charges and to keep it simple.
I pay 0.12% on my global tracker and 0.10 on my global bond ETF with a capped platform charge of £375 per year.
When you factor in that I pay no IFA charges and I keep my fees as low as possible and with the knowledge that my global index tracker beats 75-80% of managed fund’s then it’s a easy choice.
I don’t think you need to worry about them becoming outdated as they are equally weighted across the regions and will move with the market conditions.
I’m a novice, to me it is best to keep it as simple as possible, if you look at sites like PensionCraft then he also only uses one global index fund as his core portfolio.
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How will the fund move with market conditions if no changes are made by the fund managers?
Do you mean that the changing activities of the companies whose stocks are included in the fund will automatically target growth?
I think you’d be best advised to go on-line and read the information memorandums on passive/tracker funds, as these docs will explain things far better than this forum can.
Passive funds aren’t ‘inactive’, far from it, in that they have to ‘track’ the overall markets they are designated for, and this also means the ‘weightings’ applied across stock markets geographically and also for individual holdings. This is where danger can lurk, as if you have very high market capitalisations (e.g. as with the ‘mag’ 7’ now in the US), if one of these catches a cold, the impact on an index measure and an index tracker can be profound.
It’s a shallow applied maths understanding. And some ‘trackers’ don’t respond as fast to market changes as others, so it’s wise to have a spread of management risk too.
BUT – underneath all this (or above if you will), is that equity market trackers, while diversifying market and stocks risks, are still considered ‘higher risk’, as you’re engaged with the vicissitudes of the global equity markets. One of the things an IFA will assess is volatility too e.g. whether a person can handle a blip and, potentially, a major sustained reverse in equity market values. These things do happen – equity markets should recover, but it can take several years, as was the case post the GFC.
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Thanks, HL.
So passive funds are actually quite ‘actively’ managed in some ways.
So what additional freedoms do active funds have versus passive funds in a nutshell?
Passive funds are straight-jacked by their declared m.o. e.g. as a ‘tracker’. They have to continually monitor the underlying index et al, and react to changes, so as to deliver to their mandate.
Active management means a fund manager can invest at their own discretion (within stipulated boundaries as set down within their advertised fund governance).
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I would also add that the markets are very high at the moment, especially the US market so I would be extra careful, it wouldn’t hurt you to see a IFA to seek the best advice. It’s a mad world out there and I think it wouldn’t take much for this bubble to burst.
This is an audio forum after all and I certainly know very little besides spending many months researching and educating myself to feel comfortable with making my own decisions.
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An experienced IFA will assess this and other things as well and alert their clients. They, and other financial associates, are monitoring the market daily and hourly, so are aware of much that we are not.
After I sold my business, I worked for a large manufacturer for a while. I was still investing my own money back then and I remember having a coffee with the engineering manager at the end of the day, one day.
He had an investment advisor looking after his funds, and I suggested that he could probably make an extra 4 or 5% or more by managing his own portfolio. He said, “I already have a job, Dave”. And this is basically what I meant when I said that when you retire, it’s nice to not have the worry of managing a portfolio. And I’m retired, so I certainly don’t want another job.
I don’t believe that trying to avoid the one, or one and a half, percent yearly fee of a good IFA is a good idea. Someone needs to be watching and analyzing the market, and it’s effect on your portfolio, frequently.
When/if I do select a portion of my investments to self manage, I will join and use The Motley Fool advisors for stock recommendations. They consistently beat the market buy a good percentage.
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That’s not the delivery and regulatory model in the UK, where IFAs guide and advise investors, with full consideration of their circumstances. They aren’t towards ‘day traders’. The IFAs may suggest investing with a highly active fund manager/or you operating your own brokerage account (which you’re at liberty to do anyhow) – but such high activity management (with attendant costs) doesn’t often compare well to the relative passive management of a tracker fund, and is often inherently much more risk-borne as investments tend to be concentrated in a few names.
Diversification and ‘time in the market, not the timing of the market’ are watch words for many here.
Of course, you can manage it all yourself via selecting your own funds, via a brokerage account et al.
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You misunderstood my post. My IFA has probably 30 long-term clients, invested in buy and hold stocks. I can assure you that he monitors the market on a daily and hourly basis, and regularly converses with other financial associates and fund managers in order to maintain the portfolios of all his clients. I’m also quite certain that a good UK portfolio manager, keeps his eye on the market on a daily+ basis for his clients. That’s their job. If they didn’t, they would miss market moves or opportunities that could benefit one or more of their clients.
And only a fool would try to time the market. Even a Day-trader doesn’t do that.
I didn’t misunderstand, as I know the North American and UK investment advisory set-ups are different, due to the differing regulatory environments. In the UK, an IFA won’t/is highly unlikely to monitor the market actively as you suggest, instead that’ll be the role of a broker and/or an investment manager with a discretionary mandate (i.e. one which can manage a client’s funds for them). It’s apples and pears.
Okay, I see.
The person that I have managing my portfolio is an Investment Manager. I was incorrectly assuming that and IFA was the same thing.
The UK has investment managers, often called fund managers when working for an institution, say an insurance fund. There are a number of options available. You could invest in a wrapper fund such as an insurance based fund, and then select the individual funds within that wrapper yourself, or leave it to the fund manger to choose for you. I’m not sure but I believe all investment vehicles now have to go through a questionnaire with you to ensure your risk profile is up to date, before handling your investments.
Yes – Ordinarily, your personal investor in the UK with modest monies can either go a DIY route (self-manage) and invest directly with various providers (e.g. funds, hold shares, bonds etc,). They can seek the services of an IFA, who will guide them and recommend market investments (primarily diversified funds), for the longer term, with other complementary services for tax mitigation.
Generally speaking, larger personal investors (more ‘sophisticated’) can access brokers and investment managers direct, noting the fees for services are generally higher, as these parties are far more active. Investment managers can operate with a discretionary or non-discretionary mandate. In this way, the market is layered, depending on how much you have, and how ‘sophisticated’ an investor you are – and regulation operates in different ways depending upon whether you are ‘sophisticated’.
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