What proportion do you have in equities vs bonds?
70/30 but it’s meaningless as it depends on many factors including your risk tolerance.
Just an idea but if you haven’t already looked at is the Vanguard Lifestrategy funds?
If you put “Investment trusts Vs Unit trusts” into your search engine, you will find detailed differences.
The y axis is usually unit price (income reinvested for accumulation units) or, as appears in the extracts you’ve posted, the % change on original unit price i.e. assuming the increase in value is expressed within the unit price and not via issuing more units to a holder (akin to a scrip dividend).
BUT - as your words identify, you have to look at many of the graphs very, very carefully – and don’t always trust the side keys/data, as these aren’t accurate, especially where a format is being shoehorned i.e. not all data is filling up.
This said, it’s easy to get lost in analysis paralysis around all this e.g. Sharia tagged funds have done very well due to tech (usually materially weighted towards this sector), but you wouldn’t want to be holding a dedicated tech fund in your holdings too, as your ‘look through’ exposure to tech could be even higher and not sensible. The media regularly reports on the price:earnings ratios around some of the ‘Mag’ 7’ names, which look very punchy, suggesting a ‘correction’ or retreat could occur.
And, be very careful with fund managers who report performance on an annual basis when there has been volatility as, quite often, the Jan thru Dec data won’t show a truer picture.
There’s much smoke & mirrors in the investment industry.
2 Likes
I think maybe the reason that Jim was wondering if a single fund investment is a good idea, is because of weird unforeseen circumstances.
If one is invested in 4 funds, and if one of the fund managers has an unnoticed nervous breakdown (or something), and buys and sells some really bad stocks before anyone notices; the ensuing stock dump would only effect 25% of your portfolio.
I know the nervous breakdown thing is a silly example, but I just mean something totally unexpected can always happen and that is why most investors are spread out a bit.
This is just a thought … not advice.
Cheers
2 Likes
as a seasoned investor obtaining above average market returns from “safe investments” with low fees you should not worry whether he is an IFA or Investment Manager. He beats the market!
1 Like
I see your point if the fund has a single manager but I was referring to an index fund that has no manager.
This is why you can just have a single global fund while keeping expenses low and not having the expense of a fund manager. After all they are only taking a gamble at your expense and will no doubt make wrong decisions at some point.
2 Likes
There is this thing that someone mentioned earlier called ‘management risk’, which, as far as I know, refers to the idea that something bad could happen to a particular fund because of human error, corruption, or some other unforeseen and unexpected circumstance that destroys the value of the fund partially.
1 Like
He’s an Investment Manager and he really is quite good, so far.
But if he starts underperforming for a couple of years, I’ll drop him like a hot potato.
So far, so good.
Management risk for the investor comes in various forms IMV, vis:
1- As you say, poor stock selection, bad timing et al – of course all with hindsight! Within this, I also mean different reputable fund managers can have (say) a Far East Growth Fund, yet one could perform very differently to the other. In some areas of the market, it’s wise to spread your bets if buying in to funds.
2- FYI, for authorised funds (e.g. OEICS) in general (from reputable providers), there are ‘checks and balances’ in place e.g. the underlying investments are held by a custodian and the opportunity for fraud is low, the bigger risk is simply poor (perhaps unfortunate) management of the investments. Funds also have set down governance e.g. the fund’s rules may prohibit non-public market investments, others may allow 10%. This was one of the issue with Woodford, in that his main fund ended up holding too much in non-market investments, which are de facto illiquid in the short term, and very challenging to value. And the governance monitoring by a 3rd party, designed to protect investors, didn’t kick-in as it should have done.
Funds can be structured for differing purposes, and there are ‘funds of funds’, which diversify further and can offer a ‘Managed Portfolio Service’, where the target is modest growth by mitigating volatility, by building in downside protections and having a lower exposure to equities. This all breaks back to your attitude to and ability to withstand the market risks.
Some of these MPS funds (and other similarly structured funds) can also suffer from management misjudgements e.g. with the noise in the UK about recession, some may have gone to defensive investments (non-equity) when, in point of fact, the markets have recovered, leaving the fund ‘underweight’ in equity exposure = worse performance to peers.
Lastly, and the above isn’t at all comprehensive, you need to look at how ‘trackers’ balance to an index, as some only do this every few months, which is where fund performance can vary (mostly not by much though).
1 Like
I am a self advised investor. Certainly not an expert but I have been guided by three simple criteria. These are:
• what is the purpose of the investment
• what is my attitude to risk
• what are the income tax implications of the investment
With a marginal tax rate of 40% and frozen allowances I have concentrated on the third bullet point in recent years.
Would you expand on this please and say a bit about what you have done and what you’ve learned.
When I was working I concentrated on maximizing my company pension by adding AVC’s and then later maximized my state pension by delaying taking it for 5 years and then also adding the Top Up Pension (for people born before 6th April 1951). I also had a few shares, share tracker ISA’s and a L &G income trust investment. Although most of these investments had done quite well apart from the ISA’s I was paying income tax at a marginal rate of 40%. I decided to try investing in Venture Capital Trusts in 2017 after some research and talking to friends who had experience of VCT’s. VCT dividends are tax free and you can offset 30% of VCT investment against your other income tax liability. I have to say VCT returns are not as good as they used to be but overall my returns have been very good. As you get 30% back from the government you are looking to get a good payback on the 70%. With some of my VCT’s I have already had this 70% back in tax free dividends. Of course VCT’s are a risky investment which are not as good as they used to be. There are a number of very good articles in the Financial Times which are worth reading. My overall point is with marginal tax rates at 40% and for some people 45% then after you have finished with tax advantageous pension saving VCT’s may be worth looking at.
1 Like
The fundamental point here is that if you are investing and cannot do so in a tax-efficient basis (e.g. ISA and/or pension), then your investment selection should be influenced by your tax position, not just Income Tax but also CGT (in the UK), with due cognisance of the sharp reduction in ‘Savings Allowances’ (for interest and DVs) within the last few years, and the reduction in CGT allowance.
Many years ago, it was often appropriate for retirees to invest in ‘Income Funds’ to bolster their incomes, but post the 2008/9, many advisers veered towards achieving growth, with sales being effected to provide ‘income’, the sale accommodated as ‘capital gain’ rather than ‘income’. With the sharp reduction in annual CGT allowance from ~£13k a few years ago to £3k (24/25), with no indexation nowadays, pencils are being pushed hard to consider what to do now.
The CGT allowance will also drive more recycling of the underlying investments to ensure the £3k allowance is used effectively – in truth, it’s damned small, and even a modest non-tax-sheltered investment of ~£20k may be affected by this now. You can set off gains and losses with CGT, and accurate record keeping is essential.
As @RWC says, VCTs offer good tax relief, but the ‘glory days’ of these could now have passed, with previous returns unlikely to be repeated.
Great explanation. CGT has become more of an issue. When Kelda (previously Yorkshire Water) was sold in 2008 I was able to use the CGT annual allowance for a period of 5 years using the loan notes that were issued to avoid paying any tax on the £40,000 profit.
Hi David
I just happened to see this (Canadian) video about index funds that you might find of interest:
1 Like
Thank you very much Jim for posting this Vid. Coincidentally, I have been doing a lot of calculations regarding each year I’ve been invested with my current advisor, calculating the average returns over various timelines, and comparing these to the performance of the indexes and to other investment forms, including index funds.
Even real estate is a choice if you do the calculations. The homes in my area have tripled in price every 20 years for the last 50-60 years, and a investment portfolio that earns 8% per year average with re-invested dividends, also triples over a 20 year period. I’m not going to invest in real estate at this point, but I wish I had when I was younger.
It’s already midnight here, so I will finish watching the video tomorrow and let you know what I think, but the first bit sounded promising.
Thanks again.
Cheers
2 Likes
I suppose once you’re retired, picking companies to invest in as a venture capital investment might be a way to keep the grey matter ticking over as well as being Tax efficient.
But at the moment I’m still in a full-time job, so I’d probably rather not get dragged into researching small companies on top of that plus looking after three kids.
Is there a size limit or other definition of what counts as venture capital investment?
There is an interesting video here by Pensioncraft on UK Small cap stocks.
He uses a website called Stockopedia to construct a portfolio of small cap stocks (between a hundred million and 1 billion) on a quantitative basis, using their published data as filters for cheapness, quality and momentum.
Would these qualify as venture capital investments in order to qualify for the UK tax breaks, or are they too big?
I’d be interested to know what you think of this approach if you happen to find the video interesting.
Hi JimDog
You can only invest in VCT’s through a qualified investment manager like Octopus Titan, Baronsmead, Pembroke etc.
Typically, the investment manager will hold 100 or so companies that qualify to be in a vct fund. Some will be listed in the AIM exchange and some will be pure start ups. The companies have to be British and meet other regulatory requirements. Typically, some companies will fail, others will do spectacularly well and most will do averagely well. The reason the tax regime is so generous is that the government is keen to boost start up companies often in new technologies such as medicines, computing etc. Surprisingly, the government wrote to me asking if I would participate in a market research study looking at increasing British people investing in VCT’s. The UK has so far been perhaps the most successful in these start up companies in Europe but not as successful as the USA. The tax benefits have been guaranteed until 2035.
I invested initially through Hargreaves Lansdown and later directly with the investment managers. I believe the Wealth Club is a good place to invest initially in VCT’s. The process of course investing in VCT’s is actually very easy. However, recent results have declined since the glory days. It is possible results may improve but there is always an element of risk.