Hello dear readers,
Those of you who frequent the UKPF discord will know me well (it's a great source of information, join it), those of you who do not, will not. Suffice to say that in that group, when inexperienced investors appear with excited dreams of outperformance it is my previous post (here) that is oft used in an attempt to shut them up.
Well now I have an update...
The whole point of my last post was to show that my own stupidity had got the better of me, I’d got excited about investing, tracking, unitisation and benchmarking, but I was using a totally irrelevant benchmark that flattered my performance. This realisation (and my poor investment performance) put things in perspective and helped me improve (subjective, I know) my decision making for greater long term benefit. So is it working?
Well, since mid 2019 I haven’t done too bad. I’ve been fortunate that the industry I work in hasn’t been ravaged by world events so I’ve had funds to keep contributing and I’ve been pleased with the results, hopefully I did learn my lesson. I was never a WSB-crazed active investing addict, but I was still making poor choices. Now I think I’m doing much better.
Here’s my portfolio performance in the years since I began. (1) Here’s the unit values of different accounts against my (TR) benchmark (SIPP and GIA started later, so the plotting begins at the benchmark value on the day they began). (2) I’ve stopped losing to the market. The important thing is that I'm never again going to do awfully compared to the world as a whole. Clearly now, after one calendar year of minor outperformance of a world index I’m heavily qualified to give (totally unregulated and informal/incorrect) advice to other internet users. So here are my tips:
Lesson 1 - Pick a good benchmark: I (retrospectively) used LS100(Acc) until the end of 2019 (because my old, bad portfolio was more UK heavy), since then I have been using VWRP. I really can’t think of anything better to benchmark against than VWRP, an accumulating world fund is perfect for me (YMMV).
Lesson 2 – Keep it simple, but scratch your itches: I prefer distributing ETFs, I just do. I like seeing dividends, even if sub-optimal. I don’t like OEICs, they make spreadsheet tracking harder, that’s my rationale. Pick your quirks, and stick to them.
Personally as a virile young man I want a bit of excitement, so I do tilt towards emerging markets and global small cap, but nothing crazy and still low cost trackers. I then allow 5% of my portfolio for ‘active’ choices, which is just 1 investment trust in each of ISA/SIPP/GIA. Here you go: (YMMV, IANAL, not advice etc etc).
Dev World – 65%: VEVE or HMWO.
Emerging Markets – 15%: VFEM or EMIM.
Normally best to match VEVE with VFEM and HMWO with EMIM, blame South Korea. Got a GIA and need to harvest gains? Just rotate between them. Why dev world and EM instead of a world tracker? It makes you more attractive to the opposite sex (or the same sex, if that's your tilt) and you save around 0.1% in fees. No problem with VWRL, VWRP and all the other similars.
Global Small Cap – 15%: WLDS.
Active – 5%: My current choices are Edinburgh Worldwide, Baillie Gifford China Growth, Scottish Mortgage. Don’t trust me, they may suck, but I like Baillie Gifford (which all 3 are) and they fit what I wanted to buy to scratch that itch. Pick what you want.
In case it's mildly interesting, here's the full makeup of my ISA, GIA, SIPP with relevant fund costs shown. It's leagues better (subjectively) than what my portfolio would have looked like 3 or 4 years ago. Pick platforms that work for your holdings (flat fee, % etc), consult Monevator. (Personally, I ended up with ISA - iWeb, GIA - HL, SIPP - AJBell).
So 65, 15, 15, 5 = 100 works for me. Adjust this to match your risk profile, find low cost trackers, done. What works for me may well not work for you, I'm not objectively better at this than you are. Want to buy something else like bonds or gold? Eurgh, ok, do it. Consider your personal risk profile. I’m personally not saving for a house, I’m trying to grow a pot. If you are saving for a house, this is not for you.
Once you know your aims are sound then stop, drip feed in new funds, and let compounding do its work over years. I have enough other diversifying asset classes (a bit of BTL etc) that I’m happy with 100% equity across investment accounts. Want some Bitcoin, VCT or EIS? Sure, just be sensible with allocations.
It’s frustrating in some sense, but a simple approach really is best, and the more brainpower a rational person invests into it the more that becomes clear, especially in a time when twitter and reddit are full of people who ‘made it’ on TSLA and fad tech stocks. It may take years of ‘bad’ thinking to reach that realisation, but most will emerge into this beautiful passive nirvana in the end. Once you've found your way do not drift from the path, remember that all you have to do is perform adequately. Long may it continue.
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