Bogleheads

[TedSwippet]

I'm trying to put together a balanced 50:50 stock/bond UK based portfolio that broadly adheres to general diehard ideas.

After some um-ing, er-ing, and pondering, I've come up with the following. Before implementing this plan, I'd value any comments, criticisms, or ideas for improvement.

Thanks for any feedback.


Age -- mid forties (brown hair, blue eyes, GSOH). Married, no debt, emergency fund taken care of. Portfolio under consideration is all outside tax-advantaged accounts -- I do have a modest retirement account, but it's around 10% of total assets, and already in balanced funds anyway so just easier to ignore for now.


Proposed:

20% Fidelity UK index fund (F190, FTSE UK all share, 0.3% TER)
25% iShares World index (IWRD, MSCI world, 0.5% TER)
5% iShares Emerging Markets index (IEEM, MSCI EM, 0.75% TER)
25% iShares All stocks gilt (IGLT, UK govt bonds, 0.2% TER)
25% iShares Index linked gilt (INXG, UK index linked govt bonds, 0.25% TER)


Observations:

There's about 10% UK in IWRD, so a bit of overlap here. These proportions bring the stock allocation close (enough) to a target of 50% home country bias. The overlap is all large-cap, but then about 85% or so of the UK all-share index is large-cap anyway.

The UK does not, apparently, tax the inflation uplift in index linked bonds, only the true gain, so having these in a taxable portfolio should be acceptable. Similarly, I understand there's no UK CGT on any capital gain in UK govt bonds (and symmetrically, no CGT deduction on losses).

No real estate here. The iShares UK REITs don't look particularly appealing (unless I'm missing something), and may also be unattractive from the tax perspective due to return arriving almost entirely as dividends. And I own a house.

The emerging markets TER is higher than I'd like, but what can you do?


Questions:

Anything completely screwy about the above? Have I got the tax aspects of it about right?

These seem about the lowest cost way of achieving my desired allocation and risk profile. Anyone got any lower ones? (Vanguard really doesn't have a worthwhile retail presence in the UK, which is a pity because they could probably do very well here if they did.)

Is splitting the bond allocation right down the middle wildly inappropriate?

I've picked iShares rather than, say, Lyxor or DB because I prefer replication to synthesis. That said, iShares seem to sample rather than full replication. IWRD, for example, has only around 650 holdings. Does that make IWRD a bad idea in any way?

The volumes of these iShares on the LSE aren't high. However, these shares may trade across other EU exchanges, so that might make them seem thinner than they really are. Anything I need to watch for when purchasing or selling (limit orders, for example)?

DCA (PCA in sterling) worthwhile, or not? For the ETFs, I could average quarterly or six-weekly for a year or so without sizable cost issues. Alternatively, any issues going 'all in' now, especially on govt bonds with interest rate cuts likely to be just around the corner?

[chaz]

You can get some ideas on thread #22941. Good luck.
_________________
Chaz
"It is better to travel well than to arrive." - Buddha
http://www.bogleheads.org/wiki/index.php/Main_Page

[Valuethinker]

[TedSwippet]

Many thanks for the comments, Valuethinker. Some notes...

[Valuethinker]

[TedSwippet]

Thanks again for the reply. Some additional notes/clarifications:

[Valuethinker]

[TedSwippet]

Thanks for the responses; much appreciated. One other quick thought...

Is ETF purchase timing important? In particular, should one avoid purchasing just before ex-dividend date? Getting perhaps 3% of capital back as a taxable dividend about a month after investing doesn't seem desirable.

As I understand it, this isn't a problem for OEICs because they provide equalisation with a first dividend payment. Seems like it could be a consideration for plain old shares, though, and so perhaps also ETFs (and if so, maybe more acute for gilt ETFs with no builtin expectation of future capital gain).

A known problem? Or non-issue? A good UK-specific Googling turned up nothing useful either way.

Thanks.

[cjking]

I would suggest you check the spreads before trading, one ishare ETF I checked had a huge spread, and I nearly crossed if off my list of possible investments permanently, however when I checked the spread again a few hours later it was very tight. (Can't remember if it was the global equity or global property, however for both I suggest you only trade in the UK afternoon when US markets are also open, which I think should narrow the spreads.)

If you do want to add some property, may I suggest you check out UKCM. Yield of about 7%, discount of 23% (possibly anticipating the coming NAV declines) and no gearing at all. Second safest fund would be FCPT, with very similar figures, but 24% loan-to-value gearing. Or you could consider iShares global property tracker, currently yield 9.13%. I have found closed-end property funds to have a very high correlation with general equities since I moved into them at the beginning of the year though, so there may not be any point, in terms of your overall strategy.

[TedSwippet]