3 Fund Portfolio - UK Investor

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Niall Duke
Posts: 1
Joined: Thu May 13, 2021 6:53 am

3 Fund Portfolio - UK Investor

Post by Niall Duke »

Hi,

I've never invested before, and this is my first post on Bogleheads.

I've just read Taylor Latimore's book on the 3 Fund Portfolio. I'm 27 and was going to invest in (weighting more towards stocks given my age and the long-term nature of my investments):
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
As per the book's well thought out advice.

However I seemingly cannot invest in these funds from the UK.

Does anyone have any advice on which funds are avaialble to me from the UK, but mirror the VTSAX, VTIAX, and VBTLX.

Thanks,

Niall
Valuethinker
Posts: 42647
Joined: Fri May 11, 2007 11:07 am

Re: 3 Fund Portfolio - UK Investor

Post by Valuethinker »

Niall Duke wrote: Thu May 13, 2021 7:07 am Hi,

I've never invested before, and this is my first post on Bogleheads.

I've just read Taylor Latimore's book on the 3 Fund Portfolio. I'm 27 and was going to invest in (weighting more towards stocks given my age and the long-term nature of my investments):
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
As per the book's well thought out advice.

However I seemingly cannot invest in these funds from the UK.

Does anyone have any advice on which funds are avaialble to me from the UK, but mirror the VTSAX, VTIAX, and VBTLX.

Thanks,

Niall
This is a US portfolio. For reasons which cause endless debate and disagreement here, many Americans (including John Bogle when he was alive), felt that US investors did not need to hold non-US stocks. As we are all international investors (the rest of us) there is no case to overly focus on our home index (UK is about 8% of world markets). By using a global equity index fund we get the 60% or so that is US stocks but we also get the 10% Japanese, 8% UK, 4% France or Germany etc (I am remembering those percentages, they may not be currently correct). We should not try to pick winners among companies & countries. If I want to own Procter & Gamble, then I also want to own Unilever, Nestle, Diageo (Guiness and Johnny Walker). If I want to own WalMart then I want to own Inditex (Zara, the world's largest fashion retailer) and Primark (Associated British Foods - the Weston Family company). Apple then also Samsung, etc.

I believe you need 2 (or 3) funds. If you are with Vanguard in the UK, they do

- a FTSE world fund which includes both Developed & Emerging Markets
- a global bond fund, GBP sterling hedged

I don't have time just right now to look up the tickers, but you can find them on the VG website.

Really that's all you need. Since you are 27 then your bonds should be in the order of 20-30%. Perhaps 20%.

If you want to split between Developed and Emerging Markets, then the latter are about 20% of former (different index providers use different definitions eg whether South Korea is a developed marker or an Emerging market). So something like 70% developed equity fund, 10% emerging market fund, 20% bond fund.

Your alternative is their target date fund, you'd need one for about 40 years out.

A third alternative, which I use with my spouse, is simply to use the 60 40 equity bond fund. Then Vanguard does the rebalancing for you. You could use the 70 30 or 80 20 fund, and be done with it.

That would give you more UK equities than strictly you need because of the way the funds are composed. I think us non-Americans should be globally diversified by market weight (US is about 60% of the developed index). However I don't think there would be much in it, long term, and not having to do all the work of rebalancing is quite an attractive position to be in.
Last edited by Valuethinker on Thu May 13, 2021 8:54 am, edited 1 time in total.
TedSwippet
Posts: 3688
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: 3 Fund Portfolio - UK Investor

Post by TedSwippet »

Welcome.
Niall Duke wrote: Thu May 13, 2021 7:07 am Does anyone have any advice on which funds are avaialble to me from the UK, but mirror the VTSAX, VTIAX, and VBTLX.
In addition to information already provided, our wiki contains a fair bit of UK-specific detail:

Investing from the UK - Bogleheads

As mentioned already by valuethinker, slavishly replicating a portfolio designed specifically for US investors is not an ideal way to proceed. Maybe consider a simple single Vanguard LifeStrategy holding? That is, a one-fund portfolio.

Do as much as you can through ISAs, but also be sure to take full advantage of any employer pension or SIPP. That way you minimise tax drag. Also, pay attention to UK platform charges. Some (such as Hargreaves Lansdown) are cheap enough for shares and ETFs, but extortionate for OEICs and unit trusts.
Astones
Posts: 322
Joined: Mon Apr 12, 2021 12:48 pm

Re: 3 Fund Portfolio - UK Investor

Post by Astones »

Niall Duke wrote: Thu May 13, 2021 7:07 am Hi,

I've never invested before, and this is my first post on Bogleheads.

I've just read Taylor Latimore's book on the 3 Fund Portfolio. I'm 27 and was going to invest in (weighting more towards stocks given my age and the long-term nature of my investments):
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
As per the book's well thought out advice.

However I seemingly cannot invest in these funds from the UK.

Does anyone have any advice on which funds are avaialble to me from the UK, but mirror the VTSAX, VTIAX, and VBTLX.

Thanks,

Niall
I'd go for one of these two possibilities

Option number 1
Vanguard FTSE All-World UCITS ETF (USD) (Acc)
iShares Core Global Aggregate Bond UCITS ETF USD (Dist)

Option number 2
iShares Core MSCI World UCITS ETF USD (Acc)
iShares MSCI EM UCITS ETF (Acc)
iShares Core Global Aggregate Bond UCITS ETF USD (Dist)


In the second option you need to weigh according to the market cap, so if you feel lazy you should probably go for 1.

If you are not lazy at all, you might also want to consider adding
iShares MSCI World Small Cap UCITS ETF

Just remember to use a wise strategy when it comes to weighing, or if you have no idea use the market capitalization for the weights.
Valuethinker
Posts: 42647
Joined: Fri May 11, 2007 11:07 am

Re: 3 Fund Portfolio - UK Investor

Post by Valuethinker »

:dollar o
Astones wrote: Thu May 13, 2021 12:34 pm
Niall Duke wrote: Thu May 13, 2021 7:07 am Hi,

I've never invested before, and this is my first post on Bogleheads.

I've just read Taylor Latimore's book on the 3 Fund Portfolio. I'm 27 and was going to invest in (weighting more towards stocks given my age and the long-term nature of my investments):
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
As per the book's well thought out advice.

However I seemingly cannot invest in these funds from the UK.

Does anyone have any advice on which funds are avaialble to me from the UK, but mirror the VTSAX, VTIAX, and VBTLX.

Thanks,

Niall
I'd go for one of these two possibilities

Option number 1
Vanguard FTSE All-World UCITS ETF (USD) (Acc)
iShares Core Global Aggregate Bond UCITS ETF USD (Dist)

Option number 2
iShares Core MSCI World UCITS ETF USD (Acc)
iShares MSCI EM UCITS ETF (Acc)
iShares Core Global Aggregate Bond UCITS ETF USD (Dist)


In the second option you need to weigh according to the market cap, so if you feel lazy you should probably go for 1.

If you are not lazy at all, you might also want to consider adding
iShares MSCI World Small Cap UCITS ETF

Just remember to use a wise strategy when it comes to weighing, or if you have no idea use the market capitalization for the weights.
Doesn't the FTSE all-world fund include small caps as we?

Thus adding the iShares ETF risks making a double bet on small caps?
Astones
Posts: 322
Joined: Mon Apr 12, 2021 12:48 pm

Re: 3 Fund Portfolio - UK Investor

Post by Astones »

Valuethinker wrote: Thu May 13, 2021 12:45 pm Doesn't the FTSE all-world fund include small caps as we?
Unfortunately not. Only large and medium.
xxd091
Posts: 269
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: 3 Fund Portfolio - UK Investor

Post by xxd091 »

From a 75 year Boglehead many years retired
Well done for getting your ducks in a row so early
You have had some good advice here
Monevator.com a good U.K. website for advice
Lars Kroijer has a good website and book for U.K. investors
A U.K. investor you probably need just 2 funds
A global equities index tracker and a global bond index tracker hedged to the Pound -both available from Vanguard U.K.
Asset Allocation as desired-Bogles rule -age in bonds or age minus 10 in bonds ie in your case 27% -19% bonds
Savin tax shelters ie ISAs and Pensions/SIPPs
That’s it-simple cheap and easy to understand
Also live frugally and save as much as you can for investing
This allocation worked for me-so far!
xxd091
Valuethinker
Posts: 42647
Joined: Fri May 11, 2007 11:07 am

Re: 3 Fund Portfolio - UK Investor

Post by Valuethinker »

xxd091 wrote: Fri May 14, 2021 5:08 am From a 75 year Boglehead many years retired
Well done for getting your ducks in a row so early
You have had some good advice here
Monevator.com a good U.K. website for advice
Lars Kroijer has a good website and book for U.K. investors
A U.K. investor you probably need just 2 funds
A global equities index tracker and a global bond index tracker hedged to the Pound -both available from Vanguard U.K.
Asset Allocation as desired-Bogles rule -age in bonds or age minus 10 in bonds ie in your case 27% -19% bonds
Savin tax shelters ie ISAs and Pensions/SIPPs
That’s it-simple cheap and easy to understand
Also live frugally and save as much as you can for investing
This allocation worked for me-so far!
xxd091
All excellent advice.

Main thing is to get pension v ISA right.

Basically save in pension to maximum to get any employer match (typically employers match up to 5% of salary, maybe 10% in the extreme). If in the higher rate tax bracket and "salary surrender" (ie National Insurance is added to your pension contribution) then definitely consider saving more by this route. Due to the Lifetime Allowance (currently frozen at £1.07m) it is possible to oversave in pension plan.

Accordingly bond weighting should be held in pension plan if possible (lower returns).

Of course if there is any high interest consumer debt retire that first. Main exception is mortgage which is long term low cost finance.

Spare cash then goes into ISA.
kancell10
Posts: 22
Joined: Thu Jan 09, 2020 4:21 pm

Re: 3 Fund Portfolio - UK Investor

Post by kancell10 »

jg12345
Posts: 103
Joined: Fri Dec 11, 2020 1:03 pm

Re: 3 Fund Portfolio - UK Investor

Post by jg12345 »

Valuethinker wrote: Thu May 13, 2021 12:45 pm :dollar o
Astones wrote: Thu May 13, 2021 12:34 pm
Niall Duke wrote: Thu May 13, 2021 7:07 am Hi,

I've never invested before, and this is my first post on Bogleheads.

I've just read Taylor Latimore's book on the 3 Fund Portfolio. I'm 27 and was going to invest in (weighting more towards stocks given my age and the long-term nature of my investments):
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
As per the book's well thought out advice.

However I seemingly cannot invest in these funds from the UK.

Does anyone have any advice on which funds are avaialble to me from the UK, but mirror the VTSAX, VTIAX, and VBTLX.

Thanks,

Niall
I'd go for one of these two possibilities

Option number 1
Vanguard FTSE All-World UCITS ETF (USD) (Acc)
iShares Core Global Aggregate Bond UCITS ETF USD (Dist)

Option number 2
iShares Core MSCI World UCITS ETF USD (Acc)
iShares MSCI EM UCITS ETF (Acc)
iShares Core Global Aggregate Bond UCITS ETF USD (Dist)


In the second option you need to weigh according to the market cap, so if you feel lazy you should probably go for 1.

If you are not lazy at all, you might also want to consider adding
iShares MSCI World Small Cap UCITS ETF

Just remember to use a wise strategy when it comes to weighing, or if you have no idea use the market capitalization for the weights.
Doesn't the FTSE all-world fund include small caps as we?

Thus adding the iShares ETF risks making a double bet on small caps?
Few points for OP:
1) be careful that the advice above does not hedge your bond allocation to GBP, and the general advice is to hedge bonds to your home currency

2) There is indeed an OEIC that includes also small caps, quite handy, Vanguard FTSE Global All Cap Index Fund - Accumulation, it's acc so better go in ISA

3) The above suggested options require rebalancing, and psychological strength to do that. If you want to make it even simpler and avoid rebalancing there are vanguard target retirement funds (in your case would be "target retirement fund 2055" or 2060) and vanguard lifestrategy funds (in your case likely 80% world stocks and 20% GBP hedged bonds), making your portfolio potentially a 1 ETF portfolio. My personal issue with those is that they are overweighting the UK, not necessarily what you want. but if you're ok with that... then I think those are even better option.

Best of luck and good job for starting to think about this at 27
XtremePWN
Posts: 26
Joined: Fri Aug 23, 2019 3:01 am

Re: 3 Fund Portfolio - UK Investor

Post by XtremePWN »

Look after the european equivalents. For equities you have Vanguard FTSE All-World UCITS ETF and for bonds you have the Vanguard Global Bond Index Fund. If you want to further simplify and have everything in one fund go for Vanguard LifeStrategy funds, you can choose depending on what you need from 20% to 100% equities/bond allocation (maybe go for the one in germany/italy because in UK they have extra UK equities)
Valuethinker
Posts: 42647
Joined: Fri May 11, 2007 11:07 am

Re: 3 Fund Portfolio - UK Investor

Post by Valuethinker »

XtremePWN wrote: Sun May 16, 2021 11:13 am Look after the european equivalents. For equities you have Vanguard FTSE All-World UCITS ETF and for bonds you have the Vanguard Global Bond Index Fund. If you want to further simplify and have everything in one fund go for Vanguard LifeStrategy funds, you can choose depending on what you need from 20% to 100% equities/bond allocation (maybe go for the one in germany/italy because in UK they have extra UK equities)
OP should have the GBP ones. Otherwise there's a mess of FX transaction charges every time he/she invests.

If you mean, by European, "domiciled in Ireland or Luxembourg", then at least at the moment that's what a UK investor does buy? Post Brexit transition there may be some change in these things, but for the moment, AFAIK they all are?

Extra UK equities. Shrug? Who knows if the UK will under or outperform the global average in the next 30 years? It's made up of very international companies, so it's not mainly a punt on the UK economy.
Valuethinker
Posts: 42647
Joined: Fri May 11, 2007 11:07 am

Re: 3 Fund Portfolio - UK Investor

Post by Valuethinker »

To the Original Poster:

- in figuring out your asset allocation you need to see what your employer plan is doing. The default is often quite reasonable (typically a "Lifestyle" fund that starts with a very high weighting in equities and then moves you down to more bonds/ less risk as you get closer to retirement). And the employer match is absolutely worth having. In fact normally it is 4% you (compulsory) + 1% govt + 3% employer, but they may add on top of that. And if it is invested in a default fund like NEST, that's plenty fine.

As I say, if they match additional contributions by you above that, grab it. It's like doubling your money when you start the game.

- only hold Accumulation units in ISAs & pensions. Otherwise, you are in for a world of pain in terms of tax reporting. And you don't have to reinvest dividends, which is nice (saves you transactions costs). In taxable accounts, hold Distributing/ Distribution units - where the dividend is paid in cash

- pay attention to platform charges as per Ted Swippet. And also if you do have to reinvest dividends, keep an eye on transactions charges. If you are also making monthly contributions, it can be worth simply waiting until say 3-4 months of cash has built up and *then* making an investment (to save dealing costs).
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