3 fund portfolio for UK investor

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Topic Author
chrismckay
Posts: 18
Joined: Fri Aug 16, 2019 12:37 am

3 fund portfolio for UK investor

Post by chrismckay » Sun Sep 15, 2019 2:09 pm

Hello,

I am a UK based novice investor, and I would like some advice on a "3 fund portfolio" from the vanguard suite of funds.

Most of the recommendations seem to be for American based investors and are along the lines of a "total US market fund", International fund, and a broad based "bond fund".

As a UK investor which funds should I consider?

Chris... :D

Pinkllama
Posts: 19
Joined: Sat Jan 06, 2018 10:42 pm

Re: 3 fund portfolio for UK investor

Post by Pinkllama » Sun Sep 15, 2019 2:50 pm

I think a 3 fund portfolio is not relevant for UK investors unless you want to overweight the UK. Even if you do then you can do it with 2 funds.

If you are on the Vanguard platform then the following could be something to think about.

2 fund with UK bias
Vanguard Lifestrategy 100 & Vanguard Global Bond Index

No UK bias
Vanguard FTSE Global All Cap Fund & Vanguard Global Bond Index Fund

If you prefer ETF’s then a non UK biased choice would be;
Vanguard FTSE All World - VWRL & Vanguard Global Aggregate Bond Index - VAGP

If you want a separate UK fund then just add a FTSE 100, FTSE 250 or FTSE All-Share fund or ETF

Even simpler is a one fund portfolio- either Vanguard Lifestrategy or Vanguard Target Retirement. Just pick the one that has the equity/bond mix that you want. Just bare in mind that the target retirement ones slowly reduce the equity proportion down to 30% eventually.

Topic Author
chrismckay
Posts: 18
Joined: Fri Aug 16, 2019 12:37 am

Re: 3 fund portfolio for UK investor

Post by chrismckay » Sun Sep 15, 2019 3:15 pm

Pinkllama wrote:
Sun Sep 15, 2019 2:50 pm
I think a 3 fund portfolio is not relevant for UK investors unless you want to overweight the UK. Even if you do then you can do it with 2 funds.

If you are on the Vanguard platform then the following could be something to think about.

2 fund with UK bias
Vanguard Lifestrategy 100 & Vanguard Global Bond Index

No UK bias
Vanguard FTSE Global All Cap Fund & Vanguard Global Bond Index Fund


If you prefer ETF’s then a non UK biased choice would be;
Vanguard FTSE All World - VWRL & Vanguard Global Aggregate Bond Index - VAGP

If you want a separate UK fund then just add a FTSE 100, FTSE 250 or FTSE All-Share fund or ETF

Even simpler is a one fund portfolio- either Vanguard Lifestrategy or Vanguard Target Retirement. Just pick the one that has the equity/bond mix that you want. Just bare in mind that the target retirement ones slowly reduce the equity proportion down to 30% eventually.
Thanks for the reply, I love the idea of a global diversified fund, but my uneducated brain struggles with the 55% weighting to USA stocks in the Global ALL Cap Fund......if the American market underperforms then it has a massive bearing on the "globalised" fund....am I missing something here?

Schlabba
Posts: 249
Joined: Sat May 11, 2019 9:14 am

Re: 3 fund portfolio for UK investor

Post by Schlabba » Sun Sep 15, 2019 3:33 pm

chrismckay wrote:
Sun Sep 15, 2019 3:15 pm
Pinkllama wrote:
Sun Sep 15, 2019 2:50 pm
I think a 3 fund portfolio is not relevant for UK investors unless you want to overweight the UK. Even if you do then you can do it with 2 funds.

If you are on the Vanguard platform then the following could be something to think about.

2 fund with UK bias
Vanguard Lifestrategy 100 & Vanguard Global Bond Index

No UK bias
Vanguard FTSE Global All Cap Fund & Vanguard Global Bond Index Fund


If you prefer ETF’s then a non UK biased choice would be;
Vanguard FTSE All World - VWRL & Vanguard Global Aggregate Bond Index - VAGP

If you want a separate UK fund then just add a FTSE 100, FTSE 250 or FTSE All-Share fund or ETF

Even simpler is a one fund portfolio- either Vanguard Lifestrategy or Vanguard Target Retirement. Just pick the one that has the equity/bond mix that you want. Just bare in mind that the target retirement ones slowly reduce the equity proportion down to 30% eventually.
Thanks for the reply, I love the idea of a global diversified fund, but my uneducated brain struggles with the 55% weighting to USA stocks in the Global ALL Cap Fund......if the American market underperforms then it has a massive bearing on the "globalised" fund....am I missing something here
I personally want to own the most successfull companies in the world. I don’t mind whether they are from the US or anywhere else.


Examples of excellent etf choices are here: https://www.bogleheads.org/wiki/Simple_ ... portfolios
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

steveyg50
Posts: 34
Joined: Tue Jul 09, 2019 6:35 pm

Re: 3 fund portfolio for UK investor

Post by steveyg50 » Sun Sep 15, 2019 3:37 pm

More experienced than me can answer that, but if you are so worried about exposure to US you can always build your own 'world' portfolio more to your liking using Europe, Japan, US, Pacific ex-Japan and Emerging markets funds/ETF.

You can then reduce US exposure to your desired level.

minimalistmarc
Posts: 515
Joined: Fri Jul 24, 2015 4:38 pm

Re: 3 fund portfolio for UK investor

Post by minimalistmarc » Sun Sep 15, 2019 3:49 pm

OP please watch these short videos

https://www.kroijer.com/

If US was 90% or 20% of all world equities then that is exactly what I want to have.

You need to accept that it is highly unlikely that you know something that gives you “an edge” over all the rest of the money invested in equities.

I stick with one ETF, VWRL vanguard all world

Topic Author
chrismckay
Posts: 18
Joined: Fri Aug 16, 2019 12:37 am

Re: 3 fund portfolio for UK investor

Post by chrismckay » Mon Sep 16, 2019 8:53 am

minimalistmarc wrote:
Sun Sep 15, 2019 3:49 pm
OP please watch these short videos

https://www.kroijer.com/

If US was 90% or 20% of all world equities then that is exactly what I want to have.

You need to accept that it is highly unlikely that you know something that gives you “an edge” over all the rest of the money invested in equities.


I stick with one ETF, VWRL vanguard all world
Thats where I get unstuck with my understanding.

I get that the US is circa 55% of world equities, but the American index is just one index out of 41 that is tracked in the Vanguard VWRL all world, is it not detrimental putting 55% of your investment into 1 index when there is another 40 to spread the risk between?

I know that the above is wrong and weighted investing is correct but I dont understand why when we are talking about multiple indexes!!!

Chris... :D

Schlabba
Posts: 249
Joined: Sat May 11, 2019 9:14 am

Re: 3 fund portfolio for UK investor

Post by Schlabba » Mon Sep 16, 2019 9:10 am

chrismckay wrote:
Mon Sep 16, 2019 8:53 am
minimalistmarc wrote:
Sun Sep 15, 2019 3:49 pm
OP please watch these short videos

https://www.kroijer.com/

If US was 90% or 20% of all world equities then that is exactly what I want to have.

You need to accept that it is highly unlikely that you know something that gives you “an edge” over all the rest of the money invested in equities.


I stick with one ETF, VWRL vanguard all world
Thats where I get unstuck with my understanding.

I get that the US is circa 55% of world equities, but the American index is just one index out of 41 that is tracked in the Vanguard VWRL all world, is it not detrimental putting 55% of your investment into 1 index when there is another 40 to spread the risk between?

I know that the above is wrong and weighted investing is correct but I dont understand why when we are talking about multiple indexes!!!

Chris... :D
It is not multiple indices. An index is simply a list of companies. If you set out to make a list of the X amount of largest companies in the world (by market cap), you will end up with more than half the companies in the US.

I think you should focus less on where they are located and more on what you are buying. You are buying the largest companies based on their market cap. Does it matter whether the company is from the US or Japan?
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

Topic Author
chrismckay
Posts: 18
Joined: Fri Aug 16, 2019 12:37 am

Re: 3 fund portfolio for UK investor

Post by chrismckay » Mon Sep 16, 2019 9:33 am

Schlabba wrote:
Mon Sep 16, 2019 9:10 am
chrismckay wrote:
Mon Sep 16, 2019 8:53 am
minimalistmarc wrote:
Sun Sep 15, 2019 3:49 pm
OP please watch these short videos

https://www.kroijer.com/

If US was 90% or 20% of all world equities then that is exactly what I want to have.

You need to accept that it is highly unlikely that you know something that gives you “an edge” over all the rest of the money invested in equities.


I stick with one ETF, VWRL vanguard all world
Thats where I get unstuck with my understanding.

I get that the US is circa 55% of world equities, but the American index is just one index out of 41 that is tracked in the Vanguard VWRL all world, is it not detrimental putting 55% of your investment into 1 index when there is another 40 to spread the risk between?

I know that the above is wrong and weighted investing is correct but I dont understand why when we are talking about multiple indexes!!!

Chris... :D
It is not multiple indices. An index is simply a list of companies. If you set out to make a list of the X amount of largest companies in the world (by market cap), you will end up with more than half the companies in the US.

I think you should focus less on where they are located and more on what you are buying. You are buying the largest companies based on their market cap. Does it matter whether the company is from the US or Japan?
Ahhhh....thats a penny dropping moment for me. It is tracking the FTSE All World Index which is a weighted index of the world largest companies regardless of location in the world.

Can you explain the rational for the selection of the funds invested in the Lifestrategy 100% equity fund please... :D

So.....I presume the Lifestrategy 100% equity is not tracking a particular index, is there benefit from this?
Last edited by chrismckay on Mon Sep 16, 2019 1:12 pm, edited 1 time in total.

Topic Author
chrismckay
Posts: 18
Joined: Fri Aug 16, 2019 12:37 am

Re: 3 fund portfolio for UK investor

Post by chrismckay » Mon Sep 16, 2019 9:33 am

minimalistmarc wrote:
Sun Sep 15, 2019 3:49 pm
OP please watch these short videos

https://www.kroijer.com/

If US was 90% or 20% of all world equities then that is exactly what I want to have.

You need to accept that it is highly unlikely that you know something that gives you “an edge” over all the rest of the money invested in equities.

I stick with one ETF, VWRL vanguard all world
Enjoyed that :D

xxd091
Posts: 101
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: 3 fund portfolio for UK investor

Post by xxd091 » Mon Sep 16, 2019 12:56 pm

Well done for getting underway
I am now 72- 16 years retired-Asset Allocation 30% Equities/65% Bonds/5%Cash
Vanguard World Index Fund ex UK 26%-Vanguard UK Share Index 4% and Vanguard Global Bond Index Fund Hedged to Pound 65%
Made my pile so a conservative Portfolio
Cheap,easy to follow and does the business
Your Asset Allocation might be more Equities if you are young/need to build your Savings
Vanguard Life Strategy Funds and Target Date Funds are easy /cheap to use but too much UK bias for me
If I was starting out again I would have used a Vanguard Global Equities Fund for my Equities (wasn’t available when I started out)
xxd09

Topic Author
chrismckay
Posts: 18
Joined: Fri Aug 16, 2019 12:37 am

Re: 3 fund portfolio for UK investor

Post by chrismckay » Tue Sep 17, 2019 4:01 am

xxd091 wrote:
Mon Sep 16, 2019 12:56 pm
Well done for getting underway
I am now 72- 16 years retired-Asset Allocation 30% Equities/65% Bonds/5%Cash
Vanguard World Index Fund ex UK 26%-Vanguard UK Share Index 4% and Vanguard Global Bond Index Fund Hedged to Pound 65%
Made my pile so a conservative Portfolio
Cheap,easy to follow and does the business
Your Asset Allocation might be more Equities if you are young/need to build your Savings
Vanguard Life Strategy Funds and Target Date Funds are easy /cheap to use but too much UK bias for me
If I was starting out again I would have used a Vanguard Global Equities Fund for my Equities (wasn’t available when I started out)
xxd09
Good advice... :D

So now I am looking at putting together a 2 fund portfolio , 1 equity and 1 bond.

After heeding advice from forum members I am going to invest the equity side of it in a broad global fund. To simplify things I an going to use Vanguard for everything.

The two funds that seem to fit the equity side of things are as follows

FTSE Global All Cap Index Fund or the FTSE All-World UCITS ETF (VWRL)

Apart from one being an ETF, can someone please help me out on the difference between the two and is one better than the other

Chris... :D

Valuethinker
Posts: 39208
Joined: Fri May 11, 2007 11:07 am

Re: 3 fund portfolio for UK investor

Post by Valuethinker » Tue Sep 17, 2019 4:32 am

chrismckay wrote:
Tue Sep 17, 2019 4:01 am
xxd091 wrote:
Mon Sep 16, 2019 12:56 pm
Well done for getting underway
I am now 72- 16 years retired-Asset Allocation 30% Equities/65% Bonds/5%Cash
Vanguard World Index Fund ex UK 26%-Vanguard UK Share Index 4% and Vanguard Global Bond Index Fund Hedged to Pound 65%
Made my pile so a conservative Portfolio
Cheap,easy to follow and does the business
Your Asset Allocation might be more Equities if you are young/need to build your Savings
Vanguard Life Strategy Funds and Target Date Funds are easy /cheap to use but too much UK bias for me
If I was starting out again I would have used a Vanguard Global Equities Fund for my Equities (wasn’t available when I started out)
xxd09
Good advice... :D

So now I am looking at putting together a 2 fund portfolio , 1 equity and 1 bond.

After heeding advice from forum members I am going to invest the equity side of it in a broad global fund. To simplify things I an going to use Vanguard for everything.

The two funds that seem to fit the equity side of things are as follows

FTSE Global All Cap Index Fund or the FTSE All-World UCITS ETF (VWRL)

Apart from one being an ETF, can someone please help me out on the difference between the two and is one better than the other

Chris... :D
You do not provide links to the funds ?

At a guess one includes Emerging Markets, and one does not? You'd have to see what countries are included.

If a fund does not include EM, then EM are 15-20% of total market capitalisation (depending upon how you measure it). I usually advise people to "aim light" for a whole host of reasons around governance, volatility. So 10-15% of total equity portfolio in EM. So if equities are 60% so 6%-9% in EM, call it 10% and be done - 1/6th does not feel excessive nor too little.

Note a common logical mistake is "Emerging Markets are the economic and demographic future (true)" => must buy EM stocks (not logically true).

For a whole host of reasons EM stocks are often not representative of the underlying economies. If you want consumer goods in EM then P&G, Unilever, Nestle are all big players. EM stocks are often part state owned which poses its own challenges for investors. And often focused on raw materials exports. China is a very big part of the index and there are bubble-like characteristics in the Chinese stock market at times.

Also on demographics China has a First World aging profile, which poses its own challenges. The demographic future is sub Saharan Africa and parts of the Middle East, which mostly are not in EM indices but are Frontier Markets - if they even have stockmarkets at all.

I don't think one should exclude them from investing, although if a fund covering all stocks including EM is not available it's possible just to hold global developed markets. But one should not get over-bullish, either.

xxd091
Posts: 101
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: 3 fund portfolio for UK investor

Post by xxd091 » Tue Sep 17, 2019 6:03 am

For clarification the funds I use are
Vanguard FTSE U.K. All share Index Fund(VVFUSI)
Vanguard Developed World ex UK Index Fund(VVDVWE)
Vanguard Global Bond Index Fund hedged to the Pound (VIGBBD)
Funds or OIECS were the only funds available when I was a boy!
ETFs trade like a share -in real time-but are covering the same ground as the Funds
I would not bother changing now but the choice is there for present day investors
xxd091

Topic Author
chrismckay
Posts: 18
Joined: Fri Aug 16, 2019 12:37 am

Re: 3 fund portfolio for UK investor

Post by chrismckay » Tue Sep 17, 2019 7:11 am

[
[/quote]

You do not provide links to the funds ?

At a guess one includes Emerging Markets, and one does not? You'd have to see what countries are included.

I

[/quote]

Here is a link to the funds.... :D

https://www.vanguardinvestor.co.uk/inve ... _fund_link

https://www.vanguardinvestor.co.uk/inve ... _fund_link

Topic Author
chrismckay
Posts: 18
Joined: Fri Aug 16, 2019 12:37 am

Re: 3 fund portfolio for UK investor

Post by chrismckay » Tue Sep 17, 2019 9:39 am

I think I have found the difference between the two funds....

http://www.morningstar.co.uk/uk/funds/s ... F00000XXVS ....this one invest in large medium and small companies

http://www.morningstar.co.uk/uk/etf/sna ... 0P0000WA5N ...this one invests in large and medium companies

minimalistmarc
Posts: 515
Joined: Fri Jul 24, 2015 4:38 pm

Re: 3 fund portfolio for UK investor

Post by minimalistmarc » Tue Sep 17, 2019 1:28 pm

How much money and what platform are you using? If you use the vanguard platform to buy the vanguard funds the fee is capped so doesn’t really matter if you use ETF or fund.

I’m with Hargreaves Lansdown who are very expensive if you hold funds but dirt cheap if you hold ETFs or anything else. If I love to vanguard one day I may move to funds.

xxd091
Posts: 101
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: 3 fund portfolio for UK investor

Post by xxd091 » Tue Sep 17, 2019 5:22 pm

Monevator.com has a very good platform comparison post
xxd09

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asset_chaos
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Re: 3 fund portfolio for UK investor

Post by asset_chaos » Thu Sep 19, 2019 2:21 am

chrismckay wrote:
Mon Sep 16, 2019 9:33 am
Can you explain the rational for the selection of the funds invested in the Lifestrategy 100% equity fund please... :D
Only Vanguard can properly explain their rational for the fund weightings in their lifestrategy funds, and why they are different in different countries around the world. Vanguard knows that investors all over the world have strong home bias: strong preference for the stocks of familiar companies domiciled in the home country. I speculate that vanguard decided to not fight to convince people to discard home bias, instead recognizing that it is more important to entice them into low cost, mostly broad based index funds, even with some home bias, but probably not as much as they'd get elsewhere. And that that's why lifestrategy UK overweights UK stocks, lifestrategy Australia overweights Australian stocks, lifestrategy US overweights US stocks, etc, etc, etc.
Regards, | | Guy

international001
Posts: 1194
Joined: Thu Feb 15, 2018 7:31 pm

Re: 3 fund portfolio for UK investor

Post by international001 » Thu Sep 19, 2019 6:22 pm

asset_chaos wrote:
Thu Sep 19, 2019 2:21 am
chrismckay wrote:
Mon Sep 16, 2019 9:33 am
Can you explain the rational for the selection of the funds invested in the Lifestrategy 100% equity fund please... :D
Only Vanguard can properly explain their rational for the fund weightings in their lifestrategy funds, and why they are different in different countries around the world. Vanguard knows that investors all over the world have strong home bias: strong preference for the stocks of familiar companies domiciled in the home country. I speculate that vanguard decided to not fight to convince people to discard home bias, instead recognizing that it is more important to entice them into low cost, mostly broad based index funds, even with some home bias, but probably not as much as they'd get elsewhere. And that that's why lifestrategy UK overweights UK stocks, lifestrategy Australia overweights Australian stocks, lifestrategy US overweights US stocks, etc, etc, etc.
I suspect it has something to do with taxes also. For a fund domiciled in country X, it's usually cheaper to invest in stocks of country X

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