A couple of general questions...

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Gemini1962
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Joined: Sun Jan 26, 2020 5:22 am

A couple of general questions...

Post by Gemini1962 » Wed Feb 12, 2020 1:08 pm

A couple of general question I have as a neewbie...

1) It's been recommended that as a UK investor I choose a global equity fund (e.g. VWRL) rather than the S&P500 fund I'm currently in (VUSA). So, does this help with the currency fluctuations? If the pound goes up against the dollar does it normally go up against every other currency? I've never looked at how currency fluctuates with regard to the entire world.

2) It's also been recommended that I have some bonds. My question here is how do people treat these when they retire and start living off their savings. Everything I have is in a self invested personal pension (SIPP). So if for example I decided to pull 4%/year and the dividend income is not enough do you sell bonds or stocks?

May seem like simple questions but I'm still learning.

Schlabba
Posts: 323
Joined: Sat May 11, 2019 9:14 am

Re: A couple of general questions...

Post by Schlabba » Wed Feb 12, 2020 1:41 pm

Gemini1962 wrote:
Wed Feb 12, 2020 1:08 pm
A couple of general question I have as a neewbie...

1) It's been recommended that as a UK investor I choose a global equity fund (e.g. VWRL) rather than the S&P500 fund I'm currently in (VUSA). So, does this help with the currency fluctuations? If the pound goes up against the dollar does it normally go up against every other currency? I've never looked at how currency fluctuates with regard to the entire world.

2) It's also been recommended that I have some bonds. My question here is how do people treat these when they retire and start living off their savings. Everything I have is in a self invested personal pension (SIPP). So if for example I decided to pull 4%/year and the dividend income is not enough do you sell bonds or stocks?

May seem like simple questions but I'm still learning.
1) I agree with going global. You can ignore currency risk when you are invested in shares, as shares are more volatile than currency fluctuations anyway. The recommendation is usually for bonds to be hedged back to your home currency.

2) You first choose your asset allocation, for instance 75% stocks and 25% bonds. Then you stick with it.
This means that:
  • If your stocks drop your balance might become 67% / 33%, that means that if you want to make a withdrawal, you would sell some bonds.
  • If your stocks skyrocket your balance might become 85% / 15%, that means that if you want to make a withdrawal, you would sell some stocks.
  • And maybe once a year, you rebalance so that you are back at a perfect 75% 25%, because stocks might grow faster than your spending is able to put it back to your chosen asset allocation.
This way it makes sure that you won't sell your stocks too cheap.

Topic Author
Gemini1962
Posts: 22
Joined: Sun Jan 26, 2020 5:22 am

Re: A couple of general questions...

Post by Gemini1962 » Wed Feb 12, 2020 4:44 pm

Thanks for the reply, that makes sense.

I don't like the idea that every time I sell shares/bonds from an ETF I have to pay a £10 fee (on the Fidelity platform). I know it's not a lot in the grand scheme of things but when I get to the point of taking money out I'd probably treat it like a dollar cost averaging exercise but in reverse. So I might take money out multiple times over the year to average out any dips (if I time it badly - as I always seem to do!) and every time I've got to pay the £10 fee. Maybe when Vanguard finally offer their SIPP their charges might be lower? My fund preference is for Vanguard funds.

DJN
Posts: 545
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Re: A couple of general questions...

Post by DJN » Wed Feb 12, 2020 4:58 pm

Hi,
have a read of these sections of Wiki for non-US people:
https://www.bogleheads.org/wiki/Outline ... _domiciles
https://www.bogleheads.org/wiki/Outline ... ed_Kingdom
My two pence halfpenny worth is to read and keep on reading until you get more comfortable.
Follow all the links and enjoy,
DJN
Yah shure

xxd091
Posts: 121
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Location: UK

Re: A couple of general questions...

Post by xxd091 » Wed Feb 12, 2020 6:01 pm

I am a 73 year old-17 years ret in U.K.
Started in investing before ETFs were available (to all intents and purposes they are the same as the equivalent fund)
My portfolio in a SIPP is a 1) Vanguard Global Equities Index Tracker Fund -I wanted to get access to the US market
Generally advice is not to hedge equity funds
2) Vanguard Global Bond Index Tracker Fund hedged to the Pound
Ie a 2 fund portfolio only-cheap,simple and easy to follow
I have made my pile so am invested 30/65/5- equity/bonds/cash
I have been taking 3.5% for many years
My 2 funds are in Accumulation units ie dividends roll up in the fund
I just sell the no of shares I need once a year-sometimes Bonds-sometimes Equities-sometimes a bit of both
You should a written Investment Plan
A set Asset Allocation
Most people have 2 years expenses in cash(so you don’t have to sell equities or bonds in a downturn )
Monevator.com has a good website,so does Lars Kroijer + videos and a good book-“Investing Demystfied”
xxd091

JimBeam
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Re: A couple of general questions...

Post by JimBeam » Thu Feb 13, 2020 3:06 am

xxd091 wrote:
Wed Feb 12, 2020 6:01 pm
Most people have 2 years expenses in cash(so you don’t have to sell equities or bonds in a downturn )
How do you define downturn? Isn't it some sort of market timing?
xxd091 wrote:
Wed Feb 12, 2020 6:01 pm
Monevator.com has a good website,so does Lars Kroijer + videos and a good book-“Investing Demystfied”
I recommend Investing Demystified as well, great book for Bogleheads.

Schlabba
Posts: 323
Joined: Sat May 11, 2019 9:14 am

Re: A couple of general questions...

Post by Schlabba » Thu Feb 13, 2020 4:21 am

xxd091 wrote:
Wed Feb 12, 2020 6:01 pm
Most people have 2 years expenses in cash(so you don’t have to sell equities or bonds in a downturn )
You hold bonds because they hold their value. You don’t have to add a cash buffer to protect your bonds.

Valuethinker
Posts: 39373
Joined: Fri May 11, 2007 11:07 am

Re: A couple of general questions...

Post by Valuethinker » Thu Feb 13, 2020 5:17 am

Gemini1962 wrote:
Wed Feb 12, 2020 1:08 pm
A couple of general question I have as a neewbie...

1) It's been recommended that as a UK investor I choose a global equity fund (e.g. VWRL) rather than the S&P500 fund I'm currently in (VUSA). So, does this help with the currency fluctuations? If the pound goes up against the dollar does it normally go up against every other currency? I've never looked at how currency fluctuates with regard to the entire world.
Normally we suggest holding global equity funds which are currency unhedged - that's true of most of them. Sometimes the GBP is strong, sometimes it is weak. It tends to average out. Since June 2016 GBP has tended to be weak (but with variations around election uncertainty etc). That has helped the performance of overseas equities.

The reason for holding global equity fund not US equity fund is diversification. Why throw away the chance to have exposure to more companies operating in more geographies.

On bond funds, most are currency hedged. Since GBP is your currency of consumption, we suggest holding either a global investment grade (government) bond fund, hedged to sterling GBP, or a UK gilt (govt bond) fund hedged to GBP. They should have similar returns (i.e. very low right now, around 1% pa).
2) It's also been recommended that I have some bonds. My question here is how do people treat these when they retire and start living off their savings. Everything I have is in a self invested personal pension (SIPP). So if for example I decided to pull 4%/year and the dividend income is not enough do you sell bonds or stocks?

May seem like simple questions but I'm still learning.
You sell bond funds and stock funds in proportion to your asset allocation. So if I am target 60% equities/ 40% bonds, so if you take out £1000 you sell £600 of equities, £400 of bonds.

Valuethinker
Posts: 39373
Joined: Fri May 11, 2007 11:07 am

Re: A couple of general questions...

Post by Valuethinker » Thu Feb 13, 2020 5:49 am

Schlabba wrote:
Thu Feb 13, 2020 4:21 am
xxd091 wrote:
Wed Feb 12, 2020 6:01 pm
Most people have 2 years expenses in cash(so you don’t have to sell equities or bonds in a downturn )
You hold bonds because they hold their value. You don’t have to add a cash buffer to protect your bonds.
the rule of thumb is to make the duration of the investment less than or equal to the need for cash.

So for example the UK gilt index fund has a duration of c 12 years. Thus if you might need money before that time, it would be prudent to add a percentage of a ST gilt fund (duration c. 2-2.5 yrs for 1-5 year gilt fund), thus lowering the overall average of your portfolio.

Bonds do fluctuate. See 1994 bond bear market as an example.

Topic Author
Gemini1962
Posts: 22
Joined: Sun Jan 26, 2020 5:22 am

Re: A couple of general questions...

Post by Gemini1962 » Thu Feb 13, 2020 7:58 am

JimBeam wrote:
Thu Feb 13, 2020 3:06 am
xxd091 wrote:
Wed Feb 12, 2020 6:01 pm
Most people have 2 years expenses in cash(so you don’t have to sell equities or bonds in a downturn )
How do you define downturn? Isn't it some sort of market timing?
xxd091 wrote:
Wed Feb 12, 2020 6:01 pm
Monevator.com has a good website,so does Lars Kroijer + videos and a good book-“Investing Demystfied”
I recommend Investing Demystified as well, great book for Bogleheads.
I bought Investing Demystified recently and have started reading it. It's very similar to JL Collins's book but a bit more UK/world friendly rather than US centric. I have taken his advice so far and put 15% into UK Government Bonds via the Vanguard VGOV fund.

I still have 70% in the S&P500 which I need to transfer over to a world fund but haven't decided yet between VEVE (no emerging markets) or VWRL (which has emerging markets at about 10% or so). Trying to decide when to sell/buy is a bit like dying - there's never a good time!

Valuethinker
Posts: 39373
Joined: Fri May 11, 2007 11:07 am

Re: A couple of general questions...

Post by Valuethinker » Thu Feb 13, 2020 12:12 pm

Gemini1962 wrote:
Thu Feb 13, 2020 7:58 am
JimBeam wrote:
Thu Feb 13, 2020 3:06 am
xxd091 wrote:
Wed Feb 12, 2020 6:01 pm
Most people have 2 years expenses in cash(so you don’t have to sell equities or bonds in a downturn )
How do you define downturn? Isn't it some sort of market timing?
xxd091 wrote:
Wed Feb 12, 2020 6:01 pm
Monevator.com has a good website,so does Lars Kroijer + videos and a good book-“Investing Demystfied”
I recommend Investing Demystified as well, great book for Bogleheads.
I bought Investing Demystified recently and have started reading it. It's very similar to JL Collins's book but a bit more UK/world friendly rather than US centric. I have taken his advice so far and put 15% into UK Government Bonds via the Vanguard VGOV fund.

I still have 70% in the S&P500 which I need to transfer over to a world fund but haven't decided yet between VEVE (no emerging markets) or VWRL (which has emerging markets at about 10% or so). Trying to decide when to sell/buy is a bit like dying - there's never a good time!
There's really a choice, the VGOV fund has quite a long duration (+12 years or so). That means if interest rates rise it will do worse than most other bond funds. If interest rates fall (or continue to stay low for longer than the market expects) then the converse. Other govt bond funds (investment grade) typically have durations of 7-8 years.

The alternative, if they offer one, is a global government bond fund, currency hedged. The duration will be shorter, around 7-8 years. The fund will be (modestly) more volatile in all likelihood. But you are exposed to periodic crises eg if Italy, Great Gnu forbid, did a Greece ... on the other hand there are political events which could be bad for the UK government bond (gilt) market ... (I am not going to get into a discussion of what, you can use your imagination).

And it won't make very much difference to your final wealth whether you do or do not include EM.

I'd buy the one with EM because it is more complete. In the full knowledge that coronavirus is likely to hammer EM, if things go on. 1 because China + Taiwan is c. 50% of the EM index (more?). 2 because a lot of EM stocks are commodity producers and when the Chinese economy stutters, commodity prices usually plunge/ are falling already. But you know, we are long term investors ... ;-).

You've had a phenomenal run with S&P 500. Plenty here would make a case that that is all you need. Generally though, since they are US investors and the US market is c. 60% world developed markets, they are not placing so much of a "bet" - to have or not to have foreign exposure won't have a huge impact on final outcome (assuming they are modestly underweight non-US markets, at around 30% say).

For us it's harder. Because if we should own the US, the same logic applies to owning everything non UK, in proportion to its percentage of world market cap - full diversification. Painful though, as the US has rocketed away the last 10 years ... ;-).

Topic Author
Gemini1962
Posts: 22
Joined: Sun Jan 26, 2020 5:22 am

Re: A couple of general questions...

Post by Gemini1962 » Sat Feb 15, 2020 10:29 am

Valuethinker wrote:
Thu Feb 13, 2020 12:12 pm
Painful though, as the US has rocketed away the last 10 years ... ;-).
Yes, I'm almost of the opinion of keeping my S&P500 (VUSA) fund at an expense ratio of 0.07% until the world fund e.g. VWRL does better. Over the last 5 years VUSA has returned nearly 20% more than VWRL.

Valuethinker
Posts: 39373
Joined: Fri May 11, 2007 11:07 am

Re: A couple of general questions...

Post by Valuethinker » Sun Feb 16, 2020 8:32 am

Gemini1962 wrote:
Sat Feb 15, 2020 10:29 am
Valuethinker wrote:
Thu Feb 13, 2020 12:12 pm
Painful though, as the US has rocketed away the last 10 years ... ;-).
Yes, I'm almost of the opinion of keeping my S&P500 (VUSA) fund at an expense ratio of 0.07% until the world fund e.g. VWRL does better. Over the last 5 years VUSA has returned nearly 20% more than VWRL.
When it has done better, that will be too late. You won't be able to know if it will continue to do better, or whether the doing better is done.

The US index is overweight technology compared to the rest of the world. And healthcare. And to some extent financials. Underweight raw materials and industrials. So to some extent this is a call on Facebook Apple Amazon Netflix Google (Alphabet) + Microsoft ...

Anon9001
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Location: भारत

Re: A couple of general questions...

Post by Anon9001 » Sun Feb 16, 2020 8:52 am

Valuethinker wrote:
Sun Feb 16, 2020 8:32 am
Gemini1962 wrote:
Sat Feb 15, 2020 10:29 am
Valuethinker wrote:
Thu Feb 13, 2020 12:12 pm
Painful though, as the US has rocketed away the last 10 years ... ;-).
Yes, I'm almost of the opinion of keeping my S&P500 (VUSA) fund at an expense ratio of 0.07% until the world fund e.g. VWRL does better. Over the last 5 years VUSA has returned nearly 20% more than VWRL.
When it has done better, that will be too late. You won't be able to know if it will continue to do better, or whether the doing better is done.

The US index is overweight technology compared to the rest of the world. And healthcare. And to some extent financials. Underweight raw materials and industrials. So to some extent this is a call on Facebook Apple Amazon Netflix Google (Alphabet) + Microsoft ...
Hmm ValueThinker I wouldn't be so pessimistic on USA compared to ROW. They have the reserve currency and all commodities are priced in USD. If their stocks go in a sideways market the ROW would not magically be fine. Holding 100% US stocks is certainly not a bad idea compared to holding 100% Indian Stocks or 100% British Stocks for instance.

Schlabba
Posts: 323
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Re: A couple of general questions...

Post by Schlabba » Sun Feb 16, 2020 9:23 am

Anon9001 wrote:
Sun Feb 16, 2020 8:52 am
Valuethinker wrote:
Sun Feb 16, 2020 8:32 am
Gemini1962 wrote:
Sat Feb 15, 2020 10:29 am
Valuethinker wrote:
Thu Feb 13, 2020 12:12 pm
Painful though, as the US has rocketed away the last 10 years ... ;-).
Yes, I'm almost of the opinion of keeping my S&P500 (VUSA) fund at an expense ratio of 0.07% until the world fund e.g. VWRL does better. Over the last 5 years VUSA has returned nearly 20% more than VWRL.
When it has done better, that will be too late. You won't be able to know if it will continue to do better, or whether the doing better is done.

The US index is overweight technology compared to the rest of the world. And healthcare. And to some extent financials. Underweight raw materials and industrials. So to some extent this is a call on Facebook Apple Amazon Netflix Google (Alphabet) + Microsoft ...
Hmm ValueThinker I wouldn't be so pessimistic on USA compared to ROW. They have the reserve currency and all commodities are priced in USD. If their stocks go in a sideways market the ROW would not magically be fine. Holding 100% US stocks is certainly not a bad idea compared to holding 100% Indian Stocks or 100% British Stocks for instance.
That is a false dichotomy.

Anon9001
Posts: 277
Joined: Fri Dec 20, 2019 9:28 am
Location: भारत

Re: A couple of general questions...

Post by Anon9001 » Sun Feb 16, 2020 9:28 am

Schlabba wrote:
Sun Feb 16, 2020 9:23 am
Anon9001 wrote:
Sun Feb 16, 2020 8:52 am
Valuethinker wrote:
Sun Feb 16, 2020 8:32 am
Gemini1962 wrote:
Sat Feb 15, 2020 10:29 am
Valuethinker wrote:
Thu Feb 13, 2020 12:12 pm
Painful though, as the US has rocketed away the last 10 years ... ;-).
Yes, I'm almost of the opinion of keeping my S&P500 (VUSA) fund at an expense ratio of 0.07% until the world fund e.g. VWRL does better. Over the last 5 years VUSA has returned nearly 20% more than VWRL.
When it has done better, that will be too late. You won't be able to know if it will continue to do better, or whether the doing better is done.

The US index is overweight technology compared to the rest of the world. And healthcare. And to some extent financials. Underweight raw materials and industrials. So to some extent this is a call on Facebook Apple Amazon Netflix Google (Alphabet) + Microsoft ...
Hmm ValueThinker I wouldn't be so pessimistic on USA compared to ROW. They have the reserve currency and all commodities are priced in USD. If their stocks go in a sideways market the ROW would not magically be fine. Holding 100% US stocks is certainly not a bad idea compared to holding 100% Indian Stocks or 100% British Stocks for instance.
That is a false dichotomy.
Hmm there is a thing known as overdiversification. If your home market is sector diversified and not top heavy there is no need for international diversification as every equity market is correlated these days.

andrew99999
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Joined: Fri Jul 13, 2018 8:14 pm

Re: A couple of general questions...

Post by andrew99999 » Sun Feb 16, 2020 10:47 am

Anon9001 wrote:
Sun Feb 16, 2020 9:28 am
Hmm there is a thing known as overdiversification. If your home market is sector diversified and not top heavy there is no need for international diversification as every equity market is correlated these days.
When you speak to a religious zealot, as you point out fallacies in their reasoning, they never admit what they said was demonstrated as false but instead jump from point to point trying to find one that the other person can not prove false and then they claim that their believe is "proven".

You are doing the same thing.

You said that investing entirely in the US market is better than investing in the Indian market as though that somehow makes it a good investment, and it was pointed out that this is like saying investing in 2 companies is diversified because it is better than investing in just one, and just like a religious zealot looking to confirm their bias, instead of admitting your argument was demonstrated as false you now instead jump to another argument trying to fine one that those arguing against you can not prove false and then you will claim that your belief has been proven false.

If you want to confirm your false belief rather than actually try to uncover the truth, it will not hurt anyone but you, so feel free to continue doing so, but what exactly is the point.

Anon9001
Posts: 277
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Location: भारत

Re: A couple of general questions...

Post by Anon9001 » Sun Feb 16, 2020 11:03 am

andrew99999 wrote:
Sun Feb 16, 2020 10:47 am
Anon9001 wrote:
Sun Feb 16, 2020 9:28 am
Hmm there is a thing known as overdiversification. If your home market is sector diversified and not top heavy there is no need for international diversification as every equity market is correlated these days.
When you speak to a religious zealot, as you point out fallacies in their reasoning, they never admit what they said was demonstrated as false but instead jump from point to point trying to find one that the other person can not prove false and then they claim that their believe is "proven".

You are doing the same thing.

You said that investing entirely in the US market is better than investing in the Indian market as though that somehow makes it a good investment, and it was pointed out that this is like saying investing in 2 companies is diversified because it is better than investing in just one, and just like a religious zealot looking to confirm their bias, instead of admitting your argument was demonstrated as false you now instead jump to another argument trying to fine one that those arguing against you can not prove false and then you will claim that your belief has been proven false.

If you want to confirm your false belief rather than actually try to uncover the truth, it will not hurt anyone but you, so feel free to continue doing so, but what exactly is the point.
Anglo Saxon capitalism is certainly better than the alternatives at least for index fund holders. By owning World index you are owning large chunk of Europe and Japan which do not practise it. By all means invest in World Index if you are confident that the other forms of capitalism will win out in the end. Investing in USA Large Caps is not equal to investing in two companies as they are global companies. Too much of the people here think investing in USA is a country bet when it is not. The correlation between VT and VFINX is 0.95. Aswanth Damodran man I respect shares the same view point about US equities.

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