Combining Vanguard Index Funds [UK]

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
anderson212
Posts: 3
Joined: Sun Jul 25, 2021 10:54 am

Combining Vanguard Index Funds [UK]

Post by anderson212 »

Country of Residence: UK

International Lifestyle: Very likely to remain a resident in the UK for the entire 30 year investment plan

Currency: GBP

Emergency funds: 1 year worth of expenses kept in easily accessible savings account

Debt: None

Age: 30

Desired Asset allocation: 70% Total US Stock Market / 20% Total Int Stock Market ex US / 10% Total International Bonds

Asset allocation justification: I'm aware that my bond allocation is quite low for my age but where this will be starting with a low amount of capitol and contributed to monthly there isn't really much capitol to protect at this early stage. The plan is to move to 20% bonds after a 1 or 2 years before finally moving to 30% after 10.

Due to being outside the US I am unable to directly purchase a Total International Stock market ex US Index through Vanguard. I'm eager to be able to keep control over the asset weighting between US and International and the 57% weighting included in the Global All Cap index fund is probably lower than I'd be happy with in the short to medium term. Equally the fees involved in the Global All Cap index (0.23%) is more than double that of the Total US Stock Market index (0.10%).

Questions:
  1. Due to 57.8% of the global index being US is it right that if I were to purchase both stock indexes in certain percentages I could match my target allocation? (I guess this would be the same as buying both VTI and VT as a US investor if VXUS didn't exist)

    By my maths if I were to purchase the following amounts:

    All cap US index: 42.5%
    All cap Global index 47.5%
    Bonds 10%

    The net result would give me my target 70 / 20 / 10 allocation. I understand when I rebalance annually I would need to update the weighting used for this calculation as the weighting in the global index will likely move. This combination method of funds would reduce my portfolio average fees from 0.20% to 0.17% against just using the 2 fund approach of global index fund and bonds.
  2. As a UK investor is there a better way to achieve this portfolio?

    I tried to look into using a combination of various developed world, emerging markets type funds but all of them tended to carry higher fees like the global index and seemed to exclude small cap stocks.
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Combining Vanguard Index Funds [UK]

Post by TedSwippet »

Welcome.
anderson212 wrote: Mon Jul 26, 2021 1:19 pm The net result would give me my target 70 / 20 / 10 allocation. I understand when I rebalance annually I would need to update the weighting used for this calculation as the weighting in the global index will likely move.
Why the significant US bias?
anderson212 wrote: Mon Jul 26, 2021 1:19 pm This combination method of funds would reduce my portfolio average fees from 0.20% to 0.17% against just using the 2 fund approach of global index fund and bonds.
How much in £/year is 0.03%? If a foreign holiday or nice weekend away, the added complexity would be worth it. If a decent meal out, borderline. If a sandwich from the local supermarket, probably not.
anderson212 wrote: Mon Jul 26, 2021 1:19 pm As a UK investor is there a better way to achieve this portfolio?
I'm not sure this exactly qualifies as "better", but you could always hold all the all-world components separately. I do this across my SIPP and ISA: UK, US, EU, Japan, Pacific ex-Japan, and a sprinkling of emerging markets and global small cap. For me, the cost saving is worth it, because my SIPP is around lifetime allowance level. For a modest account, I wouldn't bother.
Genghis
Posts: 137
Joined: Fri Jun 26, 2020 6:53 am

Re: Combining Vanguard Index Funds [UK]

Post by Genghis »

Why overweight the US? What do you know that the market doesn’t?

UK bogleheads I’d say tend to go for funds that track say FTSE All-World rather than FTSE All Cap since it’s much easier to implement and you’re most of the way there anyway (90-95% of investable universe)

There’s Vanguard FTSE All World ETF. If you use a broker that’s OEIC fee friendly (eg iWeb / ii) then HSBC FTSE All-World c could work.

Of course, the All Cap fund you mentioned.

I used to split things up myself but keeping things simple allows you to stay the course.
Topic Author
anderson212
Posts: 3
Joined: Sun Jul 25, 2021 10:54 am

Re: Combining Vanguard Index Funds [UK]

Post by anderson212 »

TedSwippet wrote: Mon Jul 26, 2021 2:45 pm Welcome.
anderson212 wrote: Mon Jul 26, 2021 1:19 pm The net result would give me my target 70 / 20 / 10 allocation. I understand when I rebalance annually I would need to update the weighting used for this calculation as the weighting in the global index will likely move.
Why the significant US bias?
In the short term I have some concerns regarding recovery from coronavirus in countries internationally with low vaccination rates. Equally with the current situation in China I'd like to at least in the near future reduce some of the weighting there.
TedSwippet wrote: Mon Jul 26, 2021 2:45 pm
anderson212 wrote: Mon Jul 26, 2021 1:19 pm This combination method of funds would reduce my portfolio average fees from 0.20% to 0.17% against just using the 2 fund approach of global index fund and bonds.
How much in £/year is 0.03%? If a foreign holiday or nice weekend away, the added complexity would be worth it. If a decent meal out, borderline. If a sandwich from the local supermarket, probably not.
Not sure why I didn't think just to check that figure myself so apologies for that but you are totally right. Even at year 30 amounts the difference in fees is less than £1,000.
TedSwippet wrote: Mon Jul 26, 2021 2:45 pm
anderson212 wrote: Mon Jul 26, 2021 1:19 pm As a UK investor is there a better way to achieve this portfolio?
I'm not sure this exactly qualifies as "better", but you could always hold all the all-world components separately. I do this across my SIPP and ISA: UK, US, EU, Japan, Pacific ex-Japan, and a sprinkling of emerging markets and global small cap. For me, the cost saving is worth it, because my SIPP is around lifetime allowance level. For a modest account, I wouldn't bother.
How do you check the weights for small caps stocks as part of the overall global index? This method would probably give me the granular control that I would be looking for. I got to admit I hadn't spotted the global small cap index that would bring that small cap exposure back into the mix.
Topic Author
anderson212
Posts: 3
Joined: Sun Jul 25, 2021 10:54 am

Re: Combining Vanguard Index Funds [UK]

Post by anderson212 »

Just to provide an update if somebody in the future is looking for an answer to similar questions. After considering what was said here and doing some further research I decided just to go with the Global All Cap Index Fund from Vanguard.

I was very much allowing myself to be influenced by back testing results that had the previous dominate decade of US stocks as its final part. I'll leave it up to the market to decide what weighting I have between US and International.

Thanks for the help.
Post Reply