S and P 500 index v Global Index asset allocation [UK investor]

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MrBen
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S and P 500 index v Global Index asset allocation [UK investor]

Post by MrBen »

Hi

I am new to this and I have never invested before in stocks and shares ISA. I read psychology of money, I will teach you to be rich and the bogleheads guide to investing in the past 2 months.

To get the ball rolling I have just opened Vanguard stocks and shares ISA this month depositing £333 per month.
I am a little hazy on stock allocation and went for the S and P 500 index but im unclear whether as a priority i should go for a Global index or both and or something in addition and not being entirely sure on how being a UK citizen affects having a US index fund.

Im 45 (Cough cough) I have cash ISAS, savings and pensions etc.

Any help and direction appreciated and on the asset allocation.
Ben

[Title clarified - moderator Kendall]
TedSwippet
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by TedSwippet »

Welcome to the forum.
MrBen wrote: Mon May 13, 2024 8:06 am I am a little hazy on stock allocation and went for the S and P 500 index but im unclear whether as a priority i should go for a Global index or both and or something in addition and not being entirely sure on how being a UK citizen affects having a US index fund.
The problem with this site and the many of the books it recommends is that the advice in them is specifically for, and tailored to, US investors. While the main arguments hold -- low cost index investing, buy and hold, and so on -- some of the details may be inappropriate for, or simply don't work for, non-US investors.

There is a wiki section specific to non-US investors, with a handful of pages specifically for UK investors. Perhaps start here: Investing from the UK. And as well as this forum, there are several UK based forums and web sites with a passive/index investing slant. Also, some useful investing books specific to the UK.
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by nisiprius »

This forum in general is US-centric. Vanguard, of course, is a US company, and John C. Bogle was US-ian.

One of the most contentious topics here is whether US investors should hold a) nothing but US stocks, b) a global index fund, or c) something in between. One of the rarest views is mine, which is that it doesn't matter much.

There are both good and bad reasons for US investors to have a preference for US stocks. One of them is "home bias," a feeling of greater comfort and trust in familiar big US companies. As a UK investor, that reason would not apply to you. Another is the (small) amount of drag and (small) amount of risk when investing in stocks in a foreign currency, requiring currency conversion. For you, that would work against US stocks and in favor of British stocks.

I think what would be most natural would be for a UK investor to prefer a global all-world index fund, over an S&P 500 index fund.
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dprees
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by dprees »

There are definite pros to the choice you have made:
1. 100% equity allocation (given you have cash ISAs already)
2. Low-cost fund -- one of the lowest available--cheaper than most/all global funds
3. Investing in a wide number of stocks through the single fund you have chosen.

But there are a couple of gotchas too, which you might want to think about:
1. Though many of the companies in the S&P500 earn revenues globally, you have placed your money in one geographical location (albeit the most successful location for the past 15 years or so). A global fund would reduce this dependence, to some extent (a global fund is approx 65% US-based, due to the sheer size of the US market)
2. A global fund offers approx 2000 to 4000 companies, as opposed to the 500 in the S&P--greater diversification is normally seen as a good thing, as a passive investor
3. The S&P 500 tends to be more volatile than a global fund, which is great when stocks are rising; more painful in downturns, however.

Really, you should ask yourself why you picked the fund you did. Are the reasons still valid? If so, don't change--it's certainly not a bad choice.

If you think you have picked the wrong fund, it is easy and cheap to change. But only do so once you have definitely decided on a fund/course of action you are going to stick with through thick and thin, because you know why you chose it. By far the biggest mistake in investing is selling when the market tumbles--not your choice of equity fund. The second-biggest mistake is chopping and changing things around.

One caveat--make sure you are investing in the accumulation version of a fund--or that dividends paid out are automatically reinvested for you. This is the best option for an ISA or SIPP which is focused on capital growth (ie, before retirement).
xxd091
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by xxd091 »

It would seem sensible for a U.K. or any investor to chose the most successful and biggest stockmarket to invest in as an initial move
However in practice most investors starting out choose to go the other way and invest in their own countries stockmarket only-not the best move unless you are a US citizen
Kudos to you for having a more rational approach
The US is the most successful country in the world at the moment stockmarket wise with 50-60% share of the global stockmarket
Your approach is placing a bet on US which for many years has been a winning move
A lot of U.K. investors hedge their bets by choosing a global equities index tracker where the investor has 50-60% of his investment in the US stockmarket as opposed to your 100% commitment
Both scenarios should work-you choose
xxd091
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Valuethinker »

xxd091 wrote: Tue May 14, 2024 3:40 am It would seem sensible for a U.K. or any investor to chose the most successful and biggest stockmarket to invest in as an initial move
However in practice most investors starting out choose to go the other way and invest in their own countries stockmarket only-not the best move unless you are a US citizen
Kudos to you for having a more rational approach
The US is the most successful country in the world at the moment stockmarket wise with 50-60% share of the global stockmarket
Your approach is placing a bet on US which for many years has been a winning move
A lot of U.K. investors hedge their bets by choosing a global equities index tracker where the investor has 50-60% of his investment in the US stockmarket as opposed to your 100% commitment
Both scenarios should work-you choose
xxd091
I think if you hold Global Developed Markets the US proportion is now over 65%?

I think whether to hold Emerging Markets is a much harder call than Global Developed v US - where I think the answer for a UK investor is always the former, to give maximum diversification. And noting the high concentration of the US index on only 7 stocks.

My answer would be that EM around 10% of total equity portfolio probably accepts that EM have been a pretty inconsistent performer - and were heavily skewed towards China + Taiwan, which brings geopolitical risks. But still gives enough to make a difference if it turns out to be one of those periods when EM really outperform.

But EM=0% is also workable. I just wouldn't overweight them.
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Valuethinker »

MrBen wrote: Mon May 13, 2024 8:06 am Hi

I am new to this and I have never invested before in stocks and shares ISA. I read psychology of money, I will teach you to be rich and the bogleheads guide to investing in the past 2 months.

To get the ball rolling I have just opened Vanguard stocks and shares ISA this month depositing £333 per month.
I am a little hazy on stock allocation and went for the S and P 500 index but im unclear whether as a priority i should go for a Global index or both and or something in addition and not being entirely sure on how being a UK citizen affects having a US index fund.

Im 45 (Cough cough) I have cash ISAS, savings and pensions etc.

Any help and direction appreciated and on the asset allocation.
Ben

[Title clarified - moderator Kendall]
By holding the global equity index, you maximize diversification.

There's also a tax drag on US stocks. 15% if you hold Irish-domiciled funds and ETFs, I believe (15% of the dividend income paid out by those stocks in the fund). 30% if Luxembourg-domiciled. 15% of say 2% dividend yield on US stocks is a 0.3% pa tax drag. Not nothing. So by holding global you minimize that.

In what world would you want to own Intel Nvidia Microsoft but not ASM Lithography and Taiwan Semiconductor? General Motors but not Toyota? Tesla but not all the world's other car companies (ex Ford and GM)? P&G but not Unilever and Nestle? Brown-Forman but not Diageo?

(Taiwan is actually an Emerging Market, which has other issues. South Korea is an EM in one main benchmark, but not the other. Just thinking about these things for about 10 minutes makes me "want to own the haystack").

Home country bias is a thing globally amongst investors. It's pretty much always a bad idea. The exception is the USA where it's a "not very bad" bad idea because US home market is c 65% (?) of world developed markets by capitalisation.

Australia there's a thing around dividend franking (tax credit on Australian holdings) but, even there, I don't think that justifies being more than 20-25% in Australian stocks (if that).
Topic Author
MrBen
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by MrBen »

Hi All

Thank you to everyone for all the detailed replies ive read each and every one multiple times :)

This has opened my mind quite a but so thank you to everybody above

Im consdering swapping but undecided as i have plenty of time to swap as my first payment doesnt go out until 3rd June, however im hedging to change as a result of the above.

There are many more Global funds which is a bit daunting but i believe im narrowing it down correctly ;

I note and check ; Global, index, and accumulation being the required however there are some funds some with the words 'UK' in the title and some with and without 'FTSE' and 'ESG' etc and all manner of other things : ) (I Know what FTSE is : ) how does this affect GBP as this is my native country etc

Which one do i look for and how does currency conversion apply to a global fund I note from responses above regarding a USD drag so to speak so im concious now of this concept and how this affects a Global index fund (Accumulating)

I think im almost there i will either keep or swap to global index before the vanguard 8 days cut off so just getting all my information together beforehand

I Look forward to the replies and help
Valuethinker
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Valuethinker »

MrBen wrote: Tue May 14, 2024 8:06 am Hi All

Thank you to everyone for all the detailed replies ive read each and every one multiple times :)

This has opened my mind quite a but so thank you to everybody above

Im consdering swapping but undecided as i have plenty of time to swap as my first payment doesnt go out until 3rd June, however im hedging to change as a result of the above.

There are many more Global funds which is a bit daunting but i believe im narrowing it down correctly ;

I note and check ; Global, index, and accumulation being the required however there are some funds some with the words 'UK' in the title and some with and without 'FTSE' and 'ESG' etc and all manner of other things : ) (I Know what FTSE is : ) how does this affect GBP as this is my native country etc

Which one do i look for and how does currency conversion apply to a global fund I note from responses above regarding a USD drag so to speak so im concious now of this concept and how this affects a Global index fund (Accumulating)

I think im almost there i will either keep or swap to global index before the vanguard 8 days cut off so just getting all my information together beforehand

I Look forward to the replies and help
"USD drag" is not a thing.

Foreign holdings of US shares incur a dividend withholding tax which you cannot reclaim. That's the performance drag.

Domicile is where a fund is legally constituted. Right now, that's almost certainly going to be either UK, Ireland or Luxembourg for you. That's totally separate from what it tracks.

FTSE is a fund index company, owned by London Stock Exchange. FTSE 100, the London index, is their flagship product. But they do hundreds of sub indices, FTSE Pacific Ex Japan, etc.

There's lots of flavours of "global". (MSCI is the rival index provider to FTSE). Vanguard does a FTSE All-World which has the virtue of covering both emerging and developing markets. By separating this into FTSE Developed Markets & FTSE Emerging Markets, you can get a slightly lower exchange ratio.

Accumulation funds are for ISAs and Pensions *only*. Do not hold them in a taxable account. Hold Distributor funds and ETFs there.

Foreign exchange exposure is explained in wikis here.

ESG is Environmental Social Governance. Again that's a specialised term you will need to look up.

Note you should consider the asset allocation of your pension funds in terms of the total picture: Vanguard is not standalone in this regard.
Topic Author
MrBen
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by MrBen »

Not sure if i understand correctly,

To clarify are you suggesitng instead of one investment fund being the Vanguard FTSE Global index fund
to have two separate funds instead due to the exchange ratio? ;

'FTSE Developed Markets & FTSE Emerging Markets, you can get a slightly lower exchange ratio'

not sure if I understood correctly

Thanks again.
Genghis
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Genghis »

The FTSE All World Index is the FTSE Developed World index + the FTSE Emerging index. You can read about it here: https://www.bankeronwheels.com/best-international-etfs/

So you could have one fund tracking the FTSE All World, say the Vanguard FTSE All World ETF with an OCF of 22bps.

Or you could have two, one developed and one emerging markets, say the Vanguard FTSE Developed ETF at IIRC 12bps and the Vanguard Emerging ETF at IIRC 24bps in their respective ratios per the FTSE All World index factsheet from the FTSE Russell website, around 9:1 and pay all in around 0.13%.

I’ve done the latter in the past but now prefer an “all world” / “global all cap” (with FTSE) or ACWI (with MSCI) fund. Much easier and no need for manual calculations each month.
Valuethinker
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Valuethinker »

Genghis wrote: Wed May 15, 2024 8:38 am The FTSE All World Index is the FTSE Developed World index + the FTSE Emerging index. You can read about it here: https://www.bankeronwheels.com/best-international-etfs/

So you could have one fund tracking the FTSE All World, say the Vanguard FTSE All World ETF with an OCF of 22bps.

Or you could have two, one developed and one emerging markets, say the Vanguard FTSE Developed ETF at IIRC 12bps and the Vanguard Emerging ETF at IIRC 24bps in their respective ratios per the FTSE All World index factsheet from the FTSE Russell website, around 9:1 and pay all in around 0.13%.

I’ve done the latter in the past but now prefer an “all world” / “global all cap” (with FTSE) or ACWI (with MSCI) fund. Much easier and no need for manual calculations each month.
For clarity for the original poster

22bps = 22 basis points = 0.22% expense ratio (OCF on funds in the UK, I believe ; overall charges)

So on £100k that = £220 pa. It's really up to you where saving say 10 bps = 0.1% pa is important.
Genghis
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Genghis »

As you’re UK based, there’s also the HSBC FTSE All World C OEIC (basically our version of a “mutual fund”) with OCF of 13bps. It has fewer holdings than the equivalent Vanguard ETF and I’m sure last time I checked beat the Vanguard ETF on performance over 5 years or so. But that’s not necessarily a good thing. What you want is a fund that hugs the index.

Take a look here: https://monevator.com/best-global-tracker-funds/
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Valuethinker »

MrBen wrote: Wed May 15, 2024 8:06 am Not sure if i understand correctly,

To clarify are you suggesitng instead of one investment fund being the Vanguard FTSE Global index fund
to have two separate funds instead due to the exchange ratio? ;

'FTSE Developed Markets & FTSE Emerging Markets, you can get a slightly lower exchange ratio'

not sure if I understood correctly

Thanks again.
Apologies for overcomplicating things a bit.

Basically it's about Expense Ratios (OCFs). I realise I wrote "exchange ratio" but meant "expense ratio" (ER or OCF in UK fund terms).

The Vanguard FTSE World fund has a higher expense ratio than a combination of the Vanguard Developed Market + Vanguard Emerging Market. If you mix the latter pair something like 85% DM and 15% EM you get roughly the same fund as the former.

But we are talking here c £100 pa on £100k invested. If it's easier just to own one fund then just do that.

Vanguard also charges you an additional 0.1% (or 0.15%?) on funds you hold with them. Despite that, I still use VG because although it's not the cheapest, it's a clean interface and I am not tempted to tinker as much (limited fund selection).

Remember when you consider your asset allocation it's not just your ISAs. It's also your pensions. Properly you should include your cash (other than spare cash for short term needs ie say £5k?). You want a whole picture of where your money is allocated.
dprees
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by dprees »

Since you are on the Vanguard UK platform, you are limited to their funds and ETFs. No bad thing, as Valuethinker has said.

For a simple global equity ETF, accumulating, buy VWRP (FTSE All-World UCITS ETF), at a cost of 0.22% per year.

If you wish to just invest in global developed markets, buy VHVG (FTSE Developed World UCITS ETF). This costs 0.12% per year.

If you want to invest across the globe, both developed and emerging, to match VWRP, then you can buy VHVG and VFEG (FTSE Emerging Markets UCITS ETF, 0.22% per year) in the ratio 9:1 (90%/10%). This gives an overall expense of approx. 0.13% per year. No need to change the ratio, unless or until VFEG has gone up or down with respect to VHVG a material amount -- say 50% -- since such a difference only accounts for 5% or so of your portfolio). Never a need to rebalance between existing VHVG and VFEG investments--market movements will do that for you automatically.

FWIW, when my son started investing into a SIPP and an ISA a few years ago, I pointed him at VWRP. For the amounts he was investing (a few £,000) in each year, any fees saved with a VHVG/VFEG split was not really significant. Now his pots have grown over the past few years, at my urging he's planning shortly to split his existing investments from VWRP to VHVG/VFEG at 9:1, and allocate future investments on that basis. He's in his early 20s; such an approach will likely stand him in good stead for the next few decades, even if I'm not around to act as guide.

Given your age, I'm going to mention something you should think about. In general on this forum, home country bias (i.e., allocating a higher percentage of your investments to your home stock market than it warrants, based on a global index) is seen as a bad thing. I submit that this not always the best decision (cf. Scott Cederburg 2023). The UK stock market has experienced relatively poor returns in the past decade (some would say since 1999). However, given that "reversion to the mean" is often borne out over time (decades), this means that the UK market can reasonably be said to have higher expected returns going forward than markets which have experienced strong growth during the same interval (e.g., the S&P500). The UK share of a global index is approx. 4%, so if you buy a global (or developed) fund, you get that allocation %age to the UK automatically.

If you decide a tilt towards the UK might be warranted, then the Vanguard funds to look at are VUKG (FTSE 100 UCITS ETF- 0.09%) and/or VMIG (FTSE 250 UCITS ETF- 0.1%). With a tilt to your home country, you then need to decide what tilt is reasonable. The paper from Cederburg seems to suggest 20%, of which 4% is given automatically by buying a global fund. So you could consider allocating 15% towards UK funds, and get pretty close to that.

In fairness, I should mention that it is possible to tilt away from your home country, by buying a global ex-UK fund (or by buying another geographical index, such as an S&P500 fund). If you consider the UK is completely on the skids, that is what you should do. Vanguard offers the "FTSE Developed World ex-U.K. Equity Index Fund" (not an ETF, at 0.14%) if you wish to go this way.

For myself, recently retired, I have a strong home country bias in my portfolio, at 40%. NOT A RECOMMENDATION! My main reason for this tilt is a strong conviction in reversion to the mean over time.

I apologise for the length of this post. I hope some of it at least is of use to you.
Valuethinker
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Valuethinker »

dprees wrote: Wed May 15, 2024 3:01 pm Since you are on the Vanguard UK platform, you are limited to their funds and ETFs. No bad thing, as Valuethinker has said.

For a simple global equity ETF, accumulating, buy VWRP (FTSE All-World UCITS ETF), at a cost of 0.22% per year.

If you wish to just invest in global developed markets, buy VHVG (FTSE Developed World UCITS ETF). This costs 0.12% per year.

If you want to invest across the globe, both developed and emerging, to match VWRP, then you can buy VHVG and VFEG (FTSE Emerging Markets UCITS ETF, 0.22% per year) in the ratio 9:1 (90%/10%). This gives an overall expense of approx. 0.13% per year. No need to change the ratio, unless or until VFEG has gone up or down with respect to VHVG a material amount -- say 50% -- since such a difference only accounts for 5% or so of your portfolio). Never a need to rebalance between existing VHVG and VFEG investments--market movements will do that for you automatically.

FWIW, when my son started investing into a SIPP and an ISA a few years ago, I pointed him at VWRP. For the amounts he was investing (a few £,000) in each year, any fees saved with a VHVG/VFEG split was not really significant. Now his pots have grown over the past few years, at my urging he's planning shortly to split his existing investments from VWRP to VHVG/VFEG at 9:1, and allocate future investments on that basis. He's in his early 20s; such an approach will likely stand him in good stead for the next few decades, even if I'm not around to act as guide.

Given your age, I'm going to mention something you should think about. In general on this forum, home country bias (i.e., allocating a higher percentage of your investments to your home stock market than it warrants, based on a global index) is seen as a bad thing. I submit that this not always the best decision (cf. Scott Cederburg 2023). The UK stock market has experienced relatively poor returns in the past decade (some would say since 1999). However, given that "reversion to the mean" is often borne out over time (decades), this means that the UK market can reasonably be said to have higher expected returns going forward than markets which have experienced strong growth during the same interval (e.g., the S&P500). The UK share of a global index is approx. 4%, so if you buy a global (or developed) fund, you get that allocation %age to the UK automatically.

If you decide a tilt towards the UK might be warranted, then the Vanguard funds to look at are VUKG (FTSE 100 UCITS ETF- 0.09%) and/or VMIG (FTSE 250 UCITS ETF- 0.1%). With a tilt to your home country, you then need to decide what tilt is reasonable. The paper from Cederburg seems to suggest 20%, of which 4% is given automatically by buying a global fund. So you could consider allocating 15% towards UK funds, and get pretty close to that.

In fairness, I should mention that it is possible to tilt away from your home country, by buying a global ex-UK fund (or by buying another geographical index, such as an S&P500 fund). If you consider the UK is completely on the skids, that is what you should do. Vanguard offers the "FTSE Developed World ex-U.K. Equity Index Fund" (not an ETF, at 0.14%) if you wish to go this way.

For myself, recently retired, I have a strong home country bias in my portfolio, at 40%. NOT A RECOMMENDATION! My main reason for this tilt is a strong conviction in reversion to the mean over time.

I apologise for the length of this post. I hope some of it at least is of use to you.
The problem with assuming the UK stock market will "revert to the mean" is it hasn't happened, and you could have made that argument any time since 2009 (at least). I could line you up the articles in the FT and various money sections of other newspapers, making that point, year after year. The underperformance clearly reflects:

1). sectoral mix
2). the problems of the UK economy and political system. Particularly the 2008 Crash, but also everything that has gone on since then - 2016 etc.

Go back in time, and there are literally *decades* of underperformance. The UK was the world's 2nd biggest stockmarket in 1910, after all (might have been the biggest).

If you look at what is in the UK index you see the problem. There are no leading edge technology or internet companies. When ARM (the chip design in most mobile devices) chose to re-list, it did so on NASDAQ. The closest to leading edge is a couple of pharmaceutical companies.

Then you get Shell and BP. But the American oil & gas companies like Exxon and Chevron have outperformed them.

You get tobacco. The (developed) world is calling time on tobacco, it seems. UK planning that the next generation will never smoke. Vapes just aren't going to make them the same money that cigarettes have.

You get banks, but UK banks have almost abandoned their international ambitions. The domestic market is highly mature.

I could go on. There's no doubt that if UK companies are undervalued compared to *peer* international companies, at some point they may get rerated. But the concentration of the UK indices is very "old world".

I don't like home country bias by investors - it adds to risk, without compensating return. Even US investors - but there the case for it is better (it's less harmful).

The original poster is better off just owning the FTSE Global index fund. Let the market decide what does well next.
Topic Author
MrBen
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by MrBen »

Thank you once again for all comments and posts I have digested all and links : )
This is a stellar forum and much appreicated the time everyone has taken to respond, its interesting to read.

Vanguards FTSE All-World UCITS ETF (VWRP), Accumulating

Vanguards FTSE Global all cap index fund, Accumulating

FTSE Developed World UCITS ETF - Accumulating

From what i have read barely any difference between the two above investments (Order of preference at the moment) in the long run.

The FTSE developed world's OCF 0.12 is half that than the other two funds it seems attractive like a halfway house between the S and P and Global index?

I note the HSBC world index fund too mentioned here (Appreciated) and read this has performed the best however I will just stick with Vanguard platform as half the battle was getting to this point : )
Valuethinker
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Valuethinker »

MrBen wrote: Fri May 17, 2024 8:01 am Thank you once again for all comments and posts I have digested all and links : )
This is a stellar forum and much appreicated the time everyone has taken to respond, its interesting to read.

Vanguards FTSE All-World UCITS ETF (VWRP), Accumulating

Vanguards FTSE Global all cap index fund, Accumulating

FTSE Developed World UCITS ETF - Accumulating

From what i have read barely any difference between the two above investments (Order of preference at the moment) in the long run.

The FTSE developed world's OCF 0.12 is half that than the other two funds it seems attractive like a halfway house between the S and P and Global index?

I note the HSBC world index fund too mentioned here (Appreciated) and read this has performed the best however I will just stick with Vanguard platform as half the battle was getting to this point : )
Make sure you only buy Accumulating funds inside an ISA or SIPP/ Pension. That's really important. Otherwise you hold Distributing funds - your future self filling out tax returns will bless you.

You are right there's not a lot of difference.

The OCF of 0.12 is nice. I happened to want to include Emerging Market exposure, which is why I use the FTSE All-World. That has hurt my performance - it wasn't a good call. But the future? Who knows.

It's really hard to go wrong with any of those 3 funds.

Vanguard loads another 0.10 (or is it 0.15?) up to £350k of assets, from memory. I just pay that (via direct debt on my bank account *not* from inside my ISA which reduces my tax protected savings). It's not the cheapest provider, but it encourages me to generally good habits - don't chop and change, invest & forget etc.

I try to check my performance less than once a month (once a year would be ideal). All the evidence shows that individual investors underperform the market index because of 1). fees but 2). chopping and changing and trying to "time" markets.
Topic Author
MrBen
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by MrBen »

Refering to my original post

I had chosen not the S & P 500 as I stated but the U.S Equity index fund.

On another note, looking at Vanguard's FTSE Developed world Ex UK index fund(OCF is low 0.14) there does't seem to be one inc the UK

only the FTSE Developed World UCITS ETF (OCF 0.12) why is this, why ETF, why not index fund and the OCf is lower?
Genghis
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Genghis »

That’s simply what Vanguard has chosen to do!

There are Developed World OEICs (https://monevator.com/low-cost-index-trackers/). Maybe beware of the iShares Developed World Index Fund D (IE00BD0NCL49). IIRC Irish domiciled OEICs have 30% US withholding tax.

As I understand it ETFs are in general cheaper than OEICs since trading happens primarily in the secondary market but with OEICs share creation happens directly with the fund manager. May be wrong though!
TedSwippet
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by TedSwippet »

Genghis wrote: Wed May 22, 2024 10:56 am Maybe beware of the iShares Developed World Index Fund D (IE00BD0NCL49). IIRC Irish domiciled OEICs have 30% US withholding tax.
Excellent recall. :-)

Difference in US Withholding Tax for Vanguard Ireland Funds vs ETFs - Bogleheads.org
xxd091
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by xxd091 »

Ted -how many basis points of difference does that make between OEICs and ETFs?
Can you quantify this so as to give an exact expenses difference between these two investments?
xxd091
PS MrBen for practical information
For many years I have been using the Vanguard Dev World ex U.K. and Vanguard FTSE U.K. AllShare index trackers to make up my “World” tracker
In OEIC form because ETFs not available at time of inception
Now 78-21 years rtd-these funds have done the job for me -so far
Having 2 funds was cheaper than the one unified fund available for some reason
These cost differences matter over a long period ie in the case of saving and spending a SIPP or ISA
Genghis
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Genghis »

It’s fund dependent. So for this example, with

- the US currently making up 70.65% of iShares Developed World Index Fund D (IE00BD0NCL49);

- using the S&P 500 as a proxy, a US exposure dividend yield of 1.18%; and

- Difference in WHT of 15% (30% Ireland OEIC - 15% Ireland ETF)

I make the difference for this fund 12.5 bps. Would need to dig properly into the financial statements for something more accurate I think.
xxd091
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by xxd091 »

Thanks for that info
xxd091
Topic Author
MrBen
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by MrBen »

thanks xxd091

I will go with the FTSE developed world EX UK index fund/FTSE Global index fund , 70%/60% US shares : ) is a close as im gonna get to the US index/ S and P being a UK investor its also low cost seems like the right way to go from all the comments thus far and maybe tack on the FTSE UK index at a later date or emerging markets if i dont go with the global index.

thanks to the other posts Genghis, Tedswippet, Valuethinker & dprees and others for your info appreciated :)
Valuethinker
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Valuethinker »

MrBen wrote: Thu May 23, 2024 7:59 am thanks xxd091

I will go with the FTSE developed world EX UK index fund :) 70% US shares : ) is a close as im gonna get to the US index/ S and P being a UK investor its also low cost seems like the right way to go from all the comments thus far and maybe tack on the FTSE UK index at a later date or emerging markets.

thanks to the other posts Genghis, Tedswippet, Valuethinker & dprees and others for your info appreciated :)
You don't *need* the UK, but ideally you should have it. However its market weight in the world market is about 6% from memory (developed markets).

ETF is preferred to Fund according to discussion re tax holding above.

But the key thing is to get started, and to be broadly using a broad equity index fund (low cost). You will hit that goal.

As I say, what is being done with your employer pension? That matters. You need to look at the whole picture - how that money is allocated.
Genghis
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by Genghis »

For something actionable based on what you say you want I’d go for, assuming 100% equity, the FTSE Global All Cap Index Fund (VAFTGAG). You’re investing £333 a month. This can be automated with direct debit and the trade executes automatically when set up. Start with Vanguard Investor for low ad valorem fees. As portfolio grows, consider fixed fee / no ongoing fee brokers (eg iWeb). This fund tracks the index reasonably well. We hold it. It’s UK domiciled so has FSCS protection.
xxd091
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Re: S and P 500 index v Global Index asset allocation [UK investor]

Post by xxd091 »

Genghis -it was the running cost of this fund-23 basis points as opposed to half that or less that put me off this fund when it became available after I had started my portfolio
It is the right way to go in principle but it is annoying that the Vanguard Dev World ex U.K. (0.14) plus Vanguard FTSE U.K. AllShare (0.06)are so much cheaper albeit they don’t cover quite so much of the stockmarket
Costs over the long term matter and are one of the factors under the investors direct control
xxd091
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