Keeping things simple

General
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As a 50 year old new to investing, I am keen to keep things relatively simple. I have read that global / all-world funds are the way to go, especially if diversity and simplicity is something to go by. Am I correct in thinking that including too much US coverage via the S&P 500 as well would overcomplicate things, primarily with too much duplication?

I like the idea of including the S&P 500, but if a high % of that already exists in a global / all-world fund, am I correct in thinking it would be superfluous? I guess if the US does badly at some point, twice the damage is done. Always keen to learn from the community and get things right where possible.

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If you want to keep it simple then a total market etf will be just fine. The US makes up about 60% of the total market so you have plenty of exposure to the stocks in the US.

A decision to make would be around developed world only or to have developed world and emerging markets. Emerging markets make up around 6% of the total market so it doesn’t have a huge impact either way historically.

There are plenty of options on here. I’d pick the one with the lowest fees because you can control how much cost eats into returns.

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Hi Carl, thanks for your reply.

I have two accumulating Vanguard funds in my ISA for developed world and emerging markets, which I will keep as they are for now; simple and easy to manage (but maybe not the cheapest). My SIPP has the all-world fund, which seems to cover a broad spectrum as you would expect, but I agree that the emerging market proportion is indeed small, and seems hardly worth it.

I am interested in the technology sector but, again won’t there be some duplication with technology-based funds and the big 7 in the developed/global funds? I guess what I am saying is we shouldn’t have too much duplication. Is this a generally accepted rule, or am I just not understanding this correctly?

I am still wondering how fruitful diversity really is. I have seen people discuss emulating global funds with a selection of other carefully chosen funds, however, I am not sure if this is any better or cheaper than a singular global fund. Thoughts on this would be helpful.

Invesco all-world is cheaper than Vanguard, as is the SPDR MSCI world fund, and L&G Global; their share prices are much cheaper too. In what ways are these different other than their fees? Or do they generally do the same thing?

Seems like a lot of questions but I am keen to learn from others who know what they’re doing from experience.

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Hi, you could set up different portfolios within your IE account and test your theory - just make sure that you create and fund all of your test portfolios for the same theory on the same day/at the same time.

The amounts you put in there don’t need to be big - after all it is just for testing theories.

It could look like this, for instance:

Portfolio 1 - Vanguard
Vanguard FTSE All-World UCITS ETF Distributing, ISIN: IE00B3RBWM25, EPIC: VWRL

Portfolio 2 - Vanguard
Vanguard FTSE All-World UCITS ETF (USD) Accumulating, ISIN: IE00BK5BQT80, EPIC: VWRP

Portfolio 3 - Invesco
Invesco FTSE All-World UCITS ETF Acc, ISIN: IE000716YHJ7, EPIC: FWRG

Portfolio 4 - Invesco
Invesco FTSE All-World UCITS ETF Dist, ISIN: IE0000QLH0G6, EPIC: FTWG

For the above portfolios weight is automatically 100%.

If you want to try out different weight / multiple ETF’s it could look like that:

Portfolio 5 - Vanguard All World (70%) + Bonds (30%), Accumulating
FTSE All-World UCITS ETF, includes Emerging Markets, EPIC: VWRP
Global Aggregate Bond UCITS ETF, includes Emerging Markets, ISIN: IE00BG47K971, PIC: VAGS

And so on.

You may find that ETF’s covering the same region but from different providers are producing very similar results. At which point it could be more about costs and size of the ETF in question, size of tracking error, are they tracking the same index or a subset etc. As for share price - as you’re buying fractions of shares - surely share price is irrelevant?

I quite like JUSTETF for research - https://www.justetf.com/uk/find-etf.html.

Also worth doing is looking at how different filter settings influence outcome of ETF’s shown.

Have fun and good luck!

5

Perhaps you start with a goal. For example, how much money will you need to live off when you retire. Once you have a goal you can decide if investing is a simple global ETF is going to get you there. I believe that the long term average returns are around 9.8% minus expenses. Of course, future returns will be different, so this is a guide.

If you are going to be short on your goal, then perhaps you can invest a little bit more. An extra ÂŁ5/month, every month for a many years will add up when compounded. If this is not possible, then you could take a little more risk and as you suggested, increase your exposure to market sectors such as technology. Check out the returns of the NASDAQ 100 and see if you can live with the volatility (it normally rises and falls more than the market).

ETF share prices have no correlation with the expenses.

Personally, I invest in asset classes rather than sectors. For example, small cap, value and REITs.

I would highly recommend that you do some research. I would read we are talking millions by Paul Merriman. You can get this for free on his website. I’d also read the little book of common sense investing by John Bogle.

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My experience: the All-World is a reasonable representation of The Market. It encapsulates the collective wisdom of all investors on where to put your money and in what proportions.
The Market isn’t perfect, but it is hard to beat. Deviating is only logical if you believe that investors have mis-priced some aspect (like thinking the US is cheap now, so buy the S&P also to increase the US allocation). Otherwise you risk chasing whatever has out-performed recently, buying in too late.

If you do get an urge to dabble or experiment, consider a bit here and there.

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Hi Pinch, I hadn’t thought of doing that, and it could prove to be an interesting test. The chance of me having multiple small portfolios, even if only for a short while, is quite slim.

Regarding the bonds, this is something I hadn’t initially given much consideration, especially for the present, but I have thought about slowly incorporating them as I get closer to retirement (still 17 years away - or sooner if I can). Yet some people have them as a safety net, so maybe I should consider 20% but no more than 30%.

Regarding justetf, I will check it out over the weekend. If it wasn’t for filters I would simply lose interest after about five minutes because there are too many to sift through.

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@Carl, I have a rough idea of what I would like to live off each year in retirement (my partner’s pension will be at least twice the size of mine) so between us it is not high by any means, but with a certain level of comfort.

Thing is, I don’t know accurate my calculations will be (for a simple global ETF over the next 17 years) based on not knowing how much I will be putting in over that time. I do aim to be consistent and increase my contributions each year, but how much is unknown. I am not expecting to be loaded or anything, but I work on the basis that if I can add to my DB pension, it’s better than nothing at all. I do feel I started way too late to make any significant improvements.

I don’t mind risk, but nothing too volatile. I will certainly read more on the different asset classes and check your book recommendations, thanks :+1:

@nedjohn, as I like to keep things simple, certainly at this early stage, your comment makes perfect sense and encapsulates the title of this thread. Set and forget works for me, but there will always be that element of curiosity of “what if I just try adding…”

I see people constantly changing and moving funds around for various reasons. But generally speaking if you have an all-world/global fund, there isn’t much need for other fund as there could potentially be too much duplication, would you agree?

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Buying the All-World plus say the S&P or Nasdaq certainly adds duplication @Borderman given the overlaps.
Some do it purposely though, as they want an extra tilt towards the US or Technology, over-and-above what the All-World gives.

My view: I am content with the market average allocation to sectors and regions, so I just buy an All-World. I don’t have extra insight into which sector/region will likely out-perform into the future; nor do I think anyone else does - so the A/W is sufficient for me.

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There’s a case to be made to KISS (keep it super simple) :wink:

This playlist of 6 videos gives a good explanation as to why - in short… you don’t have an edge over anyone else so you won’t be able to outperform the market. This also means to go for an index fund - world tracker - and don’t put any tilts/factors or something else on to over/underweigh anything (region/themes etc.).

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@nedjohn and @Pinch Yes, I agree with your views.

I am interested to learn more, but I have other things/projects on at the moment, plus long commute every day, and cannot devote too much time to studying lots of ETFs and how the market is doing; another reason to keep things simple. I will look at some tech-related ETFs and decide in due course, otherwise I will stick with all-world fund in one, and developed and emerging markets in the other.

I have added the videos to my watchlist! Thanks.

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@Pinch I eventually got round to watching these videos - very informative!

What he says makes a lot of sense. I guess for people who want less risk, or those getting closer to retirement, bonds are a good way to go. Maybe when these videos were produced, bonds were doing well. But at the moment they are not doing so well; what’s happened to bonds? They seem to be struggling to recover. I probably won’t incorporate bonds until I have maybe five years or less to go to retirement.

For anyone who wants to comment regarding the all-world etfs - although there is diversity, there seems to be very little weight towards the UK and Europe. Would adding extra weight in these regions (maybe even Japan) be beneficial? Or is that just unnecessarily muddying the waters? The TER for the VWRP is pretty good, but was wondering if this could be reduced further.

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@Borderman Well… bonds, or any other type of investment really, aren’t for everyone, are they :wink:

You don’t like 'em - don’t need to buy 'em. :wink:

Another view on bonds can be found on Monevator UK blog - they have been running a model portfolio for years. All posts can be found here: SSPU Archives - Monevator - Slow & Steady Passive Portfolio.

As for the allocation towards the UK and Europe in All-World ETF’s… contrary to Vanguard UK Lifestrategy range (Vanguard Asset Management | Personal Investing in the UK | Vanguard UK Investor) which overallocate to the UK as well as to Europe VWRP tries to allocate money at the correct percentages (or thereabouts, methinks).

And that means that as UK is only around 4% of the total 100% global stockmarket such is the amount of money being allocated in a “proper” all-world tracker.

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Imo buying the S&P 500 is the purist play and most simple and cost efficient. I recently just watched a video on Microsoft and how they have a huge global reach. I think that around 35% of US companies in the S&P 500 derive international revenues. But equally there is an argument for going global. I personally find China uninvestible, and if I decide to invest in Emerging Markets it will be via the EXCS ETF.

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@Pinch Before joing IE, I had looked at the Vanguard LifeStrategy range and I was close to joining up there and getting one. But then I found IE and started browsing and researching, keeping the whole “simplicity” thing in mind - mainly because learning even the basics from scratch can be overwhelming.

If VWRP already has the correct region allocations, then is tinkering to make adjustments by including additional ETFs is just overcomplicating things? I guess leaving it alone is the best thing, which makes a lot of sense for someone like myself that wants the best of the world without having to think about it too much.

Getting the 0.22% TER lower would be better and this leads me to Invesco’s FWRG that you mentioned in an earlier post. Apart from being much newer and a much smaller fund size, how do these differ? They track the same index.

Re Monevator, I shall read the article over the weekend.

@Gandalf A lot can be said for having a separate portfolio with just S&P 500; maybe see how it and an all-world compare before and after fees. The performance of both seem pretty close. I have read a fair bit on sites such as Reddit etc. about how people think it is better than an all-world (or anything else for that matter), but their reasoning is because the market is just so US focussed - US is king - and everything else just lies in its shadow. Doesn’t seem like a strong enough argument. Saying that, the fees are super low and I guess that works for a lot of people.

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Each to their own I guess. I just follow the money.

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@Gandalf :joy: Wise words!

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@Borderman
Hi, you can replicate VWRP by choosing Vanguard FTSE Developed World UCITS ETF (VHVG) and Vanguard FTSE Emerging Markets UCITS ETF (VFEG) in a split of

VHVG 90%
VFEG 10%.

Doing this will get you a TER of 0.12% - lower than the TER of FWRG with 0.15%

[/quote]
Getting the 0.22% TER lower would be better and this leads me to Invesco’s FWRG that you mentioned in an earlier post. Apart from being much newer and a much smaller fund size, how do these differ? They track the same index.
[/quote]

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That’s not going to replicate… It is even more diversified. More equities!