[UK] From random asset allocation to something sensible. Review welcome!

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LongTermInvestor5
Posts: 1
Joined: Sun Apr 18, 2021 3:39 pm

[UK] From random asset allocation to something sensible. Review welcome!

Post by LongTermInvestor5 »

Country of Residence: UK.
International Lifestyle: I'm currently a UK resident, but a EU country citizen. I plan to move back to mainland EU soon (in 1 year?).
Currency: GBP
Emergency funds: Yes, in regular checking account.
Debt: No
Age: 30
Desired Asset allocation: 80% stocks / 20% bonds. I'm open to risk, I can sleep with no problems if the investments go down for an extended period, I don't need the money right now.
Desired allocation to stocks outside your of country of residence: Not sure. I prefer not to be too exposed to the UK, as my salary is already in GBP.
Current total portfolio: Low six figures
Also, if you know the details of any state pension(s) you are entitled to and you wish to add them here, this can improve the accuracy of the replies you receive.
I have a private pension in addition to state pension. Should be around low six figures (I think it's invested in BlackRock target plan 2055). My contributions + employer matching should be around 20% of yearly salary. I'd rather not mess too much with the private pension as it's quite an hassle, and I don't want to have a complicated set up in case I need to move it across countries.

_______________________________________________________________

Current investment portfolio.
In regularly taxed account
27% cash

In the ISA
24% Total of 8 single stocks I picked
15% Vanguard Lifestrategy 80 (0.22%)
15% UBS S&P 500 (0.10%)
9% iShares physical gold (0.15%)
3% Ishares clean energy (0.65%)
3% Vanguard lifestrategy 60 (0.22%)
2% L&G battery value chain (0.49%)
2% Vanguard lifestrategy 100 (0.22%)

_______________________________________________________________

New investments

New annual Contributions
Low 10s of k General investment account (Amount invested annually into your taxable account, in the currency indicated above)
20% of salary Retirement savings account (Amount invested annually into your tax deferred account, in the currency indicated above)
20k (ISA limit) Sheltered investment account (Amount invested annually into your tax free account, in the currency indicated above)
"I don't know what this is" Insurance investment account (Amount invested annually into your insurance account, in the currency indicated above)

_______________________________________________________________
Questions:

Right now my portfolio is a mess. I have a lot of entries, and it's unclear why I have them.
I didn't have a strategy for the funds I was buying, I just wanted a good exposure to the US as I believe that is a market that is going to grow in the future.
In November I picked a few stocks that I believed were heavily impacted by covid, but had a solid business, would have a good future once things reopened, and had a low risk of going under if the pandemic lasted a few more months.
The reason for the high cash amount is that I didn't have a strategy, so I simply didn't invest in anything.
The investments in battery and clean energy is because I believe these to be 2 sectors that are going to grow a lot in the next 10-15 years.

Following the advice on this forum, I'm thinking to commit to the following asset allocation.
I think it's a fairly standard allocation, except for 15% of the equity allocation that is allocated to a less diversified fund.

Code: Select all

+------------+--------------------+----------------------+--------------+--------------------------------------------------------------------------------------------------------------------+----------------------------------------------------------------------------------------------------------------------------------------------------------+
|            |                    |                      | Final weight | Fund/ETF(OFC)                                                                                                      | Link                                                                                                                                                     |
+------------+--------------------+----------------------+--------------+--------------------------------------------------------------------------------------------------------------------+----------------------------------------------------------------------------------------------------------------------------------------------------------+
|  bond 20%  |                    |                      |     20.0%    | Vanguard Global Aggregate Bond UCITS ETF GBP Hedged Income (0.10%)                                                 | https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0001HSBN                                                                                |
+------------+--------------------+----------------------+--------------+--------------------------------------------------------------------------------------------------------------------+----------------------------------------------------------------------------------------------------------------------------------------------------------+
|            |                    | US 60%               |     40.8%    | Vanguard U.S. Equity Index Fund GBP Inc (0.10%) or Vanguard S&P 500 UCITS ETF GBP (VUSA, 0.07%)                    | https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F000003YD8 or https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000WAHG |
|            |                    +----------------------+--------------+--------------------------------------------------------------------------------------------------------------------+----------------------------------------------------------------------------------------------------------------------------------------------------------+
|            |                    | Developed Europe 20% |     13.6%    | Vanguard FTSE Developed Europe UCITS ETF GBP (0.10%)                                                               | https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000YWUQ                                                                                |
|            |   diversified 85%  +----------------------+--------------+--------------------------------------------------------------------------------------------------------------------+----------------------------------------------------------------------------------------------------------------------------------------------------------+
| equity 80% |                    | Pacific 15%          |     10.2%    | Vanguard FTSE Pacific ETF (0.08%) I'm not sure if this exists on the LSE or in GBP                                 | https://investor.vanguard.com/etf/profile/overview/vpl                                                                                                   |
|            |                    +----------------------+--------------+--------------------------------------------------------------------------------------------------------------------+----------------------------------------------------------------------------------------------------------------------------------------------------------+
|            |                    | Emerging 5%          |     03.4%    | Vanguard FTSE Emerging Markets UCITS ETF USD Distributing GBP (0.22%)                                              | https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000WAHG                                                                                |
|            +--------------------+----------------------+--------------+--------------------------------------------------------------------------------------------------------------------+----------------------------------------------------------------------------------------------------------------------------------------------------------+
|            | long term bets 15% | Battery/Renewables   |     12.0%    | L&G BATTERY VALUE-CHAIN GO UCITS ETF GBP (0.49%) and ISHARES II PLC GLOBAL CLEAN ENERGY UCITS ETF GBP DIST (0.65%) | https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0001CLRJ and https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000956B  |
+------------+--------------------+----------------------+--------------+--------------------------------------------------------------------------------------------------------------------+----------------------------------------------------------------------------------------------------------------------------------------------------------+
1. Does the split above make sense? Should I invest in US all equities or S&P 500? Is the Pacific ETF good for a UK investor (not sure if it exists in GBP)? Does the bond fund make sense? I'm not sure which kind of bonds I should pick.

2. Is there a way to simplify it? Especially for the "Diversified Equities", is there a fund that already does the US/EU/Pacific/Emerging split above (or something similar)?

3. Considering I plan to move to a country with EUR as currency soon (1 year?), should I invest in EUR denominated funds, or it doesn't make a difference? (I'm using IBKR as broker for the regularly taxed account)

4. My current investments are in an ISA, so I can rebalance without worrying about taxes (but I pay 15 per operation, with 1 free operation per month). What's the best way to move my investments into the new allocation?

Thanks a lot for the help, this forum is an amazing resource!
Valuethinker
Posts: 48954
Joined: Fri May 11, 2007 11:07 am

Re: [UK] From random asset allocation to something sensible. Review welcome!

Post by Valuethinker »

You will presumably just empty your ISAs when you move country? And anything in taxable, you presumably want to establish a new base cost (for future capital gains) at time of entry? Which might make it easier just to sell it in the UK and then move the money across (you won't owe capital gains in the UK if you are no longer UK resident for tax purposes, however you will owe CGT tax in your new country, presumably).

Now that we are not in the EU, don't be surprised if moving stuff takes a lot longer & costs a lot more (don't get me started on the politics that have led to this situation). You might have to sell it, take the cash, open the new account and invest it from there.

I think you should just hold a global equity fund, and not worry about sector bets. And a global bond fund (Euro currency hedged).

The reality is the UK index is very international, and not very UK. About 60-70% of profits of FTSE100 companies are earned outside the UK. Thus owning the UK index (at market weight) is not really increasing your exposure to the UK by much.

Consider Nestle. HQ in Switzerland. Listed on the Swiss exchange. But not actually much of Nestle takes place in Switzerland.

Glencore an even better example. HQ in Switzerland. Home stock market listing is London. Operations are totally global and next to nothing in the UK. But you own it if you own the FTSE All-Share or FTSE 100 (about 84% of the All-Share index).

Make sure UK pension people know your change of address (they are based in Newcastle- was DHSS but the names have changed in my time). Every change of address. over 60 years after my father left England, his widow still receives a UK state pension (she has to go to a lawyer every couple of years and swear that she is still alive).
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: [UK] From random asset allocation to something sensible. Review welcome!

Post by TedSwippet »

Welcome. Good comments already upthread from valuethinker. A few added notes below.
LongTermInvestor5 wrote: Mon Apr 19, 2021 6:25 am 1. Does the split above make sense? Should I invest in US all equities or S&P 500? Is the Pacific ETF good for a UK investor (not sure if it exists in GBP)? Does the bond fund make sense? I'm not sure which kind of bonds I should pick.
If you compare the performance of S&P500 funds with US all-stock funds, you will see that over time there has been virtually no difference. The S&P500 dominates US all-stock, so no particular reason to seek out anything beyond that. Particularly where the charges are higher.

The Pacific ETF you mention, VPL, is US domiciled, and so won't be available to you (Google "PRIIPs" for why). You can probably replace it with a blend of VAPX and VJPN. Once done though, you then have a bunch of components that mostly just replicate an all-world fund. In which case yes, simplification is possible.
LongTermInvestor5 wrote: Mon Apr 19, 2021 6:25 am 2. Is there a way to simplify it? Especially for the "Diversified Equities", is there a fund that already does the US/EU/Pacific/Emerging split above (or something similar)?
You could perhaps use VEVE for developed world and blend that with your emerging markets choice. Or the old stalwart VWRD, potentially blended with emerging markets if you're after a 'tilt'.
LongTermInvestor5 wrote: Mon Apr 19, 2021 6:25 am 3. Considering I plan to move to a country with EUR as currency soon (1 year?), should I invest in EUR denominated funds, or it doesn't make a difference? (I'm using IBKR as broker for the regularly taxed account)
No. A fund's denomination and trading currencies make no difference at all to your returns.

What you should do though, I think, is to hedge your bonds to EUR, and not to GBP as currently in your table. iShares AGGH, perhaps? Or, more ideas in the EU investing wiki page. Given your plans, I think you want to position yourself now as if an EU based investor.
LongTermInvestor5 wrote: Mon Apr 19, 2021 6:25 am 4. My current investments are in an ISA, so I can rebalance without worrying about taxes (but I pay 15 per operation, with 1 free operation per month). What's the best way to move my investments into the new allocation?
Interactive Investor? If you're okay keeping the LifeStrategy funds, and balancing around them, you can shave your trading costs somewhat. They all overlap, but if you break out what's in them and then look at what country allocation this comes out to, you can probably find a way to add other funds to get you where you want. That might also apply to the S&P500 holding. That leaves you needing to sell three funds (not bad, one quarter of 'free' trades), but eight single stocks (this is where you may have to bite the bullet and face some annoying but one-off trading costs).

As a general rule, unless something you hold is at least 5% of your assets, it's probably not going to make any noticeable difference to your results, and so can usually be ditched. Your four smallest holdings all fall below this level. Some individual stock holdings might also; you haven't detailed them.

Final notes.

UK personal pensions are an excellent deal tax-wise, but they come with a remarkably baroque set of rules, unstable ones at that. Also, remember that there is no early access to them (aside from terminal illness). You might be entirely happy with this, or -- depending on where you go next -- holding a 'foreign' (to that country) pension could be a tax nightmare. Look into the details of any tax treaty your new country will have with the UK, and make sure that holding a UK pension for the next nearly three decades isn't going to cause you tax grief. Just a thought.

If you stick with ETFs and avoid funds/OEICs, you may find it relatively smooth to move those as holdings (without sell and repurchase) to IBKR when you leave the UK. At least for anything outside of an ISA (and pension, of course). There might be good tax reasons for sell and repurchase anyway, but better for you to choose that if desirable than be forced into it.
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