chiangmai
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Post by chiangmai on Aug 5, 2017 9:26:18 GMT 7
Yes it does look better and I think it's the model I will use and try to evolve my pension portfolio towards that structure, over time. Trouble is now I find myself having to begin a search for six new bond funds that are better spread geographically, along with two equity funds.....work work work. I'm covered on the IHT front so not a problem. But I'm somewhat loathe to get involved in a new territory, along with all that entails, as Fletch suggested earlier it may be a case of and rather than or. I like the idea of selling a small percentage of acc. funds each year, it's simple and effective, however the potential for a return to the UK makes me hesitate a little, especially since smokie's been talking about craft ales in the UK.
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Post by Fletchsmile on Aug 5, 2017 14:52:55 GMT 7
.... I like the idea of selling a small percentage of acc. funds each year, it's simple and effective, however the potential for a return to the UK makes me hesitate a little, especially since smokie's been talking about craft ales in the UK. Just on that aspect of selling a small percentage each year, this is something you need to be additionally careful of if you select investment trusts in your portfolio compared to unit trusts. Over long periods of time, the hope is that discount to net assets aspect evens out. But unfortunately it doesn't always do that With investment trusts the discount to net asset value is somewhat unpredictable. It can also prove to be quite inconvenient, and widen at the most inconvenient of times when you want to sell, and narrow or even go to premiums when you are looking to buy. Because of supply and demand this isn't a random walk or symmetric either. (Unit trusts on the other hand, you always get based on NAV.) In a bear market prices drop (=first loss), as there are more sellers than buyers the discount to NAV also often widens (second loss), and sometimes liquidity/volumes drop making it difficult to get good prices on the volumes you want (=possible 3rd loss). A triple whammy if you like, compared to unit trusts which just lose one of these 3 as the NAV price drops. Unfortunately the idea that discounts to NAV even out on average is untrue in downturns. In bear markets by definition the sellers are the dominant force so long equity funds don't shoot to premiums to compensate like they may do more randomly in normal times. The discount widens in the absence of buyers Portfolio survival rates can be severely affected by takeouts in down turns and investment trusts have the disadvantage of excaberating these. eg taking 5 out on 100 (5%) is OK in normal times. But if the market tanks 40% you're than taking out 5 on 60, leaving you with 55. For an investment trust the discount could widen 10% so you could end up taking say 5 on 55, and at unfavourable prices or volumes to boot: For 95 to get back to 100 needs a rise of 5.3% (normal times) For 55 to go back to 100 needs a rise of 81.8% (crash times) For 50 to go back to 100 needs a rise of 100% (crash times made worse by using ITs) For retirement planning survival rates are important and this aspect is more important compared to say the person just holding long term for total returns and rarely taking out. On the other hand you may get higher highs in good times, but for retirement portfolios higher highs and lower lows pose more risks. The retiree will naturally be selling/taking out only, whereas the wealth builder will be buying and possibly selling so more likely to get things evening out So the investment trust holder needs to think more carefully how they do this if selling units. Maybe a larger cash buffer to compensate and wait/hope for normality to return in the discount. Maybe take more in good times (considering also the discount) and less in bad times - though this gives volatility/uncertainty in takeouts Another possible strategy: For the investment trusts I hold I generally hold them for dividend paying stocks. I rarely sell and just collect the natural income. So I don't care too much about the discount to NAV side, as I'm not selling anyway even in bear markets. (Note: you can still find if a fund has been consistently performing poorly its discount widens) A final note on this. Think where we are now in the cycle: We've had several years of good times in equity markets and for many ITs discounts to NAV have narrowed and some even gone to premiums: 1) This may artificially inflate past performance so measure movement in NAV not share price 2) the good times don't last forever, so given where we are in the market cycles those discounts are going to start widening again sooner or later when the bad times roll and the premiums being paid will disappear. This additional risk of discounts widening on the ITs I hold is something I am mindful of BTW On the flip side they can be great vehicles to buy thru after a market crash when the discounts have widened and premiums disappeared - for those brave enough Just some additional complexities to think of with investment trusts and how you will deal with them. In your case, you've mainly unit trusts, so less concern unless you start adding significantly, plus for larger trusts like Witan you are considering it's less of an issue and there's more liquidity. Some of the smaller more specialised ITs can be a real pain, and at the worst times too
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AyG
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Post by AyG on Aug 5, 2017 16:43:19 GMT 7
.... I like the idea of selling a small percentage of acc. funds each year, it's simple and effective, however the potential for a return to the UK makes me hesitate a little, especially since smokie's been talking about craft ales in the UK. Just on that aspect of selling a small percentage each year, this is something you need to be additionally careful of if you select investment trusts in your portfolio compared to unit trusts. A bit off the mark. I specifically suggested two strategies: (1) Hold (UK) offshore, including investment trusts and ETFs since the range of offshore funds is unfamiliar. (2) Hold (UK) onshore, buying accumulation units in unit trusts/OEICS (not investment trusts), and selling a small percentage to take advantage of CGT rules. I didn't suggest selling a small percentage of investment trusts each year.
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chiangmai
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Post by chiangmai on Aug 5, 2017 18:58:28 GMT 7
My take on that is that Fletch was cautioning me rather than disagreeing with you, it's actually a very useful aspect I was not aware of.
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Post by Fletchsmile on Aug 5, 2017 19:17:58 GMT 7
Yes. Wasn't disagreeing with the specific recommendations. Just a general caution that if someone is going to apply the strategy of selling small amounts to generate retirement "income" then extra care is needed if doing that with ITs.
Unit trusts, OEICS etc are simpler and generally less risky for that purpose.
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chiangmai
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Post by chiangmai on Aug 5, 2017 19:59:40 GMT 7
I read however that statistically, investment trusts may have the edge performance wise: "A study by Canaccord Genuity demonstrated that, on average, trusts in 14 out of 16 sizeable sectors outperformed open-ended funds in terms of share price total returns over both five and 10 years to the end of 2013 – in many cases by a wide margin. Further analysis by the stockbroker, comparing five-year share price total returns on 20 trusts with those of funds with the same manager and mandate, indicate that the trust outperformed the fund in every case". www.telegraph.co.uk/sponsored/finance/investments/11482789/investment-trust-advantages-dividends-risks.html
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Post by rgs2001uk on Aug 5, 2017 20:44:06 GMT 7
^^^^ I am a great fan of ITs, I am aware they aint for everyone. I work on the premise, if I dont understand I dont touch it/invest in it, ITs have served me well over the years and continue to do so. At the end of the day, its a personal portfolio, just because I am happy with it doesnt mean others will, and vice versa.
Its horses for courses, we all have differing needs and wants.
ITs offer me the option of having the dividends reinvested, or being drip fed into my bank account, at the moment, they are reinvested, that may well change in the future, and probably will.
Another option is to drip feed them into the market and sell them off in blocks of lets say 2,000 quid per month.
I agree with previous post about having enough money to keep you going for the next X years without having to sell anything. At this moment in time I aint the greatest fan of banks or the miserly interest rates offered, however at the end of the day, its cash that can be withdrawn instantly.
For CM, my portfolio I view has painting the Forth Rd Bridge, its an on going process, review periodically and revise as needed. Its not a dump the cash and forget about it lazy mans way to invest. What suited me a few years ago may not suit today.
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chiangmai
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Post by chiangmai on Aug 5, 2017 20:53:59 GMT 7
rgs - I have a good supply of paintbrushes to hand and my overalls have been pressed! I keep coming back to this, www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=TGFEVolatility is a worry as is the assigned risk level but it has lots of other very positive points including geographic and sector diversity, quartile rankings and performance. Any views anyone?
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Post by rgs2001uk on Aug 5, 2017 21:44:51 GMT 7
CM, lucky for me I made it off the hangar floor years ago and into the nice air conditioned offices, doubt it my old ovies would fit these days. Thankfully cheap Burmese labour is near at hand.
Way too deep at this time of night, will review your link tomorrow.
FWIW, a breakdown of my stockbroker account, which I mentioned before accounts for about 40% of my portfolio. Some notes and my own thoughts are mentioned.
Cash 2.4%
Global Equity Funds 34% Henderson FE Income, nice 5.4% divi, JP Morgan Emer Markets will be sold despite the 3.9% divi
Financials 7.7% Prudential
Consumer Goods 23.3% ABF, Diagio, Unilever
Health Care 6.2% Smith & Nephew, WorldWide Healthcare Trust
Consumer Services 3.7% Whitbread
Technology 4.9% Polar Capital Technology Trust
Utilities 2.8% Centrica, Severn Trent Both will be sold
Oil & Gas 9.0% BP, Royal Dutch Shell 6.6 and 6.5% dividend
Basic Materials 6.0% BHP Billiton, Croda, Rio Tinto BHP 5% divi and RT 5.4% divi.
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chiangmai
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Post by chiangmai on Aug 6, 2017 5:49:13 GMT 7
I was going cross eyed evaluating funds so I thought I'd read some economic reviews and try to checkpoint where we are in the economic cycle, I figured that might help reaffirm my asset allocation or not. I came across the following which was published at the turn of the year hence there's some rear view mirror stuff in there now but it's still useful to understand, even if it does come from and Investment Management Company : personal.vanguard.com/pdf/ISGVEMO.pdf. A pretty comprehensive review which reinforces slow growth, continued low interest rates, some key phrases: Outlook for global stocks and bonds remains the most guarded in ten years The return outlook for fixed income remains positive yet muted. The outlook for portfolio returns is modest across all asset allocations when compared with the heady returns experienced since the depths of the Global Financial Crisis. Our medium-run outlook for global equities remains guarded in the 5%–8% range. Developed economies will struggle to consistently achieve 2% core inflation My take away after reading that (and some other stuff) is that risk has increased and that there is quite a strong need for a defensive element in my holdings - bonds, whilst not producing stellar returns at present and appearing to be semi dormant overhead, are actually still very important to mitigating portfolio risk. Younger studs who are still earning big bucks may care less than we oldies about the risk aspect yet I like to think that if I were their age, I would care because it's easier to hang on to existing money than it is to earn new money. Back to the search for bond funds, argh!
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Post by Fletchsmile on Aug 6, 2017 15:54:29 GMT 7
I read however that statistically, investment trusts may have the edge performance wise: "A study by Canaccord Genuity demonstrated that, on average, trusts in 14 out of 16 sizeable sectors outperformed open-ended funds in terms of share price total returns over both five and 10 years to the end of 2013 – in many cases by a wide margin. Further analysis by the stockbroker, comparing five-year share price total returns on 20 trusts with those of funds with the same manager and mandate, indicate that the trust outperformed the fund in every case". www.telegraph.co.uk/sponsored/finance/investments/11482789/investment-trust-advantages-dividends-risks.htmlI'd expect statistically on average long term for ITs to have a slight edge over UTs because of slightly lower ongoing charges. There's often occasions where the a fund manager managed both an IT and a UT with similar mandates. In days gone by HL use to focus quite a bit more on investment trusts and do such comparisons. One thing that gets overlooked though and excluded from the performance charts is that UTs these days you can often get in and out again at no initial charge. ITs have brokerage charges. You may also not be able to get the entire volumes you want on ITs and accept lower prices. Timing and the discount/premium to NAV are important considerations for ITs. In days gone by HL used to do reviews of when a IT by the same manager might represent better value than the UT. e.g. if the discount is much wider than usual, after say a market has tanked, the IT may represent an opportunity. On the other hand if trading at a premium a switch to the UT may be warranted. I don't see those articles so much these days. While I'd expect ITs to have an edge, I'd take that particular study with a pinch of salt. Timing and dates are key when looking at IT share price performance Two big factors immediately jumped out before reading when they mention 2013 that would distort results: 1) On the 5 year performance it would start 31 Dec 2008. Right after the GFC. Markets had tanked so I'd expect the discount to NAV to be very wide and ITs to look very good value. Many major indices had fallen 40% to 50%. Some more some less 2) 2013 followed a couple of strong years in a bull market. Many markets recorded double digit gains, so discount to NAVs would be much narrower and some even maybe at premiums. This would affect both the 5 year and 10 year stats So the ITs would be starting from a much lower base and wide discounts after being beaten up and would finish with relatively higher bases because of the discount/premium I did a quick google to check my theory and expectations and found this article near top of the list also from the Telegraph www.telegraph.co.uk/investing/funds/investment-trust-bargains-are-back--how-spot-a-cheap-fund-and-ti/It confirmed what I expected. 31 Dec 2008 the average investment trust discount was -17.8% and close to the widest discounts in the chart. You basically had to go back to the Asian Financial Crisis aftermath to find something that wide. By the end of 31 Dec 2013 when they ended their stats that discount was closest to the narrowest it's been in the last 20 years at around -3.5% Given the article is sort of promoting the case for ITs I think they've very much cherry picked the data. Also given it was written in April 2015, wouldn't the 5 and 10 year period to 2014 have been more obvious? Starting at the end of 2009 which was a strong performance year may well have thrown up modified results. (The average discount by the way then was -10.9% already quite a bit in from 17% or so) So anyway for the dates they chose, the average discount had narrowed +14.3%. If the markets went nowhere then excluding charges like for like the share price of an IT would outperform an identical UT by 14.3%. i.e if the NAV went nowhere, the UTs NAV would remain with 0% gain , and the IT would have 0% NAV gain but double digits gain in the share price (=100/85.7 = 16.6%). That would obviously skew any data. That 16.6% is big enough in itself but the impact on a gaining market would be even greater, as demonstrated below. Let's assume the NAV double in that period as an example. Many indices did eg FTS250, S&P500 indices did more Let's assume the NAV on 31/12/2008 of both the UT and IT was 100 So: UT price and NAV = 100 IT NAV = 100. But price = 100 -17.8 discount = 82.2 5 years later both NAVs have doubled (again ignoring charges) UT NAV = 200 IT NAV = 200. Share price is now 200 - 3.5% dicscount = 200 -7 = 193 So: UT NAV has gained 100% IT NAV has gained 100% IT share price has gained 135% (from 82.2 to 193) Notice also how the difference is not simply 14.3% the movement in discount to NAV. It is much larger at 35% extra as it gets compounded by the NAV growth. The two fund managers held exactly the same share portfolios and both created exactly the same value just the share price distortions because of the discount to NAV This concept is frequently omitted in these analysis. Hence why I say take with a pinch of salt. It's also why I prefer comparing NAVs. Even if people do think about the NAV discount they forget the compounding effect Looking forward, there's not a cat in hells' chance of the discount moving another 14.3% in your favour in the next 5-10 years if it stands at all time highs of -3.5%. No way the average would go to 11%+ premium. Looking forward is also important. After 2013 I'd have said in the next 5-10 years there's more chance of the discount widening and going against you if it's at all time bests. No-one knows when, but it will revert back at some point. So ironically it may have been better to choose a UT at the point they were recommending them - close to the peaks in the discounts narrowing. Worth noting how in the 2nd article I found the discounts did start widening again in the next couple of years on their graph These are concepts why I think an IT investor needs to be more experienced than a UT investor. Yes I do think on average like for like IT's should have an edge on performance, but there's the additional complexities and risks that come with that. Generalising: In market cycles ITs can provide extra opportunity after large crashes. But after strong bull runs they provide additional risks. Widening of discounts may further compound losses and outweigh any savings in fees So it pays to know where we are in these cycles when we are buying ITs, which itself is often only known in hindsight. Also where's that cycle going to be in the future when you want to sell - which is even less of a known So looking forward, we're definitely not now just after a crash. Discounts to NAV are narrower than historical averages of the last 20 years.... will the market be in a bull run mid-cycle or have tanked when you come to sell?
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chiangmai
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Post by chiangmai on Aug 7, 2017 2:36:59 GMT 7
As non-UK resident you are not subject to CGT. However, if you become resident again, Hector will claim CGT on any capital gains in the 5 years prior to rebecoming resident. SIPPS (which I what I presume you have) are not subject to CGT at all, resident or non-resident. Does the five year rule still apply if you've liquidated the portfolio prior to becoming UK resident again, presumably not? Another strategy might be to establish and operate the portfolio free of CG whilst offshore and then just prior to any return, bed and breakfast the portfolio to reset the CG date and eliminate the 5year history?
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AyG
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Post by AyG on Aug 7, 2017 7:16:08 GMT 7
As non-UK resident you are not subject to CGT. However, if you become resident again, Hector will claim CGT on any capital gains in the 5 years prior to rebecoming resident. SIPPS (which I what I presume you have) are not subject to CGT at all, resident or non-resident. Does the five year rule still apply if you've liquidated the portfolio prior to becoming UK resident again, presumably not? Another strategy might be to establish and operate the portfolio free of CG whilst offshore and then just prior to any return, bed and breakfast the portfolio to reset the CG date and eliminate the 5year history? Sorry, I've got the rules wrong. CGT is only payable if you return to the UK within 5 years of becoming non-resident. If you're non-resident for longer than that you don't need to worry about CGT upon your return. Any capital gains realised in the 5 year period are subject to CGT on becoming resident again. Liquidating your portfolio or bed and breakfasting it crystalises any gains, so you'll be subject to CGT.
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chiangmai
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Post by chiangmai on Aug 7, 2017 8:42:53 GMT 7
Does the five year rule still apply if you've liquidated the portfolio prior to becoming UK resident again, presumably not? Another strategy might be to establish and operate the portfolio free of CG whilst offshore and then just prior to any return, bed and breakfast the portfolio to reset the CG date and eliminate the 5year history? Sorry, I've got the rules wrong. CGT is only payable if you return to the UK within 5 years of becoming non-resident. If you're non-resident for longer than that you don't need to worry about CGT upon your return. Any capital gains realised in the 5 year period are subject to CGT on becoming resident again. Liquidating your portfolio or bed and breakfasting it crystalises any gains, so you'll be subject to CGT. Thanks. I've been non-resident for thirteen years so I'm safe on that point. Presumably an existing portfolio that is established whilst non-resident and operated for several years, is revalued at the point where the returning expat becomes resident once again (assume expatriation of more than 5 years), that revaluation being the baseline for future capital gains.
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AyG
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Post by AyG on Aug 7, 2017 9:58:38 GMT 7
Presumably an existing portfolio that is established whilst non-resident and operated for several years, is revalued at the point where the returning expat becomes resident once again (assume expatriation of more than 5 years), that revaluation being the baseline for future capital gains. I think that is broadly correct. However, I believe the treatment is based upon tax years, and there is probably special treatment when you return to the UK during a tax year. There may well be tax to pay on gains realised before returning, but after the start of the tax year. As for revaluation, I think that would be based upon the value at the start of the tax year when you return, not the actual date of return. Please don't rely on what I've written. I may be utterly wrong. It's a complex area I haven't had to look into in detail.
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