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Post by ludacris on Oct 27, 2017 19:18:01 GMT 7
Thanks so much for the replies. I need a bit of time to think and digest everything.
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Post by rgs2001uk on Oct 27, 2017 21:29:14 GMT 7
Wian Pacific Invest Trust. The attached chart is WPC against PAC. I present it without comment, apart from noting that the management of PAC changed in 2010, which is why I've presented 5 years, rather than my more usual 10. The upper line is PAC. No need to comment, understood. I posted for informational, debate and comparison purposes. There is more to it than picking sectors,then picking the best performer in the sector, a la morning star etc. Its more to do with not putting all your eggs in one basket, as has been mentioned on here before, its not about how these stocks perform on the upswing, but how they perform on the downswing, options dear chap, options.
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AyG
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Post by AyG on Oct 28, 2017 9:25:38 GMT 7
I was rather curious as to the cause of the difference in performance between PAC and WPC.
The first thing I spotted was that they are in different sectors. PAC is Asia-Pacific ex-Japan, whilst WPC is inc-Japan. WPC currently has a 29.8% allocation to Japan. However, that should have helped performance over the last 5 years, with the Nikkei 225 having risen 240% over that period. So that's not the explanation.
Drilling down a bit further I see that PAC is 34.7% India, 2.8% China, whilst WPC is 4.9% India, 15.6% China. The SENSEX is up 180% over the period; SHCOMP, 161%. So, the answer isn't there.
I also looked at discount to NAV, charges and fund size. Nothing there to explain the difference.
I'm stumped. Is this simply difference in stock picking ability? Or is it something else?
Incidentally, whilst PAC has the higher 3 year volatility (16.1% v. 12.7%), it has a lower maximum drawdown (15.8% v. 18.5%).
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Post by ludacris on Oct 28, 2017 14:40:44 GMT 7
Ayg, the investment manager's section in PAC's latest interm report may shed some light on this. Nonetheless, it's a really interesting read: www.pacific-assets.co.uk/uploadedFiles/Content/Pacific_Assets_Trust/Literature/Annual_and_interim_reports/246083%20Pacific%20Assets%20Interim%20WEB.PDFTo reply to Fletch: I chose PAC because it still has good long term returns, good downside risk in bear markets, and the manager's statement above gave me confidence in their ability and philosophy. The other funds with huge short term returns invest in exactly the same stocks that the PAC manager's say they won't invest in, for good reasons. Also, some funds like ATR use derivatives and lots of gearing so they are much riskier. Having said all that, I've changed my allocation from 10% PAC to 5% PAC and 5% ATR on the reasoning that I am looking to take on quite a bit of risk in the portfolio, and ATR has performed well over the past 10+ years, so I think they're doing something right. 5% in a risky fund for the long term is acceptable for me. I like what you said about the emotional reasons connected to the inheritance. I also like your idea of putting in maybe a 50% lump sum now and then averaging in over the next 6 months or so. I still haven't decided but I'm leaning more towards putting it all in or the hybrid way. I won't have access to the funds until late next week, so I've still got some time to make a decision. This is going to be an interesting week with the tax reform legislation and the Fed chair decision just days apart. I just realized starting to average in then putting the rest in at one time if the market corrects is also a possibility (reverse hybrid haha), but people who have been waiting for another correction or crash have been waiting a very long time already! As for which regions I think will have more growth, it's hard to say but I like your suggestions. Developed countries and especially US companies get a lot of their income from overseas already though and I've increased my risk there by having lots of small cap stocks in developed markets. I like what you and others have said about having a core set of holdings and then tweaking smaller percentages to get a few extra points. As a result, I've added a 2.5% allocation to BRFI and I've increased my Japanese holdings with 2.5% in JPS (Japanese small caps). I think Japan will have a lot of growth with automation and robotics which should be huge in the next couple decades. BRFI, more risk in a small allocation for possible extra return. As for the equity and inflation argument, I totally understand what you're saying AyG, but I think sometimes experts and academics analyze too much when to me it can be summed up in just 1 sentence: Equities have an average return after inflation of about 7%, and anything that has a positive real return protects against inflation. I think it's that simple. Of course it won't be true for all time periods, but I'm thinking long term. Inflation connected bonds still have low risk and low return, and although they're linked to the CPI, a lot of people including myself have been saying inflation has been under-reported by governments for a long time and I woudn't trust TIPS bonds to give full protection anyways. I think they're more suited to an income or capital protection portfolio. Here's where I'm at now: US & International Equity (100%) (Holdings, Yield)IDP6.LSE(USD) (25%) iShares S&P Small Cap 600 (600, 0.83%) FCS.LSE (15%) F&C Global Smaller Companies Trust (203, 0.84%) WTAN .LSE (15%) Witan Investment Trust (540, 1.86%) IVPG.LSE (10%) Invesco Perpetual Select Trust –Global Equity Income (54,3.06%) HEFT.LSE (10%) Henderson European Focus Trust (59, 2.01%) PAC.LSE (5%) First State Pacific Assets Trust (Asia exJapan) (57, 1.24%) ATR.LSE (5%) Schroder Asian Total Return (63, 1.28%) JMG.LSE (10%) JP Morgan Emerging Markets Trust (50, 1.2%) JPS.LSE (2.5%) JP Morgan Japan Smaller Companies Trust (89, 0%) BRFI.LSE (2.5%) Blackrock Frontier Markets (40, 3.6%) ______________________________________________________________________________ F&C Global Smaller Companies United States 43% UK 26% Europe 11% Asia 9% Japan 8% Witan Investment Trust North America 23% UK 39% Europe 17% Far East 14% Japan 5% Invesco Perpetual Select Trust – Global Equity Income Europe 39% Americas 34% UK 16% Asia-exJapan 4% Asia Emerging 4% Japan 3% Henderson European Focus Trust Europe 96% US 3% First State Pacific Assets Trust India 35% Taiwan 16% Philippines 7% HK 6% Indonesia 4% Bangladesh 4% Thailand 4% Sri Lanka 3% South Korea 3% Schroder Asian Total Return Hong Kong 22% China 20% Taiwan 15% Australia 14% India 11% South Korea 6% Thailand 3% Philippines 3% Indonesia 2.5% Singapore 2% JP Morgan Emerging Markets Trust India 24% China & HK 15% South Africa 13% Brazil 13% Taiwan 9% Mexico 6% Indonesia 5% Russia 3% South Korea 2% Argentina 1.4% Turkey 1.4% Peru 1.2% UK 1.1% Chile 0.8% Ukraine 0.7% Philippines 0.6% Poland 0.3% Blackrock Frontier Markets Argentina 14% Pakistan 12% Romania 11% Bangladesh 9% Kazakhstan 9% Vietnam 7% Sri Lanka 7% Morocco 6% Ukraine 6% Kenya 6% Kuwait 4% Nigeria 3% Eurasia 2% Slovenia 2% Estonia 2% Caribbean 2% Philippines 1.5% Egypt 0.8% Saudi Arabia 0.1% Portfolio regional allocations (rough calculations):US: 39% Europe: 18% Asia: 18% UK: 11% Emerging: 10% Frontier: 2.5% India: 5% (included in Asia above) Japan: 5% (included in Asia above)
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AyG
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Post by AyG on Oct 28, 2017 15:15:16 GMT 7
IDP6.LSE(USD) (25%) iShares S&P Small Cap 600 (600, 0.83%) FCS.LSE (15%) F&C Global Smaller Companies Trust (203, 0.84%) WTAN .LSE (15%) Witan Investment Trust (540, 1.86%) IVPG.LSE (10%) Invesco Perpetual Select Trust –Global Equity Income (54,3.06%) HEFT.LSE (10%) Henderson European Focus Trust (59, 2.01%) PAC.LSE (5%) First State Pacific Assets Trust (Asia exJapan) (57, 1.24%) ATR.LSE (5%) Schroder Asian Total Return (63, 1.28%) JMG.LSE (10%) JP Morgan Emerging Markets Trust (50, 1.2%) JPS.LSE (2.5%) JP Morgan Japan Smaller Companies Trust (89, 0%) BRFI.LSE (2.5%) Blackrock Frontier Markets (40, 3.6%) A few observations: (1) It seems odd to be using an ETF for US small caps. I would have thought this an area where active fund management should be able to outperform. Also not sure why you're prefer the S&P Small Cap 600 index over the Russell 2000 which also has ETFs. (2) I now believe that frontier markets are more hype than substance. I bought into AFMF (now AFMC) a few years ago and became disillusioned with performance. I sold out at NAV a year or two ago when I had the chance. It's not a sector I'm likely to invest in again. Part of the problem is that it's so diverse. One market may boom, but that will be offset by the dozens that don't. BRFI also has a performance fee and is trading at a significant premium to NAV - both things I don't like. (3) I like the larger number of holdings. It seems more appropriate for a portfolio of your size. However, I do feel that the 25% in US small caps is a little on the high side. I'd have thought 20% maximum would be more appropriate. Personally I only have 5% in the US. I don't want to sound too much the Jeremiah, but I believe that the United States is in terminal decline. It may be a slow and gradual petering out, or there may be some rapid collapse. I think its debt situation is unsustainable, as is its social inequality/injustice. Change will inevitably come, and it will be painful. (4) Would there be some benefit in adding some investments with a long term theme which suggests they will outperform, e.g. natural resources, agriculture, renewable energy, healthcare? Whilst small caps have typically outperformed in the past, there is no guarantee this will continue. Having other strategies which might outperform could be helpful to long term performance. Clearly you have a huge appetite for risk. (I did too when I was younger.) And you're probably going to be in for a very bumpy ride. I hope you have the nerve to stay the course. I also hope you have a clear rebalancing policy. With a portfolio like this that's really important.
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Post by ludacris on Oct 28, 2017 16:43:57 GMT 7
1. I think I was just being stubborn in thinking index funds should be used for the US and the large number of holdings reduces risk, but I didn't want as many holdings as the Russel 2000. IDP6 seems like a good compromise between large caps and the Russell 2000. I'm looking at reducing IDP6 and adding JUSC though. Thanks for the suggestion. 2. I'll take some time to think this over. 3. I guess for that I'm following "A Random Walk Down Wallstreet" that advises 50% US and 50% international, but he may be biased towards the US just as Europeans are biased to Europe. While the US has major problems, I don't share that extreme pessimism. I've had lengthy discussions about a US meltdown with a friend over the years, and if the US has a meltdown like doomsday preppers are preparing for, it will spread worldwide and investments will be the least of our worries. I once saw a psychology lecture where the prof said the only reason things are so peaceful in the classroom is because everyone has enough food to eat. Definitely opened my mind up. If the meltdown is more gradual, there will also be a recovery like there has been every other time in history. If the US does proceed to collapse no matter how slowly see above 4. I'll definitely take a look, although I'm not a big fan of sector picking. I just read an article about how passive index investing has now lead to lack of fear and excessive valuations. It got me thinking about why I'm so comfortable with that much risk. It must be because the financial crash of 2008 didn't really affect me all. I've had a really stable job for 13 years now and I've seen my salary triple and it continues to go up. Now I'm going to do a master's degree in cyber security (which has 0% unemployment and a good outlook) and transition into online work. That helps me feel comfortable with excess risk. The market took only 5 years to recover from the greatest financial crash of all time (less time if you include dividends)! The NY Times even has an article online about the recovery from the 1929 crash was only 4.5 years if you include dividends. I have lots of different qualifications and skills so I'm not worried about being unemployed for a long period of time. I've already changed careers from flying airplanes because of Sept.11 and my airline going bankrupt, and after being through that and recovering I'm not worried about going through roughs times for employment. If it only takes 5 years, or 10 years, or even 15 for markets to recover even after the largest crashes in history, why not go for maximum risk for maximum returns if you won't need to withdraw any money for decades? Even I do put it all in as a lump sum soon and the market crashes 25-50%, I'll be p**sed for sure, but it will be out of my control and the reason for putting it was sound, and it won't affect my daily life at all. I will have the 1 year emergency cash fund as well. I'm definitely going to rebalance. Thanks for all your help and suggestions
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AyG
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Post by AyG on Oct 29, 2017 8:50:37 GMT 7
(1) If you're going for small cap bias, Russell 2000 reaches further down into smaller companies than IDP6. It's therefore a purer implementation of what you're trying to do.
(3) There's a very good reason for being tilted towards one's home market since it allows you to align your investments to the economic growth of that market. (It also eliminates exchange rate risk.) This is why I tilt my portfolio heavily towards Thailand. However, it's necessary to distinguish between "tilting" and "home country bias" which is non-evidence based investing in one's home country. As to what the correct percentage to hold in your home market is, there's no consensus figure. For me, I'm something like 12% in Thailand. That's probably on the low side and is influenced by my beliefs about the transparency of the markets here and the level of corruption.
An alternative view (which I don't subscribe to) is that the best one can do is to match global stock market returns. This leads one to invest according to market capitalisation. For example, the US (market cap $23.8t) is 36% of the world's markets ($65.6t), so one would invest 36% in it. China ($6.6t) 10%, and so forth.
Crashes are becoming, in my opinion, more of an issue. Equity markets across the globe are becoming increasingly correlated. Diversifying regionally no longer has the same protective effect that it used to have. However, as you've said, markets have in the past bounced back relatively quickly in the past. Unfortunately, there's no guarantee that that will happen next time. Markets can stay down for a decade or more (e.g. Japan).
Not only are equity markets increasingly correlated, equity markets are increasingly correlated to bond markets. Conventional bonds are no longer the diversifier they once were.
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Post by Deleted on Oct 29, 2017 9:33:05 GMT 7
Seems so confusing to me , then I am easily confused.
Why not just buy bricks and mortar?
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chiangmai
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Post by chiangmai on Oct 29, 2017 9:54:51 GMT 7
OP: since I've just been through the same process you're going through, a few observations which may help - please note, I am a novice at these things so treat what you see below as opinion only:
There's a discussion in part of the Pension Portfolio thread about the definition of emerging markets. not everyone sees things the same way and there is a more up to date and appropriate definition out there - your JP Morgan EM Trust doesn't quite first the modern definition but that's not a big issue, more one that's interesting and useful in going forward.
I tried to weight Henderson European Focus against Jupiter European, Jupiter won out and I'm pleased with the performance - it's a personal choice thing rather than anything material.
I spent the majority of my time (3 months) trying to get the regional allocations right and frankly much of that time was wasted, knowing that I have 2.5% of 5% of my holdings invested in Slovenia is meaningless so I wouldn't get oo hung up on that level of detail.
Despite being geographically spread in a similar fashion to you (our percentages are very similar) markets are, as AyG points out, very correlated so don't expect that level of diversification to be a panacea (although it will help).
I'm 68 years old and more risk averse than you so my portfolio includes bonds and I'm very pleased that it does, one of my best and most consistent holdings is Twenty Four AM Dynamic Bond Fund which plods along slowly but very very surely and helps me sleep well.
I hold 13 funds in one portfolio and 11 in another, there is some overlap and commonality between the two portfolio's. It has been pointed out to me by several others that I could achieve the same geographic coverage and a more assured outcome by using three or four tracker funds, a topic I'm still deliberating.
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Post by rgs2001uk on Oct 29, 2017 15:27:47 GMT 7
Seems so confusing to me , then I am easily confused. Why not just buy bricks and mortar? One word answer, tax.
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Post by rgs2001uk on Oct 29, 2017 15:30:05 GMT 7
Best of luck OP, you obviously know what you want and have done your homework, hope everything works out for you.
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AyG
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Post by AyG on Oct 29, 2017 15:45:41 GMT 7
Seems so confusing to me , then I am easily confused. Why not just buy bricks and mortar? One word answer, tax. I think it's a bit more than that: - effort required to manage and maintain - lack of diversification - risk of loss of capital (e.g. uninsured loss [my home in Bangkok is not covered if an aircraft or an elephant crashes into it, or if it's damaged as the result of political unrest], collapse of local economy making property virtually worthless) - risk of ghosts should someone die in the property - problems with tenants, and problems with lack of tenants - ultimate loss of capital because nobody is interested in old properties. And that's just off the top of my head.
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Post by ludacris on Oct 29, 2017 17:09:21 GMT 7
There's a ton of good advice here. Thanks so much!
I've got a story about buying bricks and mortar. A friend of mine bought a number of houses in Detroit when the city went bankrupt a few years ago. His thinking was houses were really cheap, like real brick houses for 30-40K USD and the rent for welfare tenants is directly paid to the owner by the gov't. Contrast this to his experience buying a rental house in Canada where it turns out the city he bought in has a law that you can't evict tenants during the winter. So tenants of a certain background all stop paying rent as soon as the snow falls and you can't evict them for months. Plus, some tenants damaged his house and the property management company wouldn't take any responsibility for lack of screening even though they had a past history of damage. Anyways, there was a professional package put together so my friend and a bunch of others could get mortgages for these houses in Detroit from Hong Kong where they're working. I think he bought 4-5 houses and others I know bought more than 10. Everything went fine for the first year or so, and he even sent money for renovations as needed. Then, everything went quiet and the rent stopped. It wasn't until someone actually went to Detroit to see what was going on that they realized the property agent had done a runner, and the whole thing was operated as a ponzi scheme! The agent was using money that was sent for renovations to pay the rent for houses that didn't have tenants, and he probably pocketed a ton as well before he disappeared. The FBI is investigating now. It wasn't a complete scam at least because they do own the actual houses, but the rental market isn't as good as they thought it was originally so some houses are empty, and renovations still need to be done!
I looked into buying a rental property with the inheritance instead of investing it, but like AyG mentioned there's tons of risks and expenses. Also factor in repairs, renovations, property tax, income tax, the price of property nowadays, increasing interest rates, along with unexpected random events like SARS (this disease really affected travel and hit my uncle hard when he had a hotel rental near Vancouver). If I was really interested in property, I would just buy a REIT. Much simpler with fewer headaches.
I just read a BBC article about warehouse automation. It talked about a study that says there will be 17% overall job loss in the US in the next 10 years due to automation. New jobs in technology will only replace 10%, so it still leaves 7% job loss or about 11 million people out of work. I think it could be way higher when almost everyone who drives for a living or works in customer service is out of a job. Combine this with baby-boomers retiring which will also lead to less tax revenue, it doesn't quit make sense to me that US tax reform can dramatically cut taxes (corporate from 35% to 20%) without major debt increases. Maybe the future will be technology companies have sucked up all the money in the world and the rest of us are just paid a living wage by the gov't. Anyways, my point is it may be the worst time period ever to invest an inheritance, but what am I supposed to do - sit on cash or bonds for the next 20 years and watch the market go up if I'm wrong? I re-read chapter 2 in Ton y Robbins' Unshakeable and it talks about getting over your fears of a crash, and in fact everything I've ever read says to ignore the news and follow your plan without emotions. The next crash will probably be something no one's even thought of because of ETF's and index funds reducing risk and everyone knows now not to sell and just wait it out a few years. Having said all that, this point I'll probably put it all in by the end of the year, and if the market does correct afterwards it's out of my control like I said before.
I've done some more tweaking to the portfolio which includes adding some IT's I read about on chiangmai's thread. Chaingmai, I checked out Jupiter but I've stayed with Henderson for the moment. What were your reasons? I've also included the Russel2000 and managed small caps. I thought about adding iShares RBOT (robot and automation), but I don't want to chase performance and I want to avoid individual sectors. I hear what everyone's saying about everything getting more correlated now and geography isn't a good way to reduce risk, but what other ways are there to diversify to decrease risk just looking at equities? I know I could go with less small caps, but I don't want to give up the returns. I'd like to stay away from bonds right now too.
Global (40%) MNKS.LS (8%) Monks Investment Trust (110, 0.2%) SMT.LSE (8%) Scottish Mortgage Trust (80 ,0.7%) FCS.LSE (8%) F&C Global Smaller Companies Trust (203, 0.84%) WTAN.LSE (8%) Witan Investment Trust (540, 1.86%) IVPG.LSE (8%) Invesco Perpetual Select Trust–Global Equity Income (54,3.06%)
US (25%) JUSC.LSE (12.5%) JP Morgan US Smaller Companies Trust (79, 0%) IDP6.LSE(USD) (5%) iShares S&P Small Cap 600 (600, 0.83%) R2US.LSE(USD) (5%) SPDR Russell 2000 US Small Cap (1647, 1.19%) EQQU.LSE(USD) (2.5%) Powershares Nasdaq 100 (100, 0.69%)
Asia (12.5%) PAC.LSE (5%) First State Pacific Assets Trust (Asia exJapan) (57, 1.24%) ATR.LSE (5%) Schroder Asian Total Return (63, 1.28%) JPS.LSE (2.5%) JP Morgan Japan Smaller Companies Trust (89, 0%)
Emerging (12.5%) JMG.LSE (5%) JP Morgan Emerging Markets Trust (50, 1.2%) UEM.LSE (5%) Utilico Emerging Markets Trust (92, 3.1%) BRFI.LSE (2.5%) Blackrock Frontier Markets (40, 3.6%)
Europe (10%) JESC.LSE (5%) JP Morgan European Smaller Companies Trust (53,1.2%) HEFT.LSE (5%) Henderson European Focus Trust (59, 2.01%)
Rough Regional Breakdown US: 40% Asia: 20% Europe: 16% Emerging: 15% UK: 7% India: 5+% (inc. above) Japan: 4.3+% (inc. above)
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chiangmai
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Post by chiangmai on Oct 29, 2017 18:09:42 GMT 7
If it helps any, here's the geographic distribution of my two portfolio's, 60% equities - showing equities only below:
Most recent portfolio
UK 19% US 24% EU 12% Asia 7% Japan 9% India 2% HK 2% Taiwan 2% Sing 0% China 5% Aus/NZ 1% Emerg. 6% Other 10%
Pension portfolio, now substantially altered from the original:
UK 22% US 24% EU 20% Asia 7% Japan 5% India 5% Taiwan 4% China 3% Aus/NZ 1% Emerg. 6% Other 4%
Despite sound advice to the contrary, I have been tracking the daily performance of both of the above for nearly three months. The reason for doing that was to see what if anything I could learn from the behaviour of the different funds and the composition of the two portfolios. The time frame was only three months so it's a very small sample but what I found in that period was that my second portfolio performed consistently better to the downside than did my pension, the falls were less severe. I like to think this might be the result of a more diverse collection of bond funds (I used mixed assets quite heavily in the second portfolio), AyG thinks I'm misguided in this and he may well be right! Regardless of all of that, the returns from the two portfolio's are very similar over the sample period. What I've started to do recently is to compare daily FTSE data against the performance of my holdings to see if I can understand anything on that front.
Finally, Jupiter vs Hendersons. I think Jupiter is more adventurous which I don't mind at all, that's all. And do be very careful with IT's and do heed Fletchsmile's caution, I had not appreciated the extent of it, despite holding Hendersons Diversified Trust, the drop in NAV and any premium to it, at an inconvenient time is a potentially serious issue unless you're going to hold for a long time - he did warn me however!
Finally finally(!) regarding crashes: I have read that there is little benefit either way if you drip feed or lump sum, under normal conditions arguably things currently are not normal. A third approach that may be worth considering is a middle ground, 50% now and 50% spread over say six or twelve months and I think that fits quite well from a risk perspective in today's environment.
I forgot to add, Morningstar is excellent, Trustnet is very good but FT is also very useful for data and views.
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AyG
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Post by AyG on Oct 30, 2017 19:38:03 GMT 7
You say you want to avoid sector investments. RBOT doesn't fit in. Nor does UEM – even though I suggested it. (Despite the name it's an infrastructure trust.) And neither does EQQU, which is very heavily invested in the ludicrously overpriced tech stocks such as – well you can read at www.bloomberg.com/quote/EQQU:LN – it's the usual suspects. If the underlying companies are trading at 40, 50 or more multiples of earnings, then they are simply not worth buying. Particularly in technology, someone new can come along and change the game. Where are Alta Visa, AOL, Yahoo!, Netscape, MySpace and Napster now? Making money is often much more about not losing it than growing it. Maybe this is a silly comment (and I don't mean to be insulting), but tickers are sometimes designed to be “cute” to attract investment. RBOT and EQQU both fit into that category. Make sure you're not swayed by the ticker – many are.
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