I know that I certainly like hearing about how other people invest their money.
For those of you like me, here is how I am currently investing. If you want slightly more detail about the investments and why I invest this way, check out my post on Choosing an Investment Strategy.
I should point out that I am a really novice investor, so please do not take this as investment advice.
INVESTMENT STRATEGY FOR BEGINNERS
I’m a big fan of Lars Kroijer’s Investing Demystified series and think that’s as good a place as any to start. Lars advises having just two funds in your portfolio – a global index tracker and a “home” government bond index – split according to your risk tolerance. Monevator has also been a huge help in helping my choose funds.
I’ve decided to aim for an 80/20 split between equities and bonds. I’m also going for index funds rather than ETFs. This partly because I understand index funds a little better and also because, as a monthly drip feed investor, the trading fees are less prohibitive.
For those non-UK readers, ISAs (individual savings accounts) are our tax-efficient savings accounts. They can be held in cash or stocks and shares. You can contribute up to £20,000 a year and they are income and capital gains tax free.
To invest in stocks and shares you need to choose an investment platform. Monevator has a great comparison table.
I ended up opting for Lloyds share dealing. As someone who is going to invest by regular payments every month around payday, the fees work out best for me. Time will tell if I like the platform. So far it seems quite simple and well laid out.
My fund breakdown is as follows:
50% in Vanguard Lifestrategy 60 (fund charge of 0.22%). This is a multi-asset “fund of funds” that has 60% in equities and 40% in bonds. Thus it creates my goal of 20% in bonds (albeit this is a range of bonds, not just UK gilts).
45% in Fidelity Index World Fund P (fund charge 0.12%). This is a developed world index tracker.
5% in Fidelity Index Emerging Markets Fund P (fund charge of 0.2%).
This not only gives me a split between funds but also a split between the funds’ custodian trustee. Vanguard’s trustee is State Street; Fidelity’s is JP Morgan. I don’t think it hurts to hedge your bets at every level of the investment flow.
Even if the worst that happens is an administrative delay to accessing my money, I’d rather that not happen. I also have a paranoia about an unprecedented cyber-attack wiping out an institution’s IT system and records. That probably shows my ignorance of the impact of a cyber-attack, but if it helps me sleep at night, I’d rather be over-cautious.
When I have enough invested to justify it I’ll split between two platforms
I’m not ploughing everything into one fund, such as the Vanguard Lifestrategy 80
I’m making sure my funds have at least two different trustees
The country split
One other reason I haven’t invested everything into a VLS fund is that they are quite heavily weighted in UK equities. Instead, I prefer the philosophy of avoiding home market bias and investing according to a country’s weighting in the global market.
I’ve ended up with a bit of a UK bias across both my ISA and pension, but I can live with that.
Here’s how it breaks down:
|European (ex. UK) equities||8.2%|
|Emerging market equities||7.5%|
|UK government bonds||5.5%|
|International government bonds||6.5%|
This might not be exactly accurate as fund information doesn’t always make it clear what falls within “other equities”. As such, the European equities figure is probably higher than the table above suggests, and the “other equities” figure a bit lower. The same applies to the other tables below.
For those that like graphs:
My workplace pension is with Legal & General. The default fund was far too heavily weighted in bonds. It had less than 40% equities. I have therefore chosen my own funds.
Given the longer time horizon before I’ll be drawing on my pension I’m a bit lighter on bonds here: approximately 15%. Some would argue even that’s unnecessarily high.
My pension contributions are 15% of salary. Combined with my employer’s 5% contribution I’ve got 20% of my salary going into my pension.
L&G have a fairly good world (excluding UK) tracker. I’m putting 65% into this fund.
I’m putting 25% into a “Consensus” fund. It’s a multi-asset fund which gives me exposure to UK equities and various bonds. However, it is mostly corporate bonds so I’m also investing 5% in a UK gilts index and another 5% in an inflation-linked gilts index.
The country split
|European (ex. UK) equities||9.8%|
|Emerging market equities||4.9%|
|UK government bonds||11.6%|
|International government bonds||3.2%|
Across my ISA and pension investments it roughtly breaks down like this:
|European (ex. UK) equities||9.0%|
|Emerging market equities||6.2%|
|UK government bonds||8.5%|
|International government bonds||4.8%|