Asset allocation ideas

I think I’ve finally settled on an asset allocation strategy that I feel comfortable with.

I am going to start with a 80/20 split between equities and bonds.

For the bond component, I might use this fund:

Vanguard Investments Funds ICVC-Vanguard U.K. Long Duration Gilt Index Fund A GBP Gross Accumulation

For the equity portion I’m going to keep things simple by using 4 equal chunks:

25% Vanguard US Equity Index Acc
25% Vanguard FTSE Developed Europe ex UK Equity Index Acc
25% Vanguard FTSE U.K. All Share Index Unit Trust Accumulation
25% Vanguard Global Emerging Markets Fund A GBP Acc

Some initial thoughts:

Yes, 80/20 is a little bit high – but better than the 100% equities I currently have! I need a degree of risk if I’m to stand any chance of growing my portfolio to my target £0.5M+ value within the next 10 years.

Yes, I quite like Vanguard funds 🙂 But I will consider other options.

This design makes it easy for me to change the equity/bond ratio in future, if I want less risk. I would just need to change the overall ratio and then divide the equity portion by 4.

I am not sure when the right time will be to implement this allocation strategy – considering my fund is still down following last week’s panic 🙁

Are bonds the right thing to be buying? I’ve heard a lot of negative press about them lately, which I don’t fully understand. I get the feeling the most I would get from them is to cover inflation each year!

Thoughts?

6 Comments

    1. I have – many times in fact. My only concern is the UK bias, which I am trying to correct for in my own choices (as well as create more exposure to emerging markets).

      The volatility does worry me though – already I’m down having made the silly mistake of going all-in with US equities just before the recent correction. Also it really does feel like the bull run we’ve had for so many years may be about to end! I’m so focused on trying to turn my £200K into £500K in just 10 years that I’ve got to be careful with my ‘perceived’ attitude to risk (it soon changes!).

      Thanks for stopping by! I was enjoying your LifeStrategy posts only this morning in fact (hence the Twitter follow). Great blog – will add it to my list on here for others to find.

  1. Yes, I guess we are all long term ‘buy n hold’ investors during the good times but the time to test your/our asset allocation is during the market downturns. Personally, I like the VLS 60 balance but of course, everyone needs to find the right mix for their temperament.

    Thanks for adding to your blog list.

  2. Do you really want long duration gilts in an environment where interest rates are likely to rise? I don’t think I would (I hold none) and remember the longer the duration the greater the sensitivity to movements in rates (either way). I would suck it up and keep it short duration – ishares have a 0 to 5 year gilt fund and a 0 to 5 corporate bond fund. The important thing about the fixed interest element is to keep powder dry for rebalancing into equities when they become cheap. Good luck.

  3. I should mug up on duration before doing anything.

    Returns at the short end – 0 to 5 years to redemption are low but that’s where the world is and if you are 80/20 equity bonds I should think about keeping your bond allocation short and of high quality. Take your risk in stocks, and not bonds, where there seems to be lots of risk but not much return.

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