Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
There’s a lot to be said for keeping your investments simple.
For my own investing, I’ve always reasoned that the fewer decisions I have to make, the less chance there is that I’ll get any one of those decisions wrong. That’s why I tend to keep my investments distinctly vanilla.
I’ve pared things right back over the years and currently invest via a single fund, balanced between equities and bonds. For a relatively low cost I get exposure to all the major markets globally, my holdings are regularly rebalanced and dividends are reinvested, all without me having to do anything.
It’s worked well recently but I’ve begun to see sense in getting exposure to a wider range of assets. That means giving some thought to what additional assets to include, but also to exactly how I want to build those positions.
Below is a run-through of my thinking, and the plan I will enact over the coming months. Clearly, this is entirely specific to me and is no recommendation for what you should do. It may be useful, however, to anyone thinking about changing their own investment mix.
What I’m adding
My investments currently consist of 80% global equities and 20% bonds. The equities element skews towards the largest markets in the US, UK, Europe and Japan, and shares from these markets make up around 70% of my total investments. Emerging markets account for a little over 9%.
One of my aims in expanding my range of assets is to build up this emerging market equities position, increasing it to closer to 15%. That will add risk and volatility to my overall mix, but I’m happy to accept that for the greater growth potential of emerging markets. I’ll gain this exposure via an emerging markets index fund where costs are low. An ETF - exchange-traded fund - could also work but would trigger a fee to buy, so the open-ended fund that I can move into for free is a better option.
Beyond that, I want to add some assets at the margin of my portfolio that are genuinely different from my existing holdings. I’ve chosen gold and infrastructure and will gain exposure to these via two actively managed funds.
The Ninety One Global Gold fund invests in the shares of gold mining companies. That means returns are still linked to the stock market but tend to reflect movements in the gold price.
The Foresight UK Infrastructure Income Fund is a fund of infrastructure investment trusts. This structure adds some cost but I’m happy to pay for the diversification and rebalancing benefits it brings. Returns are derived from the recurring income from infrastructure projects globally, which include those from renewable energy projects.
I aim to build only small positions in these funds - around 2% of my overall portfolio in each. Both are current inclusions in our Select 50 list of favoured funds.
The final addition I’ll make is a marginal position in emerging market bonds - just 1%. This helps maintain the balance between equities and fixed income investments in my portfolio, and I’ll get exposure via the Principal Finisterre Unconstrained Emerging Market Fixed Income fund, another Select 50 pick.
How I’m building my positions
In making these changes I’m aware that I’m increasing my exposure to new assets, but I want to avoid making a large, wholesale movement into them which could create an immediate risk.
Rather than sell down any of my existing assets to free up the money I need for these new positions, I’ll instead redirect the regular monthly contributions I make for a period until I have the proportions I want.
To do that I’m going to split my regular contributions in two. Half the money will continue to flow into my existing 80% equities, 20% bonds fund which will remain my core holding. The other half will flow into the new funds according to the split outlined above.
Based on the size of my existing investments, and the amounts I invest regularly each month, it will take me around six months to build the positions I want. At that point, I will revise my regular contributions again, increasing the amount flowing into my core 80/20 fund back to 90% of new contributions, with just 10% flowing into the new positions.
These calculations are entirely specific to me and the amounts I’m investing. You’ll have to work out what works for you for yourself. And because asset prices will be constantly moving, it may be necessary to course-correct along the way.
Adding the new positions in this phased way over 6 months may work out to be beneficial from a returns perspective, or it may not - it entirely depends on what asset prices do from here. But it will give me reassurance that I won’t walk into a big negative shock on day one.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Due to the greater possibility of default an investment in a corporate bond is generally less secure than an investment in government bonds. Investments in emerging markets can be more volatile than other more developed markets. the Principal Finisterre Unconstrained Emerging Market Fixed Income fund invests in emerging markets which can be more volatile than other more developed markets. The Ninety One Global Gold fund invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. The Investment Manager’s focus on securities of companies which maintain strong environmental, social and governance (“ESG”) credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a security’s ESG credentials can change over time. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.