Diversifying Vanguard Index Funds & ETFs

[happygirl1016]

Hi,

Novice investor here.

I was wondering what the consensus is regarding the diversification of funds on Vanguard UK?

I am aware that it obviously makes no sense to buy overlapping funds. I have had a look through some of the funds and ETFs which hold 100s to 1000s of stocks, and generally found quite significant overlap in the majority holdings.

Does anyone know of pairs or combinations that would be truly diversified? E.g. Holding Global All Cap + X + Y (Index Trackers or ETFs)?

I know you can diversify by equities vs bonds, but was hoping to achieve diversification initially in equities.

In addition, from a cost / charge perspective, are you worse off in terms of fees for holding more funds?

Thanks!

 

[resjudicata]

@happygirl1016 Looking at Vanguard funds if you hold All-Cap you essentially hold every available listed company in the world.

Investing in any of their other equity funds just means duplicating and going overweight on a different sector.

You may want this. E.g. You might want to go overweight on the U.K. for currency reasons, emerging markets as you want higher risk, use factor investing like momentum funds as you think this will provide a better return.

If you want a passive approach the All-Cap is really all you probably need.

It's tempting when you start to have a range of funds, but it's not really necessary. I certainly fell into that trap.

It is possible to save a small amount in fees by replicating a global tracker with other funds. So some people go roughly 85% Dev World Ex-Uk, 5% U.K. All-Share and 10% Emerging Markets. That doesn't include small-cap though.

With a Vanguard ISA there is no cost to having more funds. If your portfolio grows you will probably start to be better off with a flat fee broker (II, Iweb etc). At that point fewer funds will be cheaper to buy as you pay per transaction. Not really an issue unless you have around £45,000 invested though.

 

[happygirl1016]

@resjudicata Great - this is good to know! Currently only at around 15k, but planning to invest around 700-900 a month, so this is good to know for medium term future!

 

[livingwell]

@happygirl1016 You’re not usually worse off by holding more funds as you’re charged a percentage, rather than a flat fee.

Does vanguard offer model portfolios? I can give you a link to the platform I use which gives examples to follow when you’re starting out. I’m relatively new to this but I have about 8 funds, 6 of them from the model portfolio. The other 2 came from a financial advisor in the family. He doesn’t manage my money, I just ring up and say what should I buy?

 

[happygirl1016]

@livingwell Thanks! Not too sure whether they do but would be open to platform suggestion

 

[livingwell]

@happygirl1016 https://www.cavendishonline.co.uk/funds

You can see funds as usual with any platform but if you change it to model portfolio then you will be able to look at some suggestions based on risk. As I’m young with nothing to lose, I started with the high risk growth. Now I’ve started adding more funds with long term results suggested by my financial adviser.

 

[jb21]

@happygirl1016 You need to think about the most appropriate equities / bonds split for your age and investment horizon.

Maybe look at Vanguard's 'Target Retirement' and 'Life Strategy' funds for any idea of suggested model portfolios based on timelines and comfort levels of risk / volatility.

 

[namlien]

@happygirl1016

Does anyone know of pairs or combinations that would be truly diversified? E.g. Holding Global All Cap + X + Y (Index Trackers or ETFs)?
I know you can diversify by equities vs bonds, but was hoping to achieve diversification initially in equities.

the All Cap, by definition, is already perfectly diversified for equities.

 

[happygirl1016]

@namlien Thanks for confirming