The Times seeking views from IFAs

ended 25. February 2022

A journalist at The Times is seeking responses from IFAs to the following questions. Deadline is tomorrow morning at 9am.

  • How many funds would you suggest investors have in their portfolios?
  • If they have too many, how should they go about deciding which to sell?
  • Roughly what percentage of a person's total portfolio should each fund account for? 
  • Should they take profits if a single investment breaches a certain percentage of their portfolio (in overall value terms)?

No need for War and Peace. Keep it nice and punchy.

3 responses from the Newspage community

"Most people should be fine with a portfolio of just 5-10 funds, provided that those funds offer sufficient diversification. However, larger portfolios might benefit from additional diversification via more funds. If people have too many funds, I'd start by looking at the most expensive ones and checking that they've been earning their keep. While past performance is no guide to future performance, it seems daft to keep expensive underperforming funds if there are cheaper alternatives available. "Though, for many people, holding just one well-diversified fund isn't the end of the world, we normally say that people shouldn't have more than 20% in any one fund. If you exceed that 20% figure you might want to review your portfolio but I wouldn't worry if it was, say, 21%."
"'Any idiot can diversify' is a saying from one of the greatest investors of all time: Charlie Munger, Warren Buffett's right-hand man. Whilst we believe philosophically this is true, sometimes it's best to be that idiot. When the smartest, most well-incentivised traders in the world find it tough to beat the market, how is the average investor meant to? This means our recommendation process follows one of two paths. For many of our clients, we simply stick with low-cost index investing. It’s simple, it's low-cost and it consistently achieves very strong results over any period of time you want to look. This is the most suitable option for most investors. "However, we do tend to have some more sophisticated investors who believe Charlie Munger's theory that markets are not efficient and above-average gains can be made. The only way this can be done is through concentration of investments – the exact opposite of diversification. By concentrating on individual stocks or in our case sectors, we are taking a view that those assets will outperform the general market. We tend to use four or five sectors. If you have too many of these, then you become more and more like the market and the job becomes tougher."
"There is no ideal number of funds to have in a portfolio. You can buy excellent funds from the likes of Vanguard that do a good enough job and it's a solitary fund. Having too many funds in a portfolio does not add diversification benefits in my view and dilutes potential investment themes that can be beneficial for performance, such as a long-term holding exposure to technology, or clean energy. It can make a portfolio complex and costly having too many funds. My advice is to blend active and passive across asset classes and my models tend to have 13-15 funds. Only sell funds that don't have a real purpose as it's incorrect to view a fund in isolation as doing badly or well. It's what it does as the sum of all its parts that is important. I would say never have more than £85k in an active fund, or up to the limit of FSCS protections, just in case a firm goes bust. I tend to have larger percentages in passive funds as index trackers are safer in that regard and up to 10% in an active fund as a maximum percentage. Don't trade your portfolio, a lot of people sell winners too early and keep bad stuff in the hope it recovers. Remember the portfolio should be viewed as a whole. You should rebalance the portfolio to manage risk exposures and there is no right or answer to when you do this but I would suggest when markets have moved 10% either way, that may be a good time to rebalance."