I finally got into the index investing club & it only took me nearly 3 years.
If you don’t know my situation, allow me to briefly explain;
I opened my first stocks and shares ISA back in April 2015 through a standard (crappy) broker and I have been buying individual stocks ever since. The problem with this approach is that I’m not an expert stock picker & the excessive costs make it hard to make real progress.
These factors would likely lead me to grossly underperform vs the market in the long term.
Now, I have an ISA via Vanguard. John Bogle created index funds and he founded Vanguard so I should be in safe hands.
The main reasons for me following an index approach are as follows:
- Index funds have minimal fees
- It’s almost impossible to beat the market
- It’s almost impossible to time the market
- Index funds allow for maximum diversification
- Easier to dollar cost average with index funds (no decisions required)
In addition, index fund investing means I’m sure to get my fair share of the market. but what is “the market”? Maybe it’s the FTSE100 or the S&P500?
Could it simply be the index of every stock in the world? It’s hard to say, and on that basis, I’ve opted for 3 different products from Vanguard’s UK selection.
This is a blended fund made up of 80% equities and 20% bonds. What attracts me to this fund is the balance. Obviously, the 20% bonds will hold up(relatively!) well in a crash and provide guaranteed income. It’s also exciting to know that this fund is a fund of funds so there’s pretty much full global diversification.
I plan to add to this fund monthly. Interest and dividends are continuously reinvested back into the respective underlying securities. The fee is 0.22% pa.
I wanted this fund to get heavy exposure to China (Chinese companies make up 30% of the fund). Due to the volatility in emerging markets, I won’t support the fund regularly. I will, however, look to buy cute looking dips. the dividends are reinvested just like the LifeStrategy fund. The fee is 0.27% pa.
I just had to buy this classic! especially having recently read John Bogle’s book on index investing. It’s simple, in the long run, US companies have been able to outperform all the competition. The plan is to try and contribute to this fund on a monthly basis if possible.
This fund has the added benefit of a quarterly dividend (which I’m going to reinvest anyway) & a super low fee of 0.07% pa.
I doubt that it’s best practice to spread across 3 different offerings like this but hey, I’m happy to be investing the way I want to.
All this indexing doesn’t mean I’ve turned my back on picking high-quality stocks. Not at all.
I still have my ISA, where earlier this month, I was able to reinvest in some dividend stocks. I had £200 cash in the account so I bought 4 shares of Unilever @ £40.72 each & 14 shares of BT @ £2.72 with what I had left.
Unilever feels like a buy & hold forever.
On the other hand, I took the opportunity get my average price down with BT. It’s still a long-term hold but I hope to eventually sell some of the shares at a profit for balancing purposes.
Moving forward, I’ll be automatically reinvesting dividends in my ISA account. This will only apply to UK stocks & I’ll be charged just 2%. Once the Freetrade app is operational, I’ll be back buying individual stocks with no fees (sign up to the Freetrade waiting list here).
All these steps will help The Patient Portfolio going in the right direction.
That wraps up my April buys. I’ve been active in crypto, p2p lending etc. this month too but those buys aren’t as interesting as these funds and stocks!
I hope the rest of the month is good for you and your portfolio. Let me know your thought on these buys.