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KISS – great for novices or experienced investors

Posted by: Sam Lees
Tags: vintage, kiss
Membership level: Free
 
Are you a novice investor looking for a way to get started?  Or perhaps you are just looking for a simple solution for a smaller portfolio, or because you’re very busy? Either way, there are some great options using the Mixed sectors. What about 117% more than the sector average with a little more risk? Sound interesting?   Let’s take a look. 
 
[P.S. If you are sitting on lots of cash, anxious to re-invest, this is also the opportunity to drip monthly into these funds, over say 12 or 24 months.]
 
In this blog we will look at the different mixed sectors, how you can use them to build a simple portfolio and what the performance is like using our Vintage Fund Ratings (it is good!).
 
Many novices approach investing in entirely the wrong way.  They often jump straight in, investing in eye-catching funds or ones run by star fund managers without any process or discipline.  (Men are often the worst offenders here.)
 
Some tread too cautiously but can still be swayed by a compelling advert or marketing campaign.
 
Others are just too busy, and get stuck in mediocre funds, at best.
 
In each case, our strong suggestion is that you keep it simple (the KISS principle) and focus on one or two funds as part of a process that you apply with discipline.
 
This works just as well if you are an experienced investor looking for a simple solution.
 
But it does not mean you must accept mediocrity, on the contrary.  For example, even if you are cautious, there are some outstanding cautious funds.
 
If you want to keep it simple, then your hunting ground needs to be smaller.  You will want to select funds from fund categories or sectors where the manager can invest broadly across different asset classes, doing the legwork for you.  Here we will limit ourselves to these three fund sectors, dictated by how you characterise yourself: 
  • Cautious investor?  Try Mixed Investment 0-35% Shares sector
  • Relaxed investor?  Mixed Investment 20-60% Shares sector
  • Ambitious investor?  Mixed Investment 40-85% Shares sector
 
Yes, the names of the sectors are horribly uninspiring.  A little explanation helps.
 
For example, the most popular is Mixed Investment 20-60% Shares.  As the name suggests such funds contain between 20% and 60% in equities. 
 
We suggest this sector is appropriate for a novice investor who is informed about the downs as well as the ups of the stock market and is comfortable with this.  The more cautious and ambitious investors sit either side in Mixed 0-35% and Mixed 40-85%.
 
If you are looking for a simple but more evenly spread portfolio then you could select 3 funds, one from each sector. You could then weight the amount you invest based on your age. This is a very simplified approach to our Age Guide Portfolio, where the percentage of your money in the Cautious fund or sector matches your age.
 
For instance, a 30-year-old might invest:
  • 30% in the Mixed 0-35% Shares sector
  • 40% in the Mixed 20-60% Shares sector
  • 30% in the Mixed 40-85% Shares sector
As you get older you would increase the amount in the Mixed 0-35% Shares sector and reduce the amount invested in the other two. This is very much art, not science, so do what is comfortable for you.
 
Lastly, you need a process to select funds (and the discipline to apply it, consistently).  Our Vintage Fund Ratings do this for you. You can see our recent summary here, and Gold Members can download a copy of the latest Vintage Funds 2020 report here.
 
There is much more detail in the full Vintage Report. Here we will just show you a quick overview for each of the Mixed sectors.
 
The portfolios for each sector are created by either selecting the single best fund (Top 1) or the top 3 funds (Top 3) based on their Vintage score. These started in July 2004 and each portfolio is reviewed annually in July.
 
Mixed 0-35% Shares
 
Funds in this sector can invest up to 35% in company shares (equities). At least 45% of the fund must be in fixed income investments. This is a good place to start if you are more cautious.
 
Using Vintage to select funds in this sector gives a nice uplift over the sector average. 
  • The Vintage portfolio selecting the Top 3 funds returned 104% since 2004…
  • 20% more growth than the sector average (84%). This is the best option, Top 3.
  • The risk for the Top 1 portfolio is higher than the sector average, so do note this. Lower risk doesn’t mean “no risk”. In 2008 it fell a lot in a year (see table below the chart). 
 
 
Total return
Annualised return
Worst Month
Worst Year
Vintage Mixed 0-35% Shares - Top 1
98.6
4.4
-17.3
-37.9
Vintage Mixed 0-35% Shares - Top 3
103.8
4.6
-8.3
-14.6
Mixed 0-35% Shares sector average
83.5
3.9
-7.1
-10.7
 
Mixed 20-60% Shares
 
Funds in this sector must have between 20% and 60% invested in company shares (equities) and at least 30% of the fund must be in fixed income or cash. This is for the more balanced investor.
 
Using Vintage to select funds in this sector is even better. 
  • The Vintage portfolio selecting the Top 1 fund returned 167% since 2004…
  • 63% more growth than the sector average (104%).
  • And it is less risky than the sector average.

 
 
Total return
Annualised return
Worst Month
Worst Year
Vintage Mixed 20-60% Shares - Top 1
167.1
6.3
-6.8
-6.3
Vintage Mixed 20-60% Shares - Top 3
162.4
6.2
-12.6
-9.5
Mixed 20-60% Shares sector average
104.5
4.6
-10.0
-15.8
 
Mixed 40-85% Shares
 
Funds in this sector are required to have a range of different investments. However, there is scope for funds to have between 40% and 85% invested in company shares. If you’re more aggressive, you’ll tend to have more in this sector.
 
Using Vintage to select funds in this sector achieves a lot more growth for you. 
  • The Vintage portfolio selecting the Top 3 funds returned 274% since 2004…
  • 117% more growth than the sector average (157%).
  • That is 121% more growth than the FTSE 100 index.
  • Much better returns with equivalent risk.
 
 
 
Total return
Annualised return
Worst Month
Worst Year
Vintage Mixed 40-85% Shares - Top 1
267.2
8.5
-10.6
-19.8
Vintage Mixed 40-85% Shares - Top 3
274.1
8.6
-13.4
-27.9
Mixed 40-85% Shares sector average
157.7
6.1
-11.6
-21.5
 
We recommend that you review Vintage funds annually.  Their quality is such that you may not need to change them annually, but an annual review should be part of your discipline. 
 
If you are a Gold Member, we will also keep you engaged by automatically prompting you every 6 months to check that everything is going according to your plan.  Please make sure you have set up your review period in My Account > Email Preferences.
 
Don’t adopt a “buy-and-forget” approach.  Inertia is one of the biggest roadblocks to you making the best possible gains, because even the very best funds will go off the boil eventually.
 
One part of your strategy must include when you will sell e.g. a stop-loss. With a stop-loss, you literally stop your loss from getting bigger by selling when a fund falls a given amount. You should decide what loss you cannot stomach and then use this as your stop-loss level. For instance, if you cannot take a loss of 10% that would be your stop-loss level.  
 
Using the tools on FundExpert you can also set an early warning stop-loss, which might be 8% if your stop-loss level is 10%. The early warning is to get yourself prepared so that you can act quickly when your stop-loss is hit.
 
 
FURTHER READING
Topic: Generating growth


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