How to Beat Vanguard Index Funds (Factor Investing)
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- เผยแพร่เมื่อ 28 พ.ค. 2024
- Vanguard index funds have revolutionised investing. But if you’ve already got your head around index investing - you’re going to love this…
Factor investing is a strategy designed to systematically provide higher risk-adjusted returns than the market. But… it’s complicated and you’re going to have to take some pain to get there.
I expect this video will raise more questions than it answers. You should spend a lot more time researching factors before you decide to jump in.
Factor investing is a very technical “nerdy” approach to investing that requires you to get cosy with the empirical evidence. If this is the start of your factor investing journey then good luck! The rabbit hole goes deep. I’ve provided a list of sources and further reading material to get you on your way:
Further reading & sources from the video:
Rational Reminder Podcast - What are Factors
• Using Factors to Spot ...
Monevator - Intro to factor investing
monevator.com/how-big-are-the...
Ben Felix - Small Cap & Value
• Small Cap and Value St...
Ben Felix - Factor Investing with ETFs
• Five Factor Investing ...
Monevator - The low Volatility premium
monevator.com/low-volatility-...
Rational Reminder Podcast - From Index Investing to Factor Investing at Vanguard
• RR #173 - Antonio Picc...
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DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice - James is not responsible for investment actions taken by viewers. Please seek out a regulated advisor if you require assistance (while James is a financial adviser, he does not provide advice through this TH-cam Channel, which is not affiliated with his employer).
0:00 Intro
1:34 Capital Asset Pricing Model
4:46 Three-Factor Model
6:09 How high are we talking?
7:44 Factor Diversification
9:38 Underperformance
11:14 Should you be Factor Investing?
James Shack™ property of James Shackell
Copyright © James Shackell 2022. All rights reserved.
The author asserts their moral right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this channel and any video published on it.
CORRECTIONS:
0:45 - Index funds are not guaranteed to beat 80% of active investors (but they have in the past)
1:35 - Investing is more like a social science. In physics, there are laws we can rely on every time, where as social science is about learning from trends and patters that have occurred in the past, but, no matter how much evidence there is, we cannot be certain they will continue in the future.
Could you please share what's your top 3 index Fund?! Greatly appreciated 🙏
@@moniryousefian8782 To buy on LSE, iShares ticker IWFM is World momentum factor. That ETF has 4 stars from Morningstar RatingsTM. But you wouldn't put invest all your eggs in 1 factor. iShares World Size Factor ticker is IWFS. iShares World Minimum Volatility Factor ticker MINV. iShares World Quality Factor is IWFQ. iShares World Value Factor is IWFV. Plus you need a bond ETF like LQDG (trades in GBP) or HLQD (trades in USD though both ETFs invest into USD corporate bonds), or construct a gilts ladder, for bond component of portfolio. Once you set that portfolio up it's for the long term at least 5 years+. Not for short term cash requirements. And not for frequent trading. And those ETFs aren't investment recommendations, it's just easy to find the Factsheet, KID and Prospectus for each of those Factor based ETFs on iShares UK website compared to the other asset managers because Blackrock (the asset manager behind them) are huge. You can create a dummy portfolio on FT.com under the portfolio section, with imaginary allocations to the ETFs you are thinking to invest in ("buy" your planned allocation of each ETF at the same date in the past for all of them at closing price, it shows you how it does over the years). That site also lets you graph each ETF by clicking on the name and choose other ETFs as comparators, so you visualise their relative volatility. If you want an audiobook on how index based investing was first invented - and how Blackrock later bought iShares from Barclays Global Investors after the 2008 world financial crisis when Barclays needed cash badly to avoid a bailout like RBS, and sold off the finest silver (its iShares unit) it had to get that - read Trillions by Robin Wigglesworth.
Bro your kitchen is SO NICE.
Ha, you should see all the crap that's piled up on the table behind me out of shot!
And thank you. I can't take any credit for it tho (WIFE).
@@JamesShack Not heard of the WIFE ticker before, is that an ETF?
@@rebel1052k haha. Yes - that’s it. I think it costs more than Berkshire shares. Probably due a stock split.
Don't forget there are costs associated with owning multiple funds and rebalancing across them. Transaction fees, taxable events, time out of the market and perhaps additional management fees. The most powerful advantage that index funds offer is their VERY low costs. The less you pay the more you compound which can be 100,000 dollars or more in missed compounding across the life of an investor building a retirement. so with any strategy not only must you outperform the market, but you must also do it by more than the additional costs you are incurring.
There is also a risk in putting too much significance on the predictive power of back testing. Did smaller companies outperform in aggregate because of inherent factors related to their size or was that a result of a confounding variable like favorable economic conditions, the regulatory environment, tax policy, etc? Value stocks had a long period of outperformance but now value strategies are well understood and well subscribed to, is the advantage they had now priced into the market?
Haha. Yes. Imagine having to keep the faith year after year after year. To be fair to James these thoughts must have occurred to him. It'd be very nice to know how well his own investments have done over a significant period, and it'd be great if he could try to answer your points, which are spot on. Re multiple funds and rebalancing, there are in fact some iShares retail "factor-based" ETFs ... e.g. US46434V2741. OGC 0.15%.
I think better stick with low cost cap weighted broad market index funds etfs. You then get exposure to everything, the momentum, the value and growth etc at low cost
@@fredatlas4396 agreed
@@fredatlas4396 The market portfolio doesn't have exposure to any other factors, because you own companies with positive and with negative factor exposure, which cancel out.
I think I have a pretty good reason to stick with factor investing: There is the possibility that the market does poorly for an extended period of time but the other factors behaving better, so I feel safer taking multiple independent risks rather than depending on a single one.
I follow masses of financial youtubers, but you consistently add so much value. I've grown bored of some as I'm not learning anything new, but I always learn from you. Thanks for your time to educate us.
You're welcome!
It just further endorses the requirement to start investing as early as possible and to ignore all the ups and downs.
I have 6 years to retirement, and I need a lot of growth out of the markets during this time to have a comfortable retirement.
Younger people should be very grateful that channels like this exist to educate people on finance.
This should be a standard part of the school curriculum.
I've left lots of links to further videos/reading in the description, please check them out!
Thank you very much dear James!
Great video James. I started factor investing or using tilts after reading Tim Hale's Smarter Investing. My utter disappointment when vanguard withdrew all the factor funds a while after. What is the best platform to factor invest in the UK and can it be done (at least to some degree) with Vanguard still?
@@calum6590 iShares have a range of funds that are supposed to do the same thing and you can buy them through brokers like HL.
However, I've never done any research on them so I'm not sure about the underlying methodology.
Another great video James - any chance you could cover Investment Trusts?
Love your videos. Highly clear and informative !!!
Hi James, I like all of your videos but this is probably my favourite, amazing distilling of knowledge!
Quick questions in the % of 5 year periods positive figure, what is the comparison against the momentum stock? What is it beating 94% of the time?
Thanks again for explaining factor investing which I was completely unaware of. I think index investing is the best approach for me. It will be good to hear your thoughts re the much talked about new kid on the block- invest engine vs vanguard. Is that possible?
This is good stuff and reminds me of an investing book I have in my library called - The Prudent Investors Guide to Beating the Market. A very good read!
love the idea, but if i invested in small cap and value and then they unperformed for 20 years id really kick myself. Especially because my investment horizon needs to be somewhat flexible, as you never know when you want to buy the Tesla ;) Looking at other videos, momentum and quality look more consistent with shorter draw-down periods over the past 40 years, maybe that's something for me to consider. Great video as always, cheers James.
Really interesting video James. Factor investing is definitely something I’d like to learn more about and then I’ll decide if I’ve got the stomach for it! Thanks for the great content 👍
No problem, and thanks for your continued support of the channel!
Yes, it's definitely one to mull over. That's why I don't want to just put out a portfolio that people could copy without understanding it. You need to do the research yourself and fully get behind it before you dive in!
Thanks for introducing this concept to me, I appreciate your balanced delivery on these topics. It’s really helpful that you highlight both the positive and negative aspects. Keep up the great work.
Thanks Ian, I will do.
Great content. New subscriber. Thanks from Brazil.
Thanks!
Have I just found a gem? Subscribed!
Thank you, great insight.
You're very welcome
+1 for further videos exploring the ishares funds. I found my way to this video after listening to the rational reminder and would love to have a genuine multi factor option in the UK. Possibly exploring the difference between this and the Dimensional approach?
Youve certainly piqued my interest, thanks very much for the video.
My pleasure!
very wise advise. thanks
Hi Ben, would you consider doing a video on the Ishares factor ETF's with couple of sample portfolios for people at different points in their investing journey. I.e. 30 year old, 50 year old 65 year old etc. Thank you for such fantastic content.
Very Interesting. I suppose factor investing would not be recommended for people commencing, or already drawing down (due to periods of under performance)?
Are there reasonable UK alternatives to Dimensional for factor investing? iShares MSCI multi-factor for example?
Hi James. Or someone else. Will one find low cost factor funds on platforms like HL? How do we find out about a simple list of ones to pick?
Recently found your channel James and loving your content. Have you ever considered doing a video on strategies to manage your pension life time allowance? I’m in my mid 40’s, perhaps 10 years away from hitting the LTA (if all goes well) and trying to work out the most efficient options. There doesn’t seem to be much good material out there on this topic. Would love to hear your thought on the topic…
This would be a great video topic!
Ok sure thing. It’s an often misunderstood topic.
@@JamesShack Awesome! Looking forward to it. Some things I've been mulling over.....
1) At what point should you dial back pension contributions to the minimum required to get your employer match and push the rest into ISAs?
2) As you get closer to the LTA should you keep more of your fixed-income % in pensions and keep ISAs for the higher growth/volatility of stocks and shares?
3) Should you consider pulling down the 25% lump sum as soon as you are eligible, as the LTA will most likely rise slower than your investment growth over time.
4) How to most effectively drawdown in the years before the final LTA check at 75?
Obviously, it can still very much make sense to continue to contribute to a pension anyway if the tax savings outweigh the tax charge. In particularly if your salary is between £50k & £60k and you would get hit by the child benefit tax charge or between £100k & £125k with the withdrawal of the tax-free allowance.
@@xcjboy I’m also been thinking this. Regarding the 25% drawdown I’ve been wondering whether to do this and then invest it in an ISA for 5-10 years to get better returns than the pension fund or perhaps it just balances out….hmmm
@@woof8813 Yes, I was thinking the same. One issue to be managed is even using a spouse’s ISA allowance you could only shelter £40k pa. So that’s 6+ years before you can get everything sheltered in an ISA and all the tax exposure over that time.
Hi James, thanks for the information, any chance of video with more information on factor investment and how and we’re to invest. Thanks
Hi James, what are your thoughts on equal weight index funds vs their market weighted counterparts?
A breath of fresh air finally!
Glad you enjoyed it!
Amazing kitchen dinner. House must be massive !
Hi -with 3 years to retirement is it worth using AVCS to increase my pension pot?
Great video as always, really interesting and informative 😄
Glad you enjoyed it!
Great video James. I have booked an appointment with Octopus Wealth this week to discuss investing savings. Hope your team can help!
Would you recommend investing in REITs?
What about viewing indexes as just one more factor and diversyfying among them and other known factors, which you mention the video?
Cheers, Shacknado.
Interesting approach, but you pick a specific date range to prove your point. You can back test and prove anything you want. I should make a video on buying 200k of Tapestry last month. That is what I did and it worked out well.
Hi James, in relation to index funds and vanguard particularly, pricing. They typically seem to be more expensive per unit? If you can only invest small amounts ex £25 a month (the price of 1 unit) is this a bit counter productive in anyway than investing in cheaper alternatives and acquiring more units? Thank you
You can by fractions of a unit.
hi James I've just added cash to my 2021 vanguard Isa today 4th april but I haven't bought any funds yet. if I wait to later in this week to buy a fund would that mean I can't open a 2022 Isa with another platform. because of the cut off date. and can you sell and buy within an old fund as long as the money stat inside and is not withdrawn to your bank account.
Hi - it's based on when you pay the money in. So you could open another one elsewhere.
Top video! I've recently discovered factor investing and am very interested! I like to keep my portfolio as simple as possible and like the sound of the iShare World Multi-Factor fund (all core factors in one). If only Vanguard (I don't like having multiple platforms) would introduce a similar fund!! Would be an excellent accompliment to my All-Cap...
Yes, I'm sure they'll be back/other funds might open. Just be prepared that if you factor tilt, you have to do it for the LONG term! No bailing out.
Thank you for this video. I've seriously looked at DFA in the past and factor investing. What has put me off DFA is that you have to go through an IFA and therefore there are increased costs, which has put me off (which defeats the point of keeping costs down).
Indeed. If you're only looking for help with investment management, then it's not worth it.
Caveats maketh a trustworthy individual - I really appreciate your focus on these later on in the video; it would have been so easy for you to gloss over these. Hefty kudos!
Thank you! Has to be done.
50% US market index, 50% small cap value. Best of both worlds?
i don't like factor investing, but i'm trying to understand if a total market index fund (msci world or ftse all world) could be really the total market..with about 67% usa and 25% tech..what do you think about that?
Investing is not a science like biology or physics, it's a science like psychology or sociology. The distinction is important.
Yes, I think that a better comparison.
Hi James, I love your video's, I've been a long time watcher of Ben Felix. I do would like to add 2 small positions to hml and smb factors to get more diversification between different systematic risks. Online there is a lot of talk about which funds to pick to target those factors, here in Europe those VS etf are not available. How would I find good factor tilt ETF and where do I look at to know they are targeting it correctly? maybe another video idea ;)?
In the UK there’s not much to choose from unfortunately. iShares do have a range but I’ve not done much research into them .
@@JamesShack That has been my main issue... I hope it will become more accessible for retail investors in the future. For now, back to vwrl here in the Netherlands
I found this video for anyone also wondering the same thing: th-cam.com/video/El0-uyEzvms/w-d-xo.html
Great video, explaining some more complex subjects of investing in a simple way. Without counting bonds, I have Vanguard global all cap (60%) + Vanguard small cap (10%) in my portfolio. I surely must have portfolio exposed to some of the facors with these two funds? Size factor for a start.
Yes, however the size factor has shown to be quite weak/inconsistent on it's own.
But you find that the other factors are more powerful within small cap businesses. So when you get a small cap, value business that is also highly profitable - that's when it's at it's best.
@@JamesShack because it's a global small cap fund I surely must have some of these businesses too ;)
1 month late to this party but anyway.....
Factors are just strategies. Holding the whole market is a strategy.
But the one thing the index has, that no other strategy has, is the resilience derived from the fact that it is never weighting any dollar of potential investment above that of another dollar.
The market comes often with APPARENTLY worse risk adjusted returns than other strategies, but this is an artifact of statistical sampling. But actually the market comes with an inbuilt compensator for this higher "observed" risk - you are never positioned worse at the bottom of a crash, compared to all other possible portfolios and strategies on the whole, than you were at the top before that crash.
I.e. if you think you did badly holding an index through a crash, the majority of other strategies did worse. And in the bounce back afterwards, again a different majority of other strategies will do worse.
Factor investing is a kind of alternative market timing methodology really. All strategies involve timing choices, in that you have to evaluate against opportunity cost and pull the trigger on choices when compelled to, either by the strategy, or the drawdown depth, or the drawdown duration.
You have a >95% chance of ballsing it up.
Really interesting but I’m definitely far too indecisive to go down that road. I split 88% of my ISA into the US Equity index fund & 12% in the Emerging Markets index fund through vanguard. That’s enough risk for me and I’m taking the emerging markets as a whole as hopefully my dabble with an element of factor investing and hoping it will bring strong returns in the long term. Great watch though!
Yes this really does crank up the complexity and chances to make mistakes. Best to keep it simple!
Is there a route for UK based private investors to directly access factor based funds?
Yes, iShares offer a range of funds.
Small companies fail at a much higher rate than large companies. How do you pull long term small cap data without missing the companies that failed years (or even decades) ago?
Interesting stuff. Although you missed the bit where you explain how UK retail investors/yourself access factor based funds
BlackRock offer a range of funds but I’ll need to do a whole video on how you build a portfolio with them.
There’s also more info in the description.
I personally get access to Dimensional Funds through work.
He speaks well...
Thanks for the video James.
When are we going to see Reddit activity as an official factor? :)
Haha! I’m sure we can find a paper on that.
Excellent video. Your clarity of explanation is the best out there. I have learnt so much from your videos. Factor investing is not for me alas, well balanced, risk appetite matched index portfolio is where I am at and even this brings it’s fair amount shaking of the head.
Thanks for saying so Mark. I’ve been wrestling with the best way to articulate what Factor investing is for a while. It’s a real head scratcher, and takes a lot of effort to fully understand and even more effort to have faith in!
Hi James, I’ve recently started investing in the FTSE global all cap index fund (Accumulation). What are you opinions on this fund? Many thanks
I’m 21 so this will be a long term investment choice
The funny thing is that Bogle actually doesnt believe in factor funds. And... factors... come and go according to him. It was a Morningstar interview and iut on TH-cam.
Yes he created a growth, and value fund for growth and income investors respectively. Both performed equally well over 20 or 25 years but investors sold when they were out of fashion so underperformed the market.
What is the best way for UK investors to get factor exposure now that vanguard has closed them?
What about if we wanted to put our pensions into various factors? (I’ve looked into doing this in HL and it’s not easy!)
Blackrock has a range that is available in the UK.
But unfortunately, it's not as easy as just sticking the odd fund in. You need to understand which factor you're looking for, how the fund works, and how it can fit into your portfolio.
If there's enough demand I will do more videos on this!
Hi James, thank you for the video. I wish to ask you are there any fund (s) at present that provide factor/value investing in the UK for retail investors?
IShares have a range of funds.
I had the vanguard Value ETF VVAL and they closed down right at the bottom. Active funds never again.
This is a very interesting video James, never heard of factor investing before. With the factor funds that vanguard had, what expense ratio did they have?
0.22% or there abouts. Blackrock charge 0.3%.
@@JamesShack very interesting!!!
Great video! I have my first child due soon, would a video on a junior s&s isa be of interest for you to do? I’m strongly considering vanguard and investing into vuag
For JISAs, I believe Fidelity don't charge platform fees at all, so may well be better than Vanguard. Personally I didn't use a JISA though as didn't like the idea of them suddenly getting access to a large pot of money at 18, when its impossible for me to know at this point whether or not they would be mature enough to handle that.
James raises a good point.
People often rush to JISAs, because it's in the Childs name. But often, they could just contribute to their own ISA, maintain control and give it when they needed. It's rare for IHT to be an issue especially when you have both surviving parents.
It's a mental accounting thing. People like to have a separate pot dedicated for their kids.
I will be doing a video on this soon.
I don't see an issue factor investing into my retirement accounts since I know these values show up in in long time periods (20+ years)
Thanks for this theory. But when one is retired and will be dead in 10-15 years how practical is this? 06:14 graph demonstrates a very long timeline. 10:29 visual voice-over says underperformance 5-10 yeats at a time. Well, due to age mostly I look only 3-5 years into tye future.
Another challenge I have is that ETFs do not favour small cap companies, ket alone small cap value ones. For example, I am bullish on India. However, almost all of the ETFs available are large and mid-cap.
So, the question is how to find small cap value stocks?
Is there a single factor investing fund for uk investors?
IShares have a series of funds.
Great stuff. I follow Ben Felix and Paul Merriman (currently put together a version of his ultimate buy and hold) It's a shame we don't get the options in this country like they have in the US with Avantis and also things like M1 finance where people can easily invest in these strategies at a click of a button.. I can only find one low cost small cap value etf and it's US only. Would love to see video of how you can use black rock funds! Ps been watching your great content for a while and happy to see you use Dimensional funds and this strategy!
I personally have not done much research into the blackrock funds, or the methodology that they employ. But they seem to be the only option available so I may do a video on them at some point!
James..I'll just stick with the index funds..About to retire and can't be bothered with the extra hassle.
You’ll do just fine with them!
More u know, the more u r capable of complexity, the much much u wanna stay in broad index etf
Better late than never!
I wondwer is it an appartment or house?
Very interesting video though I don’t think I have the temperment for it. I’d be interested if there are any ways in boosting a passive index such as vanguard life strategy 80 apart from just letting it do its thing over the next 15 years. I’m wondering whether to split my monthly contribution into a combo of life strategy 80 and 100, thoughts?
The only way you boost a vanguard LS 80 is by going to LS 100! LS80 and LS100 are very similar it might be best to just stick with one and keep it simple.
@@JamesShack nice one, thanks for your reply.
Question??? I am only 90% in the VUSA FTSE 500 and but 10% in all world. But this method (after 1 month) doesn't seem to be conducive to progression. Any tips and tricks you could bistow?
You still in VUSA?
@@The_Unintelligent_Speculator yup
Ho James! Really appreciate your videos. I currently invest (as a European investor) in classic booglehead stuff vwce and small percentage of bonds. I would be happy to add some small cap value stock to the portfolio but here the only 2 etf possible are zprx and zprv for USA and European area. But no etf for world small cap value stock. Do you suggest to implement with these 2 etf or just keep the old way? Because with only covering USA and Europe we are missing a lot of stuff and maybe losing the diversification premia.
I cant give a personal recommendation, but i would not settle for a substandard product. You should plan to have this strategy in place for 15-20 years so if it's the wrong product don't go for it. It may take a few years for the right product to come out but will be worth the wait!
@@JamesShack I think exactly the same! Thanks for your work brother. Appreciate it so much
Hi James. Been a fan for several months now, keep up the good content! Found your video so interesting and now I’m obsessed with the concept of factor investing. Was wondering if you would ever recommend a way of setting up a portfolio with 5-6 ETFs which target the five factors as Ben Felix has done? His ETFs are not available in the UK but I personally have found few that look similar. Thanks Chris
The iShares funds are the main option in the Uk. I have not done any research on them (we use dimensional funds) but i might dig into it and see if they’re any good.
Is this a genuine number?
@@chrisfrancis535 This is a bot.
This might be obvious but everyone holds the market then what drives share prices as nobody will be actively investing?
It’s a good question. Active investors are required to keep markets efficient.
At a point, so much money could be in index funds that the market is not longer good at pricing stocks.
As such active investors would start to make good profits, and assets would flow into their funds away from passive.
Thus there would be an equilibrium.
At the moment index funds make up about 10% of trading activity, so we’re still a very long way off them distorting market prices.
@@JamesShack Thanks for that James. It’s a difficult one to hold in the head but, as Chris Dillow said the stock market is a voting machine not a weighing machine. So not much to be gained from logical analysis and hence why funds copying what the mass of investors do are best. I think you are converting me from active investment. If you haven’t done it, it would be good to see a video about counter party risk, the use of synthetic indices, etc
Thanks James for this valuable content! Could you please explain how UK investors can easily get access to factor investment?
No problem Tanvir!
@@JamesShack Thanks for your reply. That would be a great help for us (UK investors) 👍
@@tanviranowar8768 iShares have a series of factor funds that you can use. Although I have not done any research into them personally.
@jamesshack I’m interested how you manage currency exposure in yours/your clients investments. A lot of the funds I invest in are in USD and I’m concerned at the level of exposure I have to a single currency. Any advice please?
Really interesting video and explanation James. I'm looking forward to seeing how this plays out.
Glad you enjoyed it Ray!
Does factor investing work when you're investing on indexes or actively managed funds which happen to perform well in those factors, rather than doing factor investing directly?
Factor Investing is very different from Traditional Active management. Active investment managers look for factors but they also try to time them - which is a very hard thing to do.
Factor investing is about constructing systematic index type funds that have better allocations to areas of the market know for producing higher returns. I believe many of the concepts that you find in factor funds now will filter there way into normal index funds.
There are now small cap value indexes - these did not exist before factor investing caught on.
@@JamesShack
When I'm mentioning indexes, what I mean is; e.g. vanguards' emerging markets fund seems to have a lower p/b and a lower average market cap than the total world stock market.
It's not designed to be a small cap value fund as such, but can it effectively act like one?
Im currently looking for a financial advisor and planner so would like to talk to you if that is possible
I can tell for SURE that if you invest $100k in SNP and $100k in QQQ and keep your funds - your QQQ will have done WAY better - the same principle for Russel that will beat SNP : )
Why did Vanguard close their Vanguard Factor funds other than low demand, did they out perform their other funds?
They closed them because there was a poor uptake from investors and the fixed costs involved with running the funds meant they were making a loss. They still offer the same funds out of the US.
@@JamesShack so it sounds like there is no easy UK option for factor investing except DIY (which doesn't sound easy!)?
Thanks for this video. For me, personally at my stage of life I have only 6 years to go until I can take a private pension it is not worth it. Though I probably won't start drawdown until at least 2033. I just need to tidy up my pensions into one place moving old company schemes into a SIPP. I was going to use Freetrade for the SIPP as it is only £7 a month if you have the 'plus' but I was put off by the lending of shares thing and the lack of what I would call proper customer service from Freetrade. Still trying to decide who to go with (total pot of about £160K)
Funny I’m in the same position, did you find a good alternative? Been looking at Hargreaves
Hi James, loved the video as per. Just thinking, I’m 23 years old and living in the UK. It seems pretty ideal for my pension to use factor investing, but it looks like I’m fairly limited in what funds I can invest my pension in with my works Aviva pension schemes. Any idea if there’s ways to get access to a wider range of funds with pensions?
You may be able to do a partial transfer out to a DIY broker.
@@JamesShack awesome thank you mate! Any chance of some suggestions for resources on weighting the factors/using multi factor funds?
Watch Ben Felix’s video on 5 Factor Investing with ETFs
James can I have some advice please, I'm looking at changing my pension after your advice to a less Conservative fund, like the s&p 500. I am also looking at investing in to an isa with again the s&p 500. Is this wise to have both savings in the same style of fund or should I diversify and if so which one would be better? Thanks for you help
You can have both invested in the same . But you can probably find more diversified funds than the S&P500, funds with international exposure.
I'd be interested to see those curves based on the last 40 years only.
I’m a big fan and love your work James. However, I can’t get through a Spider-Man with Andrew Garfield in it without thinking about my pension and portfolio :-) Take it as a compliment - he’s a handsome chap 🙂
Thanks James, an interesting video. It's something I've looked into in the past, with the iShares options. Whilst tempted I never took it any further. I did add an active fund with a value tilt which is doing okay. It would be interesting to learn more, especially the overlap with the holdings, for example I think I read there was overlap in Momentum and Value recently, which was most unusual. I'm pretty sure it's a terrible idea, but I wonder what the comparison between a simple 'vanilla' index fund and holding all of the five factor funds would show. I'll play on Trustnet and see.
Factor investing 5x’s the complexity of your portfolio. And you have to have the confidence to know you’ve picked the right fund. The evidence is there - but it’s hard to implement!
More top class content from Mr Shack! Keep up the great work. As a DIY investor it is very frustrating not being able to invest with dimensional :(
You’re welcome. DFA funds are available to US retail investors, so the more demand grows for them in the UK the more likely it is they’ll open them up. But yes, otherwise quite frustrating!
Investing is not "a science like physics." Investing is more what is known colloquially as a "soft science" while physics is a "hard science". The reason is for investing you cannot form a hypothesis, make a prediction, create a test protocol and do a test to confirm or invalidate the prediction and thus the hypothesis. You can only analyze what has already happened thru statistical analysis which is subject to interpretation as to what is valid or not.
Hi James
Help me with a question. Over the last 6 years l have built up a stock and shares isa of £40k. I will like to take out £30k towards a holifay home. How can l.do.this and will pay any tax.
You don’t pay any tax on anything within an ISA. You can take it out freely.
@@JamesShack
Thank you James. Sorry to ask another questions, how does this affect my current 22/23 allowance. As l am taking out £30k, which has built up over six years.
@@jjjonez3048 it does not affect it, you can still put £20k back into an isa this year
@@JamesShack
Thank you so much for the clarity.
Why does the title of this video target Vanguard index funds as opposed to Blackrock or other index funds? Some sort of ax to bring?😊
Keywords. Vanguard gets more views on TH-cam than Blackrock.
I invest in the iShare global momentum ETF. My conviction - if we can call it that - is based simply on the significant historical outperformance of the momentum factor. I can't say I have an in-depth knowledge of the theory and research supporting/opposing it. Perhaps I should.
Momentum does well in rising markets, just be prepared for the underperformance at some point. Have to take the rough with the smooth.
I like the concept of factor investing but in practice it fails because it introduces poor behaviours in investors such as timing the market. New investors will see their selecred factor underperforming and likely sell and switch to winning factors at precisely the wrong time
I could not agree more. The urge to “Time” factors is very strong.
Is factor investing a smart strategy for those over the age of 60?
at that age i would tone down factor investing and instead focus more on adding some bond allocations, maybe you could have factor exposure for diversification benefits, but other than that i wouldn't want my near-retirement portfolio to be 100% or even 30% exposed to factors, as factors could underperform for decades
Hi James, can you help me to invest.
Interesting that Vanguard withdrew their product.
Yes - due to low demand. The Blackrock funds however are doing well.
Risk ALWAYS correlates with Return. There is NO FREE LUNCH. Higher risk=Higher return over time is proven to be true.
VTSAX & Chill, folks.
Interesting video. However since the pandemic and increased globalisation small companies are being clobbered. More and more it seems it will sadly be large corporations that will be driving things and governments are supporting this. Even if there are small companies thriving they may end up being bought out by the larger companies.
Na I'm too lazy of an investor for that. Thanks for the info though.
When diversifying away from the general stock market index fund you really have to get your market timing right. I invested in a BG small cap fund (EWI), not all that long ago and it is down 35%. Luckily I didn't invest right at the small cap peak which was back in early 2021. Investors who did are now sitting on a 50% loss... absolute carnage!. I now have to wait and hope that small caps make a recovery. They will eventually, but how long will I be waiting to break even if inflation and high interest rates cause a recession? 3 years? 8 years? 17years?... You really need to research the market sector you are investing in hard and long before diversifying like this.
Do you need the money in 3 years ? 8 years ? 17 years ?
You won’t be able to time the markets. You just need to build a portfolio with an allocation you believe in, and hold it for 30 years. Rebalancing as you go. So technically you should be buying more small cap!
@@JamesShack It's a long term pension investment so I can afford to wait, but I'm just kicking myself now because I invested in the name of "diversification" without carrying out proper due diligence on the medium term prospects for the sector. Had I done that I don't think I would have invested and would not be sitting on these floating losses. To add insult to injury with inflation and high rates likely to cause another sodding recession... I may be waiting a long time for small caps to recover. I am gutted about that.
@@JamesShack Technically, rebalancing is itself a form of market timing. Investors from retail up to institutional investors all engage in marketing timing of some form or another. Momentum investing is market timing. Researching your entry point into a new asset class that you were previously not invested in, is market timing. Because I didn't do my market timing homework properly I am now suffering. I also believe it is possible to achieve ongoing medium to long term market timing to maximise 'long term 'market drift' using simple indicators and MDA's suited to the medium to long term timespan. I will be re-release my blog in the near future and will detail on there how it can be done.