Page 29 - DIY Investor Magazine | Issue 41

GOOD TO KNOW: The MSCI World 100 portfolio (orange line) = 100% iShares Core MSCI World UCITS ETF USD (Acc) 0.2% fees per year.
LOWER RETURNS, LOWER RISK
The problem with going all-in on equities is that they are a risky asset class that can dip into the red for long periods. That’s why it’s a good idea to diversify into other assets.
We’ve done exactly that by pairing the iShares Core MSCI World ETF with an iShares Euro Government Bond ETF (blue line) – using a classic 60 / 40 asset allocation.
That should make your portfolio
‘£10,000 GREW MORE less susceptible to stock market
THAN THREEFOLD: crashes but is also likely to lower
TRANSFORMING its overall return – and that’s
INTO £30,990’ exactly what we see in the chart above.
£10,000 more than doubled – becoming £22,831 in ten years. That’s a 128% cumulative growth rate or 8.6% annualised.
Volatility (a measure of risk) was also lower, weighing in at 11% versus 16% for the 100% MSCI World portfolio.
In other words, this portfolio was less of a wild ride than its full-on equity counterpart.
GOOD TO KNOW: The MSCI World 60 / 40 portfolio (blue line) = 60% iShares Core MSCI World UCITS ETF USD (Acc), 40% iShares Euro Government Bond 7-10yr UCITS ETF EUR (Dist) 0.18% fees per year.
GOLDEN CHILD
Our final portfolio added gold into the mix. Gold is a great diversifier as it often performs when equities and bonds falter. That’s why the 60 / 20 / 20 (red line) portfolio pulls away from the 60 / 40 portfolio after Covid hits.
Gold performed well versus bonds during that period
of high inflation and uncertainty. Thus our gold-plated portfolio has the edge over the 60 / 40 – turning 10,000€ into 25,123€.
That’s an impressive 151% cumulative growth rate or 9.6% annualised.
GOOD TO KNOW: The MSCI World 60 / 20 / 20 portfolio (red line) = 60% iShares Core MSCI World UCITS ETF USD (Acc), 20% iShares Euro Government Bond 7-10yr UCITS ETF EUR (Dist), 20% iShares Physical Gold ETC, 0.17% fees per year.
WHAT TO DO?
For comparison, £10,000 in cash grew to £10,174, achieving a miserly 1.7% cumulative growth.
So whichever portfolio you picked, you’d have beaten cash handsomely over the last ten years.
To be sure, 100% equities typically beats less risky portfolios over ten-year periods and longer, as we can see above.
But there are no guarantees. And that’s why many investors choose the slow and steady route by adding diversifying asset classes like bonds, gold and commodities.
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29 DIY Investor Magazine
· August 2024
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