FTSE 100 vs All-Shares: does it matter? (UK PP)

[Jake]

Hello fine people,

I'd appreciate your thoughts on a question about the composition of stock ETFs used in a PP.

When it comes to low-cost stock ETFs in the UK suitable for the PP, the two main contenders are the Vanguard FTSE 100 (VUKE) and iShares FTSE 100. Their expense ratios are 0.09% and 0.07% respectively. The downside is that they are only FTSE 100, whereas Harry Browne recommended tracking the whole market. There is the DB x-trackers All-Share ETF (XASX), but it has a much higher expense ratio (0.4%).

Does it matter that the low cost ETFs are comprised of FTSE 100 only, and not the whole market?

[MediumTex]

How much of the overall capitalization of the market is captured in the top 100?

Have you compared the performance of the two indices to see what it looks like?  I would assume that the smaller index is less volatile than the whole market, but probably not by a lot.

You might split the stock allocation between the two indices and rebalance to 50/50 when you rebalance the whole portfolio.  That's probably a way to capture some volatility gains without too much effort and it gets your average expense ratio down to .24% or so for your stock funds, which isn't too bad.

[gizmo_rat]

FTSE 100 is 80% of overall market cap. The FTSE all share does pretty much just track it, although it has beaten it marginally over the last couple of decades. Probably doesn't matter.

https://www.lovemoney.com/news/45718/ft ... -investing

The question I occasionally spin my wheels on is if I should be in FTSE 250 rather than the FTSE100 / ALLSHARE. The 250 is mostly companies earning in � in the UK, the 100/ALLSHARE is heavily into international banks and resource companies earning in $ worldwide.   

So 250 to fit the PP model of the economy, or 100/ALLSHARE for diversification out of the small economy ?

I actually have all 3 so maybe I'll give the rebalance thing a whirl.

[Jake]

Thanks guys. Since there are low-cost FTSE 250 ETFs (Vanguard has one), I think I could approximate an All Share index by putting 80% of the stock allocation into the FTSE 100 ETF and 20% into the FTSE 250 ETF, with the kind of rebalancing that Tex suggested.

[Mark Leavy]

Hey Jake,  Good to see you on the board again.  I hope all is going well for you in Panama.  I was there last year for a bit and all of the buildings that weren't built by the Chinese scared the shit out of me

But... back to your question.  I think anything that hits more than 80% of the stock market capitalization is just fine.  The rest is just details.  Best of luck and I continue looking forward to your podcasts and adventures.

[Jake]

Thanks Mark! We're having a great time here in Panama. I'm currently trying to get more fluent in Spanish.

For the UK stock ETF question, I agree that FTSE 100 is probably good enough, but I decided to go with 80% FTSE 100 and 20% FTSE 250. It's not too complicated as a solution and still doable with low cost funds.

[ashantiwarrior]

How about the SPDR FTSE All Share ETF, Ticker FTAL. Expense ratio 0.2% to track the whole market.

[lordmetroid]

You can invest half and half. That way you can rebalance the better returns between them both.