Why doesn't everyone just buy Vanguard LifeStrategy?

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  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    BLB53 wrote: »
    I am working on the assumption my VLS 60 fund will grow at an average of 6% p.a. long term so plenty of safety margin with my withdrawn income of 4%.

    Of course, if inflation were to exceed 4% I would hope for a corresponding uplift in returns from my Vanguard fund as I expect the long term returns to always be above inflation.

    Long term studies suggest that

    Low inflation = economy spluttering.
    Moderate inflation = best returns
    High inflation =impact on corporate profitability

    In a study done a few years ago. In 10 decades, three had negative returns overall. Investing is far from predictable.
  • zzzt
    zzzt Posts: 407 Forumite
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    I've recently read a book called Smarter Investing by Tim Hale, and the basis of the entire book is that financial managers almost never beat the market after fees, and those that do, do so only for a brief period before failing (i.e. it's mostly luck).

    If you choose your own stocks yourself then you are assuming that you will be able to beat the market, and not only that, that you'll be able to do it better than industry professionals with 20 years experience (who, as I've said, also fail to beat the market).

    And if you instead decide to choose someone to manage it for you, you still have the task of choosing that person. How do you go about doing it? What makes you think you are good at judging how good a fund manager is? Past performance? The research shows it is no predictor of future performance. Most of the high-performing managers are just lucky, and over a long time period (20 years plus) they will give returns of less than the market.

    So the general advice is that it's always better to simply invest in a passive index tracker fund with low fees - fees are one of the things that will eat into your profits in a big way.

    Now, I am not an expert, but there was a wealth of academic sources given in this book based on 100 years of stock market data. So I'm inclined to think there is a grain of truth to it. Certainly it is the easiest option if, like me, you do not know much about investing.

    If you are investing in a fund which simply tries to track an index (mostly done by a computer) then the biggest difference is to be made in the fees and diversity. Vanguard have low fees and automatically rebalance your portfolio, so it seems like a no-brainer.

    Humans make terrible financial decisions because we are full of emotions and cognitive biases of which we are not aware and cannot control. The temptation to sell low and buy high is incredibly strong, because of fear of missing out, and fear of losing everything. In fact, the best time to invest is a recession, but it's the time when most people are afraid. The worst time to invest is during a boom, but that's when everybody wants to get in on the bandwagon.

    The one thing that has always been true, in spite of multiple recessions, is that the value of the stock markets always goes up. Maybe it will stop being true? I don't know, but for now I consider it a safe bet.

    Someone who invested in a passive index tracker fund just before the financial crisis in 2007 would have seen their money halve in a short space of time. But ten years later it would be worth double what you invested.
  • aroominyork
    aroominyork Posts: 2,821 Forumite
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    zzzt wrote: »
    I've recently read a book called Smarter Investing by Tim Hale, and the basis of the entire book is that financial managers almost never beat the market after fees, and those that do, do so only for a brief period before failing (i.e. it's mostly luck).
    I read the opening pages on Amazon last week and it was mostly about not trying to beat the market. Is there much else in it other than expanding on that thesis?
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    aroominyork wrote: »
    I read the opening pages on Amazon last week and it was mostly about not trying to beat the market. Is there much else in it other than expanding on that thesis?

    Consistantly beating the market is the issue at heart. For many people simply being passive with low charges is the better option. As they don't have the capital available to take the risk.
  • Eco_Miser
    Eco_Miser Posts: 4,708 Forumite
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    zzzt wrote: »
    If you are investing in a fund which simply tries to track an index (mostly done by a computer) then the biggest difference is to be made in the fees and diversity. Vanguard have low fees and automatically rebalance your portfolio, so it seems like a no-brainer.
    Unless the index in question is a global index, you would be missing out on something.
    The Vanguard LifeStrategy series are funds of funds, where the second level funds are index funds, but Vanguard actively manage the proportions of each fund held.
    zzzt wrote: »
    The one thing that has always been true, in spite of multiple recessions, is that the value of the stock markets always goes up. Maybe it will stop being true? I don't know, but for now I consider it a safe bet.
    Self evidently, the value of the stock markets does not always goes up, or there would be no crashes, dips, or corrections.

    Mostly markets eventually come good again, but note the Russian stock market from 1917 - 1990.
    Eco Miser
    Saving money for well over half a century
  • aroominyork
    aroominyork Posts: 2,821 Forumite
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    Eco_Miser wrote: »
    Mostly markets eventually come good again, but note the Russian stock market from 1917 - 1990.
    Luckily back in 1917 I listened to bostonerimus and stuck to Vanguard.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Murmansk wrote: »
    It seems to me that there is something of an "open secret" about Vanguard LifeStrategy in that they are great but the industry doesn't want everyone to know this because they'd all be out of a job!

    May work for the major indices and companies with large market capitalisations. In other markets illiquidity of stock etc make automated trading and rebalancing an impossibility.

    Vanguard was built on the US market. Where opportunities to beat the market are very limited. Passively tracking the Shanghai is a totally different kettle of fish.
  • dunstonh
    dunstonh Posts: 116,301 Forumite
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    edited 8 October 2017 at 7:29PM
    I also like the look of HSBC Global Strategy funds. Do you know how they compare to VLS and L&GMI for bonds and equity risk?

    HSBC, since they amended the strategy a few years back has shown constant outperformance on the version that matches VLS60. The others do not match close enough in risk. If you are looking at VLS60 then HSBC now appears to be the better option.
    Since both funds are meant to replicate the market - albeit with different methods for doing so - is L&G's going to be, and is it, much different?
    They have different investment objectives. L&G is risk targetted. VLS is not. VLS moves around the risk profiles more. L&G has a wider range of bond funds and it includes property.

    Neither VLS or L&GMI are meant to replicate the market. They are both active passives. i.e. weightings are active. Underlying assets are passive.
    I've recently read a book called Smarter Investing by Tim Hale, and the basis of the entire book is that financial managers almost never beat the market after fees, and those that do, do so only for a brief period before failing (i.e. it's mostly luck).

    Which is true of the US where its damned difficult for fund managers to add value. However, not true of the UK. A country which is in the minority worldwide when it comes to active management. You tend to find that the best returns come from hybrid strategies (mixture of passive and active).
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Audaxer
    Audaxer Posts: 3,506 Forumite
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    dunstonh wrote: »
    HSBC, since they amended the strategy a few years back has shown constant outperformance on the version that matches VLS60. The others do not match close enough in risk. If you are looking at VLS60 then HSBC now appears to be the better option.
    I already have a VLS60 and am looking at HSBC Global Strategy Balanced as a possibly for my next lump sum investment rather than putting more in VLS.
  • EdGasketTheSecond
    EdGasketTheSecond Posts: 2,558 Forumite
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    jimjames wrote: »
    You don't need to? Use the LS100 fund

    Well that's not really a 'life strategy' fund. Their aim is to supposedly limit risk by investing a certain percentage in bonds; more as you get older (even though that strategy is flawed right now).

    For a 100% equity fund there are hundreds to choose from, doesn't need to be VL's life strategy.
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