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  • FIRST POST
    • Drucifer
    • By Drucifer 16th Jul 17, 12:15 PM
    • 6Posts
    • 7Thanks
    Drucifer
    New Investor: VLS 100?
    • #1
    • 16th Jul 17, 12:15 PM
    New Investor: VLS 100? 16th Jul 17 at 12:15 PM
    Hello,

    A little history about myself before I ask my question. I'm 27 years old, I've recently purchased a home with my fiance, I knew prior to this investing wasn't really an option as it was a short term goal and I needed access to the money. I've also got an emergency fund, enough to cover 7.5 months worth of bills in the event I lose my job. No debts (except mortgage) and I've sold my car.

    Now that I've secured buying a home & dealt with all my short term goals, I'd like to focus on the long term, as I'm a strong believer in having plans and following them through, I believe everyone should have a direction/destination to go. I realise that my actions now will determine how I live in the future, so I'd appreciate the wisdom of people that know better or have had the experience.

    Seeing that I'm new to investing my knowledge on the subject is limited, from what I've been reading, most people suggest a "Fund and Forget" type of strategy for newbies, the VLS 100 has caught my attention as it is already diversified for me, I'm also happy to take the risk. At this moment in time it makes sense to me to go for this, as buying individual stocks or day trading seems far out of my depth.

    I've "only" £5,000.00 spare (I say only because to me it's a lot to have, but it doesn't feel like a lot to invest), should I drip feed or lump sum this amount into the VLS 100? Is the VLS 100 even my best option here?

    My goal with this by the way is to, aswell as my pension, fund my retirement, so this'll be the start of at least 40 years of investing.

    At retirement I feel comfortable with the idea of having a home to sell to downsize (if necessary) a pension pot and an investment pot, is this a sensible approach for the future?
    Last edited by Drucifer; 16-07-2017 at 12:21 PM.
Page 1
    • Bravepants
    • By Bravepants 16th Jul 17, 1:11 PM
    • 234 Posts
    • 259 Thanks
    Bravepants
    • #2
    • 16th Jul 17, 1:11 PM
    • #2
    • 16th Jul 17, 1:11 PM
    I wish I had had your foresight when I was 27! Your approach seems very sensible to me, and you are taking advantage of a good early start.

    If you can live well below your means you can take advantage of the tax advantages of saving more into your pension, particularly if you are in the 40% tax bracket.

    I love the Vanguard funds. I'm 49 and I use VLS 60 but also Fidelity Global Index fund in my S&S ISA. So effectively I have a 70% to 30% equity to bond fund mix of assets. I experimented with various other funds for a while, but the simple approach is best at the end of the day...why complicated things. Passive index funds is the way to go! Fire and forget.

    Some poeple suggest holding your age (I go modulo 10, so age 30, 40, 50 and hold the percentage for the decade) in bonds...in your case that might mean VLS 80. But some people think that too high a bond allocation, particularly at a young age, is detrimental to potential growth. I SHOULD use 40% bonds, but I prefer 30%. Checking the funds that my AVC is invested in shows they are at 70%/30% split, so that's reassuring.

    You should pick up a copy of Tim Hale's Smarter Investing (or borrow it, you might get it in the library). The first chapter of that should give you some insight into thinking.

    You might at some stage decide not to wait for 40 years to retire and do something like this chap...

    www.mrmoneymustache.com

    Cheers,
    Paul
    • Superscrooge
    • By Superscrooge 16th Jul 17, 7:47 PM
    • 848 Posts
    • 589 Thanks
    Superscrooge
    • #3
    • 16th Jul 17, 7:47 PM
    • #3
    • 16th Jul 17, 7:47 PM
    Monevator which is an excellent website for learning about investing, has a useful article on drip feed versus lump sum investing

    http://monevator.com/lump-sum-investing-versus-drip-feeding/
    • AnotherJoe
    • By AnotherJoe 16th Jul 17, 7:52 PM
    • 7,052 Posts
    • 7,518 Thanks
    AnotherJoe
    • #4
    • 16th Jul 17, 7:52 PM
    • #4
    • 16th Jul 17, 7:52 PM
    Personally, I'd suggest HMWO which is similar to VLS100 in idea but doesn't have the artificial allocation of 25% in UK shares, IIRC its more like around 7% which is UK as a proportion of global GDP.

    Note, it is a share, not a fund (technically its an Exchange Traded Fund aka ETF) which means the cost structure of holding it is slightly different.
    • dunstonh
    • By dunstonh 16th Jul 17, 8:13 PM
    • 88,774 Posts
    • 54,116 Thanks
    dunstonh
    • #5
    • 16th Jul 17, 8:13 PM
    • #5
    • 16th Jul 17, 8:13 PM
    I've "only" £5,000.00 spare (I say only because to me it's a lot to have, but it doesn't feel like a lot to invest), should I drip feed or lump sum this amount into the VLS 100? Is the VLS 100 even my best option here?
    And how are you going to feel when the value drops to half its previous high?

    The average UK consumer is generally a cautious investor. New investors typically more so. Although many new investors invest way above their actual risk tolerance.

    So, would you feel comfortable being such a high risk and could you handle the rollercoaster ride?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Alexland
    • By Alexland 16th Jul 17, 9:49 PM
    • 57 Posts
    • 28 Thanks
    Alexland
    • #6
    • 16th Jul 17, 9:49 PM
    • #6
    • 16th Jul 17, 9:49 PM
    100% in VLS100 is high risk and unlikely to maximise long term returns as bonds provide extra benefits via portfolio rebalancing. At any age and with any investment period and volatility tollerence I would never suggest you exceed 70% equities.

    You can do this by investing 50:50 between VLS60 and VLS80 to create a 'VLS70'. However VLS follows market size so is very US heavy and Asia and EM light. I would suggest you might consider 85% in VLS60 and 15% in a good combined Asia and EM fund.

    Remember drip feeding regular fund purchases is mathematicaly advantageous as you buy more units when they are cheaper.

    Also remember that funds have performed extremely well since the 2008 crisis so there are risks in investing lump sums after such a long bull market.

    Also if you are saving alongside your pension for retirement consider a Lifetime ISA wrapper.

    Alex
    • bowlhead99
    • By bowlhead99 16th Jul 17, 10:06 PM
    • 6,581 Posts
    • 11,642 Thanks
    bowlhead99
    • #7
    • 16th Jul 17, 10:06 PM
    • #7
    • 16th Jul 17, 10:06 PM
    100% in VLS100 is high risk and unlikely to maximise long term returns as bonds provide extra benefits via portfolio rebalancing. At any age and with any investment period and volatility tollerence I would never suggest you exceed 70% equities.
    Originally posted by Alexland
    By contrast, for someone at a young age, with a very long investment timescale and high tolerance for (and capacity for) risk of loss in pursuit of gains, I might.

    Although personally as it happens, I'm not over 70% at the moment.

    Remember drip feeding regular fund purchases is mathematicaly advantageous as you buy more units when they are cheaper.
    Remember that mathematics simply tells you the result for given (or assumed) data.

    If you make an assumption about the input data (that the average buy price over the drip-feeding period will be lower than today's price) then of course it will be advantageous to buy on the drip feed basis, and take the lower price.

    Statistically, market returns have been positive rather than negative over the majority of time periods that have existed in history, and as such, "drip feeding regular fund purchases" is not "mathematically advantageous" because it will not result in a lower price (or if it does, the cheaper buy-price would be offset by missing dividends or other income distributions by your being proportionally more in cash than in investments -compared to being 100% in investments)

    Also remember that funds have performed extremely well since the 2008 crisis so there are risks in investing lump sums after such a long bull market.

    Also if you are saving alongside your pension for retirement consider a Lifetime ISA wrapper.
    Agreed
    Last edited by bowlhead99; 16-07-2017 at 10:10 PM.
    • Drucifer
    • By Drucifer 16th Jul 17, 10:58 PM
    • 6 Posts
    • 7 Thanks
    Drucifer
    • #8
    • 16th Jul 17, 10:58 PM
    • #8
    • 16th Jul 17, 10:58 PM
    Thank you to everyone for taking the time to share their insights, it's much appreciated, I will check out the book by Tim Hale and the link provided to monevator.

    Bravepants: May I ask how the funds have done for you? Are you happy with the returns you've been getting? I've read through MMM's blog a few times before, its quite inspirational and retiring early would be great.

    Dunstonh: Not that I'd be overwhelmed with joy that my investment may end up at half it's original high, but I've accepted over time the value will rise and fall, from what I've learned though, over time I'll likely end up with more than I invested (at least that is the hope). I've been reading that people often panic when there's a sharp drop, cash out in fear then miss out on opportunities, I'll be on this roller-coaster ride all the way.

    Another Joe: I'm unaware of "HMWO" but I will have a look at this.

    I've also taken into account the advice that I shouldn't put everything into 100% equities.


    Thank you again everyone.
    • Alexland
    • By Alexland 17th Jul 17, 8:34 AM
    • 57 Posts
    • 28 Thanks
    Alexland
    • #9
    • 17th Jul 17, 8:34 AM
    • #9
    • 17th Jul 17, 8:34 AM
    Although I might not agree with bowelhead if you have a modest lump sum and you intend to invest it you will need to decide how to get it in. There is no perfect answer. Personaly I might spread it as an additional regular contribution for the first 6 months to ride out short term volatility.

    In the early years regular investment helps you feel the pot is growing even in market decline.

    In the later years the market losses can dwarf your contrbutions so the pot shrinks but at least you are probably still up due to historic growth and getting additional units cheaply.
    • AnotherJoe
    • By AnotherJoe 17th Jul 17, 9:03 AM
    • 7,052 Posts
    • 7,518 Thanks
    AnotherJoe
    Thank you to everyone for taking the time to share their insights, it's much appreciated, I will check out the book by Tim Hale and the link provided to monevator.

    Bravepants: May I ask how the funds have done for you? Are you happy with the returns you've been getting? I've read through MMM's blog a few times before, its quite inspirational and retiring early would be great.

    Dunstonh: Not that I'd be overwhelmed with joy that my investment may end up at half it's original high, but I've accepted over time the value will rise and fall, from what I've learned though, over time I'll likely end up with more than I invested (at least that is the hope). I've been reading that people often panic when there's a sharp drop, cash out in fear then miss out on opportunities, I'll be on this roller-coaster ride all the way.

    Another Joe: I'm unaware of "HMWO" but I will have a look at this.

    I've also taken into account the advice that I shouldn't put everything into 100% equities.


    Thank you again everyone.
    Originally posted by Drucifer
    Over your life you won't have 100% in equities, this is one investment of several, for example you will have property (e.g. your house), other investments that will includebonds (your pension investments) and no doubt ISAs, cash and so on.

    For a "fire and forget" one off lump sum which you won't look at for 30 years I think 100% is the best option. Do a comparative graph of the performance of VLS20,40,60,80 & 100 to see the effect bonds have.

    VLS100 and HMWO do the same job, invest globally, the difference is that VLS100 is "artificially" biased towards the U.K. HMWO is invested according to countries actual contribution to the world economy. You'll have to take a view on the prospects of the UK as to which is a better option for the next 30 years.

    Mine is that it's not good but I can appreciate the opposite view. You could also consider that if the UK does well you will as well so a small relative and comparative decrement on performance of this one investment is acceptable, whilst if it does poorly then you won't be Ina fund which insists on retaining a quarter in the U.K. whatever happens to the UK economy.
    Last edited by AnotherJoe; 17-07-2017 at 9:07 AM.
    • Alexland
    • By Alexland 17th Jul 17, 1:03 PM
    • 57 Posts
    • 28 Thanks
    Alexland
    VLS funds have not been around long enough for those with some bonds to demonstrate the benefits of portfolio rebalancing after a downturn in equities. Try the Asset Mixer on Vanguards website. Mixed funds perform so well because they sell on highs and buy on lows during periodic rebalancing.
    • Bravepants
    • By Bravepants 17th Jul 17, 1:27 PM
    • 234 Posts
    • 259 Thanks
    Bravepants

    Bravepants: May I ask how the funds have done for you? Are you happy with the returns you've been getting? I've read through MMM's blog a few times before, its quite inspirational and retiring early would be great.

    Thank you again everyone.
    Originally posted by Drucifer
    My funds have done well. I started investing in 2010 or so, through a mix of drip feeding and lump sum (I dumped £15k in last year), and they show an average annualised return of about 10%. BUT this is by no means a guarantee of future performance.

    In my retirement spreadsheet I have assumed 4.5% annual growth for both my ISA and AVC, a bit pessimistic to take into account the 0.5% annual charges and 2% inflation (although CPI is now 2.9% or so accordintg to BBC News this morning.) This, with my AVCs, I hope to use to retire in 6 years at 55. I'm hoping to have £300k between the two pots.

    I may work a year or so longer, depending on performance. But there is no way I want to work until 67. My partner and I have no kids and a paid off mortgage in a modest house. I have a DB pension that kicks in at 60 (£17k a year) and another that kicks in at 67 with state pension too. So I have a phased plan.

    I am not bothered about volitility as I drip feed mostly. At the moment this is set to £1000 per month. I may lump sum at the end of the financial year if I have cash available.

    In the 6 years until I "retire", I would actually LIKE my fund value to drop, because then I would be buying cheaper. Also there is some cushion to volatility because of auto-rebalancing of the Vanguard funds every year as mentioned already in the thread.

    I am also dabbling a bit with peer-to-peer, with no more than 10% of my portfolio. It's just to gain experience now in case I decide to use it in my retirement years for a bit of extra monthly income. I want to see how it all holds together while I am working instead of semi-relying on it when I leave work.

    You're welcome, always glad to impart some of my rather limited experience.
    • fwor
    • By fwor 17th Jul 17, 2:48 PM
    • 5,849 Posts
    • 3,884 Thanks
    fwor
    VLS100 and HMWO do the same job, invest globally, the difference is that VLS100 is "artificially" biased towards the U.K. HMWO is invested according to countries actual contribution to the world economy.
    Originally posted by AnotherJoe
    I understand your basic point that VLS100 may be "artificially" biased towards the UK, presumably because Vanguard think that this is what UK-based retail investors will want.

    But... if you look at the regional allocations for HMWO it seems that they allocate over 58% to the USA. Isn't this also "artificial", but for different reasons?
    • dunstonh
    • By dunstonh 17th Jul 17, 2:58 PM
    • 88,774 Posts
    • 54,116 Thanks
    dunstonh
    I understand your basic point that VLS100 may be "artificially" biased towards the UK, presumably because Vanguard think that this is what UK-based retail investors will want.

    But... if you look at the regional allocations for HMWO it seems that they allocate over 58% to the USA. Isn't this also "artificial", but for different reasons?
    Originally posted by fwor
    The US bias has done VLS when in recent years but had it been in the previous 5 years to launch, it would have been a lead weight. The higher US weightings are perhaps more of a concern than the UK.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Zola.
    • By Zola. 17th Jul 17, 3:13 PM
    • 1,009 Posts
    • 363 Thanks
    Zola.
    The US rules the world though, for now at least!

    Maybe China and such are the places to invest for the future, fastest growing economy etc.
    • Linton
    • By Linton 17th Jul 17, 3:20 PM
    • 8,073 Posts
    • 7,898 Thanks
    Linton
    I understand your basic point that VLS100 may be "artificially" biased towards the UK, presumably because Vanguard think that this is what UK-based retail investors will want.

    But... if you look at the regional allocations for HMWO it seems that they allocate over 58% to the USA. Isn't this also "artificial", but for different reasons?
    Originally posted by fwor
    55% isnt particularly artificial being in the ball park of the US's share of the global equity market, or at least the developed world part of it. Unlike the case with the Vanguard LS funds, HMWO's managers dont allocate the %s. They are whatever the global index used works them out to be.
    • fwor
    • By fwor 17th Jul 17, 3:24 PM
    • 5,849 Posts
    • 3,884 Thanks
    fwor
    The US rules the world though, for now at least!
    Originally posted by Zola.
    My point is that the USA only represents nearly 60% of the world's GDP if you deliberately exclude other economies (such as that of China) - and that in itself is artificial.

    I'm not saying that - for example - you should allocate to China in proportion to its share of global GDP, because there are risks within their economy that don't feature in the US. But my personal feeling is that the bias of HMWO is excessive (which is why I don't use it).

    Linton: I understand what you say about just following an index - but then every index is "artificial", in that it has to have arbitrarily-defined thresholds and limits which determine which stocks appear in the index and which don't, and which countries are considered to be developed and which are not.
    Last edited by fwor; 17-07-2017 at 3:30 PM.
    • bigadaj
    • By bigadaj 17th Jul 17, 7:59 PM
    • 9,581 Posts
    • 6,096 Thanks
    bigadaj
    My point is that the USA only represents nearly 60% of the world's GDP if you deliberately exclude other economies (such as that of China) - and that in itself is artificial.

    I'm not saying that - for example - you should allocate to China in proportion to its share of global GDP, because there are risks within their economy that don't feature in the US. But my personal feeling is that the bias of HMWO is excessive (which is why I don't use it).

    Linton: I understand what you say about just following an index - but then every index is "artificial", in that it has to have arbitrarily-defined thresholds and limits which determine which stocks appear in the index and which don't, and which countries are considered to be developed and which are not.
    Originally posted by fwor
    No, the us represent maybe 55% of the world equity market, if you invested according to economy size you'd have most of your money in government bonds.

    There's also the fact that some economies aren't open, dual listing in China being an obvious example. There's also more political risk outside North America, Europe and Anzac, most companies in China are subject to political influence of not outwrite control.

    It's totally up to you how you invest and allocate, might be interesting to post your current allocation for discussion purposes, up to you though.
    • Drucifer
    • By Drucifer 17th Jul 17, 10:29 PM
    • 6 Posts
    • 7 Thanks
    Drucifer
    My funds have done well. I started investing in 2010 or so, through a mix of drip feeding and lump sum (I dumped £15k in last year), and they show an average annualised return of about 10%. BUT this is by no means a guarantee of future performance.

    In my retirement spreadsheet I have assumed 4.5% annual growth for both my ISA and AVC, a bit pessimistic to take into account the 0.5% annual charges and 2% inflation (although CPI is now 2.9% or so accordintg to BBC News this morning.) This, with my AVCs, I hope to use to retire in 6 years at 55. I'm hoping to have £300k between the two pots.

    I may work a year or so longer, depending on performance. But there is no way I want to work until 67. My partner and I have no kids and a paid off mortgage in a modest house. I have a DB pension that kicks in at 60 (£17k a year) and another that kicks in at 67 with state pension too. So I have a phased plan.

    I am not bothered about volitility as I drip feed mostly. At the moment this is set to £1000 per month. I may lump sum at the end of the financial year if I have cash available.

    In the 6 years until I "retire", I would actually LIKE my fund value to drop, because then I would be buying cheaper. Also there is some cushion to volatility because of auto-rebalancing of the Vanguard funds every year as mentioned already in the thread.

    I am also dabbling a bit with peer-to-peer, with no more than 10% of my portfolio. It's just to gain experience now in case I decide to use it in my retirement years for a bit of extra monthly income. I want to see how it all holds together while I am working instead of semi-relying on it when I leave work.

    You're welcome, always glad to impart some of my rather limited experience.
    Originally posted by Bravepants
    The fact that it's possible to achieve 10% is fantastic for me to hear, up until this point I've only ever been exposed to the ridiculously low bank rates, at the time of course, saving in a bank was necessary.

    I'm thankful for the detailed answer and you seem to be in a comfortable position with a sound plan, I hope when I'm 49 I'll be in a similar situation.

    I've decided to lump sum the £5,000.00 into a Hargreaves Lansdown S&S ISA, the VLS 100% of course, I hope to look back on this decision in decades time and can say to myself it was a good one, seems to be the less complicated option as I just want to fund and forget, as a supplement to my retirement, I've no desire to be filthy rich, I just don't want to be worrying about money in old age.

    In future I will of course look into further investment opportunities, such as buying individual shares within a particular company, I find "Tesla" inspiring, but best for me at this time to actually get started and get some money working away, get a feel for it all.

    I've also considered the possibility that the state pension won't exist anymore by the time I get to that age, though it would be nice to have as further supplementation. Is this likely?
    • Audaxer
    • By Audaxer 17th Jul 17, 11:08 PM
    • 307 Posts
    • 97 Thanks
    Audaxer
    In future I will of course look into further investment opportunities, such as buying individual shares within a particular company
    Originally posted by Drucifer
    Why would you do that in future as individual shares are much more risky than 100% equities in a diversified VLS100. Maybe look at single sector funds in future to build up a portfolio but not individual shares in my opinion.
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