VLS 60 buying more now ok?

lesta1980 wrote: »

Can I ask something which will probably seem daft to some but im struggling to get my head round.

This 30% crash/loss that keeps being mentioned, say my VLS80 is looking 20% better from purchase and then the 30% hit happens, are people talking about losing 30% including the 20% gain or wiping 30% from my original investment?

Also I always read on here investing is a long term thing, 10 years etc (i understand all that) and that should ride out any loses but what happens if the crash is in the 10th year and you need to get out? Are you stuffed or should all the previous years hopeful growth would of got you into a decent enough position so you are still in overall profits?

The 30% loss would be taken from the amount you have at that point. Not the amount you originally put in. So if your investment has gone up by 50%, and then it's hit by a 30% reduction in a crash, then you're still 20% up.

If a crash come when you need to get out, then yes, you take that hit just like the rest of us. However, if you plan to take your money out in a given year (say, to pay off your mortgage or to assist in retirement or something else with a defined year of withdrawal) then the sensible thing to do would be to put your investment into less and less risky places as you approach said date.

This is what people do with their pensions. If you are 20/30/40 years old, then you can take risks. But once you hit 50 and you only have 10/15 years to go until you need that money, then you want to start moving your investment into safer places.

I'm 40, and I don't need my pension money for another 20/25 years. So I don't mind being 80% equities as I want the fund to grow, even if that means it takes multiple hits on the way. But I sure as hell wouldn't be 80% equities if I was 59 years old and that was my nest egg.

coyrls wrote: »

You may have missed the risk warning example that I suggested in my post:
I prefer my example; it is more concise, focussed and does not contain terms such as “hey”, “right” and “you cool with that”

[FONT=&quot]I thought I was making the uncontroversial point that you should distinguish between risk warnings that apply to a class of investments and those that apply to a specific fund. There are plenty of risk warnings that would apply specifically to the Life Strategy 60 fund but the potential for a 30% loss is not one of them.[/FONT]

I often get criticised for lengthy posts, so yes being concise is good. So intuitively it makes sense that if you want to warn someone of the risks of a product, the type of people who are in need of the warning might benefit from being told about it in no uncertain terms.

i.e.: The product you are investing in carries a significant risk of falling in value by x-y%

Alternatively one could do it in a product-class-wide way as you suggest and say that products that do abcd like the product you are investing in, carry a significant risk of falling in value by x%

Your message is a little longer because it is trying to educate the person about the class in general. Though general education is usually beneficial, there can be negatives:

- the person might not be looking for a broader education and be much more receptive to an *even more* concise warning associated with his specific product, even though there are other products out there that carry similar risks (about which the investor has not expressed interest anyway). So the attention might not be drawn to the admittedly concise, but not hyper-exclusively-focused, warning.

- the discussing of a wider product group in general terms can dilute the message because it shows that all those other products in a wide range carry risk of loss so the newbie investor might think "ah well, maybe it's just what I have to accept if I go for a product from this class that I've been told by someone would be suitable, so there is no way to avoid the 40% loss potential if I want to use S&S investments and multi asset funds like I've been told, so I will go ahead". In other words they cut short the research and just go with it because they don't like it but as they were told lots of other things have that risk and it is normal. So they end up in a product with risks they don't like.

- as it is talking about a whole class in general terms and you are aware that within the class there may be differences in risk and volatility, it is a broader generalisation. If something has potential to fall 30-40% in a given timescale and you lump it together with a broader class of products that are on average much closer to the 30% end of the scale rather than the 40%, you may end up referring to the general class as having about 30% risk which is a less serious warning than the "30-40" you might assign to the specific product under discussion. So, the warning could come off as being less serious because the odd 30% drop is maybe ok for a person but they would think high 30s drop is nerve wracking. So they could end up with something that they didn't appreciate could fall so much as it then does.

At the end of the day, your warning is not a bad one, of course not. We are talking nuances as you say. However, on the general point that you think you should make it clear that a risk is common to multiple products and is not a product specific risk, I am not convinced that is something that has to be "front and centre" of the discussion.

If you don't like any *one* risk that a product has, you can rule the product out. At the same time, you would implicitly be ruling out other similar products which have similar risks. But if you don't like the risk being talked about because it's unacceptable eliminating that product which carries that risk is a key thing to do, . As the first thing on your to do list.

In doing so it does not really matter that you have ruled out the other products (reduced the pool of acceptable products) for when you go fishing for alternatives later. You can deal with that in the next phase of your search. The important thing is that you have eliminated the unacceptable product about which you had been enquiring. A simple "THIS can drop 40%, can you handle it" is quite useful, and not scaremongering.