100% Equity vs Equity/Bond
Comments
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Should I really be looking at a mix of active Strategic, High Yield, and Corporate Bonds or just look for another passive fund such as the Vanguard UK Investment Grade Bond (or keep it simple with VLS60 for the whole portfolio)?
I actually prefer the L&G MI funds to VLS when it comes to bonds. L&G are better on fixed interest side and their management allows them to move the allocations around bond types based on their opinion of the cycle. VLS is rigid and does not do that. Sometimes the rigid will be better. Sometimes the flexible will be.
As to whether you are looking to build and run a portfolio of single sector funds to fill [some of] the allocations, that really comes down to your knowledge and experience. Moving from gilts, corp bonds, global bonds, high yield bonds, global high yield and back again or with combinations requires work and understanding.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.0 -
I actually prefer the L&G MI funds to VLS when it comes to bonds. L&G are better on fixed interest side and their management allows them to move the allocations around bond types based on their opinion of the cycle. VLS is rigid and does not do that. Sometimes the rigid will be better. Sometimes the flexible will be.
As to whether you are looking to build and run a portfolio of single sector funds to fill [some of] the allocations, that really comes down to your knowledge and experience. Moving from gilts, corp bonds, global bonds, high yield bonds, global high yield and back again or with combinations requires work and understanding.
Yes, I am already looking at the L&G MI5 as an option to the VLS60 so need to study the factsheets properly to see if they feel right for me.0 -
One comment I have that is not always considered is that Bond funds do not have a maturity date but individual bonds do. Therefore you lose this certainty using a fund. Obviously for corporate bonds a fund is almost always the only sensible option due to default risk needing to be diversified and that the minimum dealing size can be very large.
However for government gilts if you are only interested in the UK there is only one issuer (the Government) . Default risk of these are considered very low and I do not wish to go into this in this discussion. For these it is practical to buy and hold to maturity. Then the income and final capital repayment are known, although the capital values may of course go up and down between purchase and maturity, this is irrelevant if held to maturity. The drawback is that yields are very low both absolutely and historically. You can see on the DMO website the yields for various lifespans. For example the 3.75% 2052 only yields 1.94% - and what will be effect of inflation on this ? If you prefer index linked the yields are actually NEGATIVE. For example the 0.25% IL 2052 yields RPI MINUS 1.49%. It is these very low yields that are putting people off buying. So the certainty of the return can be considered to be very expensive. You can get better yields from equities with the expectation of a growing income and some capital growth but with increased risk including volatility.0 -
it could lead to a potential 50% loss in case of a crash and may take 5 to 10 years to recover from the losses so the £100K would be £50K - that's a big loss!
When you have a gain of £50k, which used to be somebody else's money, it means StellaX lost £50k.
When StellaX gains £50k, it means StellaN lost £50k.
When Queen Elizabeth got a galleon's worth of gold, the Spanish Queen lost a galleon.
You are either a pirate, or you don't go to sea.Therefore, my question is if I decided to go with either VLS80 or VLS60 I believe that would make my losses in the case above at £40K and £30K respectively? The bit I'm not sure about is the bonds - will they also drop as well as the equities or will they perform better in a crash and how does this work?
The bonds are supposed to provide a counter balancing effect, so the whole fund should be less volatile.
A really diversified portfolio could include property, Rembrandts, Ferraris and fine wine, but Vanguard is all about meat and potatoes, nothing fancy.0 -
I think even that is an out of date assumption. Age 55 you could be drawing on that pension for 30+ years and if doing under drawdown rather than annuity then you'll be drawing income rather than needing to worry about capital value all the time.
Agree with that in general but I think my point on timescales is still relevant
One of our pots is an AVC linked to a DB scheme that we can take at the point the DB starts so there is a "hard date" to be faced at some stage.0 -
When you have a gain of £50k, which used to be somebody else's money, it means StellaX lost £50k.
When StellaX gains £50k, it means StellaN lost £50k.
When Queen Elizabeth got a galleon's worth of gold, the Spanish Queen lost a galleon.
You are either a pirate, or you don't go to sea.
This is only true for active investors. It is not the case for passive investors.
When passive investors gain or lose they do so together, and not at each other's expense (nor at the expense of active investors).
When an active investor gains, it is at the expense of (an)other active investor(s).
Active investing is a zero sum game! #MonevatorWisdom0 -
I think even that is an out of date assumption. Age 55 you could be drawing on that pension for 30+ years and if doing under drawdown rather than annuity then you'll be drawing income rather than needing to worry about capital value all the time.
What if, as has been the case more recently. That major dividend payers slash their dividend payouts? Drawdown is not a God given right to a good income stream. Over 30 years there'll be considerable change to an equity portfolio as well.0 -
When passive investors gain or lose they do so together, and not at each other's expense (nor at the expense of active investors).
When an active investor gains, it is at the expense of (an)other active investor(s).
In the end, a fund is a collective investment, in competition with other funds. Whether it's passive or not, it's still a zero sum game. Even for the dividend, you have to pay what the other guy will pay.
E.g. a share pays 10p dividend, so you are happy to pay £5 for the share, but of course some rude yield chaser will come along and pay £5.01 for it, so if you want it, you have to offer more.0 -
Active investing is a zero sum game!
No, it's not. Neither passive nor active investing is a zero sum game.
A holding worth £1m ten years ago might be worth £1.5m now. That does not mean that someone else has lost £500,000.
The key point is that investments are not fixed in value, they generally increase in value over time. Businesses grow and share prices increase. Someone holding shares in such a business will see their holding grow. There is nobody holding "anti-shares" that will see a corresponding loss (well, apart from anyone who has decided to short the shares).I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.0 -
HappyHarry wrote: »No, it's not. Neither passive nor active investing is a zero sum game.
A holding worth £1m ten years ago might be worth £1.5m now. That does not mean that someone else has lost £500,000.
The key point is that investments are not fixed in value, they generally increase in value over time. Businesses grow and share prices increase. Someone holding shares in such a business will see their holding grow. There is nobody holding "anti-shares" that will see a corresponding loss (well, apart from anyone who has decided to short the shares).
The gains you are referring to are called "beta" gains. Where everyone gains together as the market grows. Passive investors are pure beta gainers/losers depending on what the market does.
There are also those who, in addition to their beta gains/losses, try to get a little more out of the market with additional trading. This is active investing. And these gains/losses are called "alpha".
The alpha gains of active investors are always at the expense of other active investors.0
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