VLS 60 buying more now ok?

In the credit crunch, bonds and equities went down. Some bonds fell by similar amounts to the equities. Bonds are not created equal in either risk, volatility or potential. This is why some prefer the L&GMI over VLS because the bond allocations are more advanced. Also that static allocations can hinder a portfolio when economic data and assumptions changes.

I have read that the biggest ever annual fall in the FTSE All Share Index since 1974 was by 32.8% in 2008.

The FTSE100 fell by 45% during the credit crunch and similar amounts over the Asian crisis/dot.com/US accountancy/Sept 11th cycle.

The falls tend to happen over a period. The credit crunch had two major drops totalling the 45%. Autumn 08 and Spring 09. The millennium drops were much more spread out and kept coming as bites that stifled recovery.

Also, drops are not best measured in annual segments. a) for the reasons mentioned above and b) the cautious investor checking their values frequently is looking at it live. Not on a fixed date where it is gone down 45% but back up another 15% giving them a net figure.

If there was a 30% fall in a year, would there be much less of a fall in the value of Managed Funds?

Whether it is passive or managed doesnt really matter. It is the underlying assets that matter the most.

If there is a crash every 8 years or so, and you invest for 15-20 years, are you more likely to come out ahead with the VLS60 or VLS80 products?

A crash typically occurs more frequently than that. A crash is defined as 20%. You are looking at every 3 or so years. We had one 18 months ago.

are you more likely to come out ahead with the VLS60 or VLS80 products?

You would expect the higher equity content to come out better in the long run. However, a Japan style event could mean you never recover and the loss would be greater on VLS80.

My understanding was that as long as you were prepared for the long term, and drip feeding in the dips as well as the highs, you would generally ride out any storm and come out on top?

If you have the behaviour to accept that and can handle seeing your values drop. I deal with portfolios it the hundreds of thousands or millions. A crash can see many hundreds of thousands of pounds wiped off. That takes understanding.

Audaxer wrote: »

I have read that the biggest ever annual fall in the FTSE All Share Index since 1974 was by 32.8% in 2008. As the FTSE All Share is only one of many funds in the diversified VLS60, I wouldn't have thought is was certain that the fund as a whole is likely to suffer a 30% loss over a year, or have I misunderstood?

If there was a 30% fall in a year, would there be much less of a fall in the value of Managed Funds?

Globalisation means that equities, particularly those of the large companies that make up the bulk of most trackers, are increasingly likely to move together in line with the world economy. No longer can we assume for example that what happens in Japan is independent of the FTSE100. So just having investments from around the world is not sufficient to provide adequate diversification.

Improving diversification isnt easy - there are no perfectly satisfactory answers. Small companies help a bit as they are more dependent on local conditions. Diversification by industry rather than geography makes sense. Government bonds are helpful though safe ones that provide very good diversification also provide zero return. High return corporate bonds are more correlated with equities. P2P could be a sensible way to go.

Managed funds generally could be expected to be less volatile than trackers as the manager may have an incentive to sacrifice some potential return to achieve long term sustainability and be less likely to respond over-enthusiastically to the latest fashion. However I dont think the general effect will be large. Some managed funds deliberately aim to reduce volatility. Ruffer Investment Trust increased in value pretty steadily during the great crash and has continued to do so in subsequent years. The Trojan O fund is another one that didnt fall.