Moving off VLS 80 for a long-term plan

The VLS80 is a great choice - low cost, automatic rebalancing, globally diverse. Whats more, its a really simple and straight forward proposition.

FWIW, I would stop fretting, don't over-complicate, keep it simple and just carry on with your current arrangements long term.

As you mentioned my name I thought I'd comment

collingbone614 wrote: »

I have a Vanguard LifeStrategy 80 but it's worrying me. This is my general investment situation:

I'm investing about £450 per month. My timeline is 25 years minimum. Currently have a small fry portfolio valued at just under £8k, entirely in the VLS 80, within a NISA. It matches my risk profile

There is nothing wrong with any of that. You have a fund which you have self-assessed as being suitable for the risks you want to be exposed to, and you don't have much in it, and at that pace you won't have a 'lot' in it (in terms of your potential overall lifetime wealth, in the grand scheme of things), for a number of years.

and it is up 11% since I started putting money in ten months ago.

This is irrelevant to any advice you could receive, as the returns from VLS80 for the last 3-4 years are public information, as are the histories of each of the underlying markets which it tracks, for the last 20-30 years or so. What days you chose to invest will determine your returns but they are not relevant to its current suitability as an investment vehicle.

I have a small amount of cash stacked aside so that I can buy more when the markets tank.

OK, so you are not 80% equities 20% bonds you are (say) 64% equities 16% bonds 20% cash, depending on your definition of 'small amount of cash stacked aside' compared to the value of the £8k portfolio; that would be guessing £2k cash on the side, and presuming it is really 'spare' and not needed for living your life so you could throw it into investments as and when, but are choosing not to for now.

My long-term plan is to invest more of my salary as it (hopefully) increases over the years.

Makes sense because when you are old, what you will compare your assets to is your then current salary and not some old figure for your salary that you used to earn in 2015.

I plan to 'lifestyle' the investments so that more goes into bonds, over time.

Makes sense, if you have a fixed objective in mind and specifically need to protect your assets from crashes as you approach it.

In your situation with 25 years to go, a non-equities allocation much higher than the current 20 cash and 16% bonds leaving under two thirds of your portfolio in equities, might seem excessively cautious. However, it would suit some people and could be fine.

1. My investment is not split as much as I'd like between more funds. Let me explain. A number of years ago I was saving for a mortgage deposit using a cash ISA account with a bank called Kaupthing Edge. This was one of the Icelandic ones which of course went belly-up during the financial meltdown. I managed to get my dosh out in time before the whole thing became even more messy - not sure if others did get all their dosh back - but the experience has spooked me.

In that case do not save/invest more than the FSCS limits with one institution, next time. At the moment you are nowhere near the limit for compensation due to fraud etc. Splitting an £8k portfolio into multiple separate fund investments seems more of a headache than is necessary.

It obviously didn't spook me enough to factor this into my fund-selection decision, however, and I should've known something like this might bother me later down the line.

If it genuinely bothers you and you can't get comfortable with it, change it until you can. Five £2k pots each with protection up to £50k does not seem much safer than one £10k pot with protection up to £50k.

This has led me to belatedly research the fund protection available on UK-domiciled funds, and I have seen that you get £50k per fund provider, under the relevant circumstances.

Yes. So you could consider that, in a decade's time, when you have £50k per fund provider.

2. I have also read recently in one of Bowlhead99's posts that there are possibly some tax implications to owning the VLS80, even when held in a NISA. Although the impression I have is that the amounts under discussion would be low, I am unfortunately the type of person who finds this bothersome.

OK. Work out what it 'costs' on £8k versus the alternatives while interest rates are low as hell. It is not a lot.

What I think is that I should divide up my funds between providers so that in the (albeit extremely) unlikely event that my funds go under, I will be safer.

That is one approach. If you reduce one risk imperceptibly, you will be imperceptibly safer overall. I can't tell you that you should not bother, because then you would hate me if you followed my suggestion and then something went wrong. But I personally wouldn't bother.

(a) Use a VLS 100 and a global gov bond fund.

So, instead of holding most of your portfolio in a set of global largecap equities and a variety of global corporate bonds, global government bonds, and index-linked government bonds, you would instead hold most of your portfolio in a set of global largecap equities and then one simple global government bond fund, with no allocation to investment-grade or higher-yielding corporate bonds or index linked bonds? Interesting choice, if a bit of a gamble.

Then eventually introduce a limited few extras, as below.

(b) Or use the Fidelity Global Acc, an emerging tracker, and a global gov bond fund.

Personally I prefer to limit exposure to particular markets and therefore if tracking the world, I'd prefer the fund to hold multiple regional holdings rather than be a simple global equities tracker. But I haven't actually looked at how Fidelity do it in that fund.

I also feel that if you are investing into a dedicated emerging markets fund, a tracker is a less-appropriate strategy for those markets. This is because of the inherent lower-developed status of such markets and the lack of transparency and public information and 'perfect market', which can then give active managers with their own research teams an edge in some market conditions.

And as noted above a global gov bonds fund is the lowest yielding type of fund that you can get (compared to corporate bond funds for example) so it seems extreme to have one fund be 100% equities, another 100% emerging equities, and one gov bonds with nothing in between.

The second of the two options would be cheaper. So it appeals to me.

There is more to life than what you pay for your solution. There is how good the solution is.

Ultimately, over the long-term, when there is more money in the portfolio, I will want to bring in a few limited extras: an inflation-linked gov bond fund and a limited amount of P2P cash (<5% of the whole thing), maybe a property fund.

So you are getting rid of a VLS fund that has corporate bonds and inflation linked gov bonds now, to instead sit in a rather more restricted portfolio without those things for a while, so over the long term you can add some of them back again? That seems strange.

And if you want p2p you could perhaps consider adding that from your existing cash holdings which are currently sitting on the sideline. Higher risk though, so each to their own.

So, over the very long-term, my portfolio could look like this:

Fidelity Global Tracker

---

55%
Emerging market fund

---

10%
World gov bond fund

---

10%
World gov bond fund inflation-linked

---

10%
P2P cash

---

5%
Property fund

---

10%

So, a portfolio with similar attributes to a mixed asset fund, but excluding corporate bonds for some reason.

You already have a mixed asset fund, although it doesn't hold direct property. The L&G Multi-index 6 fund (other numbers are available for different volatility levels) might fit the bill if property is something you would like in your portfolio.

Of the above, only p2p lending is not available within traditional mixed asset funds. Do you want the 5% to be p2p lending, or would you prefer the 5% to be cash?. There is no such thing as "p2p cash". You either have cash or you have an investment in p2p borrowing.

Whereas if I stick with my VLS80%, my long-term solution would look like this, which is meant to reflect the same equity-to-bond-to-cash-to-P2P ratios as above, but not sure if I've got it right:

VLS 80

---

75%
World gov bond fund inflation-linked

---

10%
P2P cash

---

5%
Property fund

---

10%

VLS already includes inflation linked bonds as a category within its 20% bonds. Why do you want multiply your allocation to them specifically, by five to ten times over? Just curious whether that particular type of bond is really going to be so awesome for you over the longer term that it should be more than 10% of your total 25% bonds?

Hopefully you realise that index linked government bonds -whether held directly or via funds -, unlike national savings index linked bonds, do not promise to give a return exceeding inflation. The market's expectation of what will happen to inflation rates is already baked into the price of the bonds.

There is a certain train of thought that says 'if Vanguard ever went under, the last thing you'd be worrying about would be your investments, because the four horsemen of the apocalypse would be riding past your door'. And it's also true that it would take me nearly 10 years before I even have £50k of money invested in the VLS, if all I did was put my money in that, at my current monthly purchase amount.

It is your god-given right to worry about things that might never happen, so although I am fortunate enough to be earning a good wage and able to replace a certain amount of investment loss out of new income, I would not criticise someone who worries about their investments to the extent that they want to bail out.

However, fear can make people do irrational things so I would look to enquire why you think it is better to have £5k FSCS-covered investment with manager A in sector X and £5k FSCS-covered investment with manager B in sector Y, instead of £10k in a mixed-asset FSCS-covered investment with manager C.

The tax bit about UK multi-asset funds above does not seem a massive issue, so if you are just spreading money around to avoid counterparty risk, some would think you OTT. You are after all only investing a third of your ISA allowance each year, while some have millions in such vehicles.

AlanP wrote: »

I don't want to derail the thread so could somebody point me to the original post from Bowlhead99 about the tax issue with VLS type funds please?

Thanks

Posts 8 to 11 on this thread.

[url]Http://forums.moneysavingexpert.com/showthread.php?t=5222793[/url]

Essentially if you are holding a debt fund (which pays interest distributions)in an ISA, or an equities fund (which pays dividend distributions) in an ISA, you will end up getting pretty much all the income stream which was paid out from the underlying investments, paid out gross in your hand.

If you instead have a mixed fund which receives both interest and dividends but pays it all out as dividends, the fund itself may suffer from leakage in the form of a tax bill, depending on the actual amounts and domiciles /tax residencies of the entities involved.

So, even though you get to keep all the money that the fund paid you, it is not all the money that could have been available from the underlying investees, because of the tax leak which is essentially just another operating cost to the fund.