Vanguard Life Strategy

aroominyork wrote: »

If planning to retire in about ten years and not being sure whether VLS 60 or 80 is the right choice, does it make sense to split the funds between them and plan to draw on the 60 first?

If you invest in the 60 and 80 at the same time (and assuming you juggle the weights from time to time as one grows or falls faster than the other, to keep bringing the mix of the two funds back to 50:50 every so often) then you have effectively created a portfolio you could call VLS 70 with a risk level and growth potential somewhere between the two.

Then as you enter retirement and start pulling money out of the investments so you can spend it, there are lots of possibilities but the three simplest ones will be:

- sell the funds in equal proportions so that your remaining investments are still giving you a 'VLS 70'

- draw mostly from the 60 first as you suggest, so that what you have left is mostly 80 and is therefore higher risk than what you have been doing for the first decade leading up to retirement

- draw mostly from the 80 first so that the investments which remain for the rest of your retirement are mostly the 60, and are less volatile than what you have been dealing with when you were still in 'accumulation mode'.

So, although you suggested 'draw on the 60 first', to me that seems the least recommendable thing.

You might be planning to live until a ripe old age and still perfectly happy with 70% equities as you hope to grow your capital to provide spending power over the subsequent three or more decades after retirement. So I could understand the first option of drawing on the two funds equally.

Or you might be looking to access the bulk of the funds sooner than that - assuming your spending needs in early retirement are higher than those when you get older, because you'll want more money for travel and socialising etc. So, when you hit retirement age you will be quite a bit closer to the average date you need the money than you are today, so I could well understand an idea to de-risk - cash out some of the 80 and be left with the 60% equities as the remaining, lower-risk investment instead of what you started with which was 70%

The suggestion to draw the 60 one first is therefore a less obvious choice because it retains exposure to the highest risk fund as you get older and closer to needing the money !

I suppose where you have got that idea from is the concept that you don't want to sell at a low point in the markets and take a big loss, so you recognise that the 80 might be something you'd have to hold for longer to realise its potential, and therefore if you have to sell something at the bottom of a big crash for a bombed-out lowball price, it should be the 60, and leave the 80 invested at cheap prices in the hope of a recovery.

There is some sense in that, but only if - at the time you need the money - you are actually experiencing a prolonged low-point in the markets when it is clearly a great time to be buying up cheap equities rather than selling. But of course you can't know now whether some random date about a decade in the future will be a particularly high or low price in the context of historic market levels. Statistically you should expect it to be 'about normal, not particuarly high or low'. So then the question just boils down to shall I leave my VLS 70 at these normal prices or mostly withdraw the 60 and be invested heavily in VLS80, as I get closer to spending my last penny. The answer for most would be to sell the VLS80 in all but the most exceptional circumstances, rather than sell the 60 and leave yourself berelatively heavily invested in the 80.