Lifestrategy or.....

DropD · 16 December 2017 at 4:47PM

I’ve £17k to invest in a SIPP and I’ve spent some time reading through various posts on the forum and also looking at monevator site.

The Vanguard Lifestrategy funds seem to be very popular here and I’m currently looking at the Lifestrategy 60 which seems to be most appropriate to my age and planned retirement date (between 13 and 15 years from now). Are the Lifestrategy funds still the most common choice for this type of all in one fund?

Over on the monevator site I was looking at various portfolio examples and one that did appeal was the Rick Ferri’s Core Four as looks fairly straightforward and also allows flexibility at later date as become more confident in investing e.g. being able to add in emerging markets, split bond types etc.

As being new to investing I was wondering what the thoughts would be on say Lifestrategy v. something like the Core Four style or are there other alternative strategies that I should investigate?

Should also perhaps mention that if all goes well I have around another £50k that I may move from previous pension into the SIPP but I’ll probably hold off until made sure I’m confident in my decisions on the initial fund(s).

Any thoughts on what would be a good approach would be very much appreciated.
Thanks

BLB53 · 16 December 2017 at 5:04PM

I have increasingly moved to VLS 60 over the past 3 or 4 years and have been v happy with returns compared to some of my other holdings. I cannot really comment on Core Four but imagine it would involve rebalancing which is an auto feature with VLS so more complex and possibly without any advantage so stick with the Vanguard fund and see how it goes.

A_T · 16 December 2017 at 5:21PM

Lifestrategy's equities are very biased towards the UK.

HSBC Global Strategy portfolios allocate equities in a way which more accurately reflects global stock markets.

Audaxer · 16 December 2017 at 5:48PM

A_T wrote: »

Lifestrategy's equities are very biased towards the UK.

HSBC Global Strategy portfolios allocate equities in a way which more accurately reflects global stock markets.

I like both VLS60 and HSBC Global Strategy Balanced - they have had very similar returns over the past 5 years. I am retired and have recently invested in both funds.

bostonerimus · 16 December 2017 at 7:43PM

You'll be ok with VLS60 or a lazy portfolio like the Core Four as long as you adjust the components to be UK centric rather than US centric. If you go with Core Four type you'll have to do a bit of management and rebalancing, but it will be an inexpensive way to invest. I'm in the US and use a 3 fund portfolio of 50% US equity, 20% International equity and 30% US bonds. You could do something similar that's appropriate for the UK, but I wouldn't have 30% or 40% domestic equity if I was in the UK......what are you proposing as a UK Core Four?

Alexland · 16 December 2017 at 8:39PM

I have a SIPP with a six digit investment in VLS and am very happy with its daily and overall performance relative to the ups and downs of the global markets. I like a bit of UK bias to dampen currency volatility.

I usually look at a few key market results first then check my various investment accounts and the VLS has always moved in a way I expected. Usually slightly better as any dividends accumulate.

VLS is not just for beginners - I have been investing (making the usual mistakes in the early years) through the dot com and credit crunch crashes and learned to appreciate a relatively straightforward approach with low fees.

Also worth considering the L&G Multi Index 5 fund, if it is available on your platform, which seems to manage equity risk better (lower P/Es, less US exposure) and has lower quality but still good bonds (which offer more income). I have enough VLS now so L&G is next on my shopping list.

Alex

A_T · 16 December 2017 at 9:15PM

Does a UK bias really dampen currency risk to any meaningful extent? The FTSE All Share shoots up and down when GBP/USD changes just like a GBP US equity tracker.

ivormonee · 16 December 2017 at 9:43PM

It's certainly true that a depreciating GBP generally boosts FTSE100 and vice versa. It's also true that with straightforward equity funds you will have the additional layer of currency risk - which works in your favour when your investments in foreign currencies do well when those currencies appreciate in value against sterling; but equally works against you when the opposite happens.

The Vanguard LifeStrategy funds are excellent and there is one for everybody, pretty much, depending on risk tolerance. The 60% one is a good balanced fund; it does have a UK bias to the detriment of the overseas equity components but even if it was an exact mirror of global market cap it probably wouldn't make much difference to the overall risk/ reward ratio as the correlation of developed equity markets is very high.

I would personally recommend your LifeStrategy fund selection. Some of the other funds don't rebalance as well and many have higher OCFs (charges). Vanguard are generally now considered market leaders in index-investing where their funds have low tracking errors and tracking difference as well as lower costs.

Choice of platform is of equal importance though! Depending on sums to invest, in your case (the OP) £17k, you need to factor in the platform charges to arrive an overall cost of ownership. Annual costs overall will set you back 0.22% for the fund's charge (which is £37) plus the platform charge.

If you are anticipating going ahead with another £50k investment into your SIPP then two things might be worth bearing in mind. One, is that for that overall level of investment you will find wide discrepancies on platform fees so shop around wisely for the right platform. As a starting point you might look at the Monevator blogsite for a comparison table. Generally though, for such sums, flat rate providers will be much more cost effective than percentage based ones.

Secondly, and depending on your circumstances, you'll be able to claim a tax relief rebate for all or part of your investment. This will be done automatically by most platforms (but not all). And if you are a higher rate tax payer you will be able to claim additional tax relief through your tax return via self assessment.

One final thought; with an investment of £67k you might like to try a portfolio of funds rather than stick to just the one (not absolutely necessary but can make things a bit more interesting). And personally I favour index-trackers. You might find that a portfolio of ETFs will offer a much lower cost of ownership if you pick the right platform(s) as some do not apply the same level of high fees for ETFs as they do for unit trusts and oeics.

ps. one final, final thought! Regarding the currency risk; the beauty of a portfolio rather than a single fund is that you can diversify just that little bit more. For example, the FTSE 100 being often inversely correlated to the strength of sterling wouldn't offer the same diversification as splitting your UK equity so that some of it is, say, also invested in a FTSE 250 fund/ ETF, as FTSE 250 companies are not as directly linked to the movement of sterling.

chockydavid1983 · 16 December 2017 at 10:12PM

A_T wrote: »

Does a UK bias really dampen currency risk to any meaningful extent? The FTSE All Share shoots up and down when GBP/USD changes just like a GBP US equity tracker.

Isn't that because the FTSE All Share is primarily the FTSE 100, whose companies generate most of their revenue overseas?

Alexland · 16 December 2017 at 11:20PM

A_T wrote: »

Does a UK bias really dampen currency risk to any meaningful extent? The FTSE All Share shoots up and down when GBP/USD changes just like a GBP US equity tracker.

It might not be noticeable on a daily basis but over the long term the proportion of UK equity bias that is genuinely UK related earnings plus the UK bias on the bonds will help dampen currency volatility a bit. For example looking at the contents of VLS60 today 3 of the top 10 holdings are UK gilt or bond funds making up around 13% of the total holdings.

Alexland · 16 December 2017 at 11:29PM

ivormonee wrote: »

Generally though, for such sums, flat rate providers will be much more cost effective than percentage based ones.

At £67k in VLS it's probably cheapest to be with a percentage fee provider such as Cavendish who would charge 0.25% or £167.5 including any fund trades. This might be even cheaper when Vanguard launch their own SIPP towards the end of 2018 as they are expected to be similar to their 0.15% ISA charge.

However with a bit of growth or further lump sum contributions you might be better with Halifax who charge a flat fee of £180 but then you pay £12.50 for trades and £2 for regular investment. Or if you contribute frequently then you may be better on a larger sum being with Interactive Investor who charge £210 but that includes £90 of trade credit with trades at £10 and regular investment at only £1. Halifax charge £60 per transfer-in but II do it for no extra charge.

So it really depends if you plan to contribute above the £67k in the near future (or expect strong growth but the markets are already looking expensive with high p/es and you are investing in a balanced fund) on if you are better starting with a percentage based provider (then moving later) or going straight to a fixed fee platform now.

Alex

Lifestrategy or.....

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