VLS 60 buying more now ok?

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  • sebthered
    sebthered Posts: 43 Forumite
    'Do you have the risk profile and behavior for that fund? Your question suggests you may not. You are going to suffer a 30% loss at some point. Could be tomorrow, next week, next month or next year. When you invest is not going to change that.'

    Is that particular fund/ any fund of 60/40 proportions, or the fact that all funds will at some stage suffer such a loss?
  • Linton
    Linton Posts: 17,045
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    sebthered wrote: »
    'Do you have the risk profile and behavior for that fund? Your question suggests you may not. You are going to suffer a 30% loss at some point. Could be tomorrow, next week, next month or next year. When you invest is not going to change that.'

    Is that particular fund/ any fund of 60/40 proportions, or the fact that all funds will at some stage suffer such a loss?

    Any equity, whether individual shares or multiple shares held in a fund can suffer during a general crash across the whole global equity market. Some shares may suffer less than others. Trackers ignore the risk. Managed funds may try to minimise the potential impact of a crash perhaps by holding safer shares or by moving out of shares when problems are foreseen. Some have been more successful than others. Aiming for safety will probably reduce long term returns.

    A 60/40 fund will suffer less during a crash than a 100% fund simply because it is holding less equity. You may just as well these days have kept 40% of your money in your wallet and invested the rest in a 100% fund.
  • sebthered
    sebthered Posts: 43 Forumite
    'Aiming for safety will probably reduce long term returns.
    You may just as well these days have kept 40% of your money in your wallet and invested the rest in a 100% fund.'

    Hmm, just when I think I've read & researched sufficently to invest, someone sticks a pin in my ballon! :)
    Growth would be nice, but beating inflation is my objective. My cunning plan was vls 60/40 for 5 years then switch to a vls 40/60 or 20/80 for a further 5 years until retirement. Initial investment circa £50k with annual contributions of £20k. Perhaps a managed fund may be more suitable..?
  • TheTracker
    TheTracker Posts: 1,223
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    sebthered wrote: »
    Hmm, just when I think I've read & researched sufficently to invest, someone sticks a pin in my ballon! :)
    Growth would be nice, but beating inflation is my objective. My cunning plan was vls 60/40 for 5 years then switch to a vls 40/60 or 20/80 for a further 5 years until retirement. Initial investment circa £50k with annual contributions of £20k. Perhaps a managed fund may be more suitable..?

    No, its one of the pernicious effects of VLS commentary (disclaimer: I hold no VLS) that discussion on this forum centres around the fund, and the generally passive nature of it, rather than the broad applicability of the comments to the vast bulk of 60/40 portfolios, be they active or passive or VLS or not.

    60/40 portfolios will suffer 30%+ drops every decade or so, which by the laws of statistics mean they can happen 2 or three times in a 10 year period. It's the fact that such unpredictable oscillations occur that defines the risk that is being rewarded for. Indeed any long term decline in such volatility would probably lead to a reduction in long term returns.

    Yes, some funds will be designed to protect against drawdown. Largely they also shelter any swings on the gain side. And often the mechanism is to hold cash inside the fund, which you Joe Bloggs could do yourself. And yes, the VLS funds (and similar funds from other providers) have characteristics that people will poke sticks at. They have home/domestic biases. They allow management decisions about asset allocation, though rarely exercised. They omit certain classes that might dampen volatility (like property). But by and large they hold most of the market, and any henny penny prognostications that a large provider's fettered fund of passive trackers might suffer an x% drop is equally true of the average market.

    The real conversation should centre around understanding what your true risk profile is, and how that might be expressed in allocation terms (at the broadest level equities:bonds), education around expectations, and tempering emotional responses to short term (1-3 year) portfolio volatility. These attributes are far, far, far more significant than any chosen funds that some advisor might read in tea leaves. Get your risk right, get your allocation right, then understand what fees you want to pay for the next level of psychological comfort.

    Instead, inevitably we get the same tired old responses from long-toothed IFAs, after a sharp intake of breath that, you do know, right, that VLS60 might suffer a 30%+ drop anytime. Because the best climate for financial advice is one bred of fear, uncertainty, and doubt.
  • Linton wrote: »
    A 60/40 fund will suffer less during a crash than a 100% fund simply because it is holding less equity. You may just as well these days have kept 40% of your money in your wallet and invested the rest in a 100% fund.

    I'd go a step further than that. Someone may do better if they keep 40% of their money in their wallet and invest the rest in a 100% fund. Because interest rates *may* rise. If so bond markets *may* unravel over the next few years.

    But not just that. The sterling tide has been going out for a while. At some point maybe we'll reach a low water mark, and the tide will turn. At that point, USD denominated assets will lose value for UK investors who think in GBP.

    If in addition to these things, we see a slump or a crash in equity markets, funds like VLS60 and VWRL are really going to take a whack. That's why I think we could see peak to trough falls of 40-50%. Of course it may not happen. But it seems to me that all the ducks may be getting into a line and personally I'm considering increasing my cash position over the next year.

    I would not buy VLS60 now, although I wish I had been buying it for the last 8 years.
  • dunstonh wrote: »
    It is common for new investors to focus on the upside and not fully understand the downside. That 30% will happen at some point. its not a case of if but when. There will be more frequent 15% loss periods too. Whilst experienced investors will shrug their shoulders and think "here we go again" when the drop occurs, new investors very often get their nerve tested. Some can handle it and every crash that occurs after that gets easier. Some can't and panic and pull out. You typically know the ones that have panicked in the past as they will say they will never invest on the stockmarket again as they lost money. What they are really saying is that they didnt understand what they were doing and invested above their risk profile and have closed their mind to understanding what they did wrong. Don't become one of those.

    This makes perfect sense. It sums me up, actually. Mid 90's, just left Uni, thought I knew what I was doing but in reality, knew nothing, still swamped with student debt, despite my ego, didn't really have a penny to scratch my !!!! with. Took out an S&S ISA with Scottish Widows - one of those, much like the current Virgin offering. Not SW fault per se, I wasn't sold the product, I just knew what I was doing, right? After 3 years of watching my monthly payments loose money, I bailed. Vowed never to go near the stock market again - too risky. Now I'm the other way. All my stock market investments are held directly, ie, direct shareholdings. Way too risky, but I've been lucky so far. Was thinking about a VLS holding myself as have approx 20 years to go before retirement ( if I actually do retire) to boost the coffers.
  • jdw2000
    jdw2000 Posts: 418
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    I'd go a step further than that. Someone may do better if they keep 40% of their money in their wallet and invest the rest in a 100% fund. Because interest rates *may* rise. If so bond markets *may* unravel over the next few years.

    But not just that. The sterling tide has been going out for a while. At some point maybe we'll reach a low water mark, and the tide will turn. At that point, USD denominated assets will lose value for UK investors who think in GBP.

    If in addition to these things, we see a slump or a crash in equity markets, funds like VLS60 and VWRL are really going to take a whack. That's why I think we could see peak to trough falls of 40-50%. Of course it may not happen. But it seems to me that all the ducks may be getting into a line and personally I'm considering increasing my cash position over the next year.

    I would not buy VLS60 now, although I wish I had been buying it for the last 8 years.

    So you've been wrong for the past 8 years about VLS, but now you're right?


    And interest will go up. It's when, not if.
  • JohnRo
    JohnRo Posts: 2,887
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    Most gilts are near record highs, yields at or near record lows in an artificially suppressed interest rate environment.. That's not to say they won't continue on as they have been doing but at some point a reversal will occur, when it does the downside is significant and bonds generally have been behaving more like equities in recent years so may experience a similar fate.

    Recent market performance has understandably fostered a lot of investment complacency and perhaps misplaced enthusiasm, especially in stock market equity.

    The most recent uk property rout last year was a taster of how quickly attitudes and fortunes can change and then reverse again, for those who experienced it.

    The question to ask is how would that affect your behaviour (and sleep) if it didn't reverse quickly? How much could you realistically stomach while still holding your nerve, sitting out a recovery that could potentially involve a multi year wait?
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
  • sebthered
    sebthered Posts: 43 Forumite
    Very interesting perspectives @Linton @TheTracker @Ray Singh

    The more I know, the less I understand! :)
  • dunstonh
    dunstonh Posts: 115,904
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    Instead, inevitably we get the same tired old responses from long-toothed IFAs, after a sharp intake of breath that, you do know, right, that VLS60 might suffer a 30%+ drop anytime. Because the best climate for financial advice is one bred of fear, uncertainty, and doubt.

    Strange that you get criticised for pointing out loss potential for events that will happen to people that don't realise it.

    We have seen people on this board many many times over the years invest in funds like the VLS. Often taking a long time to decide to invest (often missing periods of gains) who then come back and post that is down and they are worrying. Some have even pulled out crystallising their losses. So, I make no apology for pointing out the downside that WILL happen.

    To even suggest that it is wrong to let people know their investments will go down as well as up says more about you than your snide comments about me and the other advisers that post here.
    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.
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