New Investor: VLS 100?

Drucifer · 16 July 2017 at 12:15PM

Hello,

A little history about myself before I ask my question. I'm 27 years old, I've recently purchased a home with my fiance, I knew prior to this investing wasn't really an option as it was a short term goal and I needed access to the money. I've also got an emergency fund, enough to cover 7.5 months worth of bills in the event I lose my job. No debts (except mortgage) and I've sold my car.

Now that I've secured buying a home & dealt with all my short term goals, I'd like to focus on the long term, as I'm a strong believer in having plans and following them through, I believe everyone should have a direction/destination to go. I realise that my actions now will determine how I live in the future, so I'd appreciate the wisdom of people that know better or have had the experience.

Seeing that I'm new to investing my knowledge on the subject is limited, from what I've been reading, most people suggest a "Fund and Forget" type of strategy for newbies, the VLS 100 has caught my attention as it is already diversified for me, I'm also happy to take the risk. At this moment in time it makes sense to me to go for this, as buying individual stocks or day trading seems far out of my depth.

I've "only" £5,000.00 spare (I say only because to me it's a lot to have, but it doesn't feel like a lot to invest), should I drip feed or lump sum this amount into the VLS 100? Is the VLS 100 even my best option here?

My goal with this by the way is to, aswell as my pension, fund my retirement, so this'll be the start of at least 40 years of investing.

At retirement I feel comfortable with the idea of having a home to sell to downsize (if necessary) a pension pot and an investment pot, is this a sensible approach for the future?

Bravepants · 16 July 2017 at 1:11PM

I wish I had had your foresight when I was 27! Your approach seems very sensible to me, and you are taking advantage of a good early start.

If you can live well below your means you can take advantage of the tax advantages of saving more into your pension, particularly if you are in the 40% tax bracket.

I love the Vanguard funds. I'm 49 and I use VLS 60 but also Fidelity Global Index fund in my S&S ISA. So effectively I have a 70% to 30% equity to bond fund mix of assets. I experimented with various other funds for a while, but the simple approach is best at the end of the day...why complicated things. Passive index funds is the way to go! Fire and forget.

Some poeple suggest holding your age (I go modulo 10, so age 30, 40, 50 and hold the percentage for the decade) in bonds...in your case that might mean VLS 80. But some people think that too high a bond allocation, particularly at a young age, is detrimental to potential growth. I SHOULD use 40% bonds, but I prefer 30%. Checking the funds that my AVC is invested in shows they are at 70%/30% split, so that's reassuring.

You should pick up a copy of Tim Hale's Smarter Investing (or borrow it, you might get it in the library). The first chapter of that should give you some insight into thinking.

You might at some stage decide not to wait for 40 years to retire and do something like this chap...

www.mrmoneymustache.com

Cheers,
Paul

Superscrooge · 16 July 2017 at 7:47PM

Monevator which is an excellent website for learning about investing, has a useful article on drip feed versus lump sum investing

http://monevator.com/lump-sum-investing-versus-drip-feeding/

AnotherJoe · 16 July 2017 at 7:52PM

Personally, I'd suggest HMWO which is similar to VLS100 in idea but doesn't have the artificial allocation of 25% in UK shares, IIRC its more like around 7% which is UK as a proportion of global GDP.

Note, it is a share, not a fund (technically its an Exchange Traded Fund aka ETF) which means the cost structure of holding it is slightly different.

dunstonh · 16 July 2017 at 8:13PM

I've "only" £5,000.00 spare (I say only because to me it's a lot to have, but it doesn't feel like a lot to invest), should I drip feed or lump sum this amount into the VLS 100? Is the VLS 100 even my best option here?

And how are you going to feel when the value drops to half its previous high?

The average UK consumer is generally a cautious investor. New investors typically more so. Although many new investors invest way above their actual risk tolerance.

So, would you feel comfortable being such a high risk and could you handle the rollercoaster ride?

Alexland · 16 July 2017 at 9:49PM

100% in VLS100 is high risk and unlikely to maximise long term returns as bonds provide extra benefits via portfolio rebalancing. At any age and with any investment period and volatility tollerence I would never suggest you exceed 70% equities.

You can do this by investing 50:50 between VLS60 and VLS80 to create a 'VLS70'. However VLS follows market size so is very US heavy and Asia and EM light. I would suggest you might consider 85% in VLS60 and 15% in a good combined Asia and EM fund.

Remember drip feeding regular fund purchases is mathematicaly advantageous as you buy more units when they are cheaper.

Also remember that funds have performed extremely well since the 2008 crisis so there are risks in investing lump sums after such a long bull market.

Also if you are saving alongside your pension for retirement consider a Lifetime ISA wrapper.

Alex

bowlhead99 · 16 July 2017 at 10:06PM

Alexland wrote: »

100% in VLS100 is high risk and unlikely to maximise long term returns as bonds provide extra benefits via portfolio rebalancing. At any age and with any investment period and volatility tollerence I would never suggest you exceed 70% equities.

By contrast, for someone at a young age, with a very long investment timescale and high tolerance for (and capacity for) risk of loss in pursuit of gains, I might.

Although personally as it happens, I'm not over 70% at the moment.

Remember drip feeding regular fund purchases is mathematicaly advantageous as you buy more units when they are cheaper.

Remember that mathematics simply tells you the result for given (or assumed) data.

If you make an assumption about the input data (that the average buy price over the drip-feeding period will be lower than today's price) then of course it will be advantageous to buy on the drip feed basis, and take the lower price.

Statistically, market returns have been positive rather than negative over the majority of time periods that have existed in history, and as such, "drip feeding regular fund purchases" is not "mathematically advantageous" because it will not result in a lower price (or if it does, the cheaper buy-price would be offset by missing dividends or other income distributions by your being proportionally more in cash than in investments -compared to being 100% in investments)

Also remember that funds have performed extremely well since the 2008 crisis so there are risks in investing lump sums after such a long bull market.

Also if you are saving alongside your pension for retirement consider a Lifetime ISA wrapper.

Agreed

Drucifer · 16 July 2017 at 10:58PM

Thank you to everyone for taking the time to share their insights, it's much appreciated, I will check out the book by Tim Hale and the link provided to monevator.

Bravepants: May I ask how the funds have done for you? Are you happy with the returns you've been getting? I've read through MMM's blog a few times before, its quite inspirational and retiring early would be great.

Dunstonh: Not that I'd be overwhelmed with joy that my investment may end up at half it's original high, but I've accepted over time the value will rise and fall, from what I've learned though, over time I'll likely end up with more than I invested (at least that is the hope). I've been reading that people often panic when there's a sharp drop, cash out in fear then miss out on opportunities, I'll be on this roller-coaster ride all the way.

Another Joe: I'm unaware of "HMWO" but I will have a look at this.

I've also taken into account the advice that I shouldn't put everything into 100% equities.

Thank you again everyone.

Alexland · 17 July 2017 at 8:34AM

Although I might not agree with bowelhead if you have a modest lump sum and you intend to invest it you will need to decide how to get it in. There is no perfect answer. Personaly I might spread it as an additional regular contribution for the first 6 months to ride out short term volatility.

In the early years regular investment helps you feel the pot is growing even in market decline.

In the later years the market losses can dwarf your contrbutions so the pot shrinks but at least you are probably still up due to historic growth and getting additional units cheaply.

AnotherJoe · 17 July 2017 at 9:03AM

Drucifer wrote: »

Thank you to everyone for taking the time to share their insights, it's much appreciated, I will check out the book by Tim Hale and the link provided to monevator.

Bravepants: May I ask how the funds have done for you? Are you happy with the returns you've been getting? I've read through MMM's blog a few times before, its quite inspirational and retiring early would be great.

Dunstonh: Not that I'd be overwhelmed with joy that my investment may end up at half it's original high, but I've accepted over time the value will rise and fall, from what I've learned though, over time I'll likely end up with more than I invested (at least that is the hope). I've been reading that people often panic when there's a sharp drop, cash out in fear then miss out on opportunities, I'll be on this roller-coaster ride all the way.

Another Joe: I'm unaware of "HMWO" but I will have a look at this.

I've also taken into account the advice that I shouldn't put everything into 100% equities.

Thank you again everyone.

Over your life you won't have 100% in equities, this is one investment of several, for example you will have property (e.g. your house), other investments that will includebonds (your pension investments) and no doubt ISAs, cash and so on.

For a "fire and forget" one off lump sum which you won't look at for 30 years I think 100% is the best option. Do a comparative graph of the performance of VLS20,40,60,80 & 100 to see the effect bonds have.

VLS100 and HMWO do the same job, invest globally, the difference is that VLS100 is "artificially" biased towards the U.K. HMWO is invested according to countries actual contribution to the world economy. You'll have to take a view on the prospects of the UK as to which is a better option for the next 30 years.

Mine is that it's not good but I can appreciate the opposite view. You could also consider that if the UK does well you will as well so a small relative and comparative decrement on performance of this one investment is acceptable, whilst if it does poorly then you won't be Ina fund which insists on retaining a quarter in the U.K. whatever happens to the UK economy.

Alexland · 17 July 2017 at 1:03PM

VLS funds have not been around long enough for those with some bonds to demonstrate the benefits of portfolio rebalancing after a downturn in equities. Try the Asset Mixer on Vanguards website. Mixed funds perform so well because they sell on highs and buy on lows during periodic rebalancing.

New Investor: VLS 100?

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