Nutmeg, Vanguard Lifestrategy or Ready-Made Portfolio?

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  • AnotherJoe
    AnotherJoe Posts: 19,622
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    matt1983 wrote: »
    Must admit im confused as to why its wrong to have the 5 vanguards, im sure ive read people saying they have more than one of them.

    Can anyone explain in simple terms why it is wrong to have all 5 of the vanguards?

    Because its the exact same as having just one of them in the middle, (or at most two), its more complex, involves more hands on work, and doesnt buy you anything in terms of risk avoidance.

    You've probably created (say) a Vanguard 58.5 which over time could become a 50.9 or a 62.3 or whatever and assuming you wanted that exact 58.5 (and if you didnt why buy like this??? ) you'll need to be buying and selling some of them over time to keep to that ?arbitrary? "58.5" ratio. A lot of work for no benefit.

    Also detracts from understanding the overall return you are getting, the "fun" of comparing the different ones performance is illusory as it tells you nothing useful, and doesn't allow you to adjust your funds by adding areas you might think VLS doenst do enough on

    You might for example think that smaller companies, property, far east, biotech, etc are underrepresented or will do better in future so you'd buy some of those in addition rather than spend your time pointlessly tinkering with multiple VLS funds that all effectively do the same thing.
  • ChesterDog
    ChesterDog Posts: 1,106
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    There are sweets (equities) and there are biscuits (bonds).

    A confectioner will sell you a bag containing any proportion of the two you desire: 8:2, 6:4, 4:6, or even simply all sweets.

    So if you want your purchase to consist of, say, 60% sweets, you can just buy a large bag that contains 6:4 sweets to biscuits.

    Not much point buying ten smaller bags with biscuits and sweets in all sorts of different proportions, only to find when you get them home and tip them onto a plate that you have done something very simple (bought sweets and biscuits in a 6:4 mix) in a bonkersly complicated way.
    I am one of the Dogs of the Index.
  • matt1983
    matt1983 Posts: 39
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    Jdw200 - thanks for the reply.

    I do understand how the vanguards are structured and the different levels of risk from 20-100.

    But are you sure its so simple as saying that having an equal amount in each of the 5 different levels is exactly the same as having it all in the 60?

    Does anyone understand why im confused by this? I get the differeing amounts of equities and bonds in each and the corresponding levels of risk. I just dont get how having equal amounts in each could work out exactly the same as having all your money in the 60%.
  • matt1983
    matt1983 Posts: 39
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    Hmm ok i actually think i might just understand what you are all trying to tell me now, so forget my last post.

    Thanks for all your help guys!
  • ChesterDog
    ChesterDog Posts: 1,106
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    Okay...

    You buy a £1 bag of sweets, a £1 bag of biscuits and a £1 bag that is equal parts mixture of sweets and biscuits.

    You take them home, empty them onto your plate and find you have £1.50 worth of sweets and £1.50 worth of biscuits.

    Which is the same result as you would have if you'd bought one £3 bag of 50:50 sweets and biscuits.
    I am one of the Dogs of the Index.
  • justme111
    justme111 Posts: 3,508
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    See post #15.
    It will not be exactly 60% as time goes by as each one of those 5 components will grow /drop at their own rate but it does not matter from the point of view of understanding the principle. Chester dog's analogy with sweets and biscuits is excellent.
    The word "dilemma" comes from Greek where "di" means two and "lemma" means premise. Refers usually to difficult choice between two undesirable options.
    Often people seem to use this word mistakenly where "quandary" would fit better.
  • ColdIron
    ColdIron Posts: 8,901
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    I see what you're saying ChesterDog, you seem to be saying he would be better served by a single, fixed allocation comestible such as a chocolate Hobnob :)
  • ChesterDog
    ChesterDog Posts: 1,106
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    justme111 wrote: »
    Chester dog's analogy with sweets and biscuits is excellent.

    If all else fails, use a food or sex analogy.

    Fortunately, the food one worked...

    :rotfl:
    I am one of the Dogs of the Index.
  • jdw2000
    jdw2000 Posts: 418
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    matt1983 wrote: »
    Jdw200 - thanks for the reply.

    I do understand how the vanguards are structured and the different levels of risk from 20-100.

    But are you sure its so simple as saying that having an equal amount in each of the 5 different levels is exactly the same as having it all in the 60?

    Does anyone understand why im confused by this? I get the differeing amounts of equities and bonds in each and the corresponding levels of risk. I just dont get how having equal amounts in each could work out exactly the same as having all your money in the 60%.

    Yes, spreading your money out among the 5 products is the same as putting it all in VLS60.

    Forget about equities/bonds for a second.... It's just a simple case of working out the mathematical average between those numbers: 20, 40, 60, 80, 100. Clearly 60 is the average number if you have money spread across all 5 products. So why not just use the VLS60 product by itself?!



    The real question you need to ask yourself is this: Is VLS60 the right level of risk for you? That is what you need to think about today.
  • Shashy
    Shashy Posts: 139 Forumite
    matt1983 wrote: »
    Jdw200 - thanks for the reply.

    I do understand how the vanguards are structured and the different levels of risk from 20-100.

    But are you sure its so simple as saying that having an equal amount in each of the 5 different levels is exactly the same as having it all in the 60?

    Does anyone understand why im confused by this? I get the differeing amounts of equities and bonds in each and the corresponding levels of risk. I just dont get how having equal amounts in each could work out exactly the same as having all your money in the 60%.

    It's because each of the Lifestrategy funds invests in the same underlying funds, just in different proportions.

    Let me have a go at expanding on the sweets vs biscuits analogy, where sweets are equities and biscuits are bonds:

    VLS20 = 2 sweets and 8 biscuits
    VLS40 = 4 sweets and 6 biscuits
    VLS60 = 6 sweets and 4 biscuits
    VLS80 = 8 sweets and 2 biscuits
    VLS100 = 10 sweets

    So your allocation has given you 30 sweets and 20 biscuits. Or to put it another way, your asset allocation between sweets and biscuits is exactly 60% sweets to 40% biscuits.

    Lets turn it back in to equities and bonds. You have, in a very complicated way, invested in a mix of Lifestrategy funds which has given you EXACTLY the same allocation between equities and bonds that you would have had you simply invested it all in the Lifestrategy 60.

    Does that help?
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