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  • FIRST POST
    • Murmansk
    • By Murmansk 7th Oct 17, 9:14 PM
    • 51Posts
    • 14Thanks
    Murmansk
    Why doesn't everyone just buy Vanguard LifeStrategy?
    • #1
    • 7th Oct 17, 9:14 PM
    Why doesn't everyone just buy Vanguard LifeStrategy? 7th Oct 17 at 9:14 PM
    I'm fairly new to this investing thing and have a fair amount of cash invested in Vanguard LifeStrategy funds. In the three weeks or so that I have had them they seem to have gone up nearly 2%.

    I've been reading a lot about investing both online and in the books that I have seen frequently recommended.

    I've concluded that "passive investing" is the way to go and all the research seems to point to the fact that you might as well just use tracking funds and find a ones with low charges - hence Vanguard for me.

    I've come to the rather cynical conclusion that financial advisers might be a breed who make their money from people who have lots of money but haven't the time or inclination to do a bit of research - and people who haven't worked out that you don't need to worry about all the complexity.

    It seems to me that there is something of an "open secret" about Vanguard LifeStrategy in that they are great but the industry doesn't want everyone to know this because they'd all be out of a job!

    I'm wondering what people on here think of this?
Page 5
    • Glen Clark
    • By Glen Clark 12th Oct 17, 2:40 PM
    • 3,912 Posts
    • 2,915 Thanks
    Glen Clark
    The reason I haven't bought Vanguard Life Strategy is because its not an Exchange Traded Fund.
    Which means there are platform charges for holding it.
    And it isn't so easily and cheaply traded which I do to use up Capital Gains Allowance, selling one ETF and buying an equivalent one with another ETF provider (eg Vanguard, BlackRock, HSBC)
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
    • dellboy102
    • By dellboy102 12th Oct 17, 6:28 PM
    • 532 Posts
    • 95 Thanks
    dellboy102
    Do we know that for sure? If so why are people still investing in bonds and why are the likes of VLS20 and VLS40 still considered low risk?
    Originally posted by Audaxer
    This is what I was wondering as well, so if people wanted a low risk fund with maybe a equity/something else split (like the VLS 40) what would they look at if avoiding bonds?
    • Chris75
    • By Chris75 12th Oct 17, 7:01 PM
    • 146 Posts
    • 54 Thanks
    Chris75
    That is the conundrum.
    • Thrugelmir
    • By Thrugelmir 12th Oct 17, 7:04 PM
    • 56,224 Posts
    • 49,602 Thanks
    Thrugelmir
    This is what I was wondering as well, so if people wanted a low risk fund with maybe a equity/something else split (like the VLS 40) what would they look at if avoiding bonds?
    Originally posted by dellboy102
    There are variable rate bonds available i.e. those that invest in RMBS. Not all are fixed.
    “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    ― Warren Buffett
    • dunstonh
    • By dunstonh 12th Oct 17, 8:46 PM
    • 89,900 Posts
    • 56,576 Thanks
    dunstonh
    Do we know that for sure? If so why are people still investing in bonds and why are the likes of VLS20 and VLS40 still considered low risk?
    Originally posted by Audaxer
    Risk looks at potential downside. Not potential upside.

    When bonds crash, it tends to be no more than 5% (talking conventional/general bonds and not the higher risk ones). Maybe 10% at the most. So, the downside is much lower than the 40-50% potential on general equities.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Audaxer
    • By Audaxer 12th Oct 17, 9:07 PM
    • 650 Posts
    • 293 Thanks
    Audaxer
    Risk looks at potential downside. Not potential upside.

    When bonds crash, it tends to be no more than 5% (talking conventional/general bonds and not the higher risk ones). Maybe 10% at the most. So, the downside is much lower than the 40-50% potential on general equities.
    Originally posted by dunstonh
    Okay, that makes sense. I'm interested to know if you as an IFA thinks 'bonds can only fall from here', as some people on here seem to think? Do you think it is better to reduce volatility in a portfolio by holding a percentage of cash rather than bonds?
    • EdGasketTheSecond
    • By EdGasketTheSecond 12th Oct 17, 10:04 PM
    • 326 Posts
    • 183 Thanks
    EdGasketTheSecond
    Risk looks at potential downside. Not potential upside.

    When bonds crash, it tends to be no more than 5% (talking conventional/general bonds and not the higher risk ones). Maybe 10% at the most. So, the downside is much lower than the 40-50% potential on general equities.
    Originally posted by dunstonh
    Maybe in your lifetime. I've seen bonds lose more than 50%. Consols and War loan were way below £50 for most of the 70's and early 80's. Long-dated gilts were also trading around 50% of par. Now we have gilts trading way above par e.g. Treasury 4% 2060 priced at £166; think where that'd go if bank base rates rose to 8% and your average savings account were paying at least 6% !
    • Chris75
    • By Chris75 13th Oct 17, 7:46 AM
    • 146 Posts
    • 54 Thanks
    Chris75
    How much fixed interest prices move is also determined by how long it is before they get repaid. If my £100 bond is going to mature next year the price someone would pay is not going to vary much regardless of how much interest rate changed.

    In the case of war loan - which had no fixed redemption date - the price that someone would pay was determined totally by market interest rates. So if market rates were 3.5% my £100 3.5% war loan would have been worth £100 but if market interest rates rose to 7% my £100 bond would only have been worth £50. Most bonds are between these two extremes. The longer they are to maturity the more volatile the price. The bonds held in most index funds are quite long duration. I remember when war loan was trading at around £30 in the late 1960's and when redeemed a few years ago it was around £100 for the same bond - so to say bond prices do not move much is simply wrong.

    Finally remember markets also price in expectations so a small interest rate rise is probably already priced in.
    • Glen Clark
    • By Glen Clark 13th Oct 17, 8:24 AM
    • 3,912 Posts
    • 2,915 Thanks
    Glen Clark
    Maybe in your lifetime. I've seen bonds lose more than 50%. Consols and War loan were way below £50 for most of the 70's and early 80's. Long-dated gilts were also trading around 50% of par. Now we have gilts trading way above par e.g. Treasury 4% 2060 priced at £166; think where that'd go if bank base rates rose to 8% and your average savings account were paying at least 6% !
    Originally posted by EdGasketTheSecond
    Exactly. Bonds are close to record highs, pumped up by record low/negative interest rates. So I find the advice from an IFA that they can only fall 'maybe 10% at the most' quite surprising.
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
    • chucknorris
    • By chucknorris 13th Oct 17, 8:29 AM
    • 9,340 Posts
    • 14,004 Thanks
    chucknorris
    The reason I haven't bought Vanguard Life Strategy is because its not an Exchange Traded Fund.
    Which means there are platform charges for holding it.
    And it isn't so easily and cheaply traded which I do to use up Capital Gains Allowance, selling one ETF and buying an equivalent one with another ETF provider (eg Vanguard, BlackRock, HSBC)
    Originally posted by Glen Clark
    This is also very important to us as well. Not just switching to lock profits in to avoid future CGT, but I also switched to lock losses in, so I could carry forward those losses against CGT when I sell my investment property (I sold one this year, so I will be using that soon). So when the market wen back up, I recovered everything, but now I also have almost £100k of loss to offset CGT.
    Last edited by chucknorris; 13-10-2017 at 8:33 AM.
    Chuck Norris can kill two stones with one bird
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    • Chris75
    • By Chris75 13th Oct 17, 8:54 AM
    • 146 Posts
    • 54 Thanks
    Chris75
    ETF v Index read this:
    http://monevator.com/etfs-vs-index-funds-differences/

    PS I am with Halifax & my platform fee is £12.50 per year & trades can be from £3.95.
    • Audaxer
    • By Audaxer 13th Oct 17, 11:44 AM
    • 650 Posts
    • 293 Thanks
    Audaxer
    ETF v Index read this:
    http://monevator.com/etfs-vs-index-funds-differences/

    PS I am with Halifax & my platform fee is £12.50 per year & trades can be from £3.95.
    Originally posted by Chris75
    That's a good article on Monevator. Another point that it doesn't mention is that index funds are covered by the Financial Services Compensation Scheme but I am fairly sure ETFs are not covered as they are shares.
    • dunstonh
    • By dunstonh 13th Oct 17, 12:00 PM
    • 89,900 Posts
    • 56,576 Thanks
    dunstonh
    That's a good article on Monevator. Another point that it doesn't mention is that index funds are covered by the Financial Services Compensation Scheme but I am fairly sure ETFs are not covered as they are shares.
    Originally posted by Audaxer
    UT/OEICS are covered under the FSCS. ETFs and ITs are not.

    There are several issues with that article. Bid/offer spread for UTs is worth a mention as there are still some that have it. However, it reads as if all have them. Also, the risk issues, are mentioned but the risk is not placed in any context or in some cases, not even mentioned as a risk. Inexperienced investors may not realise that a potential negative increases the risks.
    Last edited by dunstonh; 13-10-2017 at 12:04 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Audaxer
    • By Audaxer 13th Oct 17, 6:08 PM
    • 650 Posts
    • 293 Thanks
    Audaxer
    Exactly. Bonds are close to record highs, pumped up by record low/negative interest rates. So I find the advice from an IFA that they can only fall 'maybe 10% at the most' quite surprising.
    Originally posted by Glen Clark
    If bonds did have a large fall like an equity crash, are they likely to bounce back in a year or two like equities usually do after a crash? If there is a big bond crash would that be a good time to buy more bonds?
    • Thrugelmir
    • By Thrugelmir 13th Oct 17, 6:12 PM
    • 56,224 Posts
    • 49,602 Thanks
    Thrugelmir
    If my £100 bond is going to mature next year the price someone would pay is not going to vary much regardless of how much interest rate changed.
    Originally posted by Chris75
    Your bond cost £108 to purchase though. On maturity you will receive the nominal value i.e. £100. An £8 capital loss.

    Lloyds TSB Bank (61MP) 7.625% Notes 22/04/25 will cost you £136 to purchase at the closing price today. Irrepective of the interest earnt. You are guaranteed a £36 capital loss in 2025. That's the iceberg beneath the water. That many people overlook. When chasing yield to generate income.
    Last edited by Thrugelmir; 13-10-2017 at 6:17 PM.
    “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    ― Warren Buffett
    • Glen Clark
    • By Glen Clark 14th Oct 17, 9:22 AM
    • 3,912 Posts
    • 2,915 Thanks
    Glen Clark
    If bonds did have a large fall like an equity crash, are they likely to bounce back in a year or two like equities usually do after a crash? If there is a big bond crash would that be a good time to buy more bonds?
    Originally posted by Audaxer
    I don't know - I wouldn't count on them bouncing back because if they fell they would only be reverting to long term averages.
    Sterling bonds are good for the likes of pension funds whose liabilites are in Sterling cash - because they don't have access to the better rates in retail savings accounts that we do.
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
    • Glen Clark
    • By Glen Clark 14th Oct 17, 9:27 AM
    • 3,912 Posts
    • 2,915 Thanks
    Glen Clark
    ETF v Index read this:
    http://monevator.com/etfs-vs-index-funds-differences/

    PS I am with Halifax & my platform fee is £12.50 per year & trades can be from £3.95.
    Originally posted by Chris75
    I wouldn't feel safe with some of obscure ETFs, especially if they are synthetic.
    But ultimately you still have to trust the system and its regulators. So most of my portfolio is in the large ETFs from Vanguard and iShares.
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
    • EdGasketTheSecond
    • By EdGasketTheSecond 14th Oct 17, 5:43 PM
    • 326 Posts
    • 183 Thanks
    EdGasketTheSecond
    If bonds did have a large fall like an equity crash, are they likely to bounce back in a year or two like equities usually do after a crash? If there is a big bond crash would that be a good time to buy more bonds?
    Originally posted by Audaxer
    No, of course they won't and that is why they are so dangerous right now and why I won't be buying VL strategy. Once interest rates reverse and start climbing the trend will continue and bonds will be taken down.

    You still find financial advisors carefully working out bond / equity splits on their calculators though to supposedly match risk to customer profile lol.
    • Audaxer
    • By Audaxer 14th Oct 17, 6:19 PM
    • 650 Posts
    • 293 Thanks
    Audaxer
    No, of course they won't and that is why they are so dangerous right now and why I won't be buying VL strategy. Once interest rates reverse and start climbing the trend will continue and bonds will be taken down.

    You still find financial advisors carefully working out bond / equity splits on their calculators though to supposedly match risk to customer profile lol.
    Originally posted by EdGasketTheSecond
    You're starting to worry me now. Are all types of bonds likely to suffer in a crash? Surely a VLS fund that holds a diverse range of bond funds might have some degree of safety in a bond crash?
    • EdGasketTheSecond
    • By EdGasketTheSecond 15th Oct 17, 4:06 PM
    • 326 Posts
    • 183 Thanks
    EdGasketTheSecond
    You're starting to worry me now. Are all types of bonds likely to suffer in a crash? Surely a VLS fund that holds a diverse range of bond funds might have some degree of safety in a bond crash?
    Originally posted by Audaxer
    Long dated bonds are most at risk. Short dated bonds not much risk as they are approaching redemption at £100. Index linked bonds also at risk but depends on how inflation and interest rates pan out.

    You need to see what type of bonds VL are investing in. If it is long dated ones then beware as they might not be as safe as you are led to believe.
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