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  • FIRST POST
    • funguy
    • By funguy 12th Jan 18, 10:46 PM
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    funguy
    Vanguard Direct site - which fund in case of stock market crash?
    • #1
    • 12th Jan 18, 10:46 PM
    Vanguard Direct site - which fund in case of stock market crash? 12th Jan 18 at 10:46 PM
    Hi all,

    I've got an account with Vanguard direct with some funds in the VLS80. Would it make sense to have some of my money invested in a more cautious Vanguard fund too in case of a stock market drop/correction? I see they do 100% bond funds as well...?

    Thank you
Page 1
    • Audaxer
    • By Audaxer 12th Jan 18, 10:57 PM
    • 795 Posts
    • 403 Thanks
    Audaxer
    • #2
    • 12th Jan 18, 10:57 PM
    • #2
    • 12th Jan 18, 10:57 PM
    If you are invested for the long term and are comfortable with the risk level of a VLS80, you should be able to ride out any volatility like an equity crash. If concerned you could transfer some or all of your money into a VLS40 or even VLS20, but the problem is you don't know when an equity crash will happen, and if it doesn't happen for the next 3 years, you are missing out on 3 years of good returns on your VLS80. I know it is tempting to try to time the market but all advice is that it doesn't work and that 'time in the market' is more important.
    • atush
    • By atush 12th Jan 18, 11:19 PM
    • 16,459 Posts
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    atush
    • #3
    • 12th Jan 18, 11:19 PM
    • #3
    • 12th Jan 18, 11:19 PM
    TBH (an no offence intended) this queston smacks of someone who doestn uderstadn risk and investing.

    So as said, if you are happy with that level of risk, you need to rid out the lows and highes.

    Look up pound cost averaging. And instead of looking to get out ahead of a crash, look at saving in cash to buy assets after a crash.
    • dunstonh
    • By dunstonh 13th Jan 18, 12:04 AM
    • 90,398 Posts
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    dunstonh
    • #4
    • 13th Jan 18, 12:04 AM
    • #4
    • 13th Jan 18, 12:04 AM
    Would it make sense to have some of my money invested in a more cautious Vanguard fund too in case of a stock market drop/correction?
    It is not a case of "if". You know a stockmarket crash is coming. It is always coming.

    As you know it is coming but do not know when, why would you want to invest any differently? Crashes are short term issues but you invest for the long term. If you cant handle the short term loss potential of your investments, then you are invested above your risk profile and should lower it.
    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.
    • Alexland
    • By Alexland 13th Jan 18, 12:25 AM
    • 1,118 Posts
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    Alexland
    • #5
    • 13th Jan 18, 12:25 AM
    • #5
    • 13th Jan 18, 12:25 AM
    So as said, if you are happy with that level of risk, you need to rid out the lows and highes.
    Originally posted by atush
    I personally don't see a problem with the OP dialing down the risk a bit after achieving a good return when market fundamentals look streched. Having observed market behaviour across multiple economic cycles there are times when the markets are clearly offering good value and so investing in stocks would be lower risk than when they are looking expensive.

    However I do challenge the idea that people should run totally or mostly into bonds (see below bond crashes) and, while it is important to remain in the market, balanced approach of equities, bonds, cash and perhaps other asset classes might be the best approach.

    https://moneyweek.com/heres-what-happened-the-last-time-the-bond-market-crashed/

    https://moneyweek.com/what-we-can-learn-from-the-bond-market-crash-of-the-late-1960s/

    Alex.
    Last edited by Alexland; 13-01-2018 at 8:40 AM.
    • bostonerimus
    • By bostonerimus 13th Jan 18, 4:06 AM
    • 1,419 Posts
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    bostonerimus
    • #6
    • 13th Jan 18, 4:06 AM
    • #6
    • 13th Jan 18, 4:06 AM
    I personally don't see a problem with the OP dialing down the risk a bit after achieving a good return when market fundamentals look streched. Having observed market behaviour across multiple economic cycles there are times when the markets are clearly offering good value and so investing in stocks would be lower risk than when they are looking expensive.
    Originally posted by Alexland
    I would rebalance the portfolio rather than looking to time the market in any other way. Having observed market behaviour across multiple economic cycles I have no clue what the markets are going to do.
    Misanthrope in search of similar for mutual loathing
    • Alexland
    • By Alexland 13th Jan 18, 8:38 AM
    • 1,118 Posts
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    Alexland
    • #7
    • 13th Jan 18, 8:38 AM
    • #7
    • 13th Jan 18, 8:38 AM
    I would rebalance the portfolio rather than looking to time the market in any other way. Having observed market behaviour across multiple economic cycles I have no clue what the markets are going to do.
    Originally posted by bostonerimus
    I agree but my point is that you look at the current fundamentals and take a view on current allocation rather that trying to guess the future. It's unlikely to cause any wild changes in your portfolio.
    Last edited by Alexland; 13-01-2018 at 8:42 AM.
    • A_T
    • By A_T 13th Jan 18, 9:28 AM
    • 283 Posts
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    A_T
    • #8
    • 13th Jan 18, 9:28 AM
    • #8
    • 13th Jan 18, 9:28 AM
    Like the majority of multi-asset funds Vanguard's UK Lifestrategy funds are untested in a stock market crash. They contain a large proportion of corporate bond funds - such funds crashed along with equity funds in the credit crunch. Gilt funds went up at that time.
    • ValiantSon
    • By ValiantSon 13th Jan 18, 10:00 AM
    • 224 Posts
    • 201 Thanks
    ValiantSon
    • #9
    • 13th Jan 18, 10:00 AM
    • #9
    • 13th Jan 18, 10:00 AM
    Like the majority of multi-asset funds Vanguard's UK Lifestrategy funds are untested in a stock market crash. They contain a large proportion of corporate bond funds - such funds crashed along with equity funds in the credit crunch. Gilt funds went up at that time.
    Originally posted by A_T
    LifeStrategy funds are actually more skewed towards government bonds than corporate bonds, although they do include both. Funds like HSBC Global Strategy are more balanced to corporate bonds than government bonds.
    • Audaxer
    • By Audaxer 13th Jan 18, 10:14 AM
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    Audaxer
    Like the majority of multi-asset funds Vanguard's UK Lifestrategy funds are untested in a stock market crash.
    Originally posted by A_T
    Although VLS funds weren't around during previous equity crashes, individual index funds were, and investors previously did and still do buy individual index funds in equities and bonds and rebalance the funds themselves. With Vanguard LifeStrategy funds the allocations are professionally selected, regularly rebalanced and more diversified than a few individual indexes, so no reason to think that they would not do as well or better than individual indexes have done in previous equity crashes.
    • ivormonee
    • By ivormonee 13th Jan 18, 10:27 AM
    • 108 Posts
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    ivormonee
    Hi all,

    I see they do 100% bond funds as well
    Originally posted by funguy
    I didn't think they did a LifeStrategy 100% Bond. That would make no sense at all. I would have thought it would only go down to VLS 20 (ie. 80% bonds).
    • A_T
    • By A_T 13th Jan 18, 10:32 AM
    • 283 Posts
    • 166 Thanks
    A_T
    I suppose the global bond index fund is a kind of VLS 0
    • A_T
    • By A_T 13th Jan 18, 10:38 AM
    • 283 Posts
    • 166 Thanks
    A_T
    Although VLS funds weren't around during previous equity crashes, individual index funds were, and investors previously did and still do buy individual index funds in equities and bonds and rebalance the funds themselves. With Vanguard LifeStrategy funds the allocations are professionally selected, regularly rebalanced and more diversified than a few individual indexes, so no reason to think that they would not do as well or better than individual indexes have done in previous equity crashes.
    Originally posted by Audaxer

    It depends what you want your fixed income allocation to do. When capitalism has a crisis investors flock to state bonds (and gold). I don't believe corporate bonds will help much in a crash, which is what the OP was asking about
    • username12345678
    • By username12345678 13th Jan 18, 11:01 AM
    • 167 Posts
    • 72 Thanks
    username12345678
    I think sometimes newer investors must be frustrated by the advice about investing according to their risk tolerance and other slightly abstract concepts.

    I can remember my IFA going through his list of profiling questions; "Would you go skateboarding with knee pads, elbow pads, both or none" etc etc..."You come out as medium with a bit of income and a bit of growth".

    It wasn't until I went online and researched the historical returns of different asset class allocations, max draw downs, draw down durations etc that I had some numbers I could use as a starting point to having an honest discussion with myself.

    To try and give the OP a direct-ish answer assuming this is long-term investing...

    1. If you're starting out (20s) and plan on investing monthly then i'd be socking it away in equities and let the market do its thing over multi-decades.

    2. If I was older and it was a lump sum i'd be mentally working out what sort of figure I could lose from my savings before i'd start getting jumpy and thinking about crystallizing losses.

    Accepting that bonds are in a slightly unusual place at the moment there is a wealth of information on how the market has behaved historically which should be able to guide you in your asset allocations.

    Off the top of my head I think the average bear market fall is a touch over 30% although 00-03 and 08-09 weren't far off 50%.

    Good luck in whatever you decide.
    • Alexland
    • By Alexland 13th Jan 18, 11:07 AM
    • 1,118 Posts
    • 749 Thanks
    Alexland
    It depends what you want your fixed income allocation to do. When capitalism has a crisis investors flock to state bonds (and gold). I don't believe corporate bonds will help much in a crash, which is what the OP was asking about
    Originally posted by A_T
    i think it very much depends on the situation. In a sovereign debt crisis people might think they have overpaid for government bonds and would prefer to move their money into corporates. But yes on average I agree corporate bonds are riskier but you get rewarded with a higher return.
    Last edited by Alexland; 13-01-2018 at 11:13 AM.
    • username12345678
    • By username12345678 13th Jan 18, 11:13 AM
    • 167 Posts
    • 72 Thanks
    username12345678
    I think it very much depends on the situation. In a soverign debt crisis people might think they have overpaid for government bonds and would prefer to move their money into corporates.
    Originally posted by Alexland
    Possibly but I think I would be working on the basis that corporate bonds will tend to correlate very closely to equities in a time of real market stress. Very short duration (ERNS etc) may be a little safer.
    • ValiantSon
    • By ValiantSon 13th Jan 18, 1:17 PM
    • 224 Posts
    • 201 Thanks
    ValiantSon
    It depends what you want your fixed income allocation to do. When capitalism has a crisis investors flock to state bonds (and gold). I don't believe corporate bonds will help much in a crash, which is what the OP was asking about
    Originally posted by A_T
    But as I pointed out, LifeStrategy funds are skewed towards government bonds.
    • Thrugelmir
    • By Thrugelmir 13th Jan 18, 1:52 PM
    • 56,757 Posts
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    Thrugelmir
    I see they do 100% bond funds as well...?
    Originally posted by funguy
    Are bond funds immune to a correction? More money has been invested by UK investors in bond funds than equity funds in recent months. Sometimes there's no where to hide. Though if one is investing for the longer term. Riding out the waves is simply part of being an investor.
    “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    ― Warren Buffett
    • A_T
    • By A_T 13th Jan 18, 1:56 PM
    • 283 Posts
    • 166 Thanks
    A_T
    But as I pointed out, LifeStrategy funds are skewed towards government bonds.
    Originally posted by ValiantSon

    There is still a high proportion of corporate bonds - which won't help in an equity crash. Again the OP was specifically asking about a crash - not whether bonds (of all kinds) are generally a good thing to have in your portfolio.
    • ValiantSon
    • By ValiantSon 13th Jan 18, 2:39 PM
    • 224 Posts
    • 201 Thanks
    ValiantSon
    There is still a high proportion of corporate bonds - which won't help in an equity crash. Again the OP was specifically asking about a crash - not whether bonds (of all kinds) are generally a good thing to have in your portfolio.
    Originally posted by A_T
    Well, initially I was correcting an implicit error that you made by suggesting that LifeStrategy funds were full of corporate bonds and that you would be better with government bonds, so my point still stands.

    The whole point of having a mix of both is exactly because they may well behave differently at different times. It is all part of diversification. Holding just government bonds could be just as bad as holding just corporate bonds. There is no guarantee with any investments, but diversification is really important in minimising exposure to risks.

    It is also not a fact that corporate bonds will fall in line with falls in the value of equities. This may happen, but it may not.
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