Vanguard Life Strategy

minimumcost

Linton wrote: »

But it doesnt do it. Look at the equity country allocation:

UK - 34.76%
US - 33.10%
Japan - 5.91%
France - 2.67%
Australia(!!!) - 2.65%
...
...
China/HongKong - 2.48%
Germany - 2.39%

Look at the sector allocation: Finance at 22% is twice the next sector.

For a small investor, in my view, VGLS is perhaps the least worst option, but I cant see anyone with sufficient money to construct their own portfolio coming up with an allocation that looks like VGLS100.

In my own long term portfolio for geographic spread I aim to make UK, US/Canada, non UK EU, and Far East similar %s and then add a fair amount of other Emerging Markets. VGLS allocates >2/3 of the investment to UK and US. Do you believe that these two markets present a >2/3 chance of providing the best returns? If you do then VGLS is the investment for you.

I could be wrong, but I think the allocation represents the relative weights of global markets and there's some logic for a home bias. Also finance is 22% of all equity and twice the size of the next sector so that's fair as well. (BTW... the finance sector we're talking about here includes the active fund managers!!)

That said for someone with enough money to come up with a VGSL look-alike the lower costs of a single VGSL is a better bet vs the multi-costs of a portfolio of funds. This is true for anything up to around £1m total invested. If you look at the monevator Lazy Portfolios they're all very different, but following the same 'global balance' principles. So on that basis I think minimizing cost trumps a slightly better asset allocation. Wha'd'ya think?

minimumcost

BTW... Google... "Vanguard’s approach to target-allocation funds"

It 'sposed to be for advisors eyes only.

Have you read this?

gadgetmind

Linton wrote: »

I see no good reason why allocating your investments on the basis of market capitalisation should be an optimal strategy

It isn't, but the higher trading costs of other strategies eliminate their larger returns for most investors. Using market cap effectively makes passive investing a LTBH strategy as trading is only done when entering and exiting an index.

I personally regard small and mid-sized companies as worthy of investment as large ones.

Agreed, which is why I use All Share trackers with an extra boost of mid cap and small cap trackers. I also have my own equal cap income portfolio alongside, which is performing *very* well.

In some areas you may choose trackers in other areas you wont or cant. Having implemented your strategy you hold it for the long term, the only changes you make are to rebalance from time to time.

I mostly agree but find very few sectors that are worthy of meaningful allocations where passive can't be used effectively. So saying, I do use ITs for some niche areas but only when I can pick them up on jaw-dropping discounts.

These are also the very niches where using open-ended funds makes little sense.

gadgetmind

minimumcost wrote: »

Have you read this?

Yes, I read it before buying into their LS funds and have linked to it a few times.

Their publications on many other subjects are also well worth reading including the one on stock lending. Basically, they do it carefully with income generated going into their funds. This is at least part of the reason why their tracking error is so low and that they can even beat their index, unlike the overwhelming majority of active strategies.

gadgetmind

Linton wrote: »

I cant see anyone with sufficient money to construct their own portfolio coming up with an allocation that looks like VGLS100.

I agree.

Home bias is done for psychological reasons, which I have little time for.

I've constructed our own portfolios from individual Vanguard trackers with less UK allocation, more mid/small cap, more EM, a value tweak and a contrarian edge.

Ask how well it works compared to VGLS100 after another couple of business cycles.

Linton

minimumcost wrote: »

I could be wrong, but I think the allocation represents the relative weights of global markets and there's some logic for a home bias. Also finance is 22% of all equity and twice the size of the next sector so that's fair as well. (BTW... the finance sector we're talking about here includes the active fund managers!!)

Its fair if you take the view that the performance of a sector, geography, or a company is positively correlated with its size. It would be interesting to see any evidence that this is the case.

minimumcost wrote: »

That said for someone with enough money to come up with a VGSL look-alike the lower costs of a single VGSL is a better bet vs the multi-costs of a portfolio of funds. This is true for anything up to around £1m total invested. If you look at the monevator Lazy Portfolios they're all very different, but following the same 'global balance' principles. So on that basis I think minimizing cost trumps a slightly better asset allocation. Wha'd'ya think?

But my point is that someone with the money wouldnt want to come up with a VGSL look-alike.

As regards the Lazy Portfolios, the only one I can relate to (though it pains me to say so) is the Tim Hale one. But here he is Actively Managing by coming up with a sector allocation that is completely non-Index based. And I think he could do a bit better with his choice of funds. At the moment I would probably go for a Strategic Bond managed fund which will change the type of bonds it invests in according to market conditions. I wouldnt touch a Global Small Caps Tracker. Small Caps is definitely managed fund world as I believe is Income. So no to the All World High Dividend Index fund. The ex UK World fund will have the same geographic prolems I see with VGLS.

But his basic strategy is pretty much what I would advocate, though not necessarily the same sectors in the same proportions.

minimumcost

Linton wrote: »

But my point is that someone with the money wouldnt want to come up with a VGSL look-alike.

Why?
and what do you think the level of money is?
and what would someone with such money do?

black_taxi_2

isn't the percentage of bonds you hold the real call

Linton

minimumcost wrote: »

Why?

If you have a small amount of money you can regard the world as one thing because if you didnt the constituent parts would be too small to worry about.

The more money you have the more sense it makes for you to worry about what you are really investing in. If you apply that to VGLS you come up with the sort of points I have been making.

minimumcost wrote: »

and what do you think the level of money is?
and what would someone with such money do?

Once you get to one global tracker worth £5-£10K it makes sense to go to the next level down. The level its worth going down to is perhaps £2K-£5K, so perhaps 20 carefully chosen funds in a £100K portfolio. At £1M I dont know 'cos I dont have a £1M portfolio. Perhaps pay a wealth manager.

Linton

black_taxi wrote: »

isn't the percentage of bonds you hold the real call

Its definitely the first call - not just bonds, also cash, guaranteed pensions and safer investments like the Pru With Profits fund. I would want my next 5 years income requirements fully covered in that way.