Vanguard Life Strategy

bowlhead99

s20544 wrote: »

three specific questions I have are:


Which Lifestrategy (or other) fund would give similar risk, reward and volatility to a residential buy-to-let with 5% yield? (The buy-to-let he is considering is a 1 or 2 bed 10 year old modern terrace in good condition, near a station, suitable for a professional commuter).

Lifestrategy is index based investing. The funds invest in several thousand companies in a variety of regions all over the world (the amount invested in each company weighted to their respective valuations within the different regions, and the main regions weighted roughly towards their respective market size, with the UK markets relatively overweight). They also invest into indexes of corporate bonds and government bonds.

The yield will not be close to 5% as bonds are not currently yielding that much and world stockmarkets also generally always yield a lot less than 5%. Maybe 3% in the UK FTSE100, less for UK smallcap, less for the US. Overall the yield of a lifestrategy fund at the moment is under 1.5%

There are other funds deliberately invested in higher-yielding shares and bonds which may deliver 5%. Is the 5% sought, the yield after all costs? Of course, if your fund of choice does not deliver enough of a yield, you can create a yield for yourself by simply cashing in some of your units, which is something you can't do with a house when you only have one unit and sitting tenants stopping you selling it. So you can convert unrealised gains to realised gains (using up your CGT allowance each year and moving the proceeds into a tax free ISA or pension) while still only taking part of your total return as cash and leaving the rest to grow.

It is difficult to say what VLS fund is similar volatility to a rental property. They only have 3 years of track record, all of which was during a boom market. My instinct says that the 80 or 100 funds would be more volatile than a property (as they can go up or down by 40% in a year depending on the markets). But 'volatility' is perhaps something your father may not have considered anyway if he was buying his properties for decade or multi decade periods and not trying to value them every day or every month. If you only take a snapshot of a VLS fund once a decade it is not bobbling about all over the place, but if you did it every day, it would be.

I recognise that past fund performance is no guarantee of the future, but, does anyone have any stats on annual percentage dividend payouts and, separately, the stats on development of underlying capital investment? I thought that this would be useful information to share with my father?

You can get this from the factsheets which typically show values or charts of total returns, with a note as to what yield is included in that return - the rest is capital. For the VLS range, they have only been running 3 years which is not nearly enough to see a typical range of returns over a 10-20 year period.

However there are probably comments on the long term return of various world stock and bond markets that you can find all over the place. For the last 100-odd years, I think the UK and US equity markets are something like a real-terms return of 5.5-6.5% with bond real returns under 2%. You could blend those numbers together with some other higher return markets (the ones that started off 100 years ago as 'emerging markets' and get a decently high result. That's not necessarily what they will deliver specifically from today for the next 10 years of course.

If he were to invest in a fund I assume that it might be sensible to drip feed his lump sum into the fund over a 6 month period?

You could do that, some people would, some people wouldn't. Imagine he was buying a terrace of 6 houses to let out. Would he prefer to buy one each month so that he stayed in cash longer, missing rental income and capital gains on some of them until he became fully invested after 6 months? Or would he buy them all on day one?

The answer might be that he would stagger them to allow time for renovations and seek tenants in an orderly manner but that isn't relevant for stock market investing. Dripping gets you a lower risk result over the 6 month period because your return is the average of the potentially high returns or high unrealised losses from stocks and the zero real terms return from cash. If stocks are generally going up, you will get fewer stocks for your money if you invest slowly over time. If stocks generally get cheaper over the period it would have been better not to have bought all the stocks on day one.

Statistically because markets generally go up it is generally better to just invest the money when you have it and not do a slow feed. However, if he has never invested in stocks before, he might prefer to drip it in slowly due to nervousness. But presumably, whether the market went up or down in month one or two he is not going to change his mind on whether or not to invest in month two or three. If he is definitely going to invest all the money over the 6 month period, keeping some in cash with zero return for longer is just prolonging the agony.

When you look back in ten years, the share prices in late 2014 will probably be relatively quite close to the price in early 2015, compared to the price in late 2024, so you might as well just go and invest when the cash is available. However, I can't tell you to do that because the next share price downwards correction might be in December 2014 instead of December 2015 and then you may complain that my logical plan cost you money compared to the other option that was better with hindsight.

It may be worth starting a different thread if you are looking at "what lifestrategy fund, or other fund, would give similar..." as the whole question of suitability of real estate investments (geared with mortgages or not) versus equity and bond investment funds, is not really specific to the Lifestrategy fund brand.

WGPA

Sorry to bump this old thread, but does anyone know if Vanguard LS is protected by the FSCS? See extract from the MSE S&S page:

"You should check if funds are covered by the Financial Services Compensation Scheme - most funds managed by UK fund managers are - where you can claim compensation of up to £50,000 per person, per institution. Remember however, you won’t get any compensation just because the value of your investment falls."

bluebell321

Would 'switching' from one Vanguard LS fund to another ( eg 80 to 60) realise a gain in a Fund and Share account ?
In HL there is an option to sell and another to switch. I was originally going to just sell and then buy the other fund but it might be easier to choose the switch option. Are there any implications/ benefits of choosing one option over the other that I'm not aware of?

bowlhead99

bluebell321 wrote: »

Would 'switching' from one Vanguard LS fund to another ( eg 80 to 60) realise a gain in a Fund and Share account ?

Assuming you mean a capital gain for tax purposes, then yes it would. You are still effectively selling an asset and buying another one. The second asset is a unique and differently named, differently numbered investment product with it's own ISIN. Selling an asset, even if you choose to reinvest the proceeds immediately in something else, means you generally look at those proceeds and compare them to your cost and that gives you a gain or loss.

The rare exception is if you have an old type of fund where you are in a 'dirty' fund class with a high management fee and a periodic fee rebate, and want to switch into a different class of the exact same fund (e.g. Class R to Class Z) which is being offered to all new customers, the underlying fund manager might have a system set up allow you to simply exchange your R shares for the Z ones of the same fund as a restructure which they arrange for you. This 'switch' as a direct exchange does not result in you or your platform getting any sale proceeds of any kind, so your cost of the R shares just becomes your deemed cost of the Z shares.

But that is a rare situation and if you are just talking about exiting one fund for another by telling your fund manager to switch them, that's just a normal capital gains trigger event.

In HL there is an option to sell and another to switch. I was originally going to just sell and then buy the other fund but it might be easier to choose the switch option. Are there any implications/ benefits of choosing one option over the other that I'm not aware of?

Fund managers often have a 'switch' option where you are just saying hey, I have £1000 of value in this fund, please take out whatever it is actually worth tomorrow and buy whatever that value gets me, of this other fund at this other fund's price tomorrow. They know you are re-investing the exact same amount of money which will get settled back from the first fund and so they don't need cleared funds in the account to place the order for the second fund.

Alternatively with the 'manually buy and sell' options, not sure specifically about HL, but you often need to place an order to sell and then wait until you get funds back before you can actually buy the next thing. It gives you flexibility on what you can spend on the next thing but can also mean you are out of the market for a little bit.

Some platforms (again not sure about HL) will let you go ahead and place orders before waiting for the cash to settle from the first sale, if they can see that you've instructed it and there's no risk the sale proceeds won't arrive. So if you fully intend to reinvest the cash in other funds, this 'fully flexible' Sell option may not be as good, if it creates downtime. HL would clarify if you emailed them, if nobody else pops up here to respond.

bluebell321

Thank you so much.Your posts always make sense.
I have another question too if I may. After 6/4 I want to bed and spouse' some LS funds.
In practice, how would I do this if I just want to switch across to spouse's ISA. we both have HL accounts but specifically want to go from my Fund and Share account to spouse's ISA account.

bowlhead99

You can ask HL to transfer your unwrapped shares to your spouse, presumably by filling in a form. Your spouse will then have unwrapped shares in their Fund and Share account. They could then ask HL to bed and ISA them.

You might find the easiest thing to do is simply get cash from your Fund and Share account, give it to your spouse, then he/she subscribes the cash to his/her ISA, and buys shares with it. He/she could probably sensibly use the cash to subscribe to an ISA with a different and cheaper provider, given HL charge 0.45% on funds and the same on shares up to a cap, while other providers charge rather less for funds and sometimes virtually nothing on shares.

However, if you transfer cash to spouse it is considered that it's you that has sold the shares and any gain comes out of your CGT allowance for the year you sold the shares, while if you transferred shares to your spouse and got them to sell them and bed-n-isa them, the gain (if any) would come out of their CGT allowance for the year they sold the shares. This may or may not be relevant depending on the size of the gains and the allowances.

savingsaving2015

So how is everyone’s Vangaurd performing from when they first started? Are you happy or unhappy with your choice of fund?

bowlhead99

Mine is fine, has done what is said on the tin, i.e. gone up when the underlying indexes went up. Performance since 2012 in my pension is whatever the chart says it is, I don't have the figures to hand.

I only use the 100% equity version, for some cheap lazy exposure to global largecap equities. A couple of family members use the 80% version in their ISAs.

colinjd

savingsaving2015 wrote: »

So how is everyone’s Vangaurd performing from when they first started? Are you happy or unhappy with your choice of fund?

Just coming up to two years now in my SIPP and it's standing at +24.68% which is absolutely fine with me. Happy to just leave it there and let the experts at Vanguard do what they do, though I expect a few bumps in the road over the next 13-14 years (my time-frame).

Edit: I should have said I have the 80% Acc.

dunroving

savingsaving2015 wrote: »

So how is everyone’s Vangaurd performing from when they first started? Are you happy or unhappy with your choice of fund?

I've been in the 40% only for a few weeks so way, way too early to tell.

While a lot of my other funds have been going great guns in the current fever, the VLS40 has just been creeping, but I presume when the inevitable correction occurs and the other stuff drops like a stone, the VLS40 will respond less drastically because of the mix of S&S and other equities ...?