Vanguard Life Strategy

mapk

masonic wrote: »

There is nothing wrong with avoiding bonds entirely, but swapping VLS60 for VLS100 is a big jump in risk, which is the point I believe dunstonh was trying to illustrate. The solution is to combine VLS100 with a proxy for bonds. You have options as a consumer that fund managers do not, specifically holding cash in high interest current accounts / regular savers and P2P lending, which you could hold in addition to the high-equities multi-asset fund as a substitute for bonds.

Many thanks. I'm reaching the stage where I'll shortly have exhausted current account / regular savers, and am tentatively exploring the increasing range of P2P options with a view to further involvement. I understand then that that will act as a substitute for bonds.

With that in mind, and taking a longer-term view, I thought it might not be a bad idea to extend the equities with VLS 80 or 100 (or L&G MI6 or MI7, or something similar). Or perhaps to look at a single sector fund such as Woodford Equity with, in due course, some satellite funds to comprise property, commodities, emerging markets.. Is this a reasonable approach or am I way off the mark? I was initially keen on a 'fire and forget' approach exploiting the experience of fund managers providing a balanced basket.

Anyway, hope I'm making some sense of all this. It is indeed a steep learning curve!

masonic

mapk wrote: »

With that in mind, and taking a longer-term view, I thought it might not be a bad idea to extend the equities with VLS 80 or 100 (or L&G MI6 or MI7, or something similar). Or perhaps to look at a single sector fund such as Woodford Equity with, in due course, some satellite funds to comprise property, commodities, emerging markets.. Is this a reasonable approach or am I way off the mark? I was initially keen on a 'fire and forget' approach exploiting the experience of fund managers providing a balanced basket.

If you are attracted to the Woodford equity income fund, then it doesn't make a lot of sense to go for VLS as this already contains UK equities and is already loaded with a UK bias. It might be better for you to look at the Vanguard World ex-UK tracker, which is slightly cheaper and which you can combine with the Woodford fund and other satellites without skewing your asset allocation.

bowlhead99

mapk wrote: »

I was initially keen on a 'fire and forget' approach exploiting the experience of fund managers providing a balanced basket.

That's fine but if you have other options available to you for your 'fixed interest' component that the institutional fund managers don't - for example promotional high interest current accounts and low volume peer-to-peer lending - then you would only really be looking for the fund manager to provide the traditionally 'riskier' investment options ; and therefore the basket of investments you bought from them would end up having potential for high volatility (e.g. the higher-equities versions of VLS or L&GMI or their more actively managed competitors)

This might result in you having an investment portfolio basket which does not look so 'balanced' in isolation as a traditional portfolio, and has the potential to crash more horribly, but could be considered as part of a wider portfolio and re-balanced periodically against your high-performing-cash and P2P holdings (where the P2P is suitably liquid) and out of your spare employment income.

mapk wrote: »

Or perhaps to look at a single sector fund such as Woodford Equity with, in due course, some satellite funds to comprise property, commodities, emerging markets.. Is this a reasonable approach or am I way off the mark?

You hear of people using a 'core and satellite' or 'hub and spoke' approach where they have a solid core of mixed asset generalist funds which generally gets the job done, and then some peripheral other funds to add exposure to more specialist sectors which offer a different profile of returns from the core or a particular tilt to one style or another.

However, to pick a specialist single sector fund with limited geographic scope as your 'core' with a view to adding all the other balancing sectors later, is poor quality investing. Even though the Woodford fund does not seem to be a bad fund and may perform better than some arbitrary benchmark stock index.

If you are looking for some sort of 'start point' with the view of adding in more specialist funds later, it would seem more sensible to have that start point be something like a L&G MI fund which has equities in lots of different regions (including emerging markets) and also exposure to property and different types of bonds.

This is not to say that the L&G MI fund or VLS fund is the best way of doing multi-asset multi region investing - there are plenty of other managed solutions out there - but it is designed as a core holding while the Woodford fund is designed around the sector, style and geography in which Woodford wants to invest, and as such should only be held alongside other uncorrelated funds to make a proper portfolio.

I agree with Masonic that if you do intend to have a UK equities fund like Woodford be a decent chunk of your portfolio, then an equities fund that has a skew to the UK like VLS100 may not be a great match to have as your core. Unless you really like UK equities, which you might. If you are doing your fixed interest with cash, P2P and maybe some independently chosen bond funds, and you are doing your equities with Woodford and 'something else', then the something else should contain the stuff that Woodford doesn't already try to include. So some kind of global ex-UK equities fund (there are many) or a global mixed asset fund with a light allocation to UK.

dunstonh

A big drop in bonds is a loss of about 10% (although some bonds are more than capable of being much more than this). The stockmarket is around 40%. So, you have to put some context on the size of the drop. We could be closer to a stockmarket drop than a bond drop. Also, bond is a term that covers many different types. In that respect, the L&G is more diversified and its bit of active management comes into play there over the VLS.

Behavioural risk has to be considered. You may type that you accept the extra risk of the VLS100 but it can be a different matter when you see your investment almost halve in value. The average UK investor is more in line with the VLS40. New DIY investors investors do typically invest above their risk profile. Going through a stockmarket crash for the first time will be a worry.

If you had £10,000, how much would it have to drop to before you would change the investments?

jamesd

The thing about the bond drop as interest rate rise is that it is a one way drop, with no prospect of capital recovery from the drop. A stock market drop would just recover given enough time. Not so bonds, when interest rates are going to rise from record lows not seen for hundreds of years. The difference is between loss and volatility - the bonds are loss with overall volatility on top, the shares are just volatility.

If switching out of mixed bonds and equities to just equities the volatility of the mixture would increase. But there's no need to do that. Say 40% bond allocation is just fixed interest and can be replaced with other fixed interest to keep the overall volatility the same and eliminate the bond one way loss issue. P2P tends to have lower volatility than bonds and to be held to maturity, so interest rate driven variations in market prices tend not to matter. Some of the secured VCTs are also very interesting for their combination of tax relief, security and tax free dividends/interest. Commercial property with real buildings owned is also an option but prices there have been rising and it's not as good an alternative as it was a few years ago.

If you want fixed interest to reduce overall portfolio volatility there's no reason to stop doing that. Just use the non-bond options instead and diversify widely in those non-bond options.

Do be sure that you understand that a broad mixture of equities only - a UK or global tracker or managed fund - will routinely see 20% drops a few times a decade and 40% or so once or twice a decade. 40% happened most recently in 2008 and it's sure to happen again.

You don't necessarily have to accept that equity drop. some of the VCT and P2P options can offer more potential return than the long term average UK stock market growth of 5% or so plus inflation, say 8% or so total, a year. They won't beat equities during a bull market but they are an interesting alternative when market values look high, as some do at the moment. Not that high means they can't go higher, they can. For years. That's part of why equity-like returns from alternatives can be interesting, you sacrifice less to no growth for the reduced volatility you can get if you pick a decent time to do it.

patrickbateman

I'm just starting out and very interested in starting passive investing. Most of the research has led me to vanguard lifestrategy, I'm thinking either vls80 or vls100. Whilst im not looking for financial advise as such I wondered if this is still the best portfolio for passive investment and I'm also wondering what platform is best to invest with. I'd probably be looking to put £5k down and then to drip feed maybe £1k a month, indefinitely. I am happy to split my investment to increase diversification and reduce risk, and am looking at building a nest egg to help me take early retirement in 20 years time to fund 8-10 years before my state and occupational pension.
I am currently in my mid 30s, do not own a property but am in a nhs pension scheme.
I have reasonable amounts of cash, and don't see much point in continuing to be totally risk adverse and save in cash isas, premium bonds and regular savers and current accounts. I think I need to begin investing to the stock market.

dunstonh

I am happy to split my investment to increase diversification and reduce risk

The VLS100 is hardly reducing risk. It provides sector allocation but matches the highest risk level (for conventional mainstream investing).

sutt191

First post here so go easy but appreciate all comments and criticism.

I am currently a junior doctor working in the NHS and contribute into an NHS pension.

Currently have £20k in Santander 123 and <£100 in a Natwest graduate account. Outgoings are £800-900 a month.

I have recently received £13k to invest and I have been researching into the best ways to invest this money via a stocks and shares ISA with regular monthly contributions until I reach the ISA limit.

Having read a large volume of the post on Monevator website and Tim Hale's 'Smarter Investing', I believe passive investing fit my investing needs in particularly the VLS funds.

Whilst I appreciate all the separate funds could be held individually for a reduced ongoing expense I like the simplicity of the VLS funds and I am willing to pay a small premium for them.

My current investment plan is a very simple one to invest all in the VLS 80 Acc via Cavendish Online in a single lump sum and add (as above) monthly contributions to reach the max ISA allowance. I have chosen VLS 80 as it suits my risk profile and I don't plan on touching the money for >15 years.

I realise there is potential for further diversification in the future (small cap, property), however given this is my first time investing I want to keep it as simple as possible.


Any comment/criticism on the above plan would be appreciated.

Thanks

jamesd

You should review the recent discussions of these funds.

guitarman001

Yep, down from peak ~155 to 140, 2% drop yesterday alone.
Wondering whether to wait then add... or sell and wait and then add...