Vanguard Life Strategy

jamesd

Shiller and his co-researchers found that returns were inversely correlated with increased CAPE so yes, it's expected that investing in markets with lower CAPE, particularly below their long term average, is associated with higher returns and this has been found to be true for all markets considered so far.

I haven't done the research or sufficient analysis of my own returns on CAPE basis to have any personal opinion based on my own results, though I am now including CAPE in my own decision-making, notably as part of my decision that I do not currently want to be heavily invested in some of the major global markets. Doesn't take CAPE to do that, though, just things like ordinary P/E and the uncommonly long bull market in some markets could cause it.

Temrael

I was interested to read the expected return projections from McKinsey and Barings on last weekend's post at Monevator.

It got me thinking, has anyone tried to come up with a reasonable/likely expected returns figure for any of the LS products? I'm in LS 80.

Or do you guys have your own ballpark figure that you use for planning/modelling? What would look achievable? 6% 7%?

I appreciate it's really just a "best guess" but it would be useful to plumb in a figure that looked reasonable.

george4064

Temrael wrote: »

I was interested to read the expected return projections from McKinsey and Barings on last weekend's post at Monevator.

It got me thinking, has anyone tried to come up with a reasonable/likely expected returns figure for any of the LS products? I'm in LS 80.

Or do you guys have your own ballpark figure that you use for planning/modelling? What would look achievable? 6% 7%?

I appreciate it's really just a "best guess" but it would be useful to plumb in a figure that looked reasonable.

If I were invested in Vanguard LS myself I would bother to do it, but why dont you calculate the 3y, 5y and 10y annualized return?

As always, past performance is not an indicator to future performance but it will get you closer to a 'ballpark' figure.

bigadaj

Temrael wrote: »

I was interested to read the expected return projections from McKinsey and Barings on last weekend's post at Monevator.

It got me thinking, has anyone tried to come up with a reasonable/likely expected returns figure for any of the LS products? I'm in LS 80.

Or do you guys have your own ballpark figure that you use for planning/modelling? What would look achievable? 6% 7%?

I appreciate it's really just a "best guess" but it would be useful to plumb in a figure that looked reasonable.

6-7% is probably typical, though more accurately expressed as maybe 3-4% above inflation. As well as being more realistic the latter expression might allow you to usefully plug this into your planning or modelling as it keeps it all in today's money effectively.

These returns are obviously averages over the long term, there will be a lot of short to medium term volatility so you're looking at a minimum ten years and ideally twenty to thirty years.

Also no guarantees, many have said that the returns over the mast few decades have been unrepresentative and could be much less in future decades.

bigadaj

george4064 wrote: »

If I were invested in Vanguard LS myself I would bother to do it, but why dont you calculate the 3y, 5y and 10y annualized return?

As always, past performance is not an indicator to future performance but it will get you closer to a 'ballpark' figure.

Those timescales are a bit too short, oarticulalry as the uk lifestrategy funds haven't been going for ten years, and maybe not quite for five.

Temrael

Thanks guys, yep that 3-4% above inflation is useful as you say. The trouble with LS is it's not actually been running very long i(n the grand scheme of things) so I was wondering if anyone had come up with reasonable expected return figures for a portfolio allocated in the same way based on more data.

I'm trying to get a clearer picture of how my LS holding might do against cash where I'm earning 3/4/5/6% for zero risk (obviously reduced by a couple of % due to inflation).

I instinctively know that investments are needed for growth but it's so easy to be seduced by the lure of cash at the moment. Particularly with the tax free interest up to £1k at the moment.

It's a nice problem to have though.

TheTracker

Temrael wrote: »

Thanks guys, yep that 3-4% above inflation is useful as you say. The trouble with LS is it's not actually been running very long i(n the grand scheme of things) so I was wondering if anyone had come up with reasonable expected return figures for a portfolio allocated in the same way based on more data.

I'm trying to get a clearer picture of how my LS holding might do against cash where I'm earning 3/4/5/6% for zero risk (obviously reduced by a couple of % due to inflation).

VLS is a find of funds. The underlying funds are mostly index trackers. Those index trackers track markets which have been around donkeys. VLS has an allocation to the underlying funds that is broadly in line with generally accepted 'model portfolios'. We've a mountain of evidence on historical returns of balanced portfolios. So we can expect that VLS will broadly track those global market returns. Vanguard itself has been around for donkeys. Those who highlight VLS 'has only been around X years' are FUDers.

The residual risk is management of the umbrella. Asset allocations will change due to management decisions. A significant one was made not too long ago. If these allocation decisions are made unwisely then the return could diverge from the global markets. I personally don't see this as a risk, I don't see Vanguard tinkering regularly. Others see it differently.

Some see markets rising 5% pa over inflation, close to the modern historical average. Others feel 3-4% is more appropriate in today's climes. As I hope to be alive for another 45 years or so I'm modelling on a 4.5% basis.

(I hold no VLS).

Finally, I wouldn't go near S&S unless I had a buffer of cash for emergencies, maybe around 40-50k, and coincidentally this is about the amount you can put into High Interest Current Accounts for 3.5% Ish. Your statement seems to say your money in VLS is as an alternative to HICAs. I'd fill those up before any S&Ss, particularly now that £1k interest is tax free, but others may do differently.

BLB53

I'm trying to get a clearer picture of how my LS holding might do against cash where I'm earning 3/4/5/6% for zero risk

The VLS funds have now been running for almost 5 yrs (June 2011). The annualised return for the LS40 is 6.9% p.a. and for the LS80 it is 7.91% p.a.

I would think these are the likely averages longer term as they correspond to the long term studies on returns for equities and bonds from the likes of Barclays Capital annual monitor.

masonic

BLB53 wrote: »

The VLS funds have now been running for almost 5 yrs (June 2011). The annualised return for the LS40 is 6.9% p.a. and for the LS80 it is 7.91% p.a.

I would think these are the likely averages longer term as they correspond to the long term studies on returns for equities and bonds from the likes of Barclays Capital annual monitor.

I would say the past 5 years have been better than average. For example, the S&P 500 (which makes up over a third of VLS 80) returned 13.3% (nominal) per year. Similarly, bonds have inflated to bubble proportions during this period, returning far more than historical averages would have predicted. The only thing to offset those stellar returns is a slightly below average performance of the UK market, but this is fairly slight. Perhaps a 7.9% nominal return will remain the average, but I think the real return will fall when inflation / interest rates rise from their current low. As it happens, it could be a bumpier ride for VLS40.

dunstonh

It got me thinking, has anyone tried to come up with a reasonable/likely expected returns figure for any of the LS products? I'm in LS 80.

Yes. Most analytic software does this.

The VLS funds have now been running for almost 5 yrs (June 2011). The annualised return for the LS40 is 6.9% p.a. and for the LS80 it is 7.91% p.a.

I would think these are the likely averages longer term as they correspond to the long term studies on returns for equities and bonds from the likes of Barclays Capital annual monitor.

Expectation would be lower than that for the long term. Those 5 years have not seen any significant or sustained negative periods. The odd blip but its post credit crunch (so benefits from starting not long after a major drop). Plus, it is a period where bonds performed higher than long term expectations.

The long term expectation for VLS40 would be around 2.3% net of inflation. The volatility level/risk level for that fund category has seen an average return of 7.0% p.a. over 5 years. However, that same sort of asset mix/volatility rating has seen average returns of 5.8% p.a. since June 2005 (or 2.7% inflation adjusted). The volatility level for the last 5 years has been lower than the expected volatility whereas the period from 2005 was actually just a bit higher than expectation.

If you go back for the last 7 years, the performance levels vs model expectations have been much higher in years 2-7 with only last year being in line with expectation.