Vanguard Life Strategy

Linton

Re: Global passive investing largely ignores the major growth areas of past 10 years.

gadgetmind wrote: »

Why would you ignore this whether using an active or passive approach? You let the evidence steer your hand and tilt your portfolio accordingly.

That's an asset allocation issues rather than a matter of what vehicles you use to gain exposure to those asset classes and territories.

But now you are managing away from THE market which in shares is surely a global one. Why should the theoretical arguments in favour of say a FTSE All Share tracker based on it being the average of all holdings leading to a claim that it is not beatable in the long term not apply equally well to a Global Tracker? Why should your diversification be better than the market's? Why is your choosing particular equity funds on the basis of say geography "asset allocation" and so desirable whereas a fund manager's choice of sets of shares on some other basis "management" and thus undesirable and ultimately futile? In a global market the distinction seems to me to be arbitrary - the asset is equity.

gadgetmind

Linton wrote: »

Re: Global passive investing largely ignores the major growth areas of past 10 years.

It doesn't ignore them but neither does it heavily overweight them. As it happens I do slightly overweight some of them but with a mostly passive approach.

Why should the theoretical arguments in favour of say a FTSE All Share tracker based on it being the average of all holdings leading to a claim that it is not beatable in the long term not apply equally well to a Global Tracker?

Theoretical arguments? Evidence-based, heavily-backtested, and thoroughly peer-reviewed studies take it well beyond this.

Why should your diversification be better than the market's?

Diversity is the important bit *but* does mostly require that you hold assets with low correlation and rebalance. Sadly, equity markets are correlating more and more, which does impact returns.

As for why my choice of territories, caps and "values" that have been shown to give a small long-term outperformance, again this is for evidence- based reasons. Of course, in the future, it could be that cap weighting beats this approach.

Why is your choosing particular equity funds on the basis of say geography "asset allocation" and so desirable whereas a fund manager's choice of sets of shares on some other basis "management" and thus undesirable and ultimately futile?

Because manager's are so desperate to outperform over every time period that they over-trade, attempt to market-time, try and out stock pick their peers, and generally thrash around to try and justify their fees. Those fees and the over-trading are what generally causes active management to underperform in most markets.

I say "most" as there are areas where active seems to have the slight edge but this does rely on you managing to pick the fund that's going to get lucky and/or have the skill (hard to differentiate between the two in periods of less than a few decades). Many don't so you could easily end up with a dog.

It would be interesting to see those who rally behind active management pick a set of (say) 10 funds that give a diverse portfolio and then in ten years we can see who beat (say) a LS 80% tracker and who didn't.

It will also be interesting to see which of the funds survive, which of the active investors manage to avoid jumping ship to another fund, and which of those who do chop and change actually manage to increase their returns.

We can then also work out how many feet of superyacht the active investors have bought for their fund managers.

Blackdog

adewalton wrote: »

If I add more money later say an extra £1k etc what costs would be applied?
Would it just be 0.31%
Thanks

You will have the 0.24% initial charge/dilution fee as a one off when you invest the £1k. Then 0.31% annual charge. The £2 a month platform fee remains at £2 so hence the more you invest the less of a percentage charge the platform fee becomes.

Carpi09

http://www.newsmax.com/StreetTalk/Rogers-worry-recession-2013/2012/05/31/id/440789

Just read the above article while stumbling over it, would appreciate if someone could tell me if this person is talking utter rubbish or the truth?

Linton

linton wrote:

Why should the theoretical arguments in favour of say a FTSE All Share tracker based on it being the average of all holdings leading to a claim that it is not beatable in the long term not apply equally well to a Global Tracker?

gadgetmind wrote: »

Theoretical arguments? Evidence-based, heavily-backtested, and thoroughly peer-reviewed studies take it well beyond this.

But you havent answered my question of why such solid results dont apply to the Global Market and make futile, or even counter-productive, your efforts to improve on a single simple Global Tracker by overweighting particular sectors?

Even you are prepared to accept that small caps may outperform a FTSE Allshare tracker of which they are a part.

gadgetmind

Here is what he was saying at the end of 2011.

http://www.jimrogers.info/2011/12/jim-rogers-abolish-fed-buy-commodities.html

"What I am doing with my money is I own commodities and currencies and I am short stocks. I am short American technology stocks, I am short European stocks, I am short emerging market stocks. That's what I am doing but who knows if I am right."

He was very very wrong.

Of course, this time he might be right. This is why trying to time the market and over-analyse which assets will do well/badly isn't what you might call successful.

gadgetmind

Linton wrote: »

But you havent answered my question of why such solid results dont apply to the Global Market and make futile, or even counter-productive, your efforts to improve on a single simple Global Tracker by overweighting particular sectors?

I think I have answered that question. Studies show that some cap sizes, values and territories have over the long term shown outperformance. I use these studies to guide my investing.

"Smarter Investing" covers this, and more.

Even you are prepared to accept that small caps may outperform a FTSE Allshare tracker of which they are a part.

I've never denied it and am perfectly happy to accept it because the evidence shows it to be true. However, small caps are a volatile ride so you add more weight to them rather than going all in. There are also long periods during which small/mid caps do not beat large caps, and multi-decade periods at that.

Alongside a FTSE All Share tracker, I hold a global small share tracker, a FTSE 250 tracker and even some small cap ITs that I bought on fat discounts.

BTW, my FTSE 250 tracker was one of my best performing holdings during 2012. From memory, it was only beaten by my subordinately bank debt and some European ITs that I bought (again) on fat discounts and then sold earlier than expected.

Yes, some of this does sound suspiciously active, but I only do the fancy footwork with 5% (ish) of my portfolio.

Carpi09

Would like everyone's opinion on what will happen to funds such as VLS when interest rates rise?

adewalton

I think that the equity eminent of the fund might drop a little in value as people might cash out and move some of their investment into cash.
The bond element should counter this and should / might increase in value.
Are interest rates set to rise? I think not at the moment!!!!!
Just my thoughts for what it's worth?
Sure others will be posting their thoughts soon!!!
What do YOU think?

gadgetmind

adewalton wrote: »

The bond element should counter this and should / might increase in value.

Fixed Interest yields tend to rise with interest rates to maintain the risk spread. Of course, this means that capital values tend to fall.

Lookup yield curves and bond convexity on wikipedia, read at your leisure, digest thoroughly, and then bask in total understanding.