Vanguard Life Strategy

Archi_Bald

Some ideas about asset allocation: http://monevator.com/asset-allocation-strategy-rules-of-thumb/

takesyourchances

latecomer wrote: »

I'm now back to thinking about the S&S ISA and Vanguard in particular. I'm considering just going into the Vanguard LS100 with about 80% of the amount I was going to invest and then reading Tim Hale's book over the next few weeks to figure out what I should be doing with the rest. The one thing I am struggling with is the asset allocation - something that I read alot about but still have no idea how to come up with the numbers. How did everyone else do it?

The plan would be to add to the ISA regularly and possibly reduce the Vanguard LS level in the future once I've got a better idea of whats I'm doing.

I am no expert and others with more knowledge than me may help. The Vanguard Life Strategy will give you a core holding and will correct its own asset allocation within it so if holding it, it should take up a high percentage of your overall pot if adding other holdings. Most core holdings seem to be around 65% of your overall amount.

I looked at what my Vanguard Life Strategy did not hold and went with a few funds covering smaller companies for growth potential and the VLS does not hold smaller companies.

I also put some niche focus in Asia for long term growth potential and focused a couple of small companies funds there as well, long term growth related. Also I went with an Emerging Markets etc as well. I looked into each and opened only after I understood what and why I was investing in it.

The idea of the satellite holdings would be to compliment your Vanguard Life Strategy as a core holding giving you some focus in other areas not held and to diversify. Large companies for example in the VLS and small companies also held on the side as an example of this.

Hope this idea helps, I read a lot and still do and of course this forum and many posters here has been a great help in helping to understand things.

I have been looking over a sector focus as a possibility for my S&S ISA as I feel I would only have "one more opening" with a core of 65% to give 7 side satellites 5% each allocation each. As I have covered Asia, Small Companies and Emerging Markets within this a sector focus might be something different for me to consider for example and was suggesting infrastructure for example in my post. This is how I have done mine so far.

Another popular holding here with the VLS is the Vanguard Global Small Companies tracker as the VLS is large companies. Maybe if holding it on its own with a VLS you might hold it as 10% of your pot. As my side holdings increased I gave them an even split. Hope that helps

latecomer

Its not so much the equity v bond split as I'm intending this to be 100% equity (or very high at least) to start with due to the amount of cash we hold in ISAs acting as the low risk element of my portfolio. It also gives me something less to worry about in the short term (or I might never do anything!).

Perhaps I should clarify whether asset allocation is still the right term when I am only referring to the split of the equities into geographies and large/small cap etc?

My question is more how to split up the 100% equities - obviously going down the Vanguard LS route will make a large amount of that decision for me - but how do people decide that they are going 40% UK, 20% EU exc UK, 20% Developed and 20% emerging markets?

I realise there is no right answer but there are a lot of suggestions, many with little or no explanation of to why they are constructed the way they are. Hence my dilemma and thats really what I was getting at with my question in the last post.

Edit - took too long to write this - hence its out of sync with takeyourchances reply

takesyourchances

latecomer wrote: »

Its not so much the equity v bond split as I'm intending this to be 100% equity (or very high at least) to start with due to the amount of cash we hold in ISAs acting as the low risk element of my portfolio. It also gives me something less to worry about in the short term (or I might never do anything!).

Perhaps I should clarify whether asset allocation is still the right term when I am only referring to the split of the equities into geographies and large/small cap etc?

My question is more how to split up the 100% equities - obviously going down the Vanguard LS route will make a large amount of that decision for me - but how do people decide that they are going 40% UK, 20% EU exc UK, 20% Developed and 20% emerging markets?

I realise there is no right answer but there are a lot of suggestions, many with little or no explanation of to why they are constructed the way they are. Hence my dilemma and thats really what I was getting at with my question in the last post.

If you decide on the 100% VLS and opened another equity holding say for example in Asia you will still be 100% in equity as you didn't open any bonds. Picking a core holding like a VLS will decide on your main UK, USA, Europe etc allocation according to Vanguard's plan. I thought my holding was underweight in Asia and with personal opinion I added some focus to Asia.

I think if people are making their own main choices from scratch personal preference will come into it. Some may feel more comfortable more heavy in the UK, while others may feel there is more to be had in the Far East for example or the USA. Horses for courses

The idea behind the Lifestrategy is it takes care of your asset allocation for you as an all in one portfolio and you can go 100% equity with it. Doing this you are going with Vamguards thoughts on allocation. Adding extra holdings will change your geographical percentage depending on the regions you add. On HL, I can view the geographical percentage. For example if you held say 40% in the UK within a VLS and added a UK small companies fund, you might then hold 45% in the UK after that.

Hope that helps a little more. I went for the VLS to have a overall core holding and then added around it for my preferences. After adding 3 funds for Asian focus, although happy with them I balanced back a bit opening a UK small companies fund which in turn diversified from the large companies holding in the Lifestrategy for the UK.

takesyourchances

latecomer wrote: »

Edit - took too long to write this - hence its out of sync with takeyourchances reply

Just seen hope the two replies helped

Eponym

Asset allocation is a bit of a crapshoot.

I decided that my core funds would make up 40% and 20% of my portfolio respectively, giving a core total of 60%. That's lower than some people, but I'm in my twenties and am investing for about 40 years, so I'm happy with having more of my portfolio in satellite funds than others would be.

For the same reason, my satellite funds are generally on the risky side. I selected high percentage allocations to the high risk funds (EM and smaller companies) as I believe they will perform well and as stated, I am comfortable with the risk.

On the other hand, I have two very specific satellite funds (a healthcare fund and Fidelity Emerging Europe, Middle East and Africa) 5% each. I bought these because I think they will do well long-term but they are risky because they are so sector-specific - hence the smaller allocation.

takesyourchances

Eponym wrote: »

Asset allocation is a bit of a crapshoot.

I decided that my core funds would make up 40% and 20% of my portfolio respectively, giving a core total of 60%. That's lower than some people, but I'm in my twenties and am investing for about 40 years, so I'm happy with having more of my portfolio in satellite funds than others would be.

For the same reason, my satellite funds are generally on the risky side. I selected high percentage allocations to the high risk funds (EM and smaller companies) as I believe they will perform well and as stated, I am comfortable with the risk.

On the other hand, I have two very specific satellite funds (a healthcare fund and Fidelity Emerging Europe, Middle East and Africa) 5% each. I bought these because I think they will do well long-term but they are risky because they are so sector-specific - hence the smaller allocation.

Quite a similar idea to myself, selecting a couple of niche funds with your reasons. I am coming 34 and planning for the long term also. Great doing this in your 20's and a long time ahead as well. My more selective niche funds are Aberdeen Asian Small Companies and Aberdeen Japanese Small Companies, for growth reasons in Asia long term and bigger growth potential coming from growing small companies. Hopefully the region and dynamic smaller companies growing together and I feel Japan is under valued with quality companies and the economic reform.

Interesting selection for your niche funds. I was considering Healthcare as an industry pick, now considering infrastructure as a niche pick at 5% although any new openings would not be to next tax year.

The Middle East has a growing number of entrepreneur's rising so interesting for the long term as part of your selective fund

latecomer

Thanks for the replies again. I'm 37 and planning on this for being for the long term too. I also have a pension which is partly invested in some higher risk funds and I work in electronics so know all about share price fluctuations:-)

I'd like to include far east due to the increased growth potential and smaller companies for the same reason.

I've looked at the Vanguard LS100 using I think it was morningstar and it gave a rough breakdown - can anyone recommend a tool or website to look for gaps in a portfolio?

takesyourchances

latecomer wrote: »

Thanks for the replies again. I'm 37 and planning on this for being for the long term too. I also have a pension which is partly invested in some higher risk funds and I work in electronics so know all about share price fluctuations:-)

I'd like to include far east due to the increased growth potential and smaller companies for the same reason.

I've looked at the Vanguard LS100 using I think it was morningstar and it gave a rough breakdown - can anyone recommend a tool or website to look for gaps in a portfolio?

That is good you are looking to start and similar age, yes working in electronics you will know of fluctuations alright

The Far East was one of the regions I wanted to invest in and I quite like niche selections.

Not sure on were you can look for gaps, I felt more Asia and then there is the diversifying with small companies, maybe an industry. Maybe someone else can help if there is any web sites.

I have a simple SIPP set up with solely a VLS 80% at the moment along with my other pension.

Good luck with it all

JohnRo

If you're talking about geographical it's fairly obvious (isn't it?) that China is to be the new economic superpower. It's less obvious, given the culture, whether the investment returns to be had there are going to be any better than anywhere else.

If you're looking for niche and a small, very long term allocation it might be worth looking at something linked to Russia, they're often over looked as a cheap but very risky proposition.

Another possible is perhaps a small, long term stake in the Blackrock Frontiers Trust or something similar? That seems to cover some EM gaps although the list of countries reads like a bit of a rogues gallery. My opinion is that inclusion is the way forward for such places.

http://www.blackrock.co.uk/individual/literature/fact-sheet/blackrock-frontiers-investment-trust-plc-monthly-factsheet.pdf