Help understanding the Vanguard historic trends.

fuelcrusher

I don't understand the Vanguard Lifestrategy historic trends.

When I compare the different Lifestrategy fund trends on trustnet a few things stand out to me.

Over the same period of time, around July 2011, they are all up around 20%.

The higher the % equity the more volatile the trend with the 100% at one point being almost 15% down but at the other end the 20% barely going negative at the same time.

So my question is why invest in the higher % funds and take the large negative swings when the lower % funds gain the same positive rises but with much more stability?

I know you shouldn't just look at historic trends to make investment decisions but I'm checking them out as part of my research in to which fund to buy.

Is it because the funds are still relatively new or am I missing something?

Site wont let me post links to the trends sorry.

Thanks for any info.

westy22

Bonds and equities are non-correlated i.e. when equities rise in value then bond yields normally drop and vice versa. Equities are, in general, more volatile than bonds and therefore you would expect equities to rise and fall rapidly with any scrap of good news or bad news.

Most people are expecting a significant correction to bond values (some people even say a crash!) - this has been expected for about 2 years but still hasn't happened yet.

As you say, over the last 18 months or so, both have achieved a similar overall performance (although in the past 6-12 months equities have drawn ahead significantly) but that is not to say that it will always be that way in the future. If you have confidence in bonds over equities going forward then go for a 80%/20% split in favour of bonds, if not then go the other way.

have a look at https://www.vanguard.co.uk/uk/mvc/investments/mutualfunds#mf_perftab

Linton

fuelcrusher wrote: »

I don't understand the Vanguard Lifestrategy historic trends.

When I compare the different Lifestrategy fund trends on trustnet a few things stand out to me.

Over the same period of time, around July 2011, they are all up around 20%.

The higher the % equity the more volatile the trend with the 100% at one point being almost 15% down but at the other end the 20% barely going negative at the same time.

So my question is why invest in the higher % funds and take the large negative swings when the lower % funds gain the same positive rises but with much more stability?

I know you shouldn't just look at historic trends to make investment decisions but I'm checking them out as part of my research in to which fund to buy.

Is it because the funds are still relatively new or am I missing something?

Site wont let me post links to the trends sorry.

Thanks for any info.

A period of under 2 years is insufficient time to come to any general conclusion. You need to look at a much longer time scale (10 years perhaps) covering a wide range of market conditions so that temporary fluctuations are outweighed by the underlying trends.

In general the long term data shows that equity significantly outperforms bonds.

Shaolin_Monkey

^^^ Exactly - Two years is just a brief snapshot in history. Plus bonds have been providing unusually high returns over the last few years for various reasons, while equities have been choppy. Under 'normal' conditions bonds are used to provide income, and some balance and stability to a portfolio, rather than significant capital growth. Over the long term shares should outperform bonds.

Of course if your investment horizon is shorter term then it's probably more sensible to hold more bonds and less equities because of the volatility of shares.

redbuzzard

Shaolin_Monkey wrote: »

bonds have been providing unusually high returns over the last few years...

Over the long term shares should outperform bonds.

Nail on head. Bonds have been much closer than usual, if there is such a thing as usual, in total returns to equities.

If you are in for the long term, and especially if you are adding monthly, then you might think a higher weighting of equities would be better. The received wisdom, and historical tendency, is that equity returns will beat bonds in the long run. And if you are saving regularly, the dips along the way just mean your contributions buy more units that month.

People get terribly excited when their funds go up - but when you're buying, cheap is good.

Not advice of course.

fuelcrusher

Thanks for the replies. It's as I suspected then, the short term of the trends coupled with the particular equity/bond conditions over the period have 'coincidentally' grown the funds to roughly the same value but in different ways.
I am getting through Tim Hales book at the moment and will be using that advice as to which fund to choose rather than the historic trends.