Vanguard Life Strategy Costs

dunstonh

A_Flock_Of_Sheep wrote: »

So if my new improved portfolio was made up of say:

M&G Optimal Income 30% maybe 40%
Troy Trojan Income I 50%
Newton Asian Income 20% / 10%

Is that a more balanced portfolio? I think I am falling out of love with Neil Woodford.

No, that is not balanced. It is still focusing on just limited areas. If you are going to use single sector funds then you would look to have at least one fund for each of the major areas. Where are your allocations to the other sectors?

Maybe the best solution for you is to use a portfolio fund?

bowlhead99

A_Flock_Of_Sheep wrote: »

It is interesting that in 2008/09 during the big crash the M&G IO (X) was downside by just 10% compared to equities dropping by 30% ish -
Showing my investing dumbness now - Why were equities down 30% ish and bonds and gilts down by just 10%?

Here is a standard explanation of the difference between equity shares and bonds:
When a company or a government issues a bond: The investor gives the company money, the company promises to pay them back a fixed return per year and give them the capital amount back at the end of the term of the bond. It is like a loan. Every year, rain or shine, the company has to keep paying this interest bill no matter how much profit it makes. Even if it makes no profit, it will still have to pay the bill.

The assets of the company will reduce (because of the interest paid out), and there will be nothing left for the owners of the company to keep for themselves. Ultimately if the company closes down, the bond holders /lenders get their money back before a single penny is paid to the share holders/owners. So it is low risk for you as a bondholder / lender and as long as the company doesn't go completely bust, you'll get something back.

Compare this to what happens when the company issues a new share. The company doesn't guarantee you any particular fixed rate of return. You give them the money and you own equity, a share of the business. You can vote at meetings of the members of the company to hire and fire its directors. If there were 99 shares in issue and the company was worth £99, and it issues a new share to you for £1, the company will now be worth £100 and you'll own 1/100th of it.

If it has a good year, after it's paid its running costs and interest bill it might pay you and your fellow owners a dividend of a few pence each. The retained profits that don't get paid out as dividends get reinvested in the business and eventually the business has more assets. Hopefully the profits go up over time so you can get more and more dividends per year, and the 1% share in the business is valued very highly as it has a lot of assets and it represents a big potential annual flow of income to whoever owns the share. Even without dividends, it represents a big pile of assets which, ultimately, are yours as an owner of the business.

Eventually your share could be worth several times what it started off at. Or if the company does badly it might only be worth a fraction. This is pretty much the opposite of a bond which is just a contract for you to receive a fixed amount of money on a payment schedule.

Both shares and bonds can be traded on 'the market' and so are valued based on market conditions. When interest rates go down, your contract to receive a fixed level of bond interest is more valuable. When the economy is poor and everyone is nervous, your bond might be a safe haven compared to a risky share, so it becomes more valuable for that reason. Equity shares will also go up or down, based on perceptions of their prospects, much further and faster than bonds because the ultimate rewards can be much higher although the risk of losing everything is higher, and the market view on the chance of the big rewards happening will change second by second.

So, finally, to your question. In the bad tmes of 2008/9, it was much better to hold bonds because you owned a contract for someone to pay you money (albeit with an increased chance that they'd go bust and never pay you). Compared to equity shares where the view on what profits they would make and what dividends they could pay and how much the market would pay you to buy the share off you at a given point in the future, was declining rapidly.

Equities went from "this share is going to return me X in a couple of years" to "this share might return me X but it will take longer, or perhaps it will only return me Y in my timeframe, which is a lot less than I thought when bought the share last week."

bigfreddiel

A_Flock_Of_Sheep wrote: »

Hmm so with something like M&G Optimal Income I could "build" my own version of Vanguard Life Strategy?

i built my own using vanguard and ishares etfs, its very simple and cheapto do - remember etfs dont carry any stamp duty on purchase,only a transaction fee which is £12-50 with TD Directinvesting - no platfom fee euther

cheers

fj

wriggly

A_Flock_Of_Sheep wrote: »

Hmm so with something like M&G Optimal Income I could "build" my own version of Vanguard Life Strategy?

You could add Vanguard UK Equity Income Fund (income units).

This has an historic yield of 4.2%, at a cost of 0.25% + £24/yr (but with a 0.5% up-front cost for Stamp Duty).

So for £10,000 split 60%-40%, your cost would be:
£6000 V UK Eq Inc: £39/yr + £30 one-off
£4000 M&G Opt Inc: £56/yr

If you invest for 10 years, total cost would be £98/yr