Vanguard Life Strategy

Temrael

eskbanker wrote: »

the CAGR (compound annual growth rate) which recognises the effect of compounding (which tends to drive growth over longer periods) and is the more usual basis of comparison.

Thanks for that, would that be the same as the "3 year annualised return" figure quoted on Morningstar?

MadMat

Temrael wrote: »

Thanks for that, would that be the same as the "3 year annualised return" figure quoted on Morningstar?

I hope so, I used an online annualised return calculator to get the figures!

Mat

bowlhead99

Looks right to me. If you take 100 and multiply by 1.119 x 1.119 x1.119 you get to 140 which is where the graph got to in 3 years.

So, 11.9% is the equivalent annual return which compounds up and gets you your 40% return in total after doing it 3 times.

Obviously rather better than cash. However, cash doesn't have the potential to fall 30% in a bad year. The graphs of lifestrategy don't show what it does in the bad times because it has only existed for a few years of good times. However you can look at UK or US or world index stock market falls in '99-'03 and '07-'09 to get an idea to what happens every so often to something that's heavily invested in major stock indexes.

savingsaving2015

Am i being naive to think that yes markets can fall but always recover if you stick with them through the bad times? Not to panic etc.

noggin1980

savingsaving2015 wrote: »

Am i being naive to think that yes markets can fall but always recover if you stick with them through the bad times? Not to panic etc.

Thats extremely likely to be the case over say 25 years especially if you are depositing monthly so are buying during downturns but there is no guarantees.

Temrael

Do a bit of googling to get a sense of how markets do over the longterm. It will help you get a feel for things. Have a look at this for example.

That's the FTSE All Share over the last 50 years. If you had made a large investment in that index just prior to the beginning of the financial crisis in 2008 you would have taken a hit and needed to wait a little while for it to recover. Note that this is just one index, in one part of the world so again its just an example but its also a compelling argument for having a balanced portfolio or a boil in the bag one like Lifestrategy.

In actual fact it wouldn't have been quite as dire as that graph suggests, as dividends would have helped your returns but it does make a case for pound cost averaging as Noggin says (investing regularly over the longterm).

Note that's not the only school of thought though, some guys prefer to get whatever funds they have in as soon as they can so they have longer for potential growth.

bowlhead99

noggin1980 wrote: »

Thats extremely likely to be the case over say 25 years

Although to use 25 years as an example, the Nikkei 225 index for Japan hit 40000 in 1990 and is now at 19-20000.

Of course that is not necessarily comparable with the performance of a UK index or what you would have felt as a Japanese investor given changes in exchange rates, deflation/inflation rates, negative interest rates, dividends you would have received along the way etc., and what other alternatives you had to invest in (price of Tokyo property, value and yield of bonds etc). Still, looking at a chart of returns it is pretty scary.

1997 −21.19%
1998 −9.29%
1999 +36.79%
2000 −27.19%
2001 −23.52%
2002 −18.63%
2003 +24.45%
2004 +7.61%
2005 +40.24%
2006 +6.92%
2007 −11.13%
2008 −42.12%
2009 +19.04%
2010 −3.01%
2011 −17.34%
2012 +22.94%
2013 +56.72%
2014 +7.12%

That is why you invest in a wide basket of equity and non equity funds, so that a single-country index like this would be balanced off by other funds moving differently.

savingsaving2015

That does look scary! Im hoping the Vanguard 60 acc is well balanced and hopefully pretty safe for the long term!

ktk

Thanks for all the excellent advice. Just what I needed!

eskbanker

savingsaving2015 wrote: »

That does look scary! Im hoping the Vanguard 60 acc is well balanced and hopefully pretty safe for the long term!

I'm conscious that words like 'hoping' and 'hopefully' need not necessarily be taken at face value but it's obviously best to research thoroughly to the extent that it's possible to do so rather than plunging blindly into the unknown on the basis of avoidable assumptions!

The asset and geographic allocations of the Vanguard funds are published and there are all sorts of metrics for relative risk assessment on sites like Trustnet and Morningstar, so there's plenty of information out there in the public domain to support your decision.

Or failing that, there's always the tireless and knowledgeable contributions from bowlhead99!