Lump sum investing and asset allocation

webnibbler

MaisR wrote: »

So if there is very little advantage to investing in Vanguard LifeStrategy 80% Equity other than the simplicity of it and the rebalancing and it is cheaper to pick your own funds then that's what I'll do.

There is another advantage to the LifeStrategy funds over individual index funds that's worth taking into account.

As investors we're prone to taking action when it's not in our best interests. With individual index funds it may be tempting to take action when it's not ideal. For example over the last year emerging markets have fallen sharply and it may have been tempting to sell. In the LifeStrategy funds all this is hidden from view and so the investor is protected from taking potentially damaging action.

Also rebalancing is not easy, as it goes against the grain. Rebalancing tells us to sell what's gone up and buy more of what's gone down. Not an easy thing to do. Again all this is hidden from view in the LifeStrategy funds and done for you.

If you feel you can easily overcome these biases then individual index may be the way to go.

bigfreddiel

MaisR wrote: »

Thank you everyone for your responses. Much appreciated. So probably in my case I will make an initial lump sum investment then drip feed monthly thereafter.

With regards to the Vanguard LifeStrategy 80% Equity what is the advantage of investing in this fund over investing in several index linked funds (apart from the re-balancing)?

Less costly

fj

bigfreddiel

Lump sum investing works just as well as drip feeding.
It's less costly for a start.

Also another classic mistake is to over complicate portfolios, by adding many stocks or funds. All you end up with is an expensive tracker fund.

So either go for a Lifestrategy fund or create your own with four or five ETFs.

Cheers fj

grey_gym_sock

bigfreddiel wrote: »

So either go for a Lifestrategy fund or create your own with four or five ETFs.

it doesn't sound like enough money to be invested for ETFs to be cheaper.

though it is possible to use 4 or 5 separate funds (not ETFs) to trim charges very slightly.

with a smaller investment, you are better off avoiding paying a fixed few £ for every separate purchase. with ETFs, you can't avoid that. with funds, you can if you pick the right platform.

bigfreddiel

grey_gym_sock wrote: »

it doesn't sound like enough money to be invested for ETFs to be cheaper.

though it is possible to use 4 or 5 separate funds (not ETFs) to trim charges very slightly.

with a smaller investment, you are better off avoiding paying a fixed few £ for every separate purchase. with ETFs, you can't avoid that. with funds, you can if you pick the right platform.

True enough, you just need to do a few simple calculations, to see which platform would be the most effective with whatever strategy you choose to use. Not exactly too hard.

Cheers fj

MaisR

I believe ETFs are not the way to go because they are not always cheaper and they incur transaction costs. With index investing if I choose the right platform I will not have to pay to buy/sell funds. As someone mentioned above I may be able to trim charges slightly by choosing 4 or 5 index funds opposed to investing in the Vanguard LifeStrategy 80% equity.

Someone also mentioned that it is all too easy to complicate portfolios so you end up with a costly tracker fund. I agree. That is my concern here.

I have looked into the Vanguard LifeStrategy 80% equity quite a bit and here is what I think (bear in mind I am a novice investor):

There is good diversification
Very low maintenance portfolio
Automatic rebalancing
There are no small-cap, commodities or property shares which is something I am interested in myself

I quite enjoy researching my asset allocation and my fund choices and the best platform for me so I am not sure why I would want to give all that up. For a low maintenance portfolio maybe? I am undecided.