Vanguard LifeStrategy - Further Development

mageliken

I invested approx. £1500 split 50/50 between VLS80 and VLS100 just under 2 years ago in a S&S ISA. I haven't contributed since, and my original plan was to make ad-hoc contributes as and when I could. I'm 26.

I have approx. £40k in savings in current accounts and regular savers, the usual suspects earning what I consider to be reasonable interest.

Due to a combination of "uninteresting" performance in my VLS funds, and owing to a Dimensional pension scheme setup with around £10k through my own limited company approx. 12 months ago which has performed well, with small regular monthly contributions. I have not made any further contributions into the VLS funds. Indeed, the IFA I instructed suggested I get out of the VLS funds.

I am being truthful about my reasonings, however I appreciate the logic is flawed and I believe that I should be subscribing to a passive investment strategy. I'm aware that following the brexit result and USD/GBP exchange fluctuations, leading to a good reaction in my VLS and Dimensional funds, is influencing my thinking to an extent.

What I don't want to do is replicate what the 'purpose' of my pension is in VLS funds. The pension needs to be long term, and I think I am looking for the VLS funds to be something more medium-term whilst retaining a good readily accessible cash reserve. I don't own property, and so I feel a need to be investing cash into VLS funds rather than allowing it to accumulate in current accounts/regular savers to compensate (to an extent) for this.

The market reactions following brexit has made me appreciate the value in having a diversified funds. The pound may not be strong, however my funds are diversified and appear to be weathering the storm. Who knows what the future holds.

I will be investing a lump-sum amount into my Dimensional pension this year - likely £5k. This won't be out of the savings I've already mentioned.

I am considering whether or not I should be making regular monthly contributions to the VLS funds, or commit more firmly into making ad-hoc payments when I can, or whether or not I need to determine that really it is more suited to the purposes of my pension and they are in conflict (as my IFA seemed to suggest).

To an extent, I believe the answer might be in the question I state - although I'm very interested in hearing other's thoughts. Assuming I shouldn't discount the VLS funds on the basis of it serving the same purpose of my pension (the question really being time horizon), then I should be making regular contributions into it and adopting the passive investment strategy. However, is now a great or an awful time to begin regular contributions and/or making ad-hoc lump sum contributions?

My reading leaves me to believe that the best play is to invest as soon as you can, and not time the market - so I should "convert" a comfortable amount from cash savings into VLS? My secondary thought comes back to the diversification - if the pound situation becomes worse, my risk is diversified. I like the sound of that.

In short - VLS: Scrap / begin regular contributions / make a more significant ad-hoc contribution now.

Any scrutiny on my logic would be appreciated!

TheTracker

You're talking too much about funds without telling us about your circumstances or needs.

Reading between the lines, you appear to want to get the best returns on a pot of money in the 'medium term'. That the IFA advised you get out of the funds tells me your 'medium term' is probably too short to be in the equity market. But then you go on to say this money has the same 'purpose' as the pension funds, so perhaps not.

If you are a person of normal circumstance and needs (eg PAYE, average salary, drip feed, building a pension with 15+ years to go) then VLS would be entirely sensible, particularly if you didn't want to have to put in much time to understanding how equities work.

If you want to use it as an alternative for your cash bucket then it is not a reasonable alternative. You need to leave the money there for years, decades.

What confuses me is the IFA instruction not to use VLS. The good imp on my shoulder says this is because they discovered needs which wouldn't be met by VLS. Maybe in order to meet your retirement goals you need to achieve say 8%pa returns rather than 4%, and you have the risk appetite that allows riskier investment. Or your timescale is too short, say 5-8 years while you save for a house deposit. You seem to be saying you want to invest money in equities to compensate for not buying property. That does not make any logical sense.

On the other shoulder naughty imp says the IFA steered you away from VLS because it would reduce the likelihood of needing an IFA. If all your other finances are in order and you only needed someone to tell you what to invest in, then telling you to invest in one fund for the next decade that broadly tracks the global market is hardly a revenue maker for the IFA who might be used to collecting 0.5% pa for imparting sage wisdom that they've deluded themselves that they hold or have access to.

Neither would I tie too much decision making to the state of the pound. You're only 26 and you don't have sizeable savings versus your eventual savings. Putting your cash into equities as a risk reduction against the volatility of sterling is not justified in your circumstances. As a 26yo the real life economical impact of sterling exchange rate changes will be felt more strongly than anything you do to shelter the savings elsewhere.

In short, if you need the money in less than 10 years keep it in cash. Otherwise put it in VLS (or equivalent product from other vendors). If you need further advice, see a few IFAs and find the one that you are most comfortable with.

AnotherJoe

Some excellent comments the only thing I'd ask is, what is the money in your Dimensional pension scheme invested in? Presumably its in a fund of some type? Is it as low cost and diversified as the VLS?

JohnRo

Any scrutiny on my logic would be appreciated!

I cannot understand the wisdom of holding both VLS80 and VLS100 together. If you must have two VLS funds then surely it would be better to have VLS 20 and VLS100 in your desired proportions and then rebalance annually.

dunstonh

I invested approx. £1500 split 50/50 between VLS80 and VLS100 just under 2 years ago in a S&S ISA.

So, straight away, that indicates you are at the high risk end of the scale. (VLS60 is more medium risk and VLS40, cautious risk - those two are the most common - you have jumped in right at the deep end).

Due to a combination of "uninteresting" performance in my VLS funds, and owing to a Dimensional pension scheme setup with around £10k through my own limited company approx. 12 months ago which has performed well, with small regular monthly contributions. I have not made any further contributions into the VLS funds. Indeed, the IFA I instructed suggested I get out of the VLS funds.

Absolutely nothing wrong with any of the VLS funds performance. Any differences between them is likely to be down to different asset allocations linked to different risk profiles.

The Dimensional funds tend to be used by boutique firms who put everyone in them. So, the recommendation away from VLS could be because that is what firm does. An IFA would have no problem using vanguard funds but a boutique firm that operates fixed model portfolios would want to use their own.

mageliken

Thanks all for your responses.

The purpose I'm trying to ascribe to the VLS funds is to increase returns over cash savings, knowing that this isn't a short-term investment however with a possibility of accessing before my pension (otherwise I don't see why I wouldn't just invest in my pension, as there are corporation tax savings as my company contributes).

I ran through a risk appetite test with the IFA (admittedly I did the VLS DIY some time before this), and so I am comfortable with the risk and I understand the Dimensional and VLS to be fairly in alignment in terms of risk.

The Dimensional pension funds are as follows for this the fee is 1% per year;
- Emerging Markets Core Equity (~17%)
- UK Core Equity (~13.5%)
- UK Small Companies (~5%)
- UK Value (~7%)
- Global Core Equity (~31%)
- Global Targeted Value (~26.5%)

TheTracker sums it up well I think, "In short, if you need the money in less than 10 years keep it in cash. Otherwise put it in VLS". Yes, I'm looking for somewhere to keep funds for 10-20 years (but less than pensionable age). I will still maintain a comfortable amount of savings as cash for near-term purposes.

JohnRo - I think you are correct. I effectively wanted to create "VLS90", however perhaps I have gone about this the wrong way.

TheTracker

Then I'd be looking at p2p to juice up my non equity holdings rather than move money from cash to equities. Of course, it comes with more risk than cash.

Manufacturing a "VLS90" is too granular. It would add very little over the VLS80 anyway, if anything. And VLS100 is really a product to be used alongside other investments.

To me there is something not quite congruous with taking an aggressive stance with investments (vls80-100) and being conservative with cash holdings. Theoretically, you'd probably be better off putting the lot (minus cash emergency) in vls60.

I don't have access to Dimension funds, as I'm not willing to pay an *FA to access them, but if I did I'd be looking at them for their Small Value products and holding 10% of them alongside VLS.

mageliken

Theoretically, you'd probably be better off putting the lot (minus cash emergency) in vls60.

Better than looking at P2P too? I do have <£1k in RateSetter, however I had mostly discounted going any further down this route as I felt locking in for five years for rates slightly above those in higher paying current/savings accounts wasn't worth it. It may be more appealing when they're more widely available in ISAs too.

bigadaj

mageliken wrote: »

Better than looking at P2P too? I do have <£1k in RateSetter, however I had mostly discounted going any further down this route as I felt locking in for five years for rates slightly above those in higher paying current/savings accounts wasn't worth it. It may be more appealing when they're more widely available in ISAs too.

Rate setter and Zopa rates are poor, there are many other options out there, with secured lending paying 10-14%, still significant risk but worth consideration so long a s you diversify and acknowledge that there may well be defaults.

cashbackproblems

i realise what the difference is between vls 60,80,100, but if for the long term i.e. pension and 10yrs+ away, wouldn't you put it in VLS 100??


How are VLS compared to the Blackrock or Legal and General index trackers?

dunstonh

i realise what the difference is between vls 60,80,100, but if for the long term i.e. pension and 10yrs+ away, wouldn't you put it in VLS 100??

Risk is diluted over time. So, the longer timescale would suggest a higher equity content. However, that is not the only consideration. Knowledge and understanding can give rise to behavioural risk. i.e. statement comes in, value is down just 5% and if that person panics at 5% then there is no point going in 100% equity would could see a 50% loss. Another issue is capacity for loss. Can you afford to take those risks? And finally, do you need to take those risks?

How are VLS compared to the Blackrock or Legal and General index trackers?

L&G has a better spread and the lower risk end seems to see L&G doing a better job. Although its early days. L&G is not a rigid allocation. It has slightly more management decisions (such as the type of bonds it should be holding rather than VLS which is more fixed)