Vanguard target retirement funds

adam_1979

Good Morning all

Just a quick one from a new user but long time lurker.
I have noticed that these target retirement funds are now available which are very popular in the states on my SIPP platform now (HL)
They have a similar breakdown and charges to the lifestrategy funds but you choose your retirement date in 5 year increments and as you approach the date the portfolio is de-risked (adding gilts etc).

Was hoping for any opinion on these and maybe let people know about them.
I am looking at chopping my smallish Vanguard lifestrategy SIPP in for these instead.

Kind Regards Adam

ex-pat_scot

They are called "lifestyling funds". THey gradually de-risk over a 15 year glide path (typically) so that at year zero you are all in cash; ready to purchase an annuity.
however:
if you don't want to buy and annuity (and very few people should), then I would advocate having a phased approach to liquidating your assets - essentially de-risk amounts gradually over time, when you start to draw the money down.
The Lifestyling product will give you 100% cash at the point of retirement. If you want cash at that point then LS is great. If not, then I'm not sure how relevant it is.


Of course, this is entirely dependent on your attitude to risk, size of pot in retirement, access to other assets etc.

Linton

The extent to which you should de-risk your pension as you approach retirement depends on what you want to do with it, on circumstances, and on your attitude to risk

- If you are going to use it to buy an annuity and there is enough in your pension to meet your objective then there are good arguments for de-risking as it avoids the danger of a major stock market fall juust before you retire.

- If you plan to drawdown over the whole of your retirement you coud reasonably plan on living perhaps another 30 years. With those sort of time scales substantial de-risking and reducing returns at the start of retirement may not be sensible.

- Your retirement plans may be based on achieving a particular level of income. You may not want to de-risk until that is in sight. One can take on extra risk with the fallback option of working longer.

So I dont believe that target funds are a generally applicable approach. Perhaps they could form a default for people who do not wish to understand and control their retirement financing. However, anyone who does understand and wishes to take full responsibility for it may well want to set up their own risk management in line in with their individual circumstances, rather than accept a simplistic formula.

adam_1979

Thanks for the replies

Below is a link (I am not allowed to post full links) to the funds in question. I am not sure these are aimed at people who wish to buy an annuity.
Looking at the equity allocation at "target retirement" date you are still at 50% global equities tapering down to 30% over the next 7 years then ending with a 30% equity allocation until you meet the great investor in the sky. Maybe this would be okay for a full 30 year retirement.

Regards

telegraph.co.uk/investing/funds/new-funds-offer-cheap-route-for-buy-and-forget-investors

woolly_wombat

ex-pat_scot wrote: »

The Lifestyling product will give you 100% cash at the point of retirement.

No, a Vanguard target retirement fund will not give you that.

There is a good explanation of the product here, including a list of pros and cons and some good graphics, in an article entitled "Vanguard Target Retirement Funds – the Magimix of investing":
http://monevator.com/vanguard-target-retirement-funds/

At the start of the journey (left-hand side of the graph) you’ll be in:

20% UK equity (yellow)
60% Global equity ex-UK (magenta)
5% UK nominal bonds (blue)
15% Global ex-UK bonds (green)
Five years before retirement, UK index-linked gilts (cyan) come into play to help protect the portfolio from inflation.

By the time the glidepath touches down at age 75 your final asset allocation is:

10% UK equity (yellow)
20% Global equity ex-UK (magenta)
2.5% UK nominal bonds (blue)
17.5% UK index-linked gilts (cyan)
50% Global ex-UK bonds (green)

I'm certainly happy with the product, which helped to shield my SIPP from the effects of the Brexit vote.

adam_1979

Thanks Wooly wombat much better put than me

dunstonh

I have noticed that these target retirement funds are now available which are very popular in the states on my SIPP platform now (HL)

Yet the trend in the UK is for most providers to be pulling their lifestyle funds. We have received compliance advice that lifestyle funds should no longer be recommended as the majority of people are now doing pension freedom options rather than annuity and lifestyling was designed for annuity. Using them could result in mis-sale complaints where annuity is not expected to be used.

The Vanguard ones do not fully lifestyle risk reduce like most lifestyle funds. They start the reduction but do not go all the way.

ex-pat_scot

woolly_wombat wrote: »

No, a Vanguard target retirement fund will not give you that.


I'm certainly happy with the product, which helped to shield my SIPP from the effects of the Brexit vote.

Ah apologies - the Lifestyling products I have seen have tended to aim towards 100% cash at point of retirement.


Whilst everyone's circumstances and attitudes to risk are different, there does seem a certain default position of either 50:50 or 60:40 equities: bonds in the retirement modelling plans for the Wade-Pfau modelling.
I guess I will get to either retirement point or sufficient funds, and then decide.

Linton

woolly_wombat wrote: »

......
I'm certainly happy with the product, which helped to shield my SIPP from the effects of the Brexit vote.

As a retiree I am very happy to be in nearly 100% equity and not shielded from the BREXIT vote - the total value of my investments has increased by 5% in a month.

MadMat

I've been looking at these target date funds too, when I set my SIPP up a couple of years ago I set up a DD paying into VLS100, planning on dropping down the VLS risk scale every 5 years from age 50 onwards

50 - VLS 80
55 - VLS 60

etc

Would I better off changing the DD to the appropriate target date fund and then forgetting about it for 20 years (i'm 45 now)?

zagfles

Linton wrote: »

As a retiree I am very happy to be in nearly 100% equity and not shielded from the BREXIT vote - the total value of my investments has increased by 5% in a month.

Yup mine too - trouble is that's only because the pound has plummeted. Measured in EUR or USD they've probably gone down 5%!

Just glad I had the foresight to invest mostly outside the UK!