Low risk investment suggestion?

newkeen

My investments are split 75% equities v 25% less risky allocation. I'm happy with that overall risk profile but would welcome suggestions for 25% the less risk allocation.

I hold a Vanguard LifeStrategy 20% Equity Fund (my 75% v 25% allocation factors in that 20% of this fund is in equities). But I am also sitting on 10% in cash. I did have this all in P2P and it has been solid enough, but to reduce risk I have decided to reduce my P2P to just 5%. I would appreciate where to put the other 5% as a safer allocation.

Bank savings such as santander 123 are not an option as it is capped below the amount I need. I don't want to invest in gold. I prefer to avoid fees for managed funds and prefer low-cost trackers.

I would like some allocation to sit alongside the Vanguard fund in my low-risk allocation, to protect against inflation and/or the next financial crisis, but that is probably asking too much. Any ideas for a fund for the 5% safe allocation in my portfolio?

dunstonh

I would like some allocation to sit alongside the Vanguard fund in my low-risk allocation,

The point of holding VLS is to save you from having to build your own allocations.

to protect against inflation and/or the next financial crisis,

Increasing your bond allocation and reducing equity allocation doesnt fit with one of those. Financial crisis have happened 9 times since 1956. On average every 7 years. Trying to time these things usually results in lower returns and potentially greater losses.

VLS is not as strong at the lower end of the risk scale compared to some other comparable options. You may wish to revise your research to include those.

newkeen

Thanks. Can you explain please. I didn't understand the comment about increasing bond allocation not fitting with reducing risk in the next economic downturn, or helping if inflation increases rapidly. Are bonds no good for either, or just for one?

Maybe my question is badly put. In short I'm happy with my equities exposure of 75% and 20% in bonds (via the Vanguard Lifestyle fund). But I have 5% sitting in cash but wonder if it may be better somewhere else.

bigfreddiel

newkeen wrote: »

Thanks. Can you explain please. I didn't understand the comment about increasing bond allocation not fitting with reducing risk in the next economic downturn, or helping if inflation increases rapidly. Are bonds no good for either, or just for one?

Maybe my question is badly put. In short I'm happy with my equities exposure of 75% and 20% in bonds (via the Vanguard Lifestyle fund). But I have 5% sitting in cash but wonder if it may be better somewhere else.

If you're happy with vis put it there?

Spend it maybe?

Five horse accumulator?

Lottery tickets?

Seriously tho', if it's a long term investment and you don't want the hassle (fun) of rebalancing then vis is the way to go.Cheers fj

dunstonh

I didn't understand the comment about increasing bond allocation not fitting with reducing risk in the next economic downturn, or helping if inflation increases rapidly. Are bonds no good for either, or just for one?

Equities are better with inflation. Bonds are worse. As interest rates rise, bond funds will be expected to see their unit price fall.

When is the next economic downturn? How much will the loss be? How much will the gains be before you lose some? The problem with timing is that you will likely pull out too early and go back in too late and end up with a worse result than investing through it.

Malthusian

newkeen wrote: »

Thanks. Can you explain please. I didn't understand the comment about increasing bond allocation not fitting with reducing risk in the next economic downturn, or helping if inflation increases rapidly. Are bonds no good for either, or just for one?

Apart from what Dunston has said: bonds will fall in value as soon as interest rate rises. Or, to put it more accurately, as soon as the market thinks that interest rates are going to rise. And 2008 showed that in a true crash all assets become correlated downwards. So dramatically increasing your allocation to bonds does very little to reduce the potential for short-term losses while reducing the potential of long-term growth.

You said that you wanted to reduce your 10% P2P allocation and invest it in something else - perfectly reasonable. I would however dispute that P2P should be considered "less risky allocation" by reference to equities. It is almost certainly more risky than equities, however as P2P loans are illiquid and not quoted on a stockmarket you can't see them going up and down in value as you can with equities or publicly traded bonds. But they are nonetheless.

Personally I can't see anything wrong with adding to the VLS holding in your situation.

newkeen

dunstonh wrote: »

Equities are better with inflation. Bonds are worse. As interest rates rise, bond funds will be expected to see their unit price fall.

When is the next economic downturn? How much will the loss be? How much will the gains be before you lose some? The problem with timing is that you will likely pull out too early and go back in too late and end up with a worse result than investing through it.

Thanks for the bonds explanation, I see what you mean.

I'm not trying to time the market, if my question suggested that it was not intended. I just want to reduce my P2P allocation - because I want to reduce overall risk - and don't want to increase my allocation to equities for the same reason, so where to put it.

newkeen

Malthusian wrote: »

Apart from what Dunston has said: bonds will fall in value as soon as interest rate rises. Or, to put it more accurately, as soon as the market thinks that interest rates are going to rise. And 2008 showed that in a true crash all assets become correlated downwards. So dramatically increasing your allocation to bonds does very little to reduce the potential for short-term losses while reducing the potential of long-term growth.

You said that you wanted to reduce your 10% P2P allocation and invest it in something else - perfectly reasonable. I would however dispute that P2P should be considered "less risky allocation" by reference to equities. It is almost certainly more risky than equities, however as P2P loans are illiquid and not quoted on a stockmarket you can't see them going up and down in value as you can with equities or publicly traded bonds. But they are nonetheless.

Personally I can't see anything wrong with adding to the VLS holding in your situation.

I agree P2P is not low risk. Maybe less volatile. But my experience to date is that whatever equities are doing, I have always been able to withdraw the amount I invested without loss at short notice if need be. But that can change and it is not low risk. Which is why I want to reduce from 10% to 5% and need to decide where to put the other 5%.