100% Equity vs Equity/Bond

jdw2000

bigadaj wrote: »

That looks as though you don't really understand lifestrategy.

It's not an annuity, or even a managed fund that targets a return or distribution. It's a fettered fund if funds which invests in various vanguard funds in a set way to target a particular asset mix.

Total returns are determined by those markets it invests in, whether these are paid out or not. It may, on average over the long term, generate total returns of say inflation plus x % depending on you preferred flavour. There is no guaranteed income or payout, or indeed any guarantee that the fund will produce positive returns, the latter is just likely over the longer term.

Cheers for that. Just to be clear, I'm not investing for income, and don't have anything like those funds.

I've been reading a few posts elsewhere and a lady was saying those are the figures she gets as income and from what she was saying her investment sounded like VLS (I've probably misread what she said).

Any idea what investments she might have to generate that sort of income?


Sure would be nice to have £300K invested and be able to quit working.....

fairleads

The F&C MM Solutions consistency ratio
Here we conduct a review of the 12 major market sectors, filtering out only those funds that are consistently above average in each of the last three 12 month periods, and those consistently top quartile. In the 12 main sectors researched, there are currently 1,137 funds with a 3 year track record.

Many top class fund managers temporarily under perform, thus they would be excluded from the F&C survey, which tells me that this survey has little or no value for me.

bigadaj

jdw2000 wrote: »

Cheers for that. Just to be clear, I'm not investing for income, and don't have anything like those funds.

I've been reading a few posts elsewhere and a lady was saying those are the figures she gets as income and from what she was saying her investment sounded like VLS (I've probably misread what she said).

Any idea what investments she might have to generate that sort of income?


Sure would be nice to have £300K invested and be able to quit working.....

Fair enough, the vls fund will just generate a return, and the value will fluctuate with the assets it invests in, shares and bonds. It's performance will be a combination of the income the shares and bonds payout, such as dividends for shares and interest for bonds, together with capital increase (or decrease!) based on the price of the underlying shares and bonds.

People can take money out as and when they want to, which can be just 'natural income', a fixed monthly or annual income; depending in the fund performance the value left in the fund can increase or decrease over the year.

So with a sum of £300k invested mainly in equities past performance suggests that someone might be able to take out £15000 per year and over time the value of the fund will be maintained in real terms, ie inceasing with inflation. No guarantees but a reasonable estimate.

bigadaj

fairleads wrote: »

The F&C MM Solutions consistency ratio
Here we conduct a review of the 12 major market sectors, filtering out only those funds that are consistently above average in each of the last three 12 month periods, and those consistently top quartile. In the 12 main sectors researched, there are currently 1,137 funds with a 3 year track record.

Many top class fund managers temporarily under perform, thus they would be excluded from the F&C survey, which tells me that this survey has little or no value for me.

I'm not so concerned with excluding the fantastic fund managers that have a dodgy quarter now and again, as the fact that even detailed data over three years doesn't really help me if, like most investors, I have a multi decade outlook.

jdw2000

bigadaj wrote: »

Fair enough, the vls fund will just generate a return, and the value will fluctuate with the assets it invests in, shares and bonds. It's performance will be a combination of the income the shares and bonds payout, such as dividends for shares and interest for bonds, together with capital increase (or decrease!) based on the price of the underlying shares and bonds.

People can take money out as and when they want to, which can be just 'natural income', a fixed monthly or annual income; depending in the fund performance the value left in the fund can increase or decrease over the year.

So with a sum of £300k invested mainly in equities past performance suggests that someone might be able to take out £15000 per year and over time the value of the fund will be maintained in real terms, ie inceasing with inflation. No guarantees but a reasonable estimate.

Cheers for that. Much appreciated. What a sweet place in life to get to that would be.

fairleads

grey_gym_sock wrote: »

"In the third quarter of 2016, of 1,137 funds, only 28 consistently produced top quartile returns (i.e. 2.5%). Using blind luck, one would expect 18 funds to achieve this, which leaves only 10 fund managers, 0.9% of a universe of 1,137, who could legitimately claim that their success was down to skill."

The FCA report was based upon a F&C survey, excerpt below
................................................................................................
The F&C MM Solutions consistency ratio
Here we conduct a review of the 12 major market sectors, filtering out only those funds that are consistently above average in each of the last three 12 month periods, and those consistently top quartile. In the 12 main sectors researched, there are currently 1,137 funds
with a 3 year track record.
.........................................................................................

So it appears that the FCA based their assumptions on a short term comparison between consistently performing funds with index funds. Which is next to useless as a reference for long term investing.

jamesd

grey_gym_sock wrote: »

and as i've explained, that's barely significant if you're using the most straightforward passive funds.

jdw2000 made the false assertion that it was only the active funds paying for gains of other active funds. Any amount is sufficient to make it clear that jdw2000's assertion is false.

Of course it's more important for the active funds that do it if they are smaller than the total market size of all of the passive funds that they are front running.

grey_gym_sock wrote: »

i see that vanguard have recently launched a fund tracking the FTSE global all-cap index - see https://www.vanguard.co.uk/adviser/investments/product.html#/fundDetail/mf/portId=8617/assetCode=equity/?overview - that fund covers "large, mid-sized and small company stocks in developed and emerging markets"; it uses sampling, currently holding 4,307 shares, compared to 7,703 in the index. you could hold that as your entire exposure to equities, and then there would be absolutely no issue with front running.

That's a lot of markets where front running can be done as shares move into and out of the indexes of those markets and/or change market cap and get bought or sold. Front running can happen any time there is a subset of the total number of shares involved in the market being held in the fund and that one has a lot of shares not held by it.

The fund aims to track the FTSE Global All Cap index and as FTSE Russell say in its fact sheet "The index uses a transparent, rules-based construction process. Index Rules are freely available on the FTSE website" so it tells people what they need to know to front run it based on those rules. The fact sheet also says that there are a total of 7725 companies in the markets covered. So 7725 total then cut to the 7,400 stocks in the index (see the fact sheet again) and further cut to 4307 in the fund.

Lots of active decision-making going on there in terms of which to include or exclude in both index and fund.

jamesd

jdw2000 wrote: »

I was serious.

OK. So I'll respond on that basis even though the most charitable interpretation was that you were joking.

jamesd wrote: »

Nice try at dodging. You asserted that "Actives also incur trading charges" as if passives don't. I asserted that passives do pay trading charges. Do you agree that passives do also pay trading charges?

Perhaps you'd think that a passive fund holding 500 shares will inherently have lower trading costs than an active fund with 25, even though there are twenty times as may deals to do for the passive one just to get the money invested?

Cost of holding a fund (not just the OCF) depends on the particular fund and distribution channel. It's entirely possible to have an active fund with a lower total holding cost than a passive fund. Say compare the Virgin FTSE tracker at 1% including platform cost with a balanced managed fund for say 0.4% in a biggish workplace pension. Or hold a tracker with 0.1% OCF at a place with a 0.45% platform charge, like HL.

jdw2000 wrote: »

I can't speak for other investors, but I won't be trading as I have VLS. So good luck getting lower trading charges than me.

The discussion was the effect of trading on fund performance. That's performance effect of trades made by the fund, including as investors buy and sell the fund, forcing it to buy or sell shares to get their money invested.

You then asserted that you intend to buy and hold so you would be paying lower trading charges.

Your own buying or selling does almost nothing to change the effect of trading on the returns of the fund you hold because it's the buying and selling of every person involved which does that.

Your comment appears to suggest that you think that you somehow get your own dedicated bit of the fund that is held apart from the rest so your part is affected only by your buying and selling, which isn't how funds work.

jamesd

jdw2000 wrote: »

Is anyone able to say whether these assumptions are along the right lines (ballpark figures, obviously). But I am assuming that the likes of VLS do the following:

- £45K invested = £150pm income
... - etc etc etc

I am also assuming that, even if you use the income to live on, you can expect the pot to grow by around 2%-7% annually (assuming there's not a crash etc).

Depends on which of the VLS funds you hold. Here are the historic yields for some of the income versions of the funds in the range:

1.54% 100% equity
1.4% 80% equity
1.24% 60% equity
1.15% 40% equity (1.15% is historic yield, 1.34% is distribution yield)

Your numbers were using 4% which isn't consistent with any of the VLS range of funds but if you were to sell and take capital as well you would be taking about the safe withdrawal rate for a 30 year time horizon from a 60% or more equity mixture. While 4% before costs is US SWR, UK is about 0.3% lower.

You can't expect the fund to grow by 2-7% annually while taking level 4% increasing with inflation. For example, the UK market long term average has been a bit over 5% plus inflation. If costs are 0.25% that's only 0.75% plus inflation available for growth even before the effect of sequence of return risk on safe withdrawal rate.

However, if you were to use the Guyton and Klinger rules, which involve some buying and selling, you could perhaps take 5-6% and have a substantial chance of the capital value at the end not having decreased in nominal terms, the exceptions being if you lived through lower than normal market returns.

From my current mixture of P2P and VCT I'm expecting around 11.7% income before bad debt, maybe 1-2% of that anticipated. Also before inflation.

point5clue

The original question was about mixing in bonds - I've wondered about the risks and benefits myself and graphed LS 100 vs 40 etc to see how they compared, but on the Fidelity site it only allows you to go back 5 years - over which time I couldn't see any 'crashes' (mabybe I'm just over estimating what a 'crash' looks like on a 5 year graph ? )

Is there a place to get a graph of stocks vs bonds during the times when you suddenly don't want to be 100pc equities ! ?

with >10 years to go, and intending to drawdown for 100 years afterwards I'm 100pc equities in my pension, but I also want to build up a long term ISA holding partly as a buffer for variable spending during drawdown - cash would be madness, 100pc equities would defeat the point, so something like a LS40 seemed ideal, but I really like to get a better feel for what it might be like during a 'crash' (I know its a relative term, but there' a few that most people would confidently call).