Vanguard LS80 vs LS100

MoneySavingUser

I'm not sure if I read about this here or somewhere else.

Basically someone was suggesting investing in LS80 instead of LS100 on the basis that when equities go down in value and say the split of LS80 becomes 70% equities and 30% bonds, the manager will rebalance to get it back to 80/20 and buy equities when they are depressed in value and that the investor will benefit when the market recovers because they bought some equities on the cheap.

Opinions?

bowlhead99

That is how any rebalanced fund works, i.e. when it moves back to target allocations it is inherently selling an asset class which has (relatively) gone up in value relatively higher to buy one which has fallen or at least gone up in value by a relatively lower amount.

As VLS is sold as a fund with a targeted level of equities (e.g. 80%) it is never going to wait as long as it takes for equities to fall to 70% to do its rebalancing, because that could take (e.g.) six months during which an investor might be buying in to the fund and only getting e.g. 74% equities which is not what he was expecting to get. So, the rebalancing is much more frequent though the principle is what you described.

If you want a fund that only contains equities then don't buy the 80 version. If you want a fund that doesn't only contain equities, don't buy the 100 version. All things being equal, the 100 version has potential to deliver higher returns over the long term. The 80 version would offer greater protection against an equities downturn and the result of having a broader set of asset classes, rebalanced, is likely to be lower volatility.