Is a Vanguard Lifestrategy investment all you need

jdw2000

With regards to VLS 100, 80, 60 etc...

I am currently in the process of moving my SIPP and ISA. And therefore will be making a decision in the next few days. But what I have in my mind is:

SIPP: VLS80 or even VLS100... I am 40 years old and my SIPP is lagging behind where I want it to be. I don't care if it loses lots of value in the short term as I won;t be touching it for 20 years. I have high risk tolerance right now for my SIPP.

ISA: I have far less risk tolerance than for my SIPP for obvious reasons. I might need this money at any time. Therefore, VLS60 is what I will go for. And I will be keeping cash in a bank account as a bit of security too.

I am trying to keep in the front and centre of my mind how I will respond to a horrible crash where investments are halved for a few years. SIPP: don't care. House price: don't care. ISA: I do care.

bowlhead99

Fatbritabroad wrote: »

Side question on this topic. Why would you go for the vls 80 or 60 at the moment when everything I've read says that bonds don't provide the same diversification as they used to due to quantative easing And low interest rates? I ended up putting mine into vls 100 . Is that sound reasoning or have I misunderstood?

You have misunderstood. Do you know what an equity is and what a bond is, and what the difference is between the return potential on an equity and a bond? If you don't, it would be crazy to go for one over the other. If you do know what the difference is, you would not say that a bond is not a diversifier to an equity.

The VLS 100 could lose you 60%. It is very unlikely that the VLS 60 would lose you that amount, or if it did, not at the same pace.

If equities crash because of an interest rate increase, it's fair to say that those same interest rate increases could drive down the prices of a whole range of bonds. However, people have to invest in something. So if fear takes over and equities are tanking, the risk: off attitude will ensure that bonds look much more attractive than your 100% equities, even if 'overpriced' on some measures.

jdw2000

bowlhead99 wrote: »

If equities crash because of an interest rate increase...

Jeez, that would be a double blow to me. My mortgage is linked to the BoE interest rate, so I'd pay more. Plus I'd lose money on my VLS equities investment.

Defo keeping a cash reserve. And hoping interest rates don't go up for a very long time!

bowlhead99

jdw2000 wrote: »

I am trying to keep in the front and centre of my mind how I will respond to a horrible crash where investments are halved for a few years. SIPP: don't care. House price: don't care. ISA: I do care.

Almost like you're suggesting there's no one solution that fits every purpose, and we should select a strategy which suits the circumstance? Sounds right to me. Personally I don't have a huge proportion of my retirement fund in cash, and neither do I invest next week's grocery money into early stage unlisted companies.

TheShape

jdw2000 wrote: »

Jeez, that would be a double blow to me. My mortgage is linked to the BoE interest rate, so I'd pay more. Plus I'd lose money on my VLS equities investment.

Defo keeping a cash reserve. And hoping interest rates don't go up for a very long time!

May I suggest a BOS current account?

jdw2000

TheShape wrote: »

May I suggest a BOS current account?

You can, and it's a great suggestion! I've already opened my 3 accounts (along with the Tesco accounts).

Fatbritabroad

bowlhead99 wrote: »

You have misunderstood. Do you know what an equity is and what a bond is, and what the difference is between the return potential on an equity and a bond? If you don't, it would be crazy to go for one over the other. If you do know what the difference is, you would not say that a bond is not a diversifier to an equity.

The VLS 100 could lose you 60%. It is very unlikely that the VLS 60 would lose you that amount, or if it did, not at the same pace.

If equities crash because of an interest rate increase, it's fair to say that those same interest rate increases could drive down the prices of a whole range of bonds. However, people have to invest in something. So if fear takes over and equities are tanking, the risk: off attitude will ensure that bonds look much more attractive than your 100% equities, even if 'overpriced' on some measures.

Thanks bh.Yes I understand what a bond and equity is . A bond is a loan to a company ( or country etc) and a share is a part ownership of that company.but I'd read alot about that bonds don't provide the same diversification they once did.although I freely admit I'm weaker on bonds weirdly in as much as doesnt the change in price only matter if you dont hold till the end of the term? Otherwise it's fixed? Happy to be educated. That wasnt the Only reason I used to use vls80, but figured with my time line I was happier to take a higher risk with this portion of my savings

bowlhead99

Fatbritabroad wrote: »

Thanks bh.Yes I understand what a bond and equity is . A bond is a loan to a company ( or country etc) and a share is a part ownership of that company.

Exactly - with a share you have almost unlimited upside in what the company will pay you in the long term but if things go bad you will get paid last and you could lose everything.

With bonds the company of government commits to giving you a fixed amount of interest and a known amount at the end, and if things go bad you will get paid out before they see what is left for the share holders.

So clearly there will be a very different range of outcomes and one asset class can perform differently to another over different sets of economic circumstances. For example if inflation is higher, because companies are charging more money for goods, then it is better to be a shareholder who is making more profits rather than having given your money to a company for a fixed return. In recessions when companies are making poor profits and their values are worsening day by day it is better to have that company owing you the fixed return.

but I'd read alot about that bonds don't provide the same diversification they once did.

If you look back over the last hundred years or so, generally bonds go down when shares go up and vice versa so they are clearly diversified. However in recent years while there has been lots of government intervention (money printing, and low base rates so that bonds paying a reasonable fixed interest rates are highly desired and considered valuable), bond prices have been going up at the same time as share prices going up.

Which has reminded people that bond prices don't always go in the opposite direction as share prices, sometimes they can move in the same direction. If the recent economic circumstances unwind, bonds could fall at the same time as equities (like if interest rates go through the roof, the shares market will suffer because businesses can't borrow to expand etc, and at the same time nobody wants the existing bonds paying only 1% on £100 nominal when companies and governments are issuing new bonds paying 3% on £100 nominal).

Still, the fact that the two asset classes can move in the same direction does not mean they would move by the same amount.

as doesnt the change in price only matter if you dont hold till the end of the term? Otherwise it's fixed?

If banks are paying 50p interest on £100 cash in a bank account, then a bond paying £2 a year and giving you back the £100 in fifty years is highly prized. If you need £2 a year income from a safe asset you would be happy to pay way more than £100 to buy a bond second-hand from someone else. Maybe you would pay £200, so that the £2 a year income was 1%, still twice as much as the bank, reflecting the risk that the company or government might go bust in the meantime. Although you would only get £100 at maturity when you cash in your bond because that's all it's officially worth, not the £200 you paid to buy it second-hand. But because maturity is decades away when inflation will have made it worthless (whether it's £100 or £200), people don't worry about that bit so much.

But basically people might be quite happy to pay £200 for a long-maturity £100 bond paying 2% a year at the moment. Then in a few years time when the banks are paying 3% interest rates there may be nobody who wants to pay even £100 for a long maturity £100 bond paying 2% a year, because why would you pay £100 to take investment risk and get less than putting £100 in a bank. So the market price of the bond might fall to £50 or less.

You might feel it doesn't matter that you paid £200 for a bond that's now only worth £50 because you are not going to cash it in anyway, you are going to hold it the full remaining 50 years to maturity and get the known £100 maturity amount. But in reality the value of the bond on the open market has dropped, like it or not, because nobody is paying £200 for assets that only yield £2 a year. And you will be frustrated that your £200 is tied up in this dumb asset only giving you £2 a year and having investment risk and maybe the company will go bust and stop paying, when it could instead be in a bank earning you 3%, safe as houses. So the price change does matter really. And investment funds don't sit on their bonds to maturity, they buy and sell them over time.

You can of course buy bonds which have a much shorter lifespan to maturity when there is little time for prices to swing massively because everyone can see the maturity date not far off. However, the yields are commensurately lower.

The bottom line is that if you buy a fund which holds bonds currently valued at £200 and they fall in price to £150 or £100 or £50, your fund is less valuable. So even though you have been earning some interest income, if you want out, you'll get less back. In reverse, if the bonds become worth £200 or £250 or £300 you get some gains, along with all the interest receipts.

The value of the bonds in the fund will change as a result of interest rate changes, currency movements and the creditworthiness of the companies and governments issuing them ; AND their relative attractiveness compared to shares which might be more or less attractive depending on the state of the stockmarket. People have to put their money in something.

That wasnt the Only reason I used to use vls80, but figured with my time line I was happier to take a higher risk with this portion of my savings

If you invest everything into one asset class (shares) you will have a much bumpier ride than if you held some shares and some bonds and kept selling bonds to buy shares when shares were relatively less valuable and selling shares to buy bonds when bonds were relatively less valuable, producing a return that was still reasonable and much less volatile.

If you would have previously been the sort of investor that would have wanted only 60 or 80% shares in your mixed asset portfolio of shares and bonds and properties etc, but some bloke down the pub or on the internet said bonds didn't provide as much diversification as they once did so you might as well just go 100% shares, that is quite a ballsy move to take that 'advice'.

If you really wanted the risk of 100% shares (as an example, within the last decade, the highest peak-to-trough drawdown for the FTSE All-World was 57% in dollar terms) then sure, buy 100% shares, but don't do it in the mistaken belief that there is nothing out there that could provide you any sort of diversification.

jdw2000

Fatbritabroad wrote: »

Thanks bh.Yes I understand what a bond and equity is . A bond is a loan to a company ( or country etc) and a share is a part ownership of that company.but I'd read alot about that bonds don't provide the same diversification they once did.although I freely admit I'm weaker on bonds weirdly in as much as doesnt the change in price only matter if you dont hold till the end of the term? Otherwise it's fixed? Happy to be educated. That wasnt the Only reason I used to use vls80, but figured with my time line I was happier to take a higher risk with this portion of my savings

I'm new here too so don't listen to me.


But bonds and equity are two completely different things. Therefore they do provide diversification from equities.

Where perhaps they are not diversified would be, for example, in a bear market where we have a crash. In that scenario both bonds and equities would likely go down. Equities more so, with bonds more likely to recover quickly as people will gravitate towards them in a crash.

lesta1980

has anyone else's LS80 took a huge knock over night?

not worried or anything just logged in this morning and saw quite a drop and it didnt really follow anything else. has there been a drop somewhere, currency move or just an error this end?

as I said, not worried just interested