Is a Vanguard Lifestrategy investment all you need

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bowlhead99 wrote: »

When a bubble finally becomes too big to ignore, yes it gets corrected. This may be seen as a "crash" or a "correction" depending on the distance from which you're viewing it.

It would be nice to think that all the necessary little corrections happen here and there every few seconds as a result of a perfect market so that there is never anything systemic to correct and no large scale ripples in the pond. However, reality doesn't airways follow the "in theory..." unless the theory has a bit that says 'of course, humans as markets cash be irrational, so anything can happen'.

As Pincher says, ideally you want to be out before it gets to the point that the nuns decide to switch all their convent reserves from cash and bonds and property into leading oil and tobacco and big pharma companies on the grounds that the returns on the index are always awesome and everyone else is doing it so it must be best.

I think the market is far from rational and efficient - its history shows otherwise and its future will no doubt be the same.

I do however question whether global passive funds, such as the Lifestrategy funds, could become so popular that they themselves are the primary cause for an entrenchment and bubble purely among its constituents.

MPN

Pincher wrote: »

It always makes me nervous when there is such overwhelming consensus where money is concerned.

Passive funds buy at whatever the price is.
It's fine so long as it's not so big, it's not market moving.
My fear is these passive funds become so popular that their buys push the price up, and then they stubbornly buy EVEN MORE.
More money pour in, because of the self-perpetuating growth.
Obviously it cannot carry on forever. The problem is, the more successful it is, the more believers it creates.

The Chinese are investing their retirement money overseas now.

The trick is to get in before the latecomers, and get out before the nuns start investing their convent reserve fund.

The OP mentioned investing in the VLS80 which is a type of multi asset fund of funds?

Are you suggesting that only the VLS funds are so popular that if you wanted to invest in these type of fund of funds you woulds be better off investing in the L&G MI funds or HSBC Global Strategy Funds because these multi asset funds are not as popular and therefore more priced more sensibly or doesn't it work like that?

BananaRepublic

AnotherJoe wrote: »

As BH says, consider areas that VLS doesn't invest in - property, smaller companies for example.
Or you might decide that you'd like to focus a bit more on areas you think will do well over the next 10+ years - Healthcare and Emerging Markets to pick two.

What concerns me is the lack of long term data. We know historical performance is no guarantee of future performance, but it is all we have and in my experience it is a good guide, subject to the usual caveats of diversifying etc. Looking at other index funds over ten years we see a quite wide spread in performance ranging from the really rather good i.e. 11% per year, to the not so good i.e. 5% per year. Admittedly the charges are low, so we are really comparing to active funds with 12% to 6% performance, which is pretty good overall. I am sure it would be possible to find other index funds that are similar to the Vanguard ones and then estimate the 10 year performance.

bowlhead99

MPN wrote: »

The OP mentioned investing in the VLS80 which is a type of multi asset fund of funds?

Are you suggesting that only the VLS funds are so popular that if you wanted to invest in these type of fund of funds you woulds be better off investing in the L&G MI funds or HSBC Global Strategy Funds because these multi asset funds are not as popular and therefore more priced more sensibly or doesn't it work like that?

No, the market doesn't care whether the indexed stock purchases are coming from HSBC or L&G or Vanguard.

The reference to "these passive funds becoming so popular" is not to be taken to mean any specific brand name of tracker.

Just the general concept, that everyone throwing money into the market in a predefined pattern via a tracker does not help the market decide the correct price ; it just helps to perpetuate the "who's the most valuable company?" status quo because the biggest ones get the most money thrown at them on the assumption that someone else somewhere will have already lined up the companies in the correct order and set the right price for each of them.

coyrls

MPN wrote: »

The OP mentioned investing in the VLS80 which is a type of multi asset fund of funds?

Are you suggesting that only the VLS funds are so popular that if you wanted to invest in these type of fund of funds you woulds be better off investing in the L&G MI funds or HSBC Global Strategy Funds because these multi asset funds are not as popular and therefore more priced more sensibly or doesn't it work like that?

It doesn't work like that. The price of the funds represents the prices of the underlying assets.

The discussion is about the potential effect of the popularity of tracker funds on the market. VLS is a fund of tracker funds and so is one specific example of a tracker fund (or fund of funds in this case).

If you believe that active funds will be able to profit from any distortion of the market caused by tracker funds, then it could be an argument for investing in active funds. Personally it is not an argument that I subscribe to.

chockydavid1983

Interesting thread.
I'm currently heading towards a total where I'm starting to think about adding more funds.
Was looking at the BlackRock property REIT before and will maybe look at small companies too.

MonroeM

Why are the VLS funds so much more popular than other similar type of funds already mentioned ie. HSBC and L&G?

The amount of money pouring into the VLS range of funds dwarfs the amounts going into the other two companies range of funds?

Pincher

Is a Vanguard Lifestrategy investment all you need


That kinda says "eggs in one basket" to me.

kidmugsy wrote: »

I'd bridle at the idea of having all of my investments in one vehicle on one platform. In your shoes I'd probably look for a good competitor investment and hold it on a different platform too.

Says the same thing, of course.

I just like a failure scenario that can be made into a movie, like the Big Short, except, this time, they say Pincher saw it coming.

grey_gym_sock

i think there are perhaps 3 different ideas being conflated here:

1) when everybody piles into shares (or any kind of investment) because they've been going up, and they think the future will be like the recent past, eventually you can get a bubble, i.e. prices go crazily high, and eventually (but usually far later than you think possible, if you are a sober observer) it pops, and prices crash.

this 1 isn't specifically to do with passive investing. it can happens when people pile into active funds. or pile into buying individual shares. next time, it will probably happen after people have piled into trackers, because more people are doing that now. but it's not about passive funds as such.

2) as a higher percentage of a market is held by passive investors, we rely on a smaller number of active investors to give us price discovery (even rational prices - in so far as prices are rational ) and liquidity.

this is about passive investing. not everybody can be passive, or there would be no market. that's not a real risk, though. some people will always want to be active investors. market makers are active investors. as are individuals who buy individual shares. active funds don't necessarily have to exist. but probably will. i'd like them to continue to exist, but to manage less money, for lower fees, with vastly fewer managers running them - then they might have a chance of generating enough out-performance to cover their higher costs. i think there is an optimal level of active management, but it's much lower than the current level. what matter is the total costs of active management, but the way to force the costs down is to switch money to passive vehicles.

3) there are some predictable price moves when shares enter/leave an index, and so people rush to buy/sell.

this is not entirely about passive management. even active investors may use an index as a screen, e.g. international investors may only look at FTSE100 shares in the UK. though the effect can be more automatic for passive funds.

there are real effects of this kind, but they're pretty small beer compared to the size of markets overall. so good luck trying to make money out of them! also, you may be up against a large number of hedge funds trying to do the same thing. and if too many people try to exploit an effect, there is less for each of them to make out of it. if they're hedge funds, they probably then use gearing to increase their returns - which means even more money is chasing the effect, reducing returns further. (and with the gearing, the hedge funds may have made themselves so risky that it wouldn't be worth investing in them, even if they weren't charging ridiculously high fees.)

but if you are using a passive funds, it is worth trying to pick 1 where the effects of front-running are likely to be minimal. e.g. a FTSE all-share tracker would be better than a FTSE 100 tracker.

Zola.

Why would passive investing become a bad thing if too many got involved?

Yes big companies will be inflated in their worth...but is it not the case that if capitalism prevails, we all win... to a certain extent?

Warren Buffet says he will be putting 90% of his entire wealth into index funds when he dies, if that is good for Warren it should be good for us too ?

https://www.ft.com/content/0fdc605a-a53d-11e3-8988-00144feab7de