VLS 60 buying more now ok?

dunstonh

That being said, VLS60 has not witnessed a crash yet. It may be more sturdy than people think.

Its asset allocation is known. It is easily mapped to see how it would have suffered during various crashes. The underlying assets are trackers. So, there won't be any downside protection. They will track the markets downwards just as they track the markets upwards.

jdw2000

dunstonh wrote: »

Its asset allocation is known. It is easily mapped to see how it would have suffered during various crashes. The underlying assets are trackers. So, there won't be any downside protection. They will track the markets downwards just as they track the markets upwards.

60% of the underlying assets are trackers. In theory, the 40% bond allocation should rise in the event of a crash. That is the point of having the bonds, is it not? Otherwise, VLS investors might as well all get VLS100.

RuleTheWorld

and to keep the 60/40 split when equities are going down in value more willbe bought to bring it back to the split. Buying cheap is good?

jdw2000

RuleTheWorld wrote: »

and to keep the 60/40 split when equities are going down in value more willbe bought to bring it back to the split. Buying cheap is good?

I don't follow...

RuleTheWorld

Day 1 equity £60 bond+cash £40

equity goes down 10%

Day 2 equity £54 bond+cash £40

now mr vanguard needs to use some cash to buy more equity because he's advertised it'll be 60% equity

uses £2.40 cash to buy more equities

£56.40 equity
£37.60 bond+cash

Audaxer

As an example if a VLS60 fund of £10k was to fall by 30% and it was due to the equities, that would mean the total fund would now be £7k, with £3k equities and £4k bonds, so it would require a 50% fall in equities to get an overall fund fall of 30%.

For a VLS40 fund of £10k to have a fall of 30% due to the equities that would mean the £7k fund would now be only £1k equities and £6k bonds, meaning that the equities would require to fall by 75% on the VLS40 to make an overall fall of 30%.

That is assuming on an equity crash the bonds keep their value. Are my calculations correct?

bowlhead99

jdw2000 wrote: »

60% of the underlying assets are trackers. In theory, the 40% bond allocation should rise in the event of a crash. That is the point of having the bonds, is it not?

The bond allocation is trackers too. They will go wherever their market goes. It may (hopefully) be a different direction to equities. It may not be.

If they could not go in the same direction as equities at the same time, how would you explain them going up substantially, in broadly the same direction as equities since 2009? Their natural income is 1-3%, yet they have been going up at several times that, for years... which is all stuff that can be reversed and go - painfully - back the other way.

Nobody is complaining that they are going up when equities are going up and boosting the return of the VLS60 product. But you can bet that they will be complaining if they go down at the same time as equities are going down and don't function as a 'brake' on the steep losses of equities. But if you only have Vanguard's bond index funds (which have been positively correlated with equities recently) as your non-equity holdings, it stands to reason you could easily expect to see the VLS products bottom of the performance tables in the down years just like they are now at the top in the good years.

Audaxer wrote: »

That is assuming on an equity crash the bonds keep their value. Are my calculations correct?

Yes, but it is unlikely they will exactly keep their value. Depending on the reasons for the equity crash, they may gain value, or lose some.

jdw2000

RuleTheWorld wrote: »

Day 1 equity £60 bond+cash £40

equity goes down 10%

Day 2 equity £54 bond+cash £40

now mr vanguard needs to use some cash to buy more equity because he's advertised it'll be 60% equity

uses £2.40 cash to buy more equities

£56.40 equity
£37.60 bond+cash

Thanks for that. I see what you're saying now. Yes, I can see it would mean that equities would be bought at the bottom to bring the 60/40 split back in line. And those equities would rise and make money.

At least, I can see how that works in theory.



And that, is it not, is why people (like me) have gone for VLS60 rather than VLS100. It is to safeguard and counterbalance for when the next crash happens. As I said before, we'd all have VLS100s otherwise.

jdw2000

bowlhead99 wrote: »

The bond allocation is trackers too. They will go wherever their market goes. It may (hopefully) be a different direction to equities. It may not be.

If they could not go in the same direction as equities at the same time, how would you explain them going up substantially, in broadly the same direction as equities since 2009? Their natural income is 1-3%, yet they have been going up at several times that, for years... which is all stuff that can be reversed and go - painfully - back the other way.

Nobody is complaining that they are going up when equities are going up and boosting the return of the VLS60 product. But you can bet that they will be complaining if they go down at the same time as equities are going down and don't function as a 'brake' on the steep losses of equities. But if you only have Vanguard's bond index funds (which have been positively correlated with equities recently) as your non-equity holdings, it stands to reason you could easily expect to see the VLS products bottom of the performance tables in the down years just like they are now at the top in the good years.

When an equities crash next happens, people will have to invest in something or other. If not bonds (leading to the 40% allocation of VLS60 rising) then what else will they invest in?


But I do see your point about the recent state of affairs of both equities and bonds rising at the same time. I guess in a true bear market everything will go down, just as in a true bull market (like the one we are currently in) everything goes up. But after the initial hit of the crash comes, does it not make sense that there will be an initial surge in bond activity whilst nervy investors lay off equities?

bowlhead99

jdw2000 wrote: »

But after the initial hit of the crash comes, does it not make sense that there will be an initial surge in bond activity whilst nervy investors lay off equities?

Yes all kinds of things could happen 'in theory' and it would 'make sense' for x,y,z to happen after a,b,c. Rule one of investing is that the market can remain irrational longer than you can stay solvent.

Some people make or preserve money in crashes, others lose their shirts. If there was an easy answer to avoiding one, everyone would try to do it, but that surge of market behaviour would change prices, still causing people to lose money. Many just accept that dips, corrections and crashes are part of life and to be expected, so they just try to invest broadly enough to not lose their life savings when lots of things are crashing at once.