Why doesn't everyone just buy Vanguard LifeStrategy?

Audaxer

Type_45 wrote: »

Who says they'll perform less badly in an equity crash?

You will see from the quote in my previous post that Linton suspected they will be outperformed by the L&G funds in adverse market conditions.

For what reason?

As they focus on management of risk whereas VLS have a fixed allocation.

And how much less badly?

I doubt anyone will know.

brasso

aroominyork wrote: »

I read the opening pages on Amazon last week and it was mostly about not trying to beat the market. Is there much else in it other than expanding on that thesis?

That's not quite its central premise.

Hale's view is not that you 'shouldn't' aspire to beat the market, but that it's virtually impossible to do so over a period of time. If you have a gambling mentality and focus on short term gains, sure, you can aim to beat the market -- and may get lucky. But if you're an investor rather than a gambler, interested in longer term financial security, it's much better to lower your adrenaline levels and go for passive investment options like trackers.

brasso

Eco_Miser wrote: »

No, I'm pointing out that your statement was wrong, markets do not always go up.

In the long term, most recover, but that may take too long for some who become forced sellers while the markets are in a trough.

Come on, you must understand the point being made. Yes, there are blips and dips. Of course. But the medium and long-term trajectory is upwards.

If one has a very short investment timeframe -- say less than 5 years -- then yes, there is no guarantee, hence the oft-heard advice about not buying stocks for short-term gain.

Apodemus

brasso wrote: »

That's not quite its central premise.

Hale's view is not that you 'shouldn't' aspire to beat the market, but that it's virtually impossible to do so over a period of time. If you have a gambling mentality and focus on short term gains, sure, you can aim to beat the market -- and may get lucky. But if you're an investor rather than a gambler, interested in longer term financial security, it's much better to lower your adrenaline levels and go for passive investment options like trackers.

Yep, this sums up the Tim Hale book. I would advise “aroominyork” to read brasso’s post and save the time and money that would otherwise be spent buying and reading Hale!

brasso

chiang_mai wrote: »

On the subject of beating the index and passives:

I'm not an experienced investor by any means but circumstance has dictated I get involved and that has meant much learning. One of my learning tools has been to watch my portfolio's in detail, daily, and gather data, useful since I was considering passives at one point.

I haven't taken it to the fund level but my portfolios beats the index over every time frame I've looked at, longer than fourteen days that is, for example: over the most recent fourteen day period I looked at the index had risen by a net 0.79% whereas the value of my portfolios had increased by 0.94%. Interestingly the index outperformed on a majority of upturns whereas my portfolio's beat the index significantly on downturn days (I'm 60/40). I tried to calculate the effect on my earnings if my portfolio's had followed the performance of the index and it showed my earnings would be 18% lower over the period.

Crucially, you've not said over what period you've reached your conclusions. When you refer to your portfolio, I presume you mean individual stocks? I used to do this myself, but I had my fingers burnt too often, with wild drops in value, just as I was beginning to feel too pleased with myself and what I perceived as my 'strategy'. (It was more like click and hope, though it took me a while to admit that I relied a lot on luck to keep me on a steady course.)

If you hit lucky, of course you can beat the market, especially if you make these measurements retrospectively, over a self-chosen time period. I also found that I was very enthused about doing regular spreadsheet analysis when times were good, but lost interest when my picks were falling faster than the market! This means my stats are a bit patchy.

I switched to funds, which were much less stressful. Not so many spikes, but also, an absence of plunges. In the end, I woke up to the fact (not opinion, but fact) that the majority of funds and fund managers do not, and cannot, logically, beat the market. It's largely a matter of luck whether you grab, at the right time, the coat tails of the few who manage it. Even the celebrated managers -- Woodford, Bolton et al -- can't sustain their momentum forever. I'm about to ditch Woodford's Patient Capital Fund because I've lost faith.

Most of my investments are in Vanguard trackers and other ETFs. Very cheap, more steady. Buy and hold. Do something better with my time rather than stare at rows of figures on a computer screen for half the day. Even if you manage a small slice of profit over the market, is that enough compensation for all those hours of wasted time? For me, no.

Type_45 wrote: »

Who says they'll perform less badly in an equity crash? For what reason? And how much less badly?

I can't check now, but I think VLS rebalance very frequently -- much more often than most -- so I'd hope that in a downturn they could cushion some of the plunges, albeit at the expense of not reaching the same peaks in the good times.

chiang_mai

No, I was referring to funds not stocks and the period covered was the past three months and continues today. I have close to 100k spread across thirteen funds and I'm tracking their performance at a detailed level to aid my understanding of what happens in the markets, how the funds react and to confirm the funds I have are the right ones.

Eco_Miser

zzzt wrote: »

The one thing that has always been true, in spite of multiple recessions, is that the value of the stock markets always goes up.

brasso wrote: »

Come on, you must understand the point being made. Yes, there are blips and dips. Of course. But the medium and long-term trajectory is upwards.

If one has a very short investment timeframe -- say less than 5 years -- then yes, there is no guarantee, hence the oft-heard advice about not buying stocks for short-term gain.

Since you decided to revive a ten day old discussion, I will re-iterate that what zzzt wrote, as written, is wrong. The stock market does not always go up.
As you yourself says there is no guarantee over less than 5 years. There's actually no guarantees over 20 years either, just past performance, which is no guide to the future.

I have most of my wealth in stock markets, so obviously I expect long term gains, but I don't expect the markets to always go up.

Linton

brasso wrote: »

That's not quite its central premise.

"Hale's view is not that you 'shouldn't' aspire to beat the market, but that it's virtually impossible to do so over a period of time. If you have a gambling mentality and focus on short term gains, sure, you can aim to beat the market -- and may get lucky. "

What is "The Market"? Is it the set of large companies that happen to be quoted on a particular stock exchange. Or the set of large companies that are quoted on the world's major exchanges. Or the set of all companies quoted in all the world exchanges. Or the set of all companies quoted and unquoted in the world. Or even the set of all financial investments anywhere in the world. If it's the last one you are mainly talking about derivatives and FX. Equity held directly or through funds is a minor player.

How short is short term? What is the maximum period of time over which the superior returns can be achieved, possibly by pure luck, or more likely skill in choosing a subset of The Market, or the same investments as The Market but in different proportions? 1 year? 20 years? 100 years? If it's 1 year then investing in The Market is a no brainer. If it's 100 years then the statement is pretty irrelevent for most investors.

"But if you're an investor rather than a gambler, interested in longer term financial security, it's much better to lower your adrenaline levels"

Wouldnt disagree broadly but you do need to define "better". Better for your health certainly. Better for your wealth? Better for meeting your overall objectives?

" and go for passive investment options like trackers."

non sequitor. You can invest with low adrenaline levels just as easily with non passive funds, or even more easily as you have greater flexibility in honing your choice of underlying investments towards meeting your objectives and avoiding major booms and busts.

And to return to the subject of the thread, the VLS funds are not trackers of any market. If you believe in following The Market and restricting your investment choice to passive funds the only logically justifiable equity tracker would surely be a global all cap index fund. The only one I know of is the Vangaurd Global All Cap, but how truly global it is I am not sure.

cjking

BLB53 wrote: »

I am working on the assumption my VLS 60 fund will grow at an average of 6% p.a. long term so plenty of safety margin with my withdrawn income of 4%.

My back-of-an-envelope estimate is that a 60% equities fund will provide a real return of 2.2%, so you are expecting too much.

(real return = over-and-above any increase due to inflation.)

return = 60% * 3.6% + 40% * 0% = 2.2%

3.6% is my current estimate for the average future return on a world tracker fund, it's the average of the last ten years earnings divided by the price.

0% is maybe slightly harsh for the real return on bonds, let's be generous and see what 1% would give. In that case return = 60% * 3.6% + 40% * 1% = 2.6%.

Nearly forgot to take account of fund charges. My estimate for world tracker return actually took fund charges into account, so you only need to reduce above yields by charges to the extent that LS60 has higher charges than the Vanguard world tracker ETF.

(If I replace a world tracker with an all-Europe tracker (VEUR) with an expected return of 4.8%, then you need a real return of only 0.4% on the 40% bonds to get overall return up to 3%.)

coyrls

chiang_mai wrote: »

No, I was referring to funds not stocks and the period covered was the past three months and continues today.

I don't find three months' data to be compelling evidence.