Why doesn't everyone just buy Vanguard LifeStrategy?

Type_45

coyrls wrote: »

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

If, indeed, it was 3 months. In his original post he was talking of "14 days" and analysing his numbers "daily".

But that doesn't stop the active funds brigade jumping on his numbers as proof that VLS is not as good as whatever they are doing.

Type_45

cjking wrote: »

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%.)

So, you've come up with 3.6% for the equities as it's the "average of the last 10 years". Fine.

But when it comes to the bonds you've decided to ignore the last 10 years and just give it 0%, or 1% if you "decide not to be harsh".

What return have bonds given over the last 10 years? And why aren't you factoring that in?


In actual fact, the last 10 years of equities is no indication of future equities, so you're not being particularly scientific even with regards to equities. So quite why you don't want to apply ANY science to your bonds analysis is strange.


Perhaps you have made the decision to minimise or eradicate your own bond investments and you are projecting your decision to the rest of us that bonds are useless to see what feedback you get?

BananaRepublic

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.

Then he is wrong. You can easily locate many funds which consistently outperform, outside the US markets anyway. And there are indexes with no corresponding tracker hence if you want exposure to those, you need trackers. Of course a tracker is always the safer easier approach, and best for someone who wants a lower risk approach, although they will still have to select the market(s) and sectors(s).

Type_45

BananaRepublic wrote: »

Then he is wrong. You can easily locate many funds which consistently outperform, outside the US markets anyway. And there are indexes with no corresponding tracker hence if you want exposure to those, you need trackers. Of course a tracker is always the safer easier approach, and best for someone who wants a lower risk approach, although they will still have to select the market(s) and sectors(s).

Not with VLS.

finellah

Type_45 wrote: »

Not with VLS.

In choosing VLS you are still making an asset allocation decision e.g. UK bias on equities and their bond selection. L&G, iShares, HSBC multi index offerings would be different asset allocation decisions

Type_45

finellah wrote: »

In choosing VLS you are still making an asset allocation decision e.g. UK bias on equities and their bond selection. L&G, iShares, HSBC multi index offerings would be different asset allocation decisions

That's like saying that I'm selecting the ingredients in my Heinz Ketchup. I'm not. I'm selecting Heinz Ketchup and I'm trusting their ingredients are well selected. Sure, I can look on the side of the bottle and see what's in it. Perhaps it's wise to do so. But I am not interested in that level of minutia. It is because I don't want to spend time doing such things that I selected VLS in the first place.

BLB53

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.

No I don't think so. The average return for the VLS 60 since launch in 2011 is 9%p.a and real return of ~7%.

Type_45

BLB53 wrote: »

No I don't think so. The average return for the VLS 60 since launch in 2011 is 9%p.a and real return of ~7%.

Any idea what the figures for VLS80 are?

Ray_Singh-Blue

BLB53 wrote: »

No I don't think so. The average return for the VLS 60 since launch in 2011 is 9%p.a and real return of ~7%.

The returns are good because... bull run.

Year, equities, bonds (both total return, USD)
2012 15.80% 4.00%
2013 32.20% -2.30%
2014 13.50% 5.80%
2015 1.30% 0.30%
2016 11.80% 2.50%

If someone had invested 100,000 in a 60:40 balanced index fund on 1st Jan 2011, and reinvested all dividends, by 31st December 2016 it would have been worth 160,193

Compare these years:

2000 -9.10% 11.40%
2001 -12.00% 8.40%
2002 -22.10% 8.20%

or these:

2005 4.80% 2.40%
2006 15.60% 4.30%
2007 5.40% 6.90%
2008 -37.00% 5.00%

If I had invested 100,000 in a 60:40 balanced index fund on 1st Jan 2000, and reinvested all dividends, by 1st Jan 2003 it would be worth 84,505 and by 1st Jan 2009 it would be worth 102,660

I'm wary of assuming the returns of the last few years are normal. Presumably anyone piling into VLS60 today is braced for at least a possibility of falls of -5% to -10% per year for several years, as in 2000 to 2003?

Type_45

Ray_Singh-Blue wrote: »

The returns are good because... bull run.

Year, equities, bonds (both total return, USD)
2012 15.80% 4.00%
2013 32.20% -2.30%
2014 13.50% 5.80%
2015 1.30% 0.30%
2016 11.80% 2.50%

If someone had invested 100,000 in a 60:40 balanced index fund on 1st Jan 2011, and reinvested all dividends, by 31st December 2016 it would have been worth 160,193

Compare these years:

2000 -9.10% 11.40%
2001 -12.00% 8.40%
2002 -22.10% 8.20%

or these:

2005 4.80% 2.40%
2006 15.60% 4.30%
2007 5.40% 6.90%
2008 -37.00% 5.00%

If I had invested 100,000 in a 60:40 balanced index fund on 1st Jan 2000, and reinvested all dividends, by 1st Jan 2003 it would be worth 84,505 and by 1st Jan 2009 it would be worth 102,660

I'm wary of assuming the returns of the last few years are normal. Presumably anyone piling into VLS60 today is braced for at least a possibility of falls of -5% to -10% per year for several years, as in 2000 to 2003?

Compare that to a house a bought in London in 2001 for £98K. Sold it this year for £378K.

Property is, and always has been, the best investment.