Why doesn't everyone just buy Vanguard LifeStrategy?

chiang_mai

Apodemus wrote: »

You still don’t get it. You said it’s guaranteed to lose value if held forever. It’s not. There may be a paper loss at times, a paper gain at others, neither is guaranteed.

But all the while I’ve had an income stream that’s grown over time and is in excess of what I would have had from the initial cash value placed in a bank, so I have indeed made money and I am more than happy!

No I do get it, trust me. What you've done arguably is to invest some money in shares and its value has risen. But then the market has crashed taking much of your profit with it and from that point onwatds you have lost money. Despite the fact the market may have subsequently risen and the value of your shares along with it, the return on your capital employed has fallen dramatically and with each market crash over time the value has fallen yet again. So after seventeen years you may claim to have a profit of say what, 100% or so, compare that level of profit against a less volatile investment and it really doesn't mean much at all. It's a bit like starting out at zero mph, reaching 80 mph and having a smash, stopping and starting again only to have another crash at 70 mph, and so on - eventually you'll reach 100 mph maybe, but it will have taken you many hours at that rate.

chiang_mai

brasso wrote: »

I thought you said you had 100k invested in funds? Aren't any of these equities?

With dividends reinvested you're not likely to lose money over time.

Yes, I have two portfolios of similar values and they are both 60/40 equities/bonds. So when I equities do fall the bond elements works reasonably well to compensate so that over time by loss and the associated recovery times are minimal. NB: my earlier comments on the subject of loss referred to 100% equity holdings, not balanced portfolios..

brasso

chiang_mai wrote: »

No I do get it, trust me. What you've done arguably is to invest some money in shares and its value has risen. But then the market has crashed taking much of your profit with it and from that point onwatds you have lost money. Despite the fact the market may have subsequently risen and the value of your shares along with it, the return on your capital employed has fallen dramatically and with each market crash over time the value has fallen yet again. So after seventeen years you may claim to have a profit of say what, 100% or so, compare that level of profit against a less volatile investment and it really doesn't mean much at all. It's a bit like starting out at zero mph, reaching 80 mph and having a smash, stopping and starting again only to have another crash at 70 mph, and so on - eventually you'll reach 100 mph maybe, but it will have taken you many hours at that rate.

If your priority is preservation of capital, the balanced approach might be reasonable as, in theory at least, there’s some sort of seesaw effect. But if you want your wealth to grow then it’s far too defensive for me. Equity investment has done phenomenally well over the last several decades.

If you invest 10K, and it appreciates to 50K, then drops back to 45K before hitting 70K, I see that as a profit of 60K, not a loss of 5K. You have a very very short term horizon if you can’t bring yourself to ignore the undulations. And you also have a stressful life.

Anyway, you earlier chastised someone that their gains were merely "paper profits". Are your losses not similarly just losses on paper?

chiang_mai

brasso wrote: »

If your priority is preservation of capital that approach might be reasonable as, in theory at least, there’s some sort of seesaw effect. But if you want your wealth to grow then it’s far too defensive for me. Equity investment has done phenomenally well over the last several decades.

If you invest 10K, and it appreciates to 50K, then drops back to 45K before hitting 70K, I see that as a profit of 60K, not a loss of 5K. You have a very very short term horizon if you can’t bring yourself to ignore the undulations. And you also have a stressful life.

Anyway, you earlier chastised someone that their gains were merely "paper profits". Are your losses not similarly just losses on paper?

I'm merely trying to reinforce my earlier point that holding 100% equities over time will loose money in most cases and that the return on capital is not great, if that was seen as a chastisement forgive me because that wasn'nt intended. And yes, at age 68 my horizon is not as long term as say a twenty/thirty something year old but preservation is my main focus because it has to be - I don't work and have income from work.. That does not mean I ignore profit but I do see it in a different context to many of the younger crowd.

But you used the example of 10k going to 50k, back to 45k then onwards to 70k. In a sizeable crash it will certainly be much worse than that for many people based on how long they have been in the market, another poster spoke earlier about needing twenty years to recover losses, I posted some examples that talk about between five and seven years.

Finally, you talk about the seesaw effect being fine, in theory! I recommend you talk to any IFA about the reasonaing behind balanced portfolio's and the way they operate in the real world. They will all tell you the same thing and that is to dampen losses and aide recovery time and oddly that remains true today which is why Mixed Asset funds are so sucessful and why products such as Vanguard are so popular.

Type_45

Apodemus wrote: »

The IFS study actually says that of the roughly 50% of Londoners who rent, the average rental forms 40% of their salary before Housing Benefit is taken into account. The report argues that for the lowest income portion of London’s population, where rental after Housing Benefit is 36%, this is unsustainable and has worsened greatly in recent years.

This is very different from saying that “40% of London’s salary is taken up by rent”.

I don't care what the report says, to be honest. And the demographic I am referring to aren't the ones on housing benefit. I am talking about average, professional Londoners. Of which I was one for 20 years. People who earn £30/£40K and work full time. That being the average London wage.

Those people spent half their wages on rent and bills.


I don't need a study to tell me what I saw with my own eyes for 20 years.

chrisgg

chiang_mai wrote: »

I'm merely trying to reinforce my earlier point that holding 100% equities over time will loose money in most cases and that the return on capital is not great, if that was seen as a chastisement forgive me because that wasn'nt intended. And yes, at age 68 my horizon is not as long term as say a twenty/thirty something year old but preservation is my main focus because it has to be - I don't work and have income from work.. That does not mean I ignore profit but I do see it in a different context to many of the younger crowd.

But you used the example of 10k going to 50k, back to 45k then onwards to 70k. In a sizeable crash it will certainly be much worse than that for many people based on how long they have been in the market, another poster spoke earlier about needing twenty years to recover losses, I posted some examples that talk about between five and seven years.

Finally, you talk about the seesaw effect being fine, in theory! I recommend you talk to any IFA about the reasonaing behind balanced portfolio's and the way they operate in the real world. They will all tell you the same thing and that is to dampen losses and aide recovery time and oddly that remains true today which is why Mixed Asset funds are so sucessful and why products such as Vanguard are so popular.

Over how many 10 year periods in history has cash outperformed the FTSE 100? Not sure how you can draw the conclusion that 100% equities will lose money. Not unless you're buying African mineral companies or something. With a time horizon of 10+ years, a geographically diversified portfolios of equities (I'd recommend a core satellite approach) is the way to go.

It genuinely bewilders me seeing people in their forties investing their pensions in around 50% equities. Just look at the FTSE/MSCI World's gains in the last 20 years compared to bonds!

TBC15

chiang_mai wrote: »

"yet"...and neither have you made any money either except on paper! So be sure and cash them sometime soon otherwise there could be a another market crash or even worse you could die, you'll loose money either way!

Post death, I think asset allocation will be the least of one’s worries. Unless St Peter only takes cash.:rotfl:

eskbanker

Type_45 wrote: »

I don't care what the report says, to be honest. And the demographic I am referring to aren't the ones on housing benefit. I am talking about average, professional Londoners. Of which I was one for 20 years. People who earn £30/£40K and work full time. That being the average London wage.

Those people spent half their wages on rent and bills.


I don't need a study to tell me what I saw with my own eyes for 20 years.

But you do apparently need someone to tell you that what you saw with your own eyes in a specific demographic group within one massive city may not be representative of the entire population, hence the comment about generalisation!

bigadaj

chiang_mai wrote: »

I'm merely trying to reinforce my earlier point that holding 100% equities over time will loose money in most cases and that the return on capital is not great, if that was seen as a chastisement forgive me because that wasn'nt intended. And yes, at age 68 my horizon is not as long term as say a twenty/thirty something year old but preservation is my main focus because it has to be - I don't work and have income from work.. That does not mean I ignore profit but I do see it in a different context to many of the younger crowd.

But you used the example of 10k going to 50k, back to 45k then onwards to 70k. In a sizeable crash it will certainly be much worse than that for many people based on how long they have been in the market, another poster spoke earlier about needing twenty years to recover losses, I posted some examples that talk about between five and seven years.

Finally, you talk about the seesaw effect being fine, in theory! I recommend you talk to any IFA about the reasonaing behind balanced portfolio's and the way they operate in the real world. They will all tell you the same thing and that is to dampen losses and aide recovery time and oddly that remains true today which is why Mixed Asset funds are so sucessful and why products such as Vanguard are so popular.

You aer mistaking the relative benefits if rebalancing, primarily in relation to reduction in volatility, with total return.

A full equity portfolio will outperform a balanced portfolio in the vast majority if csds, it will just be a rougher ride to get there with far more volatility.

The reason IFAs will use balanced portfolios is that list people's risk tolerance is inadequate to accept a full equity portfolio, and when told that in the short term they have lost money, sometimes dramatically so, people will panic and cash out and miss out in the recovery.

Vanguard offer many products, some are equity only and some are mixed asset. It's a general misnomer, though not uncommon, vanguard is used by many as shorthand for passive but until recent,y they had more assets under managed funds than passive ones.

brasso

chiang_mai wrote: »

I'm merely trying to reinforce my earlier point that holding 100% equities over time will loose money in most cases and that the return on capital is not great, if that was seen as a chastisement forgive me because that wasn'nt intended. And yes, at age 68 my horizon is not as long term as say a twenty/thirty something year old but preservation is my main focus because it has to be - I don't work and have income from work.. That does not mean I ignore profit but I do see it in a different context to many of the younger crowd.

It's just not true to say that "100% equities over time will lose money". It MAY lose money in certain easily avoidable circumstances e.g. piling all your investment eggs into one basket, or having a short investment horizon, or taking bad advice, or trying to time the market too fervently. I don't regard 68 as particularly old. You could very easily have 20 or 25 years to finance. Even longer. But you're doing what is right for you, and I can't argue with that.

As you've confirmed, your priority is preservation of capital, and the balanced portfolio is likely to keep your head above water. But you shouldn't use your particular conservative investment needs and principles to make bold statements about long term equity investment. History shows you are wrong about that -- though of course it doesn't therefore guarantee anything about the future. Who knows when the next serious crash will be? How bad and how long? It's anyone's guess.

chiang_mai wrote: »

But you used the example of 10k going to 50k, back to 45k then onwards to 70k. In a sizeable crash it will certainly be much worse than that for many people based on how long they have been in the market, another poster spoke earlier about needing twenty years to recover losses, I posted some examples that talk about between five and seven years.

Finally, you talk about the seesaw effect being fine, in theory! I recommend you talk to any IFA about the reasonaing behind balanced portfolio's and the way they operate in the real world. They will all tell you the same thing and that is to dampen losses and aide recovery time and oddly that remains true today which is why Mixed Asset funds are so sucessful and why products such as Vanguard are so popular.

Yes, mixed asset funds are popular. So are chocolate and hamburgers. Doesn't mean they are always doing you good. Balanced funds are conservative. I much prefer to take greater risk but again -- horses for courses.