Why doesn't everyone just buy Vanguard LifeStrategy?

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.

chiang_mai

Once again, here's the grid I posted earlier showing best asset class by year, notice the consistency of the balanced portfolio in the average section: https://www.mfs.com/wps/FileServerServlet?articleId=templatedata/internet/file/data/sales_tools/mfsvp_20yrsb_fly&servletCommand=default

Using the grid as a guide, how do you think the more balanced or diversified portfolio would have fared versus the 100% equities portfolio!

Also, yes I'm aware of the Vanguard range, I should, of course, have written VLS mixed asset products.

IanManc, if you've got a counter-argument or reasons why, put them forward but enough of the abusive comments, they are unnecessary.

OSCO

Has too much UK allocation for my liking, but maybe just being picky!

chiang_mai

chrisgg wrote: »

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!

I have not suggested that cash outperforms the FTSE, I have however strongly advocated balanced portfolio's, as it seems have you.

Don't be bewildered by watching 40+ year olds invest only 50% in equities, we 40+ year olds are equally as bewildered by younger generations taking the level of financial risk that they do. But there again, we took similar risks at that age, it's just that now we seem to have learned to moderate risk rather than indulge in it - not a slight, just an observation.

bigadaj

chiang_mai wrote: »

Once again, here's the grid I posted earlier showing best asset class by year, notice the consistency of the balanced portfolio in the average section: https://www.mfs.com/wps/FileServerServlet?articleId=templatedata/internet/file/data/sales_tools/mfsvp_20yrsb_fly&servletCommand=default

Using the grid as a guide, how do you think the more balanced or diversified portfolio would have fared versus the 100% equities portfolio!

Also, yes I'm aware of the Vanguard range, I should, of course, have written VLS mixed asset products.

IanManc, if you've got a counter-argument or reasons why, put them forward but enough of the abusive comments, they are unnecessary.

You are using the wrong criteria for your argument

A more realistic example would be for example the trustnet aggressive, balanced and cautious plots. The higher the level of equities the higher the long term return, though with added volatility.

Interestingly are you claiming that a 60:40 will perform better than a 80:20 equity to bond portfolio, and consequently a 100% equity portfolio will perform worse still?

I think what you're actually arguing is that you want to be close to the efficient frontier in accordance with modern portfolio theory. That's fine and theoretically gives you the highest return for a particular level of risk, but increasing the level of risk has the very strong probability that returns will also increase.

IanSt

chiang_mai wrote: »

Once again, here's the grid I posted earlier showing best asset class by year, notice the consistency of the balanced portfolio in the average section: https://www.mfs.com/wps/FileServerServlet?articleId=templatedata/internet/file/data/sales_tools/mfsvp_20yrsb_fly&servletCommand=default

Using the grid as a guide, how do you think the more balanced or diversified portfolio would have fared versus the 100% equities portfolio!

Well that grid is really only relevant for US investors or people who are using the $ as a home currency, but even if the grid referred to the UK I don't see anything there that makes me think that an equity/bond portfolio is better than 100% equities. The only equity position that loses to the equity/bond portfolio is someone who invested 100% in international stocks.

But if someone really prefers the more pedestrian approach of an equity/bond portfolio because it lets them sleep at night then I'm happy to let them do so - at least they've not just left it in cash!

talexuser

For the first 10 years or so of Pep and Isa contributions I always had a couple of good bond funds for diversification and reduced volatility, maybe around a fifth of the portfolio. After a couple of corrections I decided the performance was just too pedestrian compared to the performance of my equity funds, and any smoothing effect in a downturn not particularly impressive. The next 15 years or so I have been all equity funds (apart from the tiny % some funds may have some bonds). You get to the point where the reinvested growth is such that a correction is no big deal if you don't need the money now and can wait for recovery. Saying equities are guaranteed to lose money over time is just ridiculous.

Linton

chiang_mai wrote: »

Once again, here's the grid I posted earlier showing best asset class by year, notice the consistency of the balanced portfolio in the average section: https://www.mfs.com/wps/FileServerServlet?articleId=templatedata/internet/file/data/sales_tools/mfsvp_20yrsb_fly&servletCommand=default

Using the grid as a guide, how do you think the more balanced or diversified portfolio would have fared versus the 100% equities portfolio!

.....

The grid shows you how each sector behaved over 20 years - it's the average column. Obviously the best of the options is the small/medium cap equity. Apart from "International" all equity options beat all bond options over 20 years. The outperformance during the good times more than compensates for the bad performance when times are hard.

The point of using bonds isnt to increase the overall performance but rather to reduce volatility at the expense of overall performance.

It seems obvious to me - I must have misunderstood your argument.

chiang_mai

I have only a single argument and that is that 100% equities is not cost-effective over the medium term plus, the return on cash employed is poor (resulting from market crashes) and that more balanced portfolio's, ones that hold a range of asset classes, including bonds, perform better and is lower risk.

It's getting late my time now and some of the comments are getting tedious, out.