Why doesn't everyone just buy Vanguard LifeStrategy?

brasso

chiang_mai wrote: »

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.

Your conclusions are misguided, and even the link you posted shows that equities have done much better than bonds.

What you're really pointing out is that a conservative portfolio with a mixture of equities and bonds will be less volatile, NOT less profitable.

You refer to a market crash as if this totally wipes out your position and sets you back to zero. No. Your worth will likely drop, yes. Perhaps by 20%, even more if you're not well diversified. But if you're a medium to long term investor, you're likely to have paid in far less than this, and if you hold your nerve and shrug, and especially if you keep investing while stocks are cut-price, you will fairly quickly be motoring ahead again. One has to look at the big picture.

Meanwhile, your mixed-asset / balanced portfolio will be creeping along much as normal. Not losing much, not gaining much. Better than cash, for sure, but not setting the world alight. That suits your cautious risk profile, but not mine.

Ray_Singh-Blue

chrisgg wrote: »

Over how many 10 year periods in history has cash outperformed the FTSE 100?

"Cash beat the total returns on FTSE100 tracker in 57% of the 192 five year periods beginning each month from 1 January 1995 to 31 May 2015. The tracker won in just 43% of periods."

http://paullewismoney.blogspot.co.uk/2016/06/cash-beat-shares-from-1995-to-2015.html

Not an answer to the precise question you asked, but in the ball park perhaps.

Audaxer

Ray_Singh-Blue wrote: »

"Cash beat the total returns on FTSE100 tracker in 57% of the 192 five year periods beginning each month from 1 January 1995 to 31 May 2015. The tracker won in just 43% of periods."

http://paullewismoney.blogspot.co.uk/2016/06/cash-beat-shares-from-1995-to-2015.html

Not an answer to the precise question you asked, but in the ball park perhaps.

Well, it shows it is not wise to invest in only the FTSE100. I don't think cash would have beaten a well-diversified fund or portfolio, and at current cash interest rates I don't think there is any advantage in leaving too much in cash savings.

chiang_mai

brasso wrote: »

Your conclusions are misguided, and even the link you posted shows that equities have done much better than bonds.

What you're really pointing out is that a conservative portfolio with a mixture of equities and bonds will be less volatile, NOT less profitable.

You refer to a market crash as if this totally wipes out your position and sets you back to zero. No. Your worth will likely drop, yes. Perhaps by 20%, even more if you're not well diversified. But if you're a medium to long term investor, you're likely to have paid in far less than this, and if you hold your nerve and shrug, and especially if you keep investing while stocks are cut-price, you will fairly quickly be motoring ahead again. One has to look at the big picture.

Meanwhile, your mixed-asset / balanced portfolio will be creeping along much as normal. Not losing much, not gaining much. Better than cash, for sure, but not setting the world alight. That suits your cautious risk profile, but not mine.

Good morning!

You perhaps need to study the chart I posted in more detail, I wonder what the chances are of the average investor holding a mixture of small cap, large cap value, large cap growth, commodoities, growth, international and REITS in equity form, all in the same portfolio? Because that's the only holding mix that will beat the performance of the diversified portfolio!

Secondly, the chart doesn't reflect recovery times nor the extent to which a particular class may drop in a large crash but the reason for holding a diversified portfolio is to minimise those things.

Finally, from comments posted I'm guessing that much of the audience here comprises younger investors who have come to believe that the bull run of the past nine years is how the markets always were and always will be - any notion of crashes and risk aversion are simply rumours put out by old men an/or, those crashes happened then but they can't happen now thinking! This is probably part of the same group that I see a lot of who don't think they should buy travel insurance! If correct, good luck with it all.

Linton

Ray_Singh-Blue wrote: »

"Cash beat the total returns on FTSE100 tracker in 57% of the 192 five year periods beginning each month from 1 January 1995 to 31 May 2015. The tracker won in just 43% of periods."

http://paullewismoney.blogspot.co.uk/2016/06/cash-beat-shares-from-1995-to-2015.html

Not an answer to the precise question you asked, but in the ball park perhaps.

Possibly, but despite the volatility the average return on the FTSE100 over that time period with dividends re-invested was around 8%/year. What was the average return on cash?

IanSt

Good morning to you but goodnight from me as it's getting late now. I'll leave you with my comments below

chiang_mai wrote: »

Good morning!

You perhaps need to study the chart I posted in more detail, I wonder what the chances are of the average investor holding a mixture of small cap, large cap value, large cap growth, commodoities, growth, international and REITS in equity form, all in the same portfolio? Because that's the only holding mix that will beat the performance of the diversified portfolio!

I think you may be misundertanding the chart. Someone holding 100% in small-caps would have beaten diversified, someone holding 100% large-caps would have beaten diversified, someone holding 100% REITS would have beaten diversified - they do not have to be mixed together to beat diversified. And actually a mixture of them is exactly what most people on this board would recommend in their equity investing. The only equity position that would have failed to beat diversified is someone with a very large position in international stocks, and a large part of the loss there is probably due to the strength of the dollar.

Secondly, the chart doesn't reflect recovery times nor the extent to which a particular class may drop in a large crash but the reason for holding a diversified portfolio is to minimise those things.

But diversified does not need to mean just bonds+equities, it can just as well mean a diverse set of equities from around the world and containing both small and larger companies.

Finally, from comments posted I'm guessing that much of the audience here comprises younger investors who have come to believe that the bull run of the past nine years is how the markets always were and always will be - any notion of crashes and risk aversion are simply rumours put out by old men an/or, those crashes happened then but they can't happen now thinking! This is probably part of the same group that I see a lot of who don't think they should buy travel insurance! If correct, good luck with it all.

I can't speak for others, but I only wish I was still young. I started investing a few years before Black Monday which itself was 30 years ago now!!! The context of my 100% diverse equities comes from those days and the multiple ups and downs that we've gone through in that time.

chiang_mai

I want to close out my involvement in this thread because I don't think I can usefully contribute much more to the arguments. But before I do, here's what my portfolio looks like so that when I mention balance and diversification it puts those things into context:

My UK based investments:

UK 17%
US 24%
EU 9%
Asia 9%
Japan 11%
India 2%
HK 2%
Taiwan 2%
Sing 0%
China 7%
Aus/NZ 1%
Emerg. 6%
Other 10%

60/40 equities/bond funds:

Equities (EU)
Equities (Int)
Mix 40/85 shares
Equities (Int)
Mix 20/60 shares
Bond Emerg. mkts.
Bond Int HY
Mix 40/85 shares
Bond (IT)
Index linked UK Gilts (tracker)
Equities (Int)
Bond - (Corp)
Equities (asia/FE)
Equities (asia/FE)
Equities (IT)

The above mix has been returning an average 22% over the past six weeks, in practice by year end I expect my return to be circa 6% to 8%, barring any major event, and I think, all things considered, that's pretty decent.

Linton

chiang_mai wrote: »

Good morning!

You perhaps need to study the chart I posted in more detail, I wonder what the chances are of the average investor holding a mixture of small cap, large cap value, large cap growth, commodoities, growth, international and REITS in equity form, all in the same portfolio? Because that's the only holding mix that will beat the performance of the diversified portfolio!

Secondly, the chart doesn't reflect recovery times nor the extent to which a particular class may drop in a large crash but the reason for holding a diversified portfolio is to minimise those things.

........

It is easy for an investor to hold the mixed equity you describe. Just buy a global equity tracker.

You seem very confused over the calculation of returns. Your table shows that small and mid cap returned on average about 9.6% per year. That takes into account crashes and recovery. It would have easily beaten your diversified fund over that time period. Sure, in some years it would have performed rather worse, but these were more than offset by it performing very much better in the good years.

chiang_mai

I'm talking about consistency of returns over the twenty years shown.

Linton

chiang_mai wrote: »

I'm talking about consistency of returns over the twenty years shown.

Fine, many people do want consistency of returns in the short/medium term. unfortunately they have to pay for it with lower returns over the long term. So if your goals are long term you are better off with 100% equity.