Why doesn't everyone just buy Vanguard LifeStrategy?

Ray_Singh-Blue

Type_45 wrote: »

Morning! Was it you who was saying that you are investing to pay your mortgage off? And that you'd reached the halfway point and was wondering whether to pay off half now or risk a crash and keep going to pay it all off?

Apologies if this makes no sense as I mis-remembering. I was just wondering you you (or the person in question) decided to do in the end.

Hi & yep, that's me.

My plan is to stay the course I have chosen, essentially 50% equities and 50% cash, and see where that leads.

I prefer cash to bonds for the reasons given above. Which is why I don't hold any lifestrategy funds, although keep an eye on VLS60 as a performance benchmark.

bostonerimus

Audaxer wrote: »

But if they decide what they need from their portfolio is the sort of returns that you can get from a 60/40 equity/bond portfolio longer term, there is no need for them to have to accept the volatility of 100% equities.

Historically 60/40 has been the classic mix of risk and return. That might not be the case over the next decade with such low Gilt and Treasury returns, but I have only guesses about what might happen over the longer term. So for all but the oldest and most risk averse I'd say that a 60% equity allocation is probably as low as they should go. Also maybe a little reading about efficient frontiers and contemplation of the enclosed graph might be useful for people interested in this discussion. Of course how people react to market volatility is also very important which is where discipline and a strong stomach are required.

IanSt

Audaxer wrote: »

But if they decide what they need from their portfolio is the sort of returns that you can get from a 60/40 equity/bond portfolio longer term, there is no need for them to have to accept the volatility of 100% equities.

Indeed that is very true, however the reply was to someone who was originally saying that a long term investor who was 100% in equities was guaranteed to always lose out to a equity/bond portfolio. Myself and others were disagreeing with that statement. Their original position of a guaranteed loss was then morphed to a statement that a equity/bond portfolio gave a more consistent annual performance which is what I was agreeing to - but for that consistency a long term investor has to acknowledge that they are reducing potential/likely performance.

Audaxer

IanSt wrote: »

Indeed that is very true, however the reply was to someone who was originally saying that a long term investor who was 100% in equities was guaranteed to always lose out to a equity/bond portfolio. Myself and others were disagreeing with that statement. Their original position of a guaranteed loss was then morphed to a statement that a equity/bond portfolio gave a more consistent annual performance which is what I was agreeing to - but for that consistency a long term investor has to acknowledge that they are reducing potential/likely performance.

Thanks for explaining IanSt. I also agree that in the long term 100% equities is most likely to produce better returns than 60/40 equities/bonds. It was just when you said "only once they move to a shorter term investing horizon that bonds etc. can be a valuable component to guard against any dips" I would question as I am retired, but still in for the long term and have VLS40 and 60 as well as an income portfolio including some bond funds. It is not necessary for me to go 100% equities with the high volatility that would bring.

chucknorris

Audaxer wrote: »

It was just when you said "only once they move to a shorter term investing horizon that bonds etc. can be a valuable component to guard against any dips" I would question as I am retired, but still in for the long term and have VLS40 and 60 as well as an income portfolio including some bond funds. It is not necessary for me to go 100% equities with the high volatility that would bring.

I'm interested in in this, so is the general consensus that as long as an investor can take the shock/uncomfortable position of being 'temporarily' well down, that 100% equities is still the way to go?

But with a decent amount of cash (so not quite 100%), just in case the market does dip and the investor is then not forced to sell units for income (while the market is well down)? Unless of course he has another income source (maybe simply fixed pension and dividends).

Of course there must be a point in time, when the investor's horizon is not so long, due to longevity running out. So at what point should the investor start winding down his (not quite) '100%' of equities?

talexuser

Not sure if the meaning of 100% equities means all of your money in funds of shares. It means that after your pension, cash buffer, and other outgoings, that amount of money you wish to invest should be all in equities, or split with other areas such as bonds or property etc. At last we seem to have come to the obvious conclusion that long term 100% equities will almost always outperform a mix of funds and bonds, just be more volatile.

Audaxer

chucknorris wrote: »

I'm interested in in this, so is the general consensus that as long as an investor can take the shock/uncomfortable position of being 'temporarily' well down, that 100% equities is still the way to go?

If you are not going to panic if you see a large portfolio of say £500k in equities, drop in value to £250k in the event of a crash, it probably is the way to go for some.

But with a decent amount of cash (so not quite 100%), just in case the market does dip and the investor is then not forced to sell units for income (while the market is well down)?

Yes, that's what I would do, but I agree that wouldn't be 100% equities. I will still hold a cash reserve to draw on when my VLS60 and VLS40 dips and I do not want sell capital.

Of course there must be a point in time, when the investor's horizon is not so long, due to longevity running out. So at what point should the investor start winding down his (not quite) '100%' of equities?

It's up to individuals but I suspect a lot of people with the risk mentality for 100% equities may just keep it that way, maybe just transferring a bit more to cash as they get older, especially those that think bonds are too risky at present.

chucknorris

talexuser wrote: »

Not sure if the meaning of 100% equities means all of your money in funds of shares. It means that after your pension, cash buffer, and other outgoings, that amount of money you wish to invest should be all in equities, or split with other areas such as bonds or property etc. At last we seem to have come to the obvious conclusion that long term 100% equities will almost always outperform a mix of funds and bonds, just be more volatile.

That doesn't matter my projected retirement portfolio (6 years to go) is this:

45% shares (excl VCT, approx 13% REIT incl)
25% fixed pension (DB and state, might be able to get up to 25%)
20% investment property
4% cash (regular savers/NSI cert/some savings acc)
4% P2P (possibly)
2% VCT (possibly)

chucknorris

Audaxer wrote: »

If you are not going to panic if you see a large portfolio of say £500k in equities, drop in value to £250k in the event of a crash, it probably is the way to go for some.
Yes, that's what I would do, but I agree that wouldn't be 100% equities. I will still hold a cash reserve to draw on when my VLS60 and VLS40 dips and I do not want sell capital.
It's up to individuals but I suspect a lot of people with the risk mentality for 100% equities may just keep it that way, maybe just transferring a bit more to cash as they get older, especially those that think bonds are too risky at present.

In 2008 our investment property dipped by over £1m, our reaction was, not to worry, but to take advantage of a fantastic buying opportunity, and we did, although we got it a bit wrong with too much criteria, and only bought one property for about £250k, so we messed up a great opportunity. But that property has now doubled in price, and the overall portfolio is up over £2m from that low point, we expect corrections, rather than be surprised by them.

We were not relieved that the market recovered so quickly (we always were very confident that it eventually would anyway), in fact, it was bloody annoying that it recovered so quickly, and that we only managed to buy one more house (but that was entirely our fault, we had just got married, and of course I had to compromise and consider my wife's opinion, Doh!).

ewaste

In my opinion seeing property prices crash and equities crash have some similarities but are also very different, property has that psychological comfort of being a tangible bricks and mortar asset that may also be generating an income. The value may drop and the income may stop temporarily but unlike equities it's not likely to be a total loss of the asset and income. This is of course why it's important to diversify but even then specific sectors or countries could do abysmally or stagnate.

The fact you look for the opportunities in a crisis and are willing to be flexible will probably serve you better than specifically targeting risk, income, volatility or whatever else as I think they are all inherently fluid.