Why doesn't everyone just buy Vanguard LifeStrategy?

BananaRepublic

bowlhead99 wrote: »

Ok, here are a couple of posts pulled haphazardly from among last month's post history for respected IFA "dunstonh" in which he notes that 100% equity is well above the risk level of the average UK consumer:

https://forums.moneysavingexpert.com/discussion/comment/73111751#Comment_73111751

https://forums.moneysavingexpert.com/discussion/comment/73098154#Comment_73098154

You could find more specific comments and from other IFAs too, but I haven't time to go googling at the moment and the search tool for this site is imperfect.

The premise was that 100% equities is above the risk profile of the average UK consumer. You sought confirmation whether the person making that claim was an IFA and if not, how would he know it was the case?

Having given you the comment that we know it is the case because the IFAs that are posting here over the years have told us that it is the case - we do not need to be IFAs ourselves to read those comments and take on board the facts - my observation was simply that the IFA client book, due to its barriers to entry (not affordable for people with small amounts of capital) means they don't actually have the full spectrum of consumers' portfolios within their client book and so generalisations may be statistically a bit off.

I am not challenging you to find examples of people with wealth who DIY nor people who happen to be full on for equities after taking IFA advice. Because, as you say, any couple of specific examples will not be representative of the population at large, and neither have much to do with my point.

You can call that "supposition on my part" but seems common sense and I don't think there is much doubt across the forum here that 100% equities is high risk, nor that it is called "high risk" because it's higher than the "medium risk, normal risk, mixed risk" or indeed "low" risk which vast portions of the population would embrace for their own investing.

You say that "The premise was that 100% equities is above the risk profile of the average UK consumer.". No it wasn't, the original claim which I questioned is that "100% equities is pretty exceptional nowadays".

I am not surprised by what you say, that the average IFA client does not have 100% equities. But I am surprised if 100% is exceptional, which I take to mean maybe 1% of clients have ~100% equities. Obviously age plays a role, an IFA would most probably not advise 100% equities for someone close to retirement.

chucknorris

BananaRepublic wrote: »

You say that "The premise was that 100% equities is above the risk profile of the average UK consumer.". No it wasn't, the original claim which I questioned is that "100% equities is pretty exceptional nowadays".

I am not surprised by what you say, that the average IFA client does not have 100% equities. But I am surprised if 100% is exceptional, which I take to mean maybe 1% of clients have ~100% equities. Obviously age plays a role, an IFA would most probably not advise 100% equities for someone close to retirement.

The only reason that I am not 100% in equities is because of investment property and buying additional DB pension being a substantial part of my portfolio. It certainly isn't because of bonds or savings accounts. Although we are (unusually) holding an awful lot of cash at the moment, but that is only because we are house hunting (as cash buyers), but after buying, then selling my current home, the equity will most likely be going into equities.

IanSt

chiang_mai wrote: »

If you read at what I've written, carefully and slowly, you'll see that I haven't changed my argument one iota, repeatedly I have said that 100% equities is very dangerous.

I've read them again and it does seem to me (and others) that you have at times made some comments on the relative performance of 100% equities against equity/bonds that could not stand up to scrutiny.

For many people 100% equities will not be suitable for them because of their risk personality and/or when they need access to the money within and I would not argue with anyone on that topic.

So change the "is very dangerous" to "can be very dangerous" and I'd be happy as it does totally depend on the circumstances of the person doing the investing. For some it will be very dangerous, for others it won't.

talexuser

chiang_mai wrote: »

100% equities forever or cash, both approaches guaranteed to loose money over time.

From *guaranteed to lose money over time" to "very dangerous" is changing rather more than one iota, it's the sound of furious backpedalling.

BananaRepublic

IanSt wrote: »

So change the "is very dangerous" to "can be very dangerous" and I'd be happy as it does totally depend on the circumstances of the person doing the investing. For some it will be very dangerous, for others it won't.

Exactly. Hence the reason why an IFA or pension provider will risk profile a client. I've met more than a few people who 'dabbled' in the stock market, lost some money, and haven't touched it since. And yet their pensions are probably in stocks and shares.

talexuser wrote: »

From *guaranteed to lose money over time" to "very dangerous" is changing rather more than one iota, it's the sound of furious backpedalling.

Yes, and (s)he's wrong. Those forum members who have made lots of money on the stock markets over the last 5, 10, 15, 20, ... years please say "Aye".

brasso

chiang_mai wrote: »

Regarding IFA's: the FCA regulates IFA's and determines what they can and can't do and the process they must go through, part of that is a risk assessment and understanding of a clients financial circumstances. The IFA doesn't not recommend 100% equities for fear of a later comeback, they do so because that answer doesn't fit the vast majority of clients, it's as simple as that.

I've never consulted an IFA but I've read and heard hundreds, perhaps thousands, of IFA opinions on this website, on the old Motley Fool forums, on the radio, and elsewhere over the years. They invariably appear to be very cautious people -- for reasons I can understand.

I suspect that the questions posed by the IFA to the investment-novice client may well encourage certain answers. For instance, I can well imagine a standard question being similar to that frequently posed here, along the lines of "are you prepared to accept the risk of losing perhaps 50% of your wealth in a stock market crash?"

To which a big majority (perhaps including me if I knew no different) would indignantly answer: "No!" So the client is now classed as risk averse, and advised accordingly.

chiang_mai wrote: »

I'm sure there are IFA's out there who do those things, I came across one a few weeks back who wanted me to sell all my holdings and invest in a single fund of funds that he prefered. I declined and afterwards had a a discussion with the FCA about that incident because I was amazed he could be allowed to advise such things, they said they could do nothing unless I filed a complaint - I let it drop because I have better things to do with my time.

I find that a rather limp ending to the story. You wanted to have a good moan to the authorities about an individual IFA, but refused to make an official complaint, thereby not allowing him the opportunity to give his version of the story - or even to know that someone had been bad-mouthing him. You're happy to make the effort, and take the time, to complain about his conduct and besmirch his reputation, but have no time to see it through.

BananaRepublic wrote: »

Yes, and (s)he's wrong. Those forum members who have made lots of money on the stock markets over the last 5, 10, 15, 20, ... years please say "Aye".

Aye Aye!

Depends how we define "100% invested in equities", as I obviously have cash in current accounts + I have some physical gold + other assets. But my pension fund, ISA, and other stock market investments are 100% in equities and mostly have been for the last 20 years or so.

I honestly don't find this a "very dangerous" position, as has been claimed. Yes, my portfolio value dropped in 2008, and at other times here and there. But this ignores the fact that for most of the period, the graph has been steadily rising. I don't like losing 10% one year, but if it's sandwiched by +20% years, I take the philosophical view, and am quite happy. If you have time, and crucially, if you're able to keep investing when stocks are very cheap (following a decline), then the long-term picture has been financially rosy for me.

All that said, now that I'm edging towards retirement, and in a world of Trump v N Korea, and other concerns, I'm thinking I should start to take a slightly more conservative position for a while. I've done well with a 100% equity portfolio diversified across many geographies and sectors. No harm in pulling my horns in for a bit.

chucknorris

brasso wrote: »

I don't like losing 10% one year, but if it's sandwiched by +20% years, I take the philosophical view, and am quite happy. If you have time, and crucially, if you're able to keep investing when stocks are very cheap (following a decline), then the long-term picture has been financially rosy for me.

I don't disagree with you, in fact, I am almost doing the same thing. But I wondered do you have an age in mind when you will change tactics? When I reach my late 60's (6 years from now), after selling investment property, I'll have quite a lot in equities (ignoring a similar amount that my wife will have, but she is 11 years younger), plus I'll have fixed pension of about £22k (again ignoring my wife's SP).

At that age, I won't really benefit from the ability to invest after a correction, because the amount that I could invest would be a very small fraction of what was already invested (so no 'averaging' for me). My estimated lifespan will be about another 22 years from then. Would that lead you to change tactics? This is my dilemma.

bigadaj

chucknorris wrote: »

I don't disagree with you, in fact, I am almost doing the same thing. But I wondered do you have an age in mind when you will change tactics? When I reach my late 60's (6 years from now), after selling investment property, I'll have quite a lot in equities (ignoring a similar amount that my wife will have, but she is 11 years younger), plus I'll have fixed pension of about £22k (again ignoring my wife's SP).

At that age, I won't really benefit from the ability to invest after a correction, because the amount that I could invest would be a very small fraction of what was already invested (so no 'averaging' for me). My estimated lifespan will be about another 22 years from then. Would that lead you to change tactics? This is my dilemma.

Your plans should, aim to meet your goals.

If you currently have far more wealth than you will reasonably be expected to spend and no particular thoughts in inheritance or other post death uses then it makes sense to adopt a low risk strategy.

What a low risk strategy is is another question.

Some might argue cash only, but for me the safest way is diversification, so a reasonable but not huge amounts in equities, a reality large cash holding, maybe property in a hands off sort of way, I don't see much value in bonds currently, and things like p2p and vct I would consider diversification but in a minor specialist way and requiring more input and effort than other asset classes.

chucknorris

bigadaj wrote: »

Your plans should, aim to meet your goals.

If you currently have far more wealth than you will reasonably be expected to spend and no particular thoughts in inheritance or other post death uses then it makes sense to adopt a low risk strategy.

What a low risk strategy is is another question.

Some might argue cash only, but for me the safest way is diversification, so a reasonable but not huge amounts in equities, a reality large cash holding, maybe property in a hands off sort of way, I don't see much value in bonds currently, and things like p2p and vct I would consider diversification but in a minor specialist way and requiring more input and effort than other asset classes.

Thanks, I do value your input.

I do know that I should really be looking to adopt a lower risk strategy, although I am going to have to force myself. I recently switched all my SIPP and ISA to British Land (not that I consider that lower risk), I don't usually go for single company shares. But the yield is good and they are an asset rich company, so it seemed like a good fit (for the equity value after selling an investment property), although if I invested much more in REITs then I wouldn't be very diverse in sector. So maybe a significant holding in simply cash (or bonds is the answer) if I can match inflation or get to at least get near it. You may have noticed that I am tending to go around in circles on this subject. On the one hand I am comfortable taking on some risk, but I also recognise that I won't really be rewarded for doing so.

ams25

https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

Reading the argu...er, debate here thought some might be interested in the table from Vanguard on long term returns by asset allocation. (Could not get a direct link to work).

I was 100% equities while working and acumulating but now (not working) and having achieved my retirement pot have moved to target around 60% equity (actual is 55% right now)... The risk of a long bear market while not earning/investing means a higher equity level for the extra % does not make sense for the retiree with sufficient funds to protect.