Why doesn't everyone just buy Vanguard LifeStrategy?

Audaxer

jamei305 wrote: »

I don't see the point of annual rebalancing because the original percentages were not carefully calculated. I didn't think "Oh I must definitely have 7% WWH because 8% would be totally inappropriate". So if WWH reaches 8% I don't have any pressing need to reduce it back to 7% before another 12 months passes. Neither is there any reason to think that just because it has grown more than the average of the rest of my portfolio, it will be more likely than the rest to drop back again.

I do rebalance to some degree when I add a new lump sum and have to decide how it is allocated. I do this to maintain my overall strategy rather than chase specific percentages.

Currently I have this:

Legal & General International Index 22%
Legal & General European Index 15%
Legal & General Pacific Index 10%
Fundsmith Equity 11%
First State Global Listed Infrastructure 11%
Worldwide Healthcare Trust 7%
M&G Strategic Corporate Bond 10%
Baille Gifford Japanese Smaller Companies 12%

Thanks. If the original investment in your portfolio has grown 120% in the 5 years and you have kept to 90% equities, then presumably you must have had to do some rebalancing by selling some of the equities and buying more of the M&G bond fund, or the bond percentage would have fallen well below 10%? If you have lodged additional lump sums in the 5 year period, has the total amount you have invested during that time risen by 120%?

capital0ne

Murmansk wrote: »

I'm fairly new to this investing thing and have a fair amount of cash invested in Vanguard LifeStrategy funds. In the three weeks or so that I have had them they seem to have gone up nearly 2%.

I've been reading a lot about investing both online and in the books that I have seen frequently recommended.

I've concluded that "passive investing" is the way to go and all the research seems to point to the fact that you might as well just use tracking funds and find a ones with low charges - hence Vanguard for me.

I've come to the rather cynical conclusion that financial advisers might be a breed who make their money from people who have lots of money but haven't the time or inclination to do a bit of research - and people who haven't worked out that you don't need to worry about all the complexity.

It seems to me that there is something of an "open secret" about Vanguard LifeStrategy in that they are great but the industry doesn't want everyone to know this because they'd all be out of a job!

I'm wondering what people on here think of this?

It's because they think they can do better is one reason, probably can't.
They think they know more, probably not but they don't realise that.
They don't have the time, knowledge or experience to buy anything else, the most plausable reason.
It was recommended by a professional who with due diligence it was the best solution for their customers requirements.
Or many other reasons

zoebel

Assuming the basic premise of Vanguard LS is sound (low fees, diversification), my only concern is fees.

As I understand it, the fees on the LS are 0.22%. If you had, say, a Vanguard All World fund at 60% weighting and a Vanguard All World bond fund at 40% weighting, I would guess that the overall fees would be less than 0.22% overall. So, would that make it a better choice, seeing as the consensus amongst experts it that it isn't so much the choice of fund that is important, but rather asset allocation and FEES?

bowlhead99

zoebel wrote: »

Assuming the basic premise of Vanguard LS is sound (low fees, diversification), my only concern is fees.

As I understand it, the fees on the LS are 0.22%. If you had, say, a Vanguard All World fund at 60% weighting and a Vanguard All World bond fund at 40% weighting, I would guess that the overall fees would be less than 0.22% overall. So, would that make it a better choice, seeing as the consensus amongst experts it that it isn't so much the choice of fund that is important, but rather asset allocation and FEES?

You say it is asset allocation and FEES so you are focussed on fees.

But it's ASSET ALLOCATION and fees so you should be focussed on asset allocation.

The disparity between the returns of equities in one part of the world and another can be 30%+ in any given year.

Lifestrategy is a product that puts your desired percentage into bonds and then takes your equities money and puts a quarter into UK indexes and 75% overseas. Whereas if instead you put your equities money into an 'all world' or 'global' index fund you will get about 6% in companies listed in the UK and 94% overseas.

In both cases the allocation of 'UK equities' money is going to be broadly in line with the FTSE all-share, of which a large component is big multinational companies who do not do all their business in the UK anyway. However, the UK all-share index does clearly have more UK exposure than the average company listed in the rest of the world has (e.g. those in US index, the Europe index, the Japan index, the Emerging Markets index etc).

So, the Vanguard Lifestrategy product - which was developed to be popular with UK investors by meeting the needs of the average UK consumer (who lives their life in the UK and anticipates spending pounds in the UK in retirement) - has some 'home bias' ; while the All-World or Global All Cap equity fund products do not.

That different asset allocation will result in a different level of gross return and volatility. If you lived outside the UK and had no reason to 'overweight' the returns of companies with UK assets or revenues then you would probably prefer a global fund (though might well want to add to it, something from your own country, because people do like to bias their investments domestically).

So, changing from the asset mix of lifestrategy 60% equity, to using one global equity index for 60% and one bond index for 40% will give you a different result, because you've changed the asset mix within the equities.

You've also changed the asset mix within the bond investments, because while your proposed portfolio has 40% in a global bond index, the lifestrategy 60 fund only has 20% in that global bond index and has the other 20% spread across 8 different bond indices. So you'll get a different result on the bond side too.

To summarise: yes you can save a few basis points on fees by building your own dirty version of a lifestrategy fund with only two fund components instead of what they do which is using 10+. In doing so you will depart from their professionally constructed portfolio mix and have a different allocation with different results and likely greater volatility due to the limited exposure to UK equities and the different bond types used. If you are happy with doing that, and believe the results will be no less desirable, go right ahead and build it yourself to save your 0.05% to 0.1% a year in costs (while taking on the burden of periodic rebalancing etc).

Prism

zoebel wrote: »

Assuming the basic premise of Vanguard LS is sound (low fees, diversification), my only concern is fees.

As I understand it, the fees on the LS are 0.22%. If you had, say, a Vanguard All World fund at 60% weighting and a Vanguard All World bond fund at 40% weighting, I would guess that the overall fees would be less than 0.22% overall. So, would that make it a better choice, seeing as the consensus amongst experts it that it isn't so much the choice of fund that is important, but rather asset allocation and FEES?

Maybe. If I was to do this on my platform the Vanguard All World fund is 0.24% and the Global Bond fund is 0.15%. However I would have to pay two platform transaction fees every time I invested and the bond fund has a 0.2% inital charge. So as long as I didn't want a high equity percentage I could probably save a tiny bit on fees. Another way could be hold the regional funds but this would add more transaction charges if you were contributing monthly and rebalancing.

zoebel

Thanks for that. So, all things being considered, the cheapest and best way to invest is to buy a LifeStrategy fund directly through the Vanguard platform, with no entry, exit or transaction fees. Phew! If only I had told people this earlier, it would have saved earlier commenters an awful lot of brain strain and argy bargy! It would also have saved me a lot of time reading all their hogwash.

A_T

zoebel wrote: »

Thanks for that. So, all things being considered, the cheapest and best way to invest is to buy a LifeStrategy fund directly through the Vanguard platform, with no entry, exit or transaction fees. Phew! If only I had told people this earlier, it would have saved earlier commenters an awful lot of brain strain and argy bargy! It would also have saved me a lot of time reading all their hogwash.

That's very rude especially when people have been trying to help.

Prism

zoebel wrote: »

Thanks for that. So, all things being considered, the cheapest and best way to invest is to buy a LifeStrategy fund directly through the Vanguard platform, with no entry, exit or transaction fees. Phew! If only I had told people this earlier, it would have saved earlier commenters an awful lot of brain strain and argy bargy! It would also have saved me a lot of time reading all their hogwash.

The cheapest way to invest is to get the individual funds and etfs.
The likely better way (for many people) to invest is to pay a little more for Vanguard (VLS) to do all the allocations for you.
The best way to invest is not do either but select funds on a case by case basis without focusing always on low fees.

Thrugelmir

zoebel wrote: »

Thanks for that. So, all things being considered, the cheapest and best way to invest is to buy a LifeStrategy fund directly through the Vanguard platform, with no entry, exit or transaction fees. Phew! If only I had told people this earlier, it would have saved earlier commenters an awful lot of brain strain and argy bargy! It would also have saved me a lot of time reading all their hogwash.

When Vanguard (and the other major fund managers) become the "market" themselves. Then be interesting to see how investors react.

bowlhead99

zoebel wrote: »

Thanks for that. So, all things being considered, the cheapest and best way to invest is to buy a LifeStrategy fund directly through the Vanguard platform, with no entry, exit or transaction fees.

It's not "the cheapest and best way to invest" full stop. It is one way to invest.

Using Lifestrategy is one choice, and using Vanguard's own platform and paying a percentage platform holding charge on all of your assets year in year out (rather than using a different platform where you pay a fixed fee to buy and sell) is another choice. Different options will suit different people depending on their level of knowledge and understanding, the time and effort they can devote to research, and the amount they are going to invest.

Phew! If only I had told people this earlier, it would have saved earlier commenters an awful lot of brain strain and argy bargy! It would also have saved me a lot of time reading all their hogwash.

Well,
(a) you don't seem to have fixed the world's problems and found 'the cheapest and best way to invest', you have merely settled on one approach which works for you - so I don't see how that would save the authors of the 300 previous post any effort.Y

(b) you didn't seem to be in a position to 'tell people' anything earlier, you were 'asking people'.

Specifically, you were asserting perhaps naively that fees were most important and asking the question whether it would be better to build your own cheap version of a lifestrategy fund:

You said:

zoebel wrote:

If you had, say, a Vanguard All World fund at 60% weighting and a Vanguard All World bond fund at 40% weighting, I would guess that the overall fees would be less than 0.22% overall. So, would that make it a better choice,

I didn't see much hogwash in response. Within the space of about an hour, I answered your question about the ways in which it may be a better or worse choice, and Prism commented on the costs of buying and holding it if you were buying multiple funds and rebalancing using the platform he/she used.

I hope you are not suggesting that either of those posts were hogwash. Perhaps you mean that the stuff that came before your question and those posts was a lot of hogwash. The thing is, if you read long debates about the pros and cons of different investments, you learn things and pick up ideas and opinion. Even if some posters go a bit rogue and start trying to score points against the people who have alternative views, there are still some facts to learn in addition to the psychology of investing and the different approaches people take.

If you shortcut to 'just tell me the best way to invest and where to do it' people will tell you your question is unanswerable because making suitable investment choices is a mix of opinion and knowledge and personal circumstances (not that you have even shared any personal circumstances with us on this thread).