Vanguard LifeStrategy - which one?

amphibiandairy

I'm a 42 year old professional.
I have £250 per month to invest over a 20 year time frame and have decided to purchase a Vanguard LifeStrategy ISA.
Over that time-frame what is the main difference between the LifeStrategy 60 and LifeStrategy 80 fund? They have a similar risk rating (4). From my understanding the extra volatility of the 80 fund is more of an issue for shorter term investments. I plan to use the money to pay off my outstanding mortgage at that point and hopefully retire. Is there any reason for me to choose the lower risk 60 fund? I would aim to move the fund into safer vehicles e.g. cash nearer the end of the term.
Any thoughts would be appreciated.

Audaxer

I would say the only reason to choose the VLS60 is if you don't fancy the higher volatility of the VLS80 and will have sleepless nights if there is an equity crash. But £250 drip fed monthly over 20 years should be fine as you will benefit from buying units at low prices during equity crashes.

I am fairly cautious and recently retired and invested lump sums in VLS40 and VLS60, but if I was your age I think I would be quite happy to drip feed into at least a VLS80.

KonkyWonky

Which one you chose is dependent on your tolerance level. VLS 60 invests in 60% equities and 40% bonds whereas VLS 80 invests in roughly 80% equities and 20% bonds. They both pretty much target the same countries/sectors, the only difference being the proportion held in equities.

Equities are in general riskier than bonds, but they generally have more potential to earn. For the most part the more equities you hold in a balanced portfolio the more potential you have to earn but you also have a higher potential to lose value when there is a crash. There area always crashes, over a 20 year period you are likely to experience a couple where the value of your investment may drop 20-30%.

Personally I decided to go with VLS 60, I'm also 42 years old. This was my first investment and for me this is where I felt comfortable. There is no right or wrong, at least what you can predict, so read up a little and decide what is best for your own circumstances. https://www.monevator.com was a huge help for me.

Alexland

If you feel divided then consider investing half in both and rebalance each year.

TARDIS

It's one thing understanding the principal that equities will go down as well as up, but another thing emotionally to see the value of your portfolio plummet.

You need to think realistically how you will react when the value of your investment falls - which it will Several times over 20years. Will you be able to hold your nerve when it falls by 50% (more likely with VLS80 than 60) and continue contributing regardless or will you be tempted to sell?

That said, the advantage of VLS is that you can set it up and then ignore as it does all the rebalancing for you. A lot of people still check it regularly though, which I think tempts you to tinker with it unnecessarily.

Altarf

amphibiandairy wrote: »

Over that time-frame what is the main difference between the LifeStrategy 60 and LifeStrategy 80 fund?

Over a 20 year period the LifeStrategy 80 will have grown significantly more (probably).

Have a look at comparison graphs, e.g. http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-80-equity-accumulation/charts where you can add to that chart the LifeStrategy 60 accumulation.

As you will see in some years there is little difference, and in others a 3-5% difference. So over a 5 year period the growth of the 80 was 78.94% and the 60 was 61.62%

As others have said, big gains will also be accompanied by big falls, but you are 'drip feeding' your money in not putting it all there in one go.

pip895

For your time scale you could probably get away with even a VLS100 but if you are feeling cautious you could opt for a lower one say a VLS60 and swap to a higher equity version after any big correction. This wood hopefully pay dividends in the recovery phase.

This approach would be a better compromise than holding both funds I would have thought. You do need to be sure of your resolve not to panic and sell out instead though!

Alexland

pip895 wrote: »

For your time scale you could probably get away with even a VLS100 but if you are feeling cautious you could opt for a lower one say a VLS60 and swap to a higher equity version after any big correction. This wood hopefully pay dividends in the recovery phase.

This approach would be a better compromise than holding both funds I would have thought. You do need to be sure of your resolve not to panic and sell out instead though!

But you would miss all the extra growth when the market is not crashed and would be out the market between trades during a period of volatility. Best get the allocation right and stick with it.

MoneyGeoff

There are some handy tables here:

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

At the extremes, the 100% bonds average return is 5.4% with only 14 losing years and a worst of -8.1%. At the other end 100% equity has an average of 10.2% but the worst is -43.1%. So you need to find a spot somewhere inbetween that you are comfortable with.

Cactus_Jack

Does anyone 'hedge' their Lifestrategy portfolio in the event of an equities crash?

I was listening to Max Keiser who said you can insure a portfolio with 'options and futures' for around 2% of the cost of the portfolio but I don't know how this would tie in with LS.

I think his gist was get this 'insurance' if the market starts to show signs of volatility.

aroominyork

MoneyGeoff wrote: »

There are some handy tables here:

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

At the extremes, the 100% bonds average return is 5.4% with only 14 losing years and a worst of -8.1%. At the other end 100% equity has an average of 10.2% but the worst is -43.1%. So you need to find a spot somewhere inbetween that you are comfortable with.

nb with that worst year being 1931.