What's wrong with vanguard lifestrategy?

TheShape

My S&S ISA is split three ways between VLS 100, Blackrock Consensus 100 and HSBC Global Strategy Dynamic.

When I open a LISA I am considering:

S&S ISA - VLS100
LISA - Blackrock Consensus 100
SIPP - HSBC Global Strategy Dynamic/Adventurous

Might get splinters!

sixpence.

What's wrong with it, as far as I have researched, is exactly what you have said:

But it depends on your own personal situation. If you own three properties then you're not exactly going to want to invest in real estate. However if you don't it might be a good idea.

It is also overweight in some sectors (tech and finance) and underweight in others. As you said, it is overweight in the UK.

The solution to this is diversification according to your own personal situation and level of risk comfort...

Personally I have an Asia ex Japan tracker alongside my vanguard 60 and plan to invest in Emerging Markets managed funds as well as small caps. When I am done my VLS 60 will make up atleast 70% of my portfolio

bowlhead99

sixpence. wrote: »

But it depends on your own personal situation. If you own three properties then you're not exactly going to want to invest in real estate. However if you don't it might be a good idea.

Note that owning a buy-to-let apartment is quite a different exposure to owning a commercial property fund which owns office blocks, shopping centres, warehouses, factories etc which have different dynamics and not affected by changes to residential stamp duties, tax breaks for residential landlords, help-to-buy schemes etc.

Still, if you are OP with a low four-figures balance, a 5% allocation to commercial property is perhaps only fifty quid right now, so it is not going to change your life whether that bit of money is invested in property vs uk equities vs overseas equities. These sort of considerations are more interesting when you have six figures instead of four.

If building your assets for retirement or some other goal is a 20 year journey, it's perhaps personally satisfying to know you 'got it right' from the very beginning but in practice the vast majority of your money will be deployed later and there is no need to worry about micromanaging your £200pm allocation until you're several more years into it.

As such, there is nothing 'wrong' with VLS as a tool to spread your cash around, although other fund management groups with rival products will do it differently. Once you have the level of assets where their different approaches make a material difference to your eventual retirement pot, you could worry about it then. 'Set and forget' for twenty years sounds nice and easy but in reality, products change over time and so do people's expectations of their needs (and their understanding of investments). So even if you buy VLS today you might decide after some more years that actually you'd prefer something else.

It is also overweight in some sectors (tech and finance) and underweight in others

If it's allocating all its money to the equities markets through indexes, how is it overweight in tech? It is taking the tech allocation from the various regional market-cap weighted indexes in which it invests. And then the allocation to places with high tech concentrations is diluted down with the 'overallocation' to the UK index which is largely devoid of tech firms. So that doesn't seem like you'll get too much tech by reference to how much tech there is within a global index.

The 'overallocation' or overweight / underweight considerations are comments which people make by reference to looking at indexes composed of companies weighted by their market capitalisation (e.g. Apple having a lot more allocation than WH Smiths). If you want to allocate your assets cheaply, you can use products which follow those market weights; however the amount of money you have in one particular 'basket' by following that method will of course not give you the best result if certain sectors with high allocations in the index perform poorly, even if following an index appeared at first glance to be a sensible thing to do. So having a higher or lower allocation to particular areas is not necessarily 'wrong' unless it gives you a very skewed portfolio.

As you said, it is overweight in the UK.

It is 'overweight' by reference to the aforementioned global market-cap-weighted index. But it is not necessarily 'overweight' in terms of how much money a person living in the UK wants to have in their home stockmarket versus foreign stockmarkets. Some 'home bias' is natural and if you look at some of the other products which are risk-targeted (e.g. the L&G MI funds) they are not afraid to have larger UK allocations than the 6-7% you would find within a world equity index; similarly the Blackrock 'consensus' funds taking the consensus of how other people allocate their capital, also have a good slug in the UK.

Revisiting the comment that Apple is a much bigger company than WH Smiths, it makes sense that more of your retirement funds are invested in Apple than Smiths. In a world index, that might be 280x more ($904bn company rather than $3.2bn company). By raising the UK allocation versus other countries (as Lifestrategy does) you might find your Apple allocation is now only 80x your Smiths allocation instead of 280x. But you still have less than 5p going into Smiths from your £200 each month while Apple takes a few pounds.

So, some will criticise Lifestrategy for having too much in the UK markets but if you went to the average UK independent financial advisor and asked them how much of their UK customers' equities money is allocated to their home stockmarket, they would probably not say 6% home, 94% away (which is what the world index would suggest). Allocating masses of money to foreign countries might be perfectly logical if you come from a small country but the returns are inherently more volatile (currency movements etc) and so can be beyond the risk tolerance of many investors.

Personally I agree with some others that it is not the UK allocation percentage which is too high, just the method by which the UK money is allocated within the UK market (i.e. by index, with most of the money in the biggest companies like BP and Shell and HSBC) produces high concentrations in certain sectors which are not properly representative of the UK economy. Still, indexing is cheap and if you are starting from a low level and throwing in £200 a month it is not going to give you an awful result

Audaxer

bowlhead99 wrote: »

Still, indexing is cheap and if you are starting from a low level and throwing in £200 a month it is not going to give you an awful result

Even if you have large sums in VLS I think it should give decent returns over the long term. Probably a lot better than someone trying to DIY with a large single sector portfolio and getting it wrong. It's also a lot less stressful in my opinion.

Alexland

TheShape wrote: »

When I open a LISA I am considering:

S&S ISA - VLS100
LISA - Blackrock Consensus 100
SIPP - HSBC Global Strategy Dynamic/Adventurous

Might get splinters!

That's a pretty spicy mix you're going to have lots of boom and bust along the way - am a similar age but that's way above my risk tolerance given current market fundamentals. Although equities have historically had the best growth - the benefits of re-balancing within a mixed asset fund will provide additional uplift so it's possible to get nearly the same returns without so many sleepless nights. If you then tactically adjust the asset allocation it might even be possible to outperform a 100% equities fund.

I agree with the logic of holding Vanguard funds on their ISA for the low platform fees.

I would get the LISA started quickly - not long to go now to get your contribution in for this tax year. Similar to my earlier comments on VLS100 are you sure you want to pay 0.23% for Blackrock Consensus 100 when you could pay less for a global/world equity tracker? If you want the increased UK or Europe exposure then you could do that in your Vanguard ISA for a very low cost? There's no trade fees for holding funds alongside your VLS on Vanguard. Once the LISA gets big enough after a few years contributions consider a global/world equity ETF for capped fees from AJB or HL.

Yes I agree SIPP is a good place to hold anything with bonds in as it will be taxed on withdrawal so you want the higher growth in the ISA/LISA unless you plan to withdraw from them earlier.

Alex.

TheShape

Aware that the mix could be extremely volatile.

VLS100 to be held on the Vanguard platform.

I've decided to go with HL for my LISA. The Blackrock fund appears to have a charge of 0.10% with HL.

SIPP currently with HL but it looks like Fidelity would accept a transfer of a small SIPP (currently £5-6k) and would reimburse fees for the transferring. They would be cheaper and a transfer once > £10k to Cavendish would be cheaper still.

IT/ETFs are something I need to research at some point.

Alexland

TheShape wrote: »

I've decided to go with HL for my LISA. The Blackrock fund appears to have a charge of 0.10% with HL.

Thank you that's new information to me - looks like HL have negotiated a discount. I agree that's very attractive. I was resigned to keeping our LISAs with Nutmeg (paying 0.45% + 0.17% fund fees) and then moving to HL after a few years for £45 capped charges using the SWDA ETF (0.20%). I am avoiding AJB as I have other investments there and like to spread my eggs. However with the Blackrock discount it makes sense to move to HL earlier than planned and stay in funds slightly longer than planned. The asset allocation in Consensus looks sensible.

TheShape wrote: »

SIPP currently with HL but it looks like Fidelity would accept a transfer of a small SIPP (currently £5-6k) and would reimburse fees for the transferring. They would be cheaper and a transfer once > £10k to Cavendish would be cheaper still.

Fidelity are offering a direct cashback deal and covering transfer expenses for transfers until 2nd March so you might want to look at the detail to see if it applies to your situation. I haven't read the full details myself.

https://www.fidelity.co.uk/transfer/cashback

However if you are nearly at the point where Cavendish would be cheaper it might be worth skipping the Fidelity step as transfers are hassle.

Alex.

funguy

Alexland wrote: »

That's a pretty spicy mix you're going to have lots of boom and bust along the way - am a similar age but that's way above my risk tolerance given current market fundamentals. Although equities have historically had the best growth - the benefits of re-balancing within a mixed asset fund will provide additional uplift so it's possible to get nearly the same returns without so many sleepless nights. If you then tactically adjust the asset allocation it might even be possible to outperform a 100% equities fund.

Alex.

Hi Alex, Interested in your comment there. I am invested in VLS80 but wondered what asset allocation you are currently working to given the current market fundamentals?
Thanks

Alexland

Across all my investments I am roughly 70% equities with some UK bias, 10% corporate bonds, 10% government bonds and 10% cash. So a similar level of cash to the L&G MI risk managed fund series. Probably equivilent to 'VLS75' level of market exposure. I am not making any big swings in allocation as a result of my view on market fundamentals.

AnotherJoe

funguy wrote: »

Hi Alex, Interested in your comment there. I am invested in VLS80 but wondered what asset allocation you are currently working to given the current market fundamentals?
Thanks

Seems to me if you are allocating based on "market fundamentals" then where's the logic in using passive investments, since you'll be chopping and changing all the time so might as well go all in on managed and specialist funds ?