Using Vanguard LS60 et al in drawdown

Audaxer

OldMusicGuy wrote: »

Don't forget there are different types of multi-asset funds. If you are wary of market drops, you could go for HSBC Cautious or VLS 20 or 40 which are supposed to have lower downside risk. There is plenty of choice.

The only thing that concerns me about going for funds that are too cautious with a high percentage of bonds, are that I keep hearing that it is not a good time to hold a lot of bonds. Although bonds will not fall as much as equities in a crash, would they recover within a couple of years as probably would be the case with equities?

Bravepants

I believe a 60%/40% equity/bond split is deemed the "safer" option, as it's touted on a fair few blogs and news items.

0779mike

That is a pretty awful way to invest. You havent been reading US websites have you?[/QUOTE]

What would be wrong with investing solely in Vanguard LS60 ?

Vanguard could go bust I guess but that aside, the fund is diversified in all ways so surely this is the best approach ?

Mike

cloud_dog

0779mike wrote: »

That is a pretty awful way to invest. You havent been reading US websites have you?

What would be wrong with investing solely in Vanguard LS60 ?

Vanguard could go bust I guess but that aside, the fund is diversified in all ways so surely this is the best approach ?

Mike

It also has an unnaturally high percentage allocated to the UK (based on global market percentage). A personal preference may find this high GBP exposure a positive or a negative. I find it a negative.

green_man

cloud_dog wrote: »

It also has an unnaturally high percentage allocated to the UK (based on global market percentage). A personal preference may find this high GBP exposure a positive or a negative. I find it a negative.

My own view is that a higher percentage in UK than the 6-7% of global capital is an advantage, and even more significant that 60% in the US (as per global capital proportion) would be too many eggs in one basket.

Looking back on this thread it’s interesting the almost accepted as fact assumption that keeping a 2-3 year cash buffer is the best approach and de-risks drawdown. The research I have read (I started a thread that covered this a few months ago here: https://forums.moneysavingexpert.com/discussion/5948700/any-point-in-a-cash-buffer-in-pension-drawdown-account ) suggests that is not the case and the 10%(typically) loss of equity growth more than offsets any gain from not having to drawdown equities in a dip.

Furthermore how you manage that cash sum introduces a level of management that many people might not be happy with. Comments like ‘use experiance and knowledge’. It will be ‘obvious’ when to top up etc do not install much confidence. It’s easy to look back historically and say what you would have done, not so easy without knowing what is going to happen with the market in the next week, month, year etc. This is very much trying to time the market IMO.

The research tends to show that a cash buffer actually increased risk of running out of money in all historical scenarios. Of course you can invent a scenario in which a cash buffer would help and that is what a couple of people have used to justify the cash buffer approach, this is fine for those that understand the figures, but for the novice don’t just assume a cash buffer is always the best approach.

Linton

green_man wrote: »

My own view is that a higher percentage in UK than the 6-7% of global capital is an advantage, and even more significant that 60% in the US (as per global capital proportion) would be too many eggs in one basket.

Looking back on this thread it’s interesting the almost accepted as fact assumption that keeping a 2-3 year cash buffer is the best approach and de-risks drawdown. The research I have read (I started a thread that covered this a few months ago here: https://forums.moneysavingexpert.com/discussion/5948700/any-point-in-a-cash-buffer-in-pension-drawdown-account ) suggests that is not the case and the 10%(typically) loss of equity growth more than offsets any gain from not having to drawdown equities in a dip.

........
The research tends to show that a cash buffer actually increased risk of running out of money in all historical scenarios. Of course you can invent a scenario in which a cash buffer would help and that is what a couple of people have used to justify the cash buffer approach, this is fine for those that understand the figures, but for the novice don’t just assume a cash buffer is always the best approach.

If you look at the original paper you will find that the conclusions are based on a 50% equity portfolio. A 10% cash buffer is then considered. Clearly the equity is pretty well protected from a crash anyway. The loss of potential returns from a portfolio that cautious is far more significant than the odd 10% allocated or not to cash. Also during much of the time bond returns were reasonable. Under current circumstances in the UK safe bonds are not much better (if at all) than cash.


With say an 80% equity portfolio with 20% of close to zero returning bonds you may well find the results very different.

So for both for risk management and for their sanity in my view a significant cash buffer is vital for someone reliant on drawdown for meeting their basic needs.

hyperhypo

I'm doing the same thing as the OP in essence...trying to make sense of my fund choice and already have both VLS 40 and HSBC Balanced as two of my four funds. As now in drawdown , although no income taken yet.
I am considering moving from VLS 40 > 60 presently , and if so increase my cash buffer from (potentially) 1 to 2 years, to match the UK personal allowance level , in case this is needed from 2020 on.

I had wondered whether the one passive (eg VLS 60) plus income generating active or an IT (eg Personal Assets), plus a persistent 2 year cash account might be my next move.

I was wondering why OP opted for two passives, when , eg. there will be duplication in VLS / HSBC ...as i've asked myself same question...is one core passive sufficient ?

shinytop

I haven't done it yet but I was going to aim for 60-70% equities and the rest bonds/cash. Cash would be enough for c. 2 years and in the best 1/2/easy access accounts I can find. The equity/bond mix would be via a single multi-asset fund (e.g. HSBC balanced), a global tracker (e.g. HSBC All World) and a few satellite funds for speculation/amusement.

Audaxer

hyperhypo wrote: »

I had wondered whether the one passive (eg VLS 60) plus income generating active or an IT (eg Personal Assets), plus a persistent 2 year cash account might be my next move.

I have VLS40 and VLS60 and an income portfolio of mainly income generating funds. But I think it is too risky to have just one income generating fund along with VLS60, if that's what you mean.

I was wondering why OP opted for two passives, when , eg. there will be duplication in VLS / HSBC ...as i've asked myself same question...is one core passive sufficient ?

If you have fairly significant sums invested, I think it is sensible to split between at least 2 fund houses, and if wanting multi asset funds with around 60% equity, VLS60 and HSBC Global Strategy Balanced seems like a good choice in my opinion.