Swapping into different VLS Funds

Nottarf

Hello,

People comment on E.G. Vanguard LifeStrategy
investing at the age of 20sv and 30s
buying into the LS100 or LS80.
When you are in the 40s and 50s switching to LS60 and
as retirement approaches in your 60s swapping into LS40.

When switching does this mean you still keep the
LS100 or LS80 in your portfolio but no longer contribute to it and when ‘switched’ just pay into to the new LS60?

Thank you

A_T

Vanguard do target-dated retirement funds which move more into fixed income the closer one gets to retirement.

Prism

I assume most people would switch funds as by that point contributing to a new fund would have little overall effect.

VLS60 might be as low as you go though. Depends on conditions as you retire but under current conditions for example VLS40 probably won't make enough gains.

dunstonh

When switching does this mean you still keep the
LS100 or LS80 in your portfolio but no longer contribute to it and when !!!8216;switched!!!8217; just pay into to the new LS60?

Remember that most people dont use VLS. Its fashionable on some websites but there is more to life than Vanguard.

Your risk profile will change throughout your life. You may start cautious, get used to it and move up a level or two. Then as you get to retirement, you may drop back a level or two. However, by that time, you would have gone though about 5-10 stockmarket crashes and not feel the need to lower risk.

You shouldnt go with any option that changes risk on their timescale unless you are a lazy investor. You should only change when its right for you.

Tom99

Remember VLS60/VLS80 put 40%/20% of your money in bonds.
If like many investors you think bonds are going to decline in value over the next few years you may want to split you investment between equities/cash rather than equities/bonds/cash

grey_gym_sock

Tom99 wrote: »

Remember VLS60/VLS80 put 40%/20% of your money in bonds.
If like many investors you think bonds are going to decline in value over the next few years you may want to split you investment between equities/cash rather than equities/bonds/cash

many investors have been thinking, for the best part of a decade, that bonds are about to crash, and have been wrong so far. still, eventually they will be right, just like people who predict a stock market crash every year.

in any case, a real crash in bonds would mean something like a 10% fall; whereas a real crash in equities might mean a 50% fall. so if you hold lifestrategy 60%, a crash in bonds might lose you about 4% of your fund's value, while a crash in equities might lose you 30%.

IMHO, fear of bonds is being seriously overdone

Tom99

grey_gym_sock wrote: »

many investors have been thinking, for the best part of a decade, that bonds are about to crash, and have been wrong so far. still, eventually they will be right, just like people who predict a stock market crash every year.

in any case, a real crash in bonds would mean something like a 10% fall; whereas a real crash in equities might mean a 50% fall. so if you hold lifestrategy 60%, a crash in bonds might lose you about 4% of your fund's value, while a crash in equities might lose you 30%.

IMHO, fear of bonds is being seriously overdone

[FONT=Verdana, sans-serif]But if you don't invest in the bonds in the 1st place you will not lose that 10%/4%.[/FONT]
[FONT=Verdana, sans-serif]It seems there is very little chance of bonds increasing in value in the short term but a reasonably chance they will fall in value, so why invest in bonds now? Keep it in cash.
[/FONT]

grey_gym_sock

Tom99 wrote: »

[FONT=Verdana, sans-serif]But if you don't invest in the bonds in the 1st place you will not lose that 10%/4%.[/FONT]
[FONT=Verdana, sans-serif]It seems there is very little chance of bonds increasing in value in the short term but a reasonably chance they will fall in value, so why invest in bonds now? Keep it in cash.
[/FONT]

bonds can easily rise. if it were so obvious that they would fall, then everybody would be selling them now, and as a result, a big fall would already have happened. it takes 2 (or more) opinions to make a market.

a 10% fall is just what the worst case might be. it's not nailed on to happen in the next few years. some bonds have fallen a little in the last few months. they could fall further. but OTOH, the fall might be over now.

cash can work as ballast for your portfolio. it's a valid approach. but so are bonds. cash has the advantage that can't go down in capital value, but (the other side of the coin) the disadvantage that it can't go up either, which government bonds quite often do when equities are going down.

a multi-asset fund has the advantage that the rebalancing (between equities and bonds) is done for you. if you instead hold a 100% equities fund and separate cash as ballast, you need to rebalance yourself, and it can be nerve-wracking to buy more equities when they've just crashed. less experienced private investors may well have trouble pressing the "buy" button when they should.

aroominyork

grey_gym_sock wrote: »

a 10% fall is just what the worst case might be.

The risk of a 10% fall, which has been mentioned several time on this forum, doesn't differentiate between higher and lower risk funds. How would you compare strategic bond funds which have grown about 35% over the last four years such as Sanlam or GAM Star Credit Opps, and cautious ones which have grown 10-15% eg M&G Optimal Income, Jupiter Strategic, Fidelity Strategic?

grey_gym_sock

aroominyork wrote: »

The risk of a 10% fall, which has been mentioned several time on this forum, doesn't differentiate between higher and lower risk funds. How would you compare strategic bond funds which have grown about 35% over the last four years such as Sanlam or GAM Star Credit Opps, and cautious ones which have grown 10-15% eg M&G Optimal Income, Jupiter Strategic, Fidelity Strategic?

IMHO, the 10% figure (as a worst case) is about the right idea for reasonably neutral bond funds, which aim to give you broad exposure to bonds. that would include the bond component of the lifestrategy funds.

more specialized bond funds may run the risk of bigger falls. or may not: it depends how they're run.

there are specific kinds of bonds where bigger falls are possible. e.g. high-yield bonds could have a lot of defaults. or very long-term bonds could have larger price swings (up or down). a broad-based bond fund may have a little in those more volatile kinds of bonds, but not too much. a strategic fund might choose to place more significant bets on which kinds of bonds will do well, which could pay off or not.

also, some strategic funds may be more volatile because they do things like holding non-sterling bonds without hedging the currency back to sterling, or may even take out explicit bets on currencies, or go short on some bonds.

this is all very dependent on the remit of a strategic bond fund. i don't mean to suggest they are all very risky.

aroominyork

grey_gym_sock wrote: »

also, some strategic funds may be more volatile because they do things like holding non-sterling bonds without hedging the currency back to sterling, or may even take out explicit bets on currencies, or go short on some bonds.

Strategic bond funds must, by definition, hold at least 80% in or hedged to Sterling.