Investing in funds - a little help needed

Manesova83

Hi all,
Just after a little advice regarding mid to long-term investment in funds.
Basically, I decided a short while to stick whatever money I can each month into the Vanguard LifeStrategy 40/60 fund (i.e. 40% equity, 60% bonds). This one seemed like the right level of risk/reward for my long-term goals.
I'm now thinking perhaps I should also invest in the 100% equity version of this fund as well, just to maximise my returns long term. Is it wise/normal to invest in two funds like this in order to balance risk/return, or should I just move everything into one that has, say, 60 equity instead? I'm aware of the fact I'll have to pay charges twice - thankfully they're really low with Vanguard. How risky is it to invest in a 100% equity fund? Oh, I'm 35 by the way.

nrsql

A lot of people here seem to think it is a bad idea to invest in funds like that, you should go for a mid one - 60/40?
I think it!!!8217;s a good idea though. 2 separate portfolios with different aims and you can monitor their performance against those aims.
I would consider not using vanguard for the second and a different platform unless it is expensive as that will mitigate risk.

MK62

Manesova83 wrote: »

Hi all,
Just after a little advice regarding mid to long-term investment in funds.
Basically, I decided a short while to stick whatever money I can each month into the Vanguard LifeStrategy 40/60 fund (i.e. 40% equity, 60% bonds). This one seemed like the right level of risk/reward for my long-term goals.
I'm now thinking perhaps I should also invest in the 100% equity version of this fund as well, just to maximise my returns long term. Is it wise/normal to invest in two funds like this in order to balance risk/return, or should I just move everything into one that has, say, 60 equity instead? I'm aware of the fact I'll have to pay charges twice - thankfully they're really low with Vanguard. How risky is it to invest in a 100% equity fund? Oh, I'm 35 by the way.

You could also just move the lot into the VLS80 or VLS100 fund......
Unless you want a specific bond allocation percentage not covered by the 20/40/60/80 points (eg 70), then there's probably little real point in investing in several VLS funds.....

The fund charges are percentage based, so should be similar either way.
Obviously if you are on a platform which charges for each investment transaction, then investing in just one fund is cheaper...

How risky is a 100% equity investment?
Notwithstanding the usual disclaimer that past performance is no real indication of the future, past experience has shown that equities have generally offered the highest return over longer investment periods.....and so in one sense could actually be viewed as the lower risk option....but they will most likely have been more volatile over the same period (ie they will have suffered much larger ups and downs). The higher risk label stems from the fact that you could be forced to sell during one of the larger down periods.

If it's long term you are looking at, say 20+ years (retirement?), then you are most likely to get the highest return from equity investing......however nobody can guarantee that in 20 years time we won't suffer another big stock market crash.....though hopefully you'll have made enough on the up periods during those 20 years to still be up vs having invested for 20 years in lower risk/volatility investments.

No guarantees though....all anyone can really offer is likelihoods and probabilities.

In your shoes, at 35yo and looking at the longer term, I'd be more adventurous than VLS40....you have plenty of time to recover any losses....so a fund with a much higher equity content would be my choice.

BLB53

Its mostly about the additional volatility associated with equities and how you would respond if there was a big correction in the markets. Of course, you probably do not really know until it happens so in your situation I would go with the VLS60 as a compromise and then reassess after the next market downturn depending how you react/feel.

ValiantSon

nrsql wrote: »

A lot of people here seem to think it is a bad idea to invest in funds like that, you should go for a mid one - 60/40?
I think it!!!8217;s a good idea though. 2 separate portfolios with different aims and you can monitor their performance against those aims.
I would consider not using vanguard for the second and a different platform unless it is expensive as that will mitigate risk.

Who are these, "lot of people"?

How do you assess whether it is a good investmnt choice or a bad one without knowing anything about the investor, or their financial goals?

What are these separate aims for the two different funds?

What risk do you believe will be mitigated by using two different platforms?

As far as I can see from the OP's post, they are investing to accumulate general wealth, but over what timeframe I have no idea, as they haven't said. As they are 35 years old they, potentially, have a substantial timeframe in which to invest. If it were for retirement, then they are looking at something like 20-30 years, and a 60% allocation to bonds is, therefore, very cautious. There is no benefit, however, in then starting to invest in a 100% equities fund, as all they will be doing (assuming the investment values match) is creating a 70% equities allocation, and funds exist around this equities mix. Of course, if the OP has now re-evaluated their personal circumstances, goals, and attitude to risk - and decided that they actually have significantly greater risk appetite - then a 70% equities allocation is fine, and can be achieved in the way that they suggest, but looking at what actually makes up the funds is also important.

OP, you won't pay double the fund charges by investing in two versions of VLS. The OCF of 0.22% is the same no matter which version you use, so you will continue to pay the same 0.22% of your total investment, no matter whether you have investments just in VLS40, or both VLS40 and VLS100, or even all five versions (VLS20, VLS40, VLS60, VLS80, VLS100).

dunstonh

Basically, I decided a short while to stick whatever money I can each month into the Vanguard LifeStrategy 40/60 fund (i.e. 40% equity, 60% bonds). This one seemed like the right level of risk/reward for my long-term goals.

That is the VLS40 fund. Not 60.

I'm now thinking perhaps I should also invest in the 100% equity version of this fund as well, just to maximise my returns long term.

What would be the point of that? Why not move up to VLS60 or VLS80 (depending on your weightings)?

Or is your portfolio segmented to cater for different objectives?

If you can handle and afford the volatility of VLS100 then why are you investing in VLS40?

Is it wise/normal to invest in two funds like this in order to balance risk/return,

It can be with funds with different objectives. However, not with multi-asset funds where the only differences are the weightings.

I'm aware of the fact I'll have to pay charges twice

No you wouldnt.

How risky is it to invest in a 100% equity fund?

Upto around half your value can be lost within 12 months.

There are other risks. Behaviour risk and capacity for loss for example. When the fund falls say 40%, what will your behaviour be when you say you feel VLS40 (a fund closer to 15% loss) is more suited to you?

ColdIron

Manesova83 wrote: »

I'm aware of the fact I'll have to pay charges twice - thankfully they're really low with Vanguard

Vanguard do not make a transaction charge for purchases and sales so you won't pay for them twice. VLS 40 and 100 are poles apart so I would step back and re-assess what you want and feel comfortable with in terms of risk and reward. I would agree that the VLS 40 is too conservative for a typical 35 year old looking to hold for the long term. Some people, having properly assessed their objectives, may feel that 80% equities is simply too much and 60% just not enough so may go 50/50 to produce a 70% blend but I get the feeling that you are not yet at that stage. Would you construct a custom allocation not covered by the existing offerings and rebalance back periodically or just put a more or less random amount in each and see where the wind takes them? You would probably be better served by choosing a single 60 or 80 fund, one of the strengths of these funds is that they are fire and forget without endless meddling

Manesova83

Just to clarify, I'm 35 and looking for a mid to long term investment that will actually make a noticeable difference later on, without being exposed to a high level of risk. I chose the VLS40 fund because I felt, at the time, that it was the right balance of risk and reward. Now I'm wondering if I was being too cautious. So I'm thinking of either shifting, say, half of my money over to the VLS100 to see what happens, or transferring all of the money to something like the VLS60 or 80. I'm not knowledgeable enough to know which one is the better option, so here I am. Thanks so far for all your opinions!

dunstonh

Just to clarify, I'm 35 and looking for a mid to long term investment that will actually make a noticeable difference later on, without being exposed to a high level of risk.

So, VLS100 would be totally unsuitable for you.

I'm not knowledgeable enough to know which one is the better option, so here I am.

The best option is the one that matches your investment risk profile, knowledge, understanding, capacity for loss and behaviour.

I think its fair to say that VLS100 is the one option we can say should be off the table for you based on what you have said.

bostonerimus

First there's nothing wrong in owning a few funds to get the level of risk you want and if you owned VLS40 and VLS100 you'd pay the same amount in fees as if you had the same amount of money in say just VLS40.

The basic question is why do you now want to own VLS100? You said VLS40 matched your long term goals; what are they and have they now changed or has your understanding of investing changed? The "fear of missing out" (FOMO) can be powerful, particularly if we see other people getting higher returns from their investments, but it can be dangerous and cause us to take unnecessary risks with money.

VLS100 is a risky and volatile fund and so it is incompatible with your desire to avoid high levels of risk. You need to reconcile your desire for return with your fear of risk. Don't let FOMO drive your choices.

Manesova83

But I would only shift part of my investment over to the 100. The rest would stay in the 40. So it's that or shifting everything to perhaps the 60. Or just leaving it all where it is.