Investing in funds - a little help needed

Manesova83

Great advice about the fear of missing out - I think that is certainly playing a part. I was satisfied with the 40, but now I'm wondering if I'm playing too safe. But I think I'll be on track with that fund anyway, so why add risk. Its just that nagging feeling that my money could be working harder for me - a fear of missing out.

bostonerimus

Manesova83 wrote: »

Great advice about the fear of missing out - I think that is certainly playing a part. I was satisfied with the 40, but now I'm wondering if I'm playing too safe. But I think I'll be on track with that fund anyway, so why add risk. Its just that nagging feeling that my money could be working harder for me - a fear of missing out.

At age 35 having 60% in bonds is very conservative if the money is going to be invested for the long term. So I would do some more reading about asset allocation and the historical returns of various equity/bond portfolios. When I was saving for retirement I had about 60% equities, but it's a personal thing linked to both psychology and investing goals.

dunstonh

Its just that nagging feeling that my money could be working harder for me - a fear of missing out.

Nobody worries/complains in growth periods. You need to forget the positive periods for the moment. You need to consider the negative periods. That is when it goes wrong for people.

Amounts are also important.

a 25% loss on £20,000 is £5,000. So, your value would fall back to £15,000. The same degree of loss on £200,000 is £50,000. Being accepting of a 25% loss on £20k can be different to when its £200,000 or £2mill. BTW, 25% would put you around VLS60.

I had someone last year who wanted to invest for the upside. The first thing they got was a negative. They made all the right noises at the time of setting up but when they actually saw the value fall, they realised they couldn't handle it. They pulled out. And that was after just a 3% drop.

Everybody is different. We cannot tell you what to do. You need to be comfortable within yourself. You need to play some scenarios in your head. Such as when the statement comes in and you are x% lower, what will you do. You need to be realistic as saying it is one thing. Going through it is another. Be honest with yourself.

There is nothing wrong with having 60% bonds at your age if you cannot handle the loss periods.

Clive_Woody

Manesova83 wrote: »

Great advice about the fear of missing out - I think that is certainly playing a part. I was satisfied with the 40, but now I'm wondering if I'm playing too safe. But I think I'll be on track with that fund anyway, so why add risk. Its just that nagging feeling that my money could be working harder for me - a fear of missing out.

I'm 43 and I'm new(ish) to this too. I'm in the 80 fund with the intention that the money will be there at least 15-20 years and I am coaching myself not to panic if it suddenly shoots up or down and sell. I think I've taken on board the advice given on here and what I have read across various other sites.

I earn a good salary, pay a decent chunk into a pension each month and have a good cash safety pot for emergencies. I wanted somewhere that will hopefully give me some extra funds when I call it a day and retire and not have all my eggs in one basket. As my investing knowledge increases, and the mortgage is paid off in a couple of years, I will most likely dip in elsewhere.

Given your age the 40 pot sounds conservative, but then I don't know you or your circumstances or how you would feel if the markets plummeted and you saw the value of your funds drop. i am certainly not qualified to give financial advice but I think getting into investing is a wise move (generally speaking) but it needs to be right for the individual.

Good luck :money:

Audaxer

Manesova83 wrote: »

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!

I think if you want to make a noticeable difference without being exposed to a high level of risk, you probably would be better with a medium risk fund rather than being too cautious. I would say the VLS60 falls more into the medium risk category rather than the VLS40. If you still a feel bit cautious you could invest 50/50 between VLS60 and VLS40 which will give you a hybrid VLS50. You would just need to rebalance probably once a year to keep the equities and bonds each at 50%.

ValiantSon

Audaxer wrote: »

I think if you want to make a noticeable difference without being exposed to a high level of risk, you probably would be better with a medium risk fund rather than being too cautious. I would say the VLS60 falls more into the medium risk category rather than the VLS40. If you still a feel bit cautious you could invest 50/50 between VLS60 and VLS40 which will give you a hybrid VLS50. You would just need to rebalance probably once a year to keep the equities and bonds each at 50%.

No you wouldn't. Both funds are fixed allocation and re-balanced by the fund manager, so if you hold VLS60 and VLS40 in equal proportions then you will have a 50% bonds / 50% equities portfolio.

I'd also argue that VLS60 is a bit more than medium risk, but it's not worth splitting hairs. What is worth noting, however, is that the OP needs to give some serious thought to their goals, current financial position, commitments and attitude to risk, rather than simply relying on what well-meaning people on an internet forum suggest.

Audaxer

ValiantSon wrote: »

No you wouldn't. Both funds are fixed allocation and re-balanced by the fund manager, so if you hold VLS60 and VLS40 in equal proportions then you will have a 50% bonds / 50% equities portfolio.

Yes you would. Each fund is automatically rebalanced, but to ensure the overall equities remained at 50% it may need an annual rebalance. VLS60 gained more over the last 5 years than VLS40, so if you had bought both funds in equal proportions 5 years ago and didn't touch them, then you would have more than 50% equities overall. There would be even more need for rebalancing if the OP bought VLS40 and VLS100 and wanted to keep to the original overall equities percentage.

Alexland

From what I can tell you sound like a VLS60 kinda person and you should expect your investments, over the medium term, to broadly keep up with inflation.

Unfortunately to stand a realistic chance of beating inflation you would need to crank up the equities to a point where you might find yourself too uncomfortable and risk of making the behavioural error of selling low.

Maybe if markets fall you might want to gradually increase your equities exposure but given current valuations it's probably not the right time to be a hero anyway.

Alex

ValiantSon

Audaxer wrote: »

Yes you would. Each fund is automatically rebalanced, but to ensure the overall equities remained at 50% it may need an annual rebalance. VLS60 gained more over the last 5 years than VLS40, so if you had bought both funds in equal proportions 5 years ago and didn't touch them, then you would have more than 50% equities overall. There would be even more need for rebalancing if the OP bought VLS40 and VLS100 and wanted to keep to the original overall equities percentage.

Maybe I'm just being thick, but I don't follow this at all. It is irrelevant what the percentage growth is in each fund, because the equities to bonds ratio remains fixed. The reason VLS60 has grown in value at a faster rate than VLS40 is not because it now holds more equities than it previously did, but because equities values have increased more than bonds. If I bought VLS40 five years ago and VLS60 in equal measure then I would have seen greater growth in the value of my VLS60 fund, but the proportion of equities would still be the same.

Alexland

ValiantSon wrote: »

Maybe I'm just being thick, but I don't follow this at all. It is irrelevant what the percentage growth is in each fund, because the equities to bonds ratio remains fixed. The reason VLS60 has grown in value at a faster rate than VLS40 is not because it now holds more equities than it previously did, but because equities values have increased more than bonds. If I bought VLS40 five years ago and VLS60 in equal measure then I would have seen greater growth in the value of my VLS60 fund, but the proportion of equities would still be the same.

They would within each fund but you would have more value in VLS60 than VLS40 so you would need to switch some fund units from VLS60 to VLS40 to retain the target 50% equities allocation within your account portfolio.

Alex