Asset Alloc and Hedging in VG LS20

point5clue

My portfolio has done very well recently - it is currently dominated by Vanguard Global All Cap, with a bit of Vanguard LifeStrategy 20 as a (sort of) bond fund, as well as some P2P and cash.

In fact it has done so well that it has achieved my personal 'the number' quite a few years earlier than I was originally targeting.

I'm now starting to worry about it going back down which makes me think my personal asset allocation of over 90 percent equities is actually too high. I'm still thinking medium to long term overall, but now want to manager my 'retirement date risk' - I have a vague plan to start drawing down somewhere between 3 and 8 years time and during this period am willing to trade growth upside for stability.

I was thinking of moving some more of my equity fund to a bond fund, but other than LS20 which I picked early in my investor education I'm unsure of how to pick a bond fund that will minimise my 'rich mans anxiety'

I think some of the excess gains come from the drop in the pound, which got me thinking about the merits of hedged bond funds ( all the bond funds in LS20 are GBPH though the equities are not?).

Of course the alternative is sticking to GBP denominated bonds, but I'm concerned to tie too much of my wealth to the UK's performance over the next few years.

What are other people doing with the bond portions of their portfolio ?

masonic

I hold a limited exposure to bonds, mainly through a well known strategic bond fund, but also a smaller holding in a high yield bond fund. It can be interesting to use the advanced charting on Trustnet or similar to go back and see how well certain funds actually did during the last market crash (of course there are no guarantees they'll fare the same next time).

I also hold some P2P, but this is decreasing (not by choice but through lack of good opportunities - I would increase my exposure to P2P somewhat if I could). I see cash as a more attractive option than increasing my bond holdings any more. I'm not going to speculate on how far or indeed which way the exchange rates will move.

I don't really see Gilts (and in the main other government bonds) as offering much value due to their high price and forced buying by institutional investment funds.

Of the other supposed safe-havens: gold and absolute return funds, I remain unconvinced of the case for holding these as defensive assets.

bostonerimus

Why not just sell some Global all cap and move it to VLS20 so that you get a higher bond allocation. Make sure you have enough cash to ride out a couple of year down turn. As interest rates rise you might also look at a savings bond ladder or even an annuity to ease your worries. But if you have the guts to ride out the storms a high equity percentage will probably be just fine as long as you manage drawdown sensibly.

point5clue

Why not just sell some Global all cap and move it to VLS20 so that you get a higher bond allocation.

Well I'm trying to understand the risks of those bonds being hedged to GBP as opposed to being in a mix of currencies.

I suppose as a balance to global equities, hedging the bonds makes sense ?

If the pound goes back up the bonds benefit from hedging, and the opposite if the pound sinks further, but then the global equities benefit.

Does this make sense to anyone else ?

Tom99

[FONT=Verdana, sans-serif]One alternative might be to buy a few individual investment grade bonds maturing in 3-8 yrs time and intend to hold them to maturity.[/FONT]
[FONT=Verdana, sans-serif]That will fix some of your return over the next few years.[/FONT]

Wildsound

Instead of holding a combination of 2 assets to achieve a certain equity/bond allocation, why not just invest in one thing like VLS80 instead?

Also you mention your "portfolio has done very well recently" - done very well relative to what? What are you comparing your performance to?

Iain_For

I'm a lot closer to retirement, about 8 months away when I turn 60, so have been looking to mitigate sequence of return risk for some time. While I'm not going to be entirely reliant on investment income when I retire, it is going to be a significant enough portion of my income over the longer term that a poor sequence of return over the next few years would impact long term income. In my case, I've just about completed moving the bulk of my portfolio to VLS 60 and have also built a cash buffer of 4-5 years equivalent income. It's a personal choice, appropriate to my risk tolerance, but I like the mix of bonds in the VLS series as I'm primarily looking for them to reduce volatility and provide some currency hedge and the mix of durations also mitigates inflation risk.