Vanguard Lifestrategy funds

frankdoylezw

Hello,

I'd be very grateful for some opinions (I hesitate to ask for 'advice') regarding the Vanguard Lifestrategy index funds, please.

We currently have a very modest portfolio, as follows:

1. ISA £5200.00
2. ISA £803.00
3. Junior ISA £1860.00

All of the above are invested solely in the Vanguard LifeStrategy® 80% Equity Fund.

Of late, that particular fund seems to have taken quite a hammering - to be expected, I guess, given its equity exposure.

My questions:

(a) With Brexit on the horizon, would it be prudent to switch the investments to something with much less equity exposure - say the LifeStrategy® 40% (or 20%) Equity Funds?

(b) The underlying funds in the LifeStrategy products still appear to have significant UK exposure. How concerned should I be about this?

I realise that the amounts invested are tiny, but I'd rather not lose value if possible (obviously). We took the rather simplistic strategy of investing in index tracker funds with a view to hopefully realising some value in the medium to long term - 15 years plus. The funds chosen were of relatively high risk (though we were comfortable with this at the time, given the relatively small amounts). With Brexit on the horizon, however, I wonder if it would be prudent to change the allocations to a less risky index fund?

Any help/advice/opinion greatly appreciated.

BLB53

We took the rather simplistic strategy of investing in index tracker funds with a view to hopefully realising some value in the medium to long term - 15 years plus. The funds chosen were of relatively high risk (though we were comfortable with this at the time, given the relatively small amounts)

I like these funds but it is important to find a level you feel comfortable with over the next 15 years. The VLS80 should give the higher return over this period but, as you have probably seen over the past few months, it comes with greater volatility.

Either you get to accept this or you take a step down to the LS60 or 40 and are then prepared to accept lower returns but stay the course.

I can recommend this article on asset allocation which may help
http://diyinvestoruk.blogspot.com/2016/05/asset-allocation-revisited.html

It also help if you do not view your portfolio value too often.

System

frankdoylezw wrote: »

Of late, that particular fund seems to have taken quite a hammering - to be expected, I guess, given its equity exposure.

Nowhere near as much as individual stocks or indices such as SP500. The US is taking one hell of a beating at the moment, especially tech stocks. Apple have been effectively losing 10% a day.

(a) With Brexit on the horizon, would it be prudent to switch the investments to something with much less equity exposure - say the LifeStrategy® 40% (or 20%) Equity Funds?

Why? Unless you intend cashing out soon there's no point. Look at what happened following the 2008 recession to the markets. For those who didn't panic sell like you're thinking of they got their losses back within 2 years and went on to make a hell of a killing over the following few years.

(b) The underlying funds in the LifeStrategy products still appear to have significant UK exposure. How concerned should I be about this?

No. Go to Morningstar, look up the fund. You'll find the largest UK companies they're invested in the most make their profits globally, companies like BP, Dutch Shell, Astrazeneca. The FTSE 100 make their money globally not solely in the UK. If you do a comparison of the VLS 80 fund to the Vanguard Global All Cap or similar global fund you'll see that it rises and falls pretty much exactly the same as the VLS80 does and the difference between the two is a fraction of a percent.

I realise that the amounts invested are tiny, but I'd rather not lose value if possible (obviously).

Then the stock market is not for you and you'd be better served in cash accounts like regular saver accounts. ALL investments in the stock market lose money from time to time but the overall long term trend over years is up. If you're one of those fearful people who is likely to pull their money any time there's a downturn then you're better off out of it because you're the most likely to have your pants pulled down. The people who don't are those who leave their money put and those who do the best are those who when everyone else is selling buy as much as they can. Those people see a crash as a sale, everything going cheap. I'm currently sitting on money I was going to invest to see what happens after March 29th because if things go south I'll be better off piling more money in even if it continues to lose value for several months after I have as I know it'll eventually recover not only to where it is now but a lot more than that by the time I intend to use the money in 20 years time.

We took the rather simplistic strategy of investing in index tracker funds with a view to hopefully realising some value in the medium to long term - 15 years plus.

Then why are you worrying about something that's going to have a possible significant negative effect for maybe a couple of years at most?

May I suggest reading some blogs about the subject, ones such as Monevator for example? You'll find they all share the same underlying message, that markets fall as well as rise and those that hold their nerve benefit the most from that. I'll give an example.

Lets say you invested in a FTSE250 fund. Lets say you finally decided to plunge your money in in 2007 after seeing a few years of gains. You bought at peak market when it was its most expensive at 12202 points. But as we know there was a fairly catastrophic crash in 2008-9. So lets examine the following graph:


If you panicked and sold you could have seen your losses be as much as 50% of the value of your investment as it hit 6127 points by November 2008.

However if you left your money in you recouped the initial investment by 2011 and by June 2018 had almost doubled your money. Even after the recent falls your investment in 2007 would still be worth roughly 50% more than you'd invested in 2007.

Time in the market is what counts as that is what smooths out the falls such as this but it does sometimes take courage.

Google "time in the market", read some of the results from the various financial sites and blogs.

frankdoylezw

Thanks, both.

...but stay the course.

and

Time in the market is what counts as that is what smooths out the falls such as this but it does sometimes take courage.

Thanks. I'll spend some time reading up this weekend to allay my fears.

May I suggest reading some blogs about the subject, ones such as Monevator for example? You'll find they all share the same underlying message, that markets fall as well as rise and those that hold their nerve benefit the most from that. I'll give an example.

Will do. Holding our nerve with relatively small amounts like these will be easier than if we had our house riding on it (though the reason why you should remains the same, regardless of the size of the investment, I guess).

Thanks for taking the time to reply.

OldMusicGuy

You are making all the classic newbie mistakes, but treat this as a learning process. First, you need to understand your risk profile. If a downturn like this (which isn't that bad) scares you, you should not have invested in VLS 80. You should have been in VLS 40 or 20 all along. Second, don't change funds once a downturn hits and chase what you think will be a safer haven. You will just keep switching funds and always feel there is "something better/safer" elsewhere.

How do I know? I did all these things. However, some of it I did in reverse. I was far too risk averse when I was younger which meant I missed out on growth opportunities. If I had been more equity biased and been prepared to hold my nerve I would be a lot wealthier than I am now.

Regarding the VLS "UK-bias", don't forget many of the UK firms are multi-national so you are not just investing in the UK with them. Those companies won't be overly affected by Brexit. However, I do hold other funds with a broader global spread just to increase my diversification. But the amounts you have at the moment are so small it's probably not worth worrying about. When you get into the 10s of thousands, maybe consider it then.

Audaxer

The other thing to learn as a newbie is that when you are investing monthly for the long term, volatility and dips in the market are actually good for you as you will be buying units when they are cheap. If you are confident the fund will rise in the long term, and no reason to believe a globally diversified fund like VLS80 will not produce good long term returns, think of dips in the markets as the best time to keep investing.