20 year old s&p

Alexland

Isaac_:) wrote: »

The Target Retirement Funds seem to be more geared towards drawing down a pension over time, whereas the purchase of a house is more akin to buying an annuity as you exit the market in one go. Personally I wouldn't want to be holding as many equities as the VTR funds do at the target retirement dates.

VTR funds leave you with around 50% equity exposure on the target date which I would argue is more suitable for someone buying an annuity (or a house, still taking some risk for potential return towards the end) rather than someone going into drawdown who might chose to have around 60% equity risk during their retirement.

Still, with asset allocation decisions it depends on the individual's risk appetite.

Alex

masonic

Much will depend on how much flexibility the OP's son is willing to have in choosing when to buy a home. At 50% equities, the loss potential is about 30-40% after which it could take 5 or so years to recover, though such an event is pretty unlikely. At 20% equities, the loss potential would be about half that, with a shorter recovery period, perhaps a couple of years.

It's also entirely possible that house prices could fall at the same time as other investments, so that would mitigate the above risks.

claire21

I’d help him buy a house plus his LISA money so the investing is purely long term

masonic

claire21 wrote: »

I’d help him buy a house plus his LISA money so the investing is purely long term

I (and perhaps others) inferred that he might consider a S&S LISA as opposed to a cash LISA. That isn't an unreasonable choice if the money will be needed for a house in about 7 years. For a S&S LISA, it would be prudent to think about the lower risk investments suggested.

The long term S&S ISA money can be higher risk and 100% equities and I don't think anyone is suggesting lower risk options for that.

claire21

Thanks I understand now

nomoneynohoney

Couple of comments-
1) Higher risk ---lower risk ladder-
your own business, shares of one single small company, shares of one single big company (GAZPROM, AMAZON etc.), shares of one sector (Financials, Energy, etc) , shares in different sectors (SP500 ETF or Life Strategy 100), bonds, deposit in bank.

I might forgot something but i think it is almost everything (and i didn’t include some exotic types of investments such as properties, gold, etc.). How much risk you can take is entirely up to you. The younger you are more risky you can be. It is funny when people (especially so called independent financial advisers) call SP500 as very high risk investment. What they think about own business or shares of one single small company? In the meantime it is not something unusual when people invest all their money in their business or on the company they work for with 500 staff...

2) From my opinion nowadays the market is global and for example Vanguard All World VWRL ETF and VUSA ETF correlate very well (at least for the last 5 years), please see the link below-
imgur.com/VlOpmXn

So, I don’t think it's big mistake if you invest in SP500 rather than in All World VWRL.

From my opinion his decision to invest in SP500 ETF is not bad at all if he thinks about 20+ years investment bearing in mind he is 20 years old (what a smart guy, I wish I was that smart at his ages!), he can always reconstruct his portfolio in a future and use more conservative options such as funds with lots of bonds (Life Strategy 20 etc.), LISAs and all other stuff

SonOf

It is funny when people (especially so called independent financial advisers) call SP500 as very high risk investment.

It's funny when people make comments like yours which only indicate that they lack understanding of investing.

When held in isolation, you are looking at around 50% loss potential over 12 months. That is high risk. When held as part of a balanced portfolio, the risk reduces. Even if the alternatives are 100% equity.

What they think about own business or shares of one single small company?

A single company share would be higher risk. That doesn't mean everything below that is low risk.

In the meantime it is not something unusual when people invest all their money in their business or on the company they work for with 500 staff...

That is not a comparable situation.

2) From my opinion nowadays the market is global and for example Vanguard All World VWRL ETF and VUSA ETF correlate very well (at least for the last 5 years), please see the link below-
imgur.com/VlOpmXn

Not even half an economic cycle. Try looking back a bit further. Further than the introduction date of both of those. US Equity significantly underperformed global equity in the previous economic cycle. It has outperformed in this one but it wont do that every time. However, if that is all you invest in, that is effectively what you are hoping for.

he can always reconstruct his portfolio in a future and use more conservative options such as funds with lots of bonds (Life Strategy 20 etc.),

Why not VLS100 or a global tracker now? Get it right from the start.

NoMore

I've seen this investment made time and time again by younger people, I think its because they are reading a lot of the FIRE blogs (which all of the popular ones are US based) and choosing the S&P 500 because that's what those sites advise, however they take no account of they are in the UK where such advise does not take account of that fact. Different Tax regimes, Currency risk etc.

Alexland

...or maybe following Warren Buffet's advice to his wife who will be so extremely wealthy relative to her likely spending she won't care if the US market has a period of poor performance.

Zola.

He sounds a lot more switched on than most folk. Should be commended