Sanity check: Moving a lump sum to VLS then drip-feeding for the next 10-11 years most efficiently?

vacheron

Hi all.

I'm after a bit of a sanity check on my thinking please.

My son is 7 years old. When he was born we made the decision to put all his child allowance into his own dedicated savings account as well as any other "one off" cash gifts from grandparents etc.

This account is now sitting at around £15K and is currently offsetting our mortgage at 3.04%.

This fund is to go towards his university or whatever else he decides to do when he is 18+. I've always intended (but never got round to) moving this fund from cash to an investment given the 10+ years before he will need access to the money.

After shopping around I feel that the VLS60 or VLS80 would be a good choice due to the size of the funds, diversity, low ongoing charges, and decent historical performance.

My plan would be to initially transfer the existing cash fund over to the VLS fund at say £500-£1000 per month for a year or two in order to even out any short term volatility, when the cash account is emptied, I would then switch to feeding the fund with the monthly child allowance, plus any one-off gifts should they arise.

I've no issues in using my own ISA allowance for this, but have big issues with the "hand large 5 figure sums over to an 18 year old unconditionally" approach of the Junior ISA, so would like to stay away from them unless absolutely neccessary for some reason.

Given the above my question now is: given this higher contributions for 1-2 years followed by drip-feeding smaller sums Over the next 8-9 years, would I be better off in regard to overall charges by investing directly with Vanguard or perhaps using a separate company such as HL. I already have a Halifax dealing account where I hold other individual shares, so could use that too.

I am feeling that Vanguard direct is working out cheapest, but appreciate that cost may not be the only consideration and that I may have missed or misunderstood something fundamental.

Any advice greatly appreciated. Thanks.

bostonerimus

Just do the lump sum into Vanguard.

eskbanker

vacheron wrote: »

My son is 7 years old. When he was born we made the decision to put all his child allowance into his own dedicated savings account as well as any other "one off" cash gifts from grandparents etc.

This account is now sitting at around £15K and is currently offsetting our mortgage at 3.04%.

[...]

I would have no issues using my own ISA allowance for this, but have big issues with te "hand large 5 figure sums over to an 18 year old unconditionally" approach of the Junior ISA, so would like to stay away from them unless absolutely neccessary for some reason.

Entirely up to you what you do with child benefit, as that's paid to parents, but money gifted specifically to him should be kept in an account in his name and he has the legal right to access it at 18.

BLB53

I would urge caution in relation to Lifestrategy due to its high exposure to the oil sector. Due to the rising criticism from the growing climate change protestors, many large organisations and pension funds are divesting the big oil companies which could impact on returns.

An alternative with a much lower exposure would be HSBC Global Strategy so that would be worth comparing.

vacheron

bostonerimus wrote: »

Just do the lump sum into Vanguard.

Thanks bostonerimus. My thinking was that as the investing would span brexit etc that feeding the current balance gradually may offer some pound cost averaging benefits/protection?

Do you think this is just me being overcautious? I appreciate that I could lose out if the fund were to continue to steadily grow at any rate over 3% over the next couple of years as a some of the funds would still be in cash.

Thrugelmir

vacheron wrote: »

My thinking was that as the investing would span brexit etc that feeding the current balance gradually may offer some pound cost averaging benefits/protection?

No concerns over the US\China trade war?

vacheron

eskbanker wrote: »

Entirely up to you what you do with child benefit, as that's paid to parents, but money gifted specifically to him should be kept in an account in his name and he has the legal right to access it at 18.

The account is in his name and my wife and I both have access to it. In addition we add the 3.04% mortgage interest he has saved us back to it each year.

If you add up all the"specifically gifted" money it totals £460 of which £80 he chosen to put in himself from his pocket money.

Start them early is what I say!

vacheron

Thrugelmir wrote: »

No concerns over the US\China trade war?

Yes, that and all the other potential finincial crises potentially brewing all over the world, and that the HL is more globally diversified, and so this could be a greater concern than Brexit, but I'd hope that a pound cost averaging approach over a couple of years may at least have been slightly helpful in softening the blow in your example too?

SonOf

After shopping around I feel that the VLS60 or VLS80 would be a good choice due to the size of the funds, diversity, low ongoing charges, and decent historical performance.

VLS80 is quite high risk for what is quite a short term (age 11 needed by 18 so just 7 years).

Performance is a red herring as the VLS allocations have turned out to favour VLS in this cycle. Had VLS existed in the previous cycle with the current weightings, it would have underperformed. This doesn't mean the choice of VLS is wrong. It is just that your mention of performance needs to be qualified. We used to use VLS as our go to mutli-asset fund but moved to HSBC GS and Architas a few years back and sometimes L&GMI depending on risk profile.

My plan would be to initially transfer the existing cash fund over to the VLS fund at say £500-£1000 per month for a year or two in order to even out any short term volatility, when the cash account is emptied, I would then switch to feeding the fund with the monthly child allowance, plus any one-off gifts should they arise.

Phasing reduces returns in the majority of periods it is phased over.

My thinking was that as the investing would span brexit etc that feeding the current balance gradually may offer some pound cost averaging benefits/protection?

Brexit will be going on for another 5-10 years. What do you think Brexit has to do with investing in a largely global asset allocation?

Do you think this is just me being overcautious?

I think you are confused. VLS80 is not cautious. Phasing is a sign of nervousness that does not fit with investing with such a high equity ratio. Plus, with it being just 7 years, phasing will mean that a good chunk of the money will be invested for less than 5 years. That pumps the risk level up even higher.

eskbanker

vacheron wrote: »

The account is in his name and my wife and I both have access to it. In addition we add the 3.04% mortgage interest he has saved us back to it each year.

If you add up all the"specifically gifted" money it totals £460 of which £80 he chosen to put inhimself from his pocket money.

Start them early is what I say!

Fair enough, but I was just highlighting that your "big issues with the "hand large 5 figure sums over to an 18 year old unconditionally" approach" aren't relevant to money that is already his, where you're not legally permitted to withhold access (or impose conditions) once he's 18! If the account is in his name, then it's his money and so doesn't need to be 'handed over'....

vacheron

SonOf wrote: »

VLS80 is quite high risk for what is quite a short term (age 11 needed by 18 so just 7 years).

Hi SonOf.

My son is 7, and the target date was when he is 18 (at the earilest, so at least 11 years). Also. while the intention is to crystalise this fund when he turns 18, I have other resources I could use instead, so if sitting on the fund for an extra 5-10 years was beneficial then that would not be a problem.

SonOf wrote: »

Performance is a red herring as the VLS allocations have turned out to favour VLS in this cycle. Had VLS existed in the previous cycle with the current weightings, it would have underperformed. This doesn't mean the choice of VLS is wrong. It is just that your mention of performance needs to be qualified. We used to use VLS as our go to mutli-asset fund but moved to HSBC GS and Architas a few years back and sometimes L&GMI depending on risk profile.

I probably shouldn't have mentioned performance. I am looking for a fund which had the "potential" to outpace cash over the next 10+ years. If it had been underperforming then that would suit me in the early years anyway as I'd be more interested in building up units.

SonOf wrote: »

Phasing reduces returns in the majority of periods it is phased over.

Noted, thanks I should probably re-think this then.

SonOf wrote: »

Brexit will be going on for another 5-10 years. What do you think Brexit has to do with investing in a largely global asset allocation?

I should have stated "global uncertainty" including events such as the US trade wars which Thrugelmir mentioned.

SonOf wrote: »

I think you are confused. VLS80 is not cautious. Phasing is a sign of nervousness that does not fit with investing with such a high equity ratio. Plus, with it being just 7 years, phasing will mean that a good chunk of the money will be invested for less than 5 years. That pumps the risk level up even higher.

I appreciate what you are saying and appreciate that an 80, or less so a "60" fund is by no means "cautious", what I mean is that while I appreciate and accept the risks of the fund weighting, if there is a means of depositing into the fund which may have exibited less risk than a single large lump sum, it would have been unwise not to explore it.