Mixing Vanguard Life Strategy funds?

sandspider2000

Hi all


I have some funds in VLS, mainly the 80% equity allocation, but a bit in 100% too. I'm thinking of adding yet more, but in the 60% equity allocation this time, as I think we may be in for a rough patch globally.



Should I sell my more risky / higher equity funds, and put the money into 60%? If I add new money and put it into the 60% fund, am I paying more management charges than I need to for access to largely the same portfolio of equities and bonds, just via different allocation vehicles?



I can't quite get my head around this!



Thank you.

Bravepants

Which platform are you using? Are you using Vanguard Investor, which charges 0.15% platform fee per year, while each VLS fund is 0.22%, making total charges 0.37%, which is darn cheap!


How much do you have in VLS 80 and 100?


The reason I ask is this for example....If you split your cash 50-50 and put one half in VLS 100 and the other half in VLS 80 you will end up, effectively, with a VLS 90 fund - the average of 80 and 100.

Linton

You should not change just because you think there will be a rough patch soon. A rough patch can come out if the blue any time so you need to invest at a risk level where you wont get spooked.


Whilst you are contributing to investments for the long term a crash is good for you since you will be buying more units for your money.

Crashy_Time

sandspider2000 wrote: »

Hi all


I have some funds in VLS, mainly the 80% equity allocation, but a bit in 100% too. I'm thinking of adding yet more, but in the 60% equity allocation this time, as I think we may be in for a rough patch globally.



Should I sell my more risky / higher equity funds, and put the money into 60%? If I add new money and put it into the 60% fund, am I paying more management charges than I need to for access to largely the same portfolio of equities and bonds, just via different allocation vehicles?



I can't quite get my head around this!



Thank you.

Yes, via different allocation amounts really. Print out the fund information for each LS fund and see where the same funds are used in all of them, then think about if you would then be over-concentrated in essentially the same investments. Why not read a bit a about bonds and decide if the prevailing idea that they are no longer such a good investment is true? Why not just pick one LS balance 80/20 or 60/40 that you are comfortable with and then maybe diversify a bit into a credit/corporate bond fund or emerging market fund? (Of course there will already be some EM coverage in the LS funds) Or pick a global equities tracker and a separate global (or UK) bond fund?

Read "Investing Demystified" for more detail on over-concentration, diversification, currency risk and why you might only need UK government bonds as you MMR (Minimum Risk Asset)

sandspider2000

Thanks for the thoughts, all.


So, I hold my VLS via Vanguard's own site, so the management fees are indeed pretty good, as they go. I've got about 22k in 80, and about 4k in 100. I'd like to top up a bit more before the ex divi date (early April this year), and also as cash savings rates are so poor at the moment. I am keeping some money back in case of a crash / market correction, so could in theory top up where necessary. I just feel that 2020 (or soon!) might be a worse year, as 2010 - 2019 were pretty / very good stockmarket wise. I started in late 2017 with just VLS80, but then fancied a bit of an experiment and perhaps slightly higher returns and bought a chunk of 100. Now I'm considering a chunk of 60 just to reduce my risk a bit, as the total invested here grows?



Probably I'm overcomplicating this! And should just stick another chunk in VLS 80, and keep some cash to hand to buy more as and when the market does fall. Or doesn't!

sandspider2000

Just to add, I'm mid 30s, so hopefully won't need this money too soon, so can tolerate a bit of risk.

(Though perhaps, given I'm now thinking of VLS60, not as much as I first thought!)

Crashy_Time

sandspider2000 wrote: »

Just to add, I'm mid 30s, so hopefully won't need this money too soon, so can tolerate a bit of risk.

(Though perhaps, given I'm now thinking of VLS60, not as much as I first thought!)

What thinking or information are you basing your choices on?

Crashy_Time

sandspider2000 wrote: »

Thanks for the thoughts, all.


So, I hold my VLS via Vanguard's own site, so the management fees are indeed pretty good, as they go. I've got about 22k in 80, and about 4k in 100. I'd like to top up a bit more before the ex divi date (early April this year), and also as cash savings rates are so poor at the moment. I am keeping some money back in case of a crash / market correction, so could in theory top up where necessary. I just feel that 2020 (or soon!) might be a worse year, as 2010 - 2019 were pretty / very good stockmarket wise. I started in late 2017 with just VLS80, but then fancied a bit of an experiment and perhaps slightly higher returns and bought a chunk of 100. Now I'm considering a chunk of 60 just to reduce my risk a bit, as the total invested here grows?



Probably I'm overcomplicating this! And should just stick another chunk in VLS 80, and keep some cash to hand to buy more as and when the market does fall. Or doesn't!

Do you have enough cash for 3-6 months (full) living expenses (I prefer at least 12 months although some people say this is too much) in a safe cash account before your money even thinks about touching the stock market?

bowlhead99

sandspider2000 wrote: »

So, I hold my VLS via Vanguard's own site, so the management fees are indeed pretty good, as they go.

As you might have already figured out, though perhaps it hasn't been literally spelled out, the management fees per pound invested are exactly the same whether you choose for your next pound invested to be in the 60 or 80 or 100 fund.

Your original thought that if you sold out of 100 and bought into 60, you could be paying more fees than needed for essentially the same thing, is flawed. A pound in VLS60 costs you no more than that pound being in 100, and the underlying assets are not really the same thing, they are fewer equities and more bonds.

Whether you construct your portfolio from a mix of 100 and 60, or mostly 80 and a bit of 60 and a bit of 100, you can generally get to the same overall target percentages. If your ideal mix is 60% or 80% equity, you could get rid of the others and just buy the one you want. Whereas if you have decided you need some hyper-specific percentage like 76.45% equities or 68.3% equities, you are going to need to stick a bit of each of two or more funds in a blender to create your cocktail. Though when you think about, it is unlikely that 68 3% is exactly right and 60 or 80 are both very wrong, because your goal of growing money over the long term without having too big of a shock in a crash, is far too general for you to know that 68.3% will be exactly perfect

I've got about 22k in 80, and about 4k in 100. I'd like to top up a bit more before the ex divi date (early April this year),

With only £26k (ie, not many more tens of thousands) presumably this is in an ISA, or if it's not in an ISA the dividends you might receive from it are within your annual dividend allowance. So not much of an income tax issue either way. Hence the dividend date would not seem particularly relevant.

Why do you want to put more money at a cost which includes the value of the dividend, and shortly thereafter, have the dividend given back to you so you can invest it again. Pre/post dividend is often a red herring unless you are aiming for some specific tax planning objective.

. I started in late 2017 with just VLS80, but then fancied a bit of an experiment and perhaps slightly higher returns and bought a chunk of 100. Now I'm considering a chunk of 60 just to reduce my risk a bit, as the total invested here grows?

You are right that the overall mix will generally be subject to a lower risk of a sharp stock market decline, if your mix is skewed away from equities and towards bonds. If you have £22k in 80 and £4k in 100 and then add £10k in 60, your blended ratio of equities to bonds will reduce from its current 83% to a lower ratio of the grand total £36k. So if the equity markets decline, you will feel like you haven't lost as severely.

But of course you will have more in the markets generally, and if you keep the £22k and £4k in the funds that they are currently in (while simply adding the 60 as an additional fund on the side), those £22k and £4k chunks will still have the same risk that they have today, and still lose just as much of their value in pounds, when there's a crash. The percentage loss on the whole portfolio will be lower than it would have been, but it's a bigger portfolio. If you know a crash is coming, maybe instead keep your spare money on the sidelines in cash rather than buying a load of bonds and equities with it, and move some of your 100 money into the 80 or 60.. but if course you don't know when this crash will happen.

Probably I'm overcomplicating this! And should just stick another chunk in VLS 80, and keep some cash to hand to buy more as and when the market does fall. Or doesn't!

Quite possibly you are over complicating it. If you are concerned that markets will perform less strongly over the next five to ten years then the last, you have two choices:

- increase your exposure to equities to make up for the fact that they are not going to deliver as much growth going forward as they have given in recent years, and you want to get growth from somewhere - that's fine as long as don't mind riding out the rough times.

- decrease your exposure to equities because you feel there will be opportunities to add at lower prices and you want to defend against potential losses - that's fine as long as you don't mind missing out on the upside of the asset mix you currently have.

bostonerimus

You're basically wrestling with your asset allocation between bonds and equities here. So take a step back and think strategically...don't worry about what might or might not happen in the next year. Make sure you have a good emergency fund of maybe 6 months spending in cash, pay off all your high interest debt and then think how a 30 year old should be invested for the long term. Right now with VLS100 and VLS80 I think you are in a very good place, probably far better than many people. I would just keep using VLS80 and revisit this in your 40s.

sandspider2000

Crashy_Time wrote: »

What thinking or information are you basing your choices on?

Good question. I follow various investing blogs, and generally the mood seems to be that things have gone well for ~10 years and we're due a correction. Probably not very sound grounds, as it may be a while in coming, if it comes at all. Presumably it will at some point. :eek: