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Mixing Vanguard Life Strategy funds?

edited 30 November -1 at 12:00AM in Savings & Investments
38 replies 3.4K views
24

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  • 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?


    Yes, I have a decent cash cushion should the need arise, just looking to do the best I can with money beyond this cushion, which is currently receiving poor interest in various bank accounts & ISAs. While at the same time keeping some back to top up VLS holdings in future if prices do fall.
  • edited 7 January at 2:41PM
    bowlhead99bowlhead99
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    edited 7 January at 2:41PM
    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.
    The fact that different vehicles hold different allocations within your total allocation across a portfolio of funds, does not mean you are 'over' concentrated in anything. You simply hold x% of US equity index, y% of UK equity index, z% of emerging markets, a% of govt bonds, b% of IL bonds, c% of corporate bonds etc etc. If you use multiple investment vehicles, some of the underlying holdings may be duplicated across multiple investment vehicles to make up the aggregate x, y z , a ,b c percentages etc. But saying that any of it is 'over' concentrated implies there is a perfect level of concentration for each asset type and a mistake has been made - whereas really, investing is about opinion and there is more than one way to skin a cat.

    The running costs per pound invested is the same across the funds. Granted, you could beat the costs of the packaged lifestrategy products buy buying 10-15 underlying trackers and maintaining their appropriate proportions yourself by being hands on.
    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?
    The fact that something is 'no longer such a good investment' as it was 35 years ago doesn't tell you whether you should hold it or not; such a 'decision' will be a matter of judgement in any case. If someone is a little lost as to what options to follow (decreasing their equity allocation a little or a lot), suggesting that they read a bit and then decide the answer, without hinting at what the eventual answer should be, is maybes not very useful :)
    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)
    You are unlikely to pick UK government bonds as your asset with minimum risk, given that cash has even less risk, though they do have growth potential if not held to maturity, with the downside being potential capital loss.

    But that aside, deciding based on Kroijer's book that UK govt bonds were the most useful low risk asset, would perhaps be an annoying realisation if you'd followed the idea a paragraph further up about "why not just pick one [balanced mixed asset fund] and then diversify into a credit/corporate bond fund", for example.
  • bowlhead99 wrote: »
    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

    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.


    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.
    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.


    Many thanks for that long and detailed post. :T I will give it another read and some thought.


    My VLS holdings are indeed in an S&S ISA, and they accumulate - so if I buy more VLS holdings before the ex divi date I will then receive a few more units of VLS for no extra cost, rather than the actual dividend cash. No tax advantages, just a few more units for the same money.



    Your last paragraph about the two options is interesting, I hadn't thought about it like that. Therefore, I probably am overthinking it, and might as well just buy some more VLS, but not go all in.



    Thanks again.
  • zerogzerog
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    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:

    If you are afraid of market corrections then lifestrategy isn't really for you, I would say. The point is to "set it and forget it".

    Your equity/bond allocation should be based on where you are in your life financially, and should not change because you "feel" that the market is going to crash or rally - that's timing the market which you are entitled to do but you have at least 50% chance of getting each decision wrong.
  • 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.


    Thanks. I think you are probably right, and I will top up my VLS80 and forget about it.
  • edited 7 January at 2:56PM
    bowlhead99bowlhead99
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    edited 7 January at 2:56PM

    My VLS holdings are indeed in an S&S ISA, and they accumulate - so if I buy more VLS holdings before the ex divi date I will then receive a few more units of VLS for no extra cost, rather than the actual dividend cash. No tax advantages, just a few more units for the same money.
    You seem to misunderstand the concept of how accumulation funds work? You don't get any extra 'units'with an accumulating fund, and if you have a distributing find you don't get any more real 'value' by buying in a day earlier before the ex div date.

    If you choose not to use a product that pays out cash dividends, and use an Accumulation version of the fund, no cash is paid to you, and the money just sits inside the fund. It won't be given to you to allow you to buy more units?

    The spare cash sitting in the fund (because the investors didn't want the money) is used by the fund manager to buy more assets for the fund (more Microsoft shares, more Shell shares, more UK government bonds maturing in 2039, etc etc).

    With an ACC fund, if you get in just before ex div day you will pay for the pile of cash which is about to be used to buy Microsoft shares. If you get in just after ex div day you will pay for the Microsoft share. You won't 'beat the system' by getting in before or after ex div date.

    Likewise with an INC fund which does pay cash divs, you won't beat the system by getting in just before ex div day, paying for the pile of cash, then having the cash sent to you reducing the fund value, and then using the returned money to buy more fund units at the lower price (because the lower price is just because the fund no longer has a nice pile of cash).
  • ColdIronColdIron
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    My VLS holdings are indeed in an S&S ISA, and they accumulate - so if I buy more VLS holdings before the ex divi date I will then receive a few more units of VLS for no extra cost, rather than the actual dividend cash. No tax advantages, just a few more units for the same money.
    That's not how Accumulation units work. The underlying companies pay their dividends into the fund in dribs and drabs throughout the year. In an Income fund these are paid out as cash and this reduces the unit price. In an Acc fund the dividends are retained within the fund and used to buy more of the underlying holdings and consequently the unit price increases

    In neither case do you receive extra units. If you buy 1,000 units you will have 1,000 units until you either buy some more or sell some of the ones you already have. The ex-dividend date is largely meaningless in an Acc fund as nothing happens on the ex-dividend date
  • george4064george4064
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    Just choose what is your chosen equity % and select a single Vanguard LS fund that is nearest to your figure.

    Don't unnecessarily overcomplicate matters by investing in different Vanguard LS funds which will give you a mixture of the equity %'s of the funds you are invested in.
    "If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett

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  • Crashy_TimeCrashy_Time
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    bowlhead99 wrote: »
    The fact that different vehicles hold different allocations within your total allocation across a portfolio of funds, does not mean you are 'over' concentrated in anything. You simply hold x% of US equity index, y% of UK equity index, z% of emerging markets, a% of govt bonds, b% of IL bonds, c% of corporate bonds etc etc. If you use multiple investment vehicles, some of the underlying holdings may be duplicated across multiple investment vehicles to make up the aggregate x, y z , a ,b c percentages etc. But saying that any of it is 'over' concentrated implies there is a perfect level of concentration for each asset type and a mistake has been made - whereas really, investing is about opinion and there is more than one way to skin a cat.

    The running costs per pound invested is the same across the funds. Granted, you could beat the costs of the packaged lifestrategy products buy buying 10-15 underlying trackers and maintaining their appropriate proportions yourself by being hands on.

    The fact that something is 'no longer such a good investment' as it was 35 years ago doesn't tell you whether you should hold it or not; such a 'decision' will be a matter of judgement in any case. If someone is a little lost as to what options to follow (decreasing their equity allocation a little or a lot), suggesting that they read a bit and then decide the answer, without hinting at what the eventual answer should be, is maybes not very useful :)

    You are unlikely to pick UK government bonds as your asset with minimum risk, given that cash has even less risk, though they do have growth potential if not held to maturity, with the downside being potential capital loss.

    But that aside, deciding based on Kroijer's book that UK govt bonds were the most useful low risk asset, would perhaps be an annoying realisation if you'd followed the idea a paragraph further up about "why not just pick one [balanced mixed asset fund] and then diversify into a credit/corporate bond fund", for example.

    1) To your first point, yes maybe, but if the OP buys three different LS funds at the same time (as I took them to mean?) they pay three times the fees for essentially the same or similar underlying funds. Better to decide on the overall % of your money that you want to hold in various sectors/funds and buy one cheap fund that covers each area, re-balancing when necessary IMO. To me having UK equity exposure in a pension, AND also being heavy UK equity in a portfolio you run yourself for example is "Over-concentrated" (unless you have decided that the % invested in the pension of your overall investment pot is too small) The "Perfect Level" of concentration is to be diversified in the way that you have hopefully thought about before investing IMO. Also very unlikely that you could beat the LS costs by buying "10-15 trackers", maybe you could give an example?

    2) So you think people shouldn`t read about/study investment areas they know very little about, and you also seem to think that someone else (me? you?) on the internet could hint at a "definitive answer"? about future outcomes for bonds/other investments? Maybe I misunderstood your point? To the OP I would say definitely DYOR, and read...a lot.

    3) Capital loss on UK Gov. bonds? Has this happened to you?

    4) If you already had bond exposure in a Mixed Asset fund you wouldn`t need the over-concentration of buying more MRA, he is giving examples/ideas and setting out some of the various choices you may have, not saying to buy everything that he mentions.
  • Thanks again.



    You're right Bowlhead and ColdIron, I didn't understand the dividend situation. Did seem a bit too good to be true!
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