LifeStrategy 40

Aminatidi

Any views on a safe and sensible assumption of rate of return on LS40 over the next 10 or so years?

Seems to have done around 6% annualised since inception but I keep hearing circumstances have been exceptional and that those returns aren't sustainable?

The US equivalents have been around since 1995 so I can get a longer term view from those and I can backtest 40/60 over time and both come out at around 6% so maybe it's not that much of a stretch?

Crystal balls all around I know

kinger101

There are never any safe assumptions. Sensible maybe.

I'd say don't rely on US equivalents, as their historic returns have beat world markets. I'd say don't expect the next decade to be as good as the last. We've not had a major crash in that period. Nobody can say when the next will happen, but the probability for the next decade is >0.

VLS 40 is a cautious fund. I wouldn't pick it if I needed to money in 40 years, but I might be considering it if I needed it in less than 10. But it kind of depends on what else you have in terms of assets, and your attitude to risk.

PS - you need to consider returns above inflation, rather than just headline returns.

kuratowski

6% sounds more suitable as a return for pure equities. But VLS40 is only 40% equities so 6% sounds far too high.

For a multi asset fund with 40% equity I would be modelling more like 1% above inflation.

Edit: But it's fair to say I like my assumptions to err on the cautious side.

kinger101

^^^Seconded.

I wouldn't even model 6% on a 100% equities fund. More like 2.5% above inflation. Likely pessimistic, but I prefer pleasant surprises.

masonic

Based on 100 years of data for the asset mix, about 4% after inflation, so 6% isn't an unreasonable guestimate. Loss potential of about 20-30%. Looking into the future, though, can the USA continue to grow at the rate it has in the recent past?

Aminatidi

It's for my mum (separate thread under my profile).

Appreciate there are no guarantees of anything I'm just working some numbers into a compound interest calculator and trying to model a few things.

I asked as I'm shocked even going back from 1995 how well such a low equities allocation seems to have performed.

masonic

Aminatidi wrote: »

I asked as I'm shocked even going back from 1995 how well such a low equities allocation seems to have performed.

Historically, bonds alone have delivered about 2% above inflation (excluding the period after 2008 where things got silly). I wouldn't call nearly 50% equities 'low'. The "4% rule" was originally modelled on 50:50 equities and bonds.

Lomcevak

Aminatidi wrote: »

I asked as I'm shocked even going back from 1995 how well such a low equities allocation seems to have performed.

It's been an unusual period for both bonds and equities though, so may not be a good template for the future. Saying that, back in 2011ish I wouldn't have guessed at a storming bull run for equities over the 2010s either, so who knows


Personally I have a similar view to others, I'd assume a real return somewhere between 0% (pessimistic) and 4% (optimistic), and would probably plan on the midpoint. I'd prefer to be surprised by outperformance.

Aminatidi

Are people really assuming 2% medium to long term though?

Surely if people were doing that they'd just stick it in a fixed term saver with a FSCS protected 2% guaranteed return?

kuratowski

Mostly we have been talking about above inflation returns. So if inflation were 2%, then the total return would be 4%.

MPN

Recently on another thread members were debating whether VLS40 (or even VLS20) would perhaps perform as well as some of the wealth preservation funds during a market downturn. Funds/IT's such as Trojan O, Capital Gearing and Personal Assets. There is also the HSBC Global Strategy Conservative or Cautious to consider as an alternative to the VLS range.