Best Vanguard Index Tracker

timPgoodwin

Hi, 
Looking to invest around £250-£400 a month in a Vanguard Index Tracker Fund over the long term (20 plus years). I want something that's relatively safe and would on average give 6-8% interest a year. Happy for any advice  

Bravepants

Generally, contributors to these forums do not give advice. You would need to speak to an Independent Financial Advisor for that. But the forums can certainly help you learn and benefit from other people's experiences.

Twenty plus years is a good long time over which to invest so you can go with something containing a higher proportion of equities (compared to bonds and fixed interest) - i.e. higher risk. It all depends though on YOUR tolerance to risk of course, which can be improved, for example, by having a good work's pension provision and a reasonable cash emergency fund.

DO you have a sufficiently sized emergency fund of cash, for example, 6 months' worth of outgoings (or even take home salary)?

What does your work pension look like? Are you contributing the maximum allowed, and will your company match any additional contributions that you might make?

Average risk tolerance of a UK investor is something like a 60%/40% split of equities/bonds, such as provided by Vanguard Lifestrategy 60. Even then during a crash this can fall by 25% or so - would you panic if this happened, or would you carry on popping in you cash each month without batting an eyelid?

I have Vanguard's FTSE Global All Cap in my portfolio (as well as VLS 60) . The FTSE fund invests in 6000 plus companies of various sizes spread across the globe. This diversification helps to reduce the risk of the fund, but it's still higher risk than the 60/40 fund.

bowlhead99

timPgoodwin said:

Looking to invest around £250-£400 a month in a Vanguard Index Tracker Fund over the long term (20 plus years). I want something that's relatively safe and would on average give 6-8% interest a year.

Not sure where to start picking apart your question without sounding too critical.

An 'index tracker fund' is a fund that tracks a specific index (such as the FTSE All-World equities index, or the FTSE 250 UK equities index, or the Bloomberg Barclays Global Aggregate Float Adjusted: Corporate Bond Index (Hedged)). Each of those specialist funds will focus on tracking their specific index, and produce quite a different performance from each other. 

You mention a rate of 'interest' every year.  In relation to income from the investments that the fund holds, only the bond funds receive and pay interest. The equities funds receive and pay dividends. None of them pay as much as 6-8%. The 6-8% would be the total return taking into account the income generated and the growth in value of the underlying holdings (for example people deciding that Apple shares are more valuable from one year to the next).

If what you want is something that is relatively safe (not having the biggest swings in value up and down) but wanting to get more than a couple of percent total return, you won't be able to just track one index with an 'index tracker fund', you would have to buy a whole portfolio of different funds, spreading different proportions of the money to different funds and blend them together. A more practical way to do that is to buy one of their 'LifeStrategy' funds.  Those funds each buy a piece of 10+ other 'Vanguard Index Tracker Funds' so that you can invest in just one simple product and they handle what to buy and sell over time to give you a blended performance.

The Lifestrategy products are named for the proportion of equities (company shares) they hold within their total holdings. So the Lifestrategy 80% Equity Fund has 80% of its money in equities tracker funds (the most volatile type of investments) and 20% in bond tracker funds (the least volatile type of investments, though they can still lose value).  Whereas the LifeStrategy 100% Equity Fund has all its money in equities and none in bonds, while the LifeStrategy 40% Equity Fund has only 40% in equities, and instead has most of its money in bonds.

Everyone says they want something as safe as possible giving the best return possible, and generally have unrealistic expectations because they have looked at charts for the last five or ten years where there were no major crashes and things were generally going upwards, lifted by quantitative easing and easy global monetary and tax policy. Most people need to compromise their objectives to get something that is away from the extremes of 'highest possible long-term returns' and 'lowest possible short-term volatility'.

If by 'relatively safe' you mean you would not be happy with the fund's value dropping by a half from its highest point to its lower point before hopefully recovering over the longer term, you wouldn't be able to buy a specialist index tracker fund like the Vanguard Global All Cap, or a LifeStrategy 100% Equities, as it wouldn't be surprising if they lost half their value in a big crash and took a while to recover.

But if looking for a return of 6-8% a year you wouldn't be able to use a low-equities product like a LifeStrategy 40% Equities because with current interest rates you would only expect to get a few percent on the bonds at the most, which are the majority of the investments it holds. So, some compromise is likely needed. 

I expect if you are going to keep investing monthly for the next 20 years (so that on average, each pound invested is in the fund for ten years), you will be fine if you use something like the LifeStrategy 80% product. You will see some dips of 30-40% along the way, but the 'risk' is just volatility, a temporary change in value along the way. The risk of the whole thing being worth nothing, is remote.

The key thing is that if you don't think that mentally you would be able to handle a crash of 40% in the fund's value and keep putting money into it while it was falling - and might instead be scared into selling out at the bottom of the market and missing it rebound upwards without you holding it any more - you shouldn't buy a fund product with high equities content, because crashes will happen. If you are cautious, something with 60% or less exposure to equities would be better.

SonOf

timPgoodwin said:

Hi, 
Looking to invest around £250-£400 a month in a Vanguard Index Tracker Fund over the long term (20 plus years). I want something that's relatively safe and would on average give 6-8% interest a year. Happy for any advice  

1 - Investing in a single index tracking fund would be considered poor quality investing (exception being global tracker if you happened to be high risk in your investment stance and your post suggests you dont).  e.g. if you picked UK equity then you are only in investing 4% of the global economy and it has been a long time since UK large cap equities has been anywhere the top half for performance.
2 - Vanguard dont have the best trackers in every area.   So, limiting yourself to just vanguard will mean you are compromising.

At £250-£400pm you are better placed with a multi-asset fund rather than trying to build a portfolio of funds.

bostonerimus

Before you invest in a fund, or a number of funds, you need to understand what you are investing in and why you are doing it. I would step back and do some reading and educate yourself first.

timPgoodwin

Cheers all. I think this forum may be the wrong place for me. As most the replies are way too convoluted and over complicated for a novice. Thanks for the replies. 

timPgoodwin

SonOf said:

timPgoodwin said:

Hi, 
Looking to invest around £250-£400 a month in a Vanguard Index Tracker Fund over the long term (20 plus years). I want something that's relatively safe and would on average give 6-8% interest a year. Happy for any advice  

1 - Investing in a single index tracking fund would be considered poor quality investing (exception being global tracker if you happened to be high risk in your investment stance and your post suggests you dont).  e.g. if you picked UK equity then you are only in investing 4% of the global economy and it has been a long time since UK large cap equities has been anywhere the top half for performance.
2 - Vanguard dont have the best trackers in every area.   So, limiting yourself to just vanguard will mean you are compromising.

At £250-£400pm you are better placed with a multi-asset fund rather than trying to build a portfolio of funds.

Thanks! This has really helped, I think a multi-asset fund is the way for me to go.

Thrugelmir

timPgoodwin said:

Cheers all. I think this forum may be the wrong place for me. As most the replies are way too convoluted and over complicated for a novice. Thanks for the replies. 

Everybody starts as a complete novice. Likewise everyone makes mistakes. Set yourself reasonable expectations not target the sky. 

timPgoodwin

Thrugelmir said:

timPgoodwin said:

Cheers all. I think this forum may be the wrong place for me. As most the replies are way too convoluted and over complicated for a novice. Thanks for the replies. 

Everybody starts as a complete novice. Likewise everyone makes mistakes. Set yourself reasonable expectations not target the sky. 

Agreed. I'll come back when I'm more in the know. 

timPgoodwin

bowlhead99 said:

timPgoodwin said:

Looking to invest around £250-£400 a month in a Vanguard Index Tracker Fund over the long term (20 plus years). I want something that's relatively safe and would on average give 6-8% interest a year.

Not sure where to start picking apart your question without sounding too critical.

An 'index tracker fund' is a fund that tracks a specific index (such as the FTSE All-World equities index, or the FTSE 250 UK equities index, or the Bloomberg Barclays Global Aggregate Float Adjusted: Corporate Bond Index (Hedged)). Each of those specialist funds will focus on tracking their specific index, and produce quite a different performance from each other. 

You mention a rate of 'interest' every year.  In relation to income from the investments that the fund holds, only the bond funds receive and pay interest. The equities funds receive and pay dividends. None of them pay as much as 6-8%. The 6-8% would be the total return taking into account the income generated and the growth in value of the underlying holdings (for example people deciding that Apple shares are more valuable from one year to the next).

If what you want is something that is relatively safe (not having the biggest swings in value up and down) but wanting to get more than a couple of percent total return, you won't be able to just track one index with an 'index tracker fund', you would have to buy a whole portfolio of different funds, spreading different proportions of the money to different funds and blend them together. A more practical way to do that is to buy one of their 'LifeStrategy' funds.  Those funds each buy a piece of 10+ other 'Vanguard Index Tracker Funds' so that you can invest in just one simple product and they handle what to buy and sell over time to give you a blended performance.

The Lifestrategy products are named for the proportion of equities (company shares) they hold within their total holdings. So the Lifestrategy 80% Equity Fund has 80% of its money in equities tracker funds (the most volatile type of investments) and 20% in bond tracker funds (the least volatile type of investments, though they can still lose value).  Whereas the LifeStrategy 100% Equity Fund has all its money in equities and none in bonds, while the LifeStrategy 40% Equity Fund has only 40% in equities, and instead has most of its money in bonds.

Everyone says they want something as safe as possible giving the best return possible, and generally have unrealistic expectations because they have looked at charts for the last five or ten years where there were no major crashes and things were generally going upwards, lifted by quantitative easing and easy global monetary and tax policy. Most people need to compromise their objectives to get something that is away from the extremes of 'highest possible long-term returns' and 'lowest possible short-term volatility'.

If by 'relatively safe' you mean you would not be happy with the fund's value dropping by a half from its highest point to its lower point before hopefully recovering over the longer term, you wouldn't be able to buy a specialist index tracker fund like the Vanguard Global All Cap, or a LifeStrategy 100% Equities, as it wouldn't be surprising if they lost half their value in a big crash and took a while to recover.

But if looking for a return of 6-8% a year you wouldn't be able to use a low-equities product like a LifeStrategy 40% Equities because with current interest rates you would only expect to get a few percent on the bonds at the most, which are the majority of the investments it holds. So, some compromise is likely needed. 

I expect if you are going to keep investing monthly for the next 20 years (so that on average, each pound invested is in the fund for ten years), you will be fine if you use something like the LifeStrategy 80% product. You will see some dips of 30-40% along the way, but the 'risk' is just volatility, a temporary change in value along the way. The risk of the whole thing being worth nothing, is remote.

The key thing is that if you don't think that mentally you would be able to handle a crash of 40% in the fund's value and keep putting money into it while it was falling - and might instead be scared into selling out at the bottom of the market and missing it rebound upwards without you holding it any more - you shouldn't buy a fund product with high equities content, because crashes will happen. If you are cautious, something with 60% or less exposure to equities would be better.

Thanks very much for this - lots of help and I'll have a think. 

Speedster2

Have a look at the options for investing through Plum. I’ve been using Plum for a year or so, just to harvest savings from my current account, then shifting the savings monthly into an offset mortgage product. This January started using the S&S ISA option Plum provides. Only starting small at around £100 in the first month into the Vanguard LifeStrategy 40. It would be fairly easy to scale that up to the amounts the OP wants to invest and split it across different funds. It’s not as diverse a plan as suggested by other posters above, but for a complete novice I think it could be a good starting point.