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Investment period VLS

sixpence.
sixpence. Posts: 295 Forumite
Sixth Anniversary 100 Posts Name Dropper Combo Breaker
edited 19 July 2020 am31 10:51AM in Savings & investments
If one decided to invest a lump sum in Vanguard LifeStrategy. Have I got this about right:
  • 20% equity 1-3 year investment period
  • 40% equity 3-5 year 
  • 60% equity 7-10 year
  • 80% equity 10-15 year
  • 100% 15-20 year
Would it be foolish to invest in the 80% equity VLS for a five year period? What if you wanted to maximise profits but didn't mind tightening your belt for a few years if there was a crash / lack of growth? Is there any time period projection for the VLS?

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Comments

  • dunroving
    dunroving Posts: 1,881 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    sixpence. said:
    If one decided to invest a lump sum in Vanguard LifeStrategy. Have I got this about right:
    • 20% equity 1-3 year investment period
    • 40% equity 3-5 year 
    • 60% equity 7-10 year
    • 80% equity 10-15 year
    • 100% 15-20 year
    Would it be foolish to invest in the 80% equity VLS for a five year period? What if you wanted to maximise profits but didn't mind tightening your belt for a few years if there was a crash / lack of growth? Is there any time period projection for the VLS?

    Hi, I'm afraid I can't answer your question, but am very interested in it (the question). I was wondering where you obtained the estimates you've presented? Or are these just ball park figures you have come up with?
    (Nearly) dunroving
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    edited 19 July 2020 am31 11:15AM
    sixpence. said:
    If one decided to invest a lump sum in Vanguard LifeStrategy. Have I got this about right:
    • 20% equity 1-3 year investment period
    • 40% equity 3-5 year 
    • 60% equity 7-10 year
    • 80% equity 10-15 year
    • 100% 15-20 year

    No, not really. Investments are more suitable for the longer term because only as the timescale gets longer and longer are you more and more likely to have the investment product give a return that approaches the long term 'average' that an investor might have projected to get from such a mix of asset classes.

    Up to five years is a bit of a crapshoot. Seven to fifteen is better because you're more likely to catch a full economic cycle in which there are a mix of up years, down years and nothing years. With 15-20+ you'll get into the 'long term' of perhaps a couple of boom and bust cycles.

    If you have a timeframe in mind and would prefer to 'gamble' on being able to cash in your expected returns at that point, but are however completely comfortable with the idea that if the returns are unacceptable at that point you'll instead simply 'tighten your belt' and hold on for a number of years more, while waiting for the product returns to catch up with your expectations or demands... then there's no problem with investing in whatever product you fancy, and hope for the best.

    If you don't mind VLS80 dropping 40%+ from its peak from time to time, and wouldn't mind if you had lost 20% in five years' time because you'd simply wait it out, then go for it. Though nobody would really recommend as little as a five year hold period for an international 80% equities portfolio.
  • sixpence.
    sixpence. Posts: 295 Forumite
    Sixth Anniversary 100 Posts Name Dropper Combo Breaker
    They are ball park and mostly intended to provoke discussion. 
    I have based them on my (limited) financial education and knowledge of investing.
  • barnstar2077
    barnstar2077 Posts: 1,580 Forumite
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    I agree with Bowlhead99, I want to retire early, but if I get nearer the time and my investments are not in a great place then I will just wait a bit longer.  Not all of your money has to be in one fund though.  You could keep x amount in an LS20 fund and put the rest in the 80 or 100, so that if you were ever forced to access the money earlier than you would like then you wouldn't take such a hit, and hopefully the 80/100 would make up for it later.  Assuming there is some emergency that your emergency cash could not cover (which I hope would be unlikely.)
    Think first of your goal, then make it happen!
  • sixpence.
    sixpence. Posts: 295 Forumite
    Sixth Anniversary 100 Posts Name Dropper Combo Breaker
    @bowlhead99 Say I am invested in the VLS 80% equity and after 5 years it's up 30%
    I want to buy a car or a cottage or a pedigree dachshund, so I want to sell 5%. Can I ever sell immediately or am I subject to the market dropping in the three days it takes for the sale to go through? Probably also something to check with Vanguard's customer service. 
  • dunroving
    dunroving Posts: 1,881 Forumite
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    I agree with Bowlhead99, I want to retire early, but if I get nearer the time and my investments are not in a great place then I will just wait a bit longer.  Not all of your money has to be in one fund though.  You could keep x amount in an LS20 fund and put the rest in the 80 or 100, so that if you were ever forced to access the money earlier than you would like then you wouldn't take such a hit, and hopefully the 80/100 would make up for it later.  Assuming there is some emergency that your emergency cash could not cover (which I hope would be unlikely.)
    That's an interesting observation. I originally bought into VLS20, VLS40 and VLS60, and somebody pointed out that I might as well invest solely in VLS40 (I mean within the VLS group; I have plenty of other holdings). But your logic makes sense to me. A VLS20 might be useful to take cash from in turbulent times, if it doesn't fall, when the higher equity VLS60 has fallen. Conversely, a VLS60 might be a good source of cash in good times when it has risen more than a VLS20. I find it hard to get my head around taking cash from a holding that has dropped.

    I'm now in retirement, but still early 60s. I find the planning in retirement is a lot more confusing than the planning for retirement!

    [Sorry if that's a sidetrack from the OP]
    (Nearly) dunroving
  • 83705628
    83705628 Posts: 482 Forumite
    100 Posts Name Dropper First Anniversary
    sixpence. said:
    If one decided to invest a lump sum in Vanguard LifeStrategy. Have I got this about right:
    • 20% equity 1-3 year investment period
    • 40% equity 3-5 year 
    • 60% equity 7-10 year
    • 80% equity 10-15 year
    • 100% 15-20 year
    Would it be foolish to invest in the 80% equity VLS for a five year period? What if you wanted to maximise profits but didn't mind tightening your belt for a few years if there was a crash / lack of growth? Is there any time period projection for the VLS?

    /
    Its a good start but IMHO this isn't how you should think about saving and investing (IMHO!!!).
    Are you talking about in a SIPP, ISA or general account? Might you need some of this money to live off?
     Because the bonds section of those funds is going to return less than a savings account if you look at the current yield. So you'd be better with, for example 40% cash/NS&I and 60% VLS 100% instead of VLS 60, if that makes sense.

    For bonds it's easy, just go in the portfolio data section, take the ytm and subtract fees. That's the average return you'll get get over the maturity. For the stocks component of those fund it's the current dividend yield + expected earnings growth + speculative return + exchange rate change.

    Vanguard publish outlooks on their UK websites and the expectation from global equity was 4% at the start of the year, 6% at the bottom of the dip, were back to start of year levels so ~4%. From bonds it's 1%. These are average annual returns over the next decade https://www.vanguard.co.uk/adviser/adv/vanguard-economic-and-market-outlook

    So the expected returns are
    VLS 60... 60% x 4% = 2.4%, + 40% x 1% = 0.4%, total 2.8%, less fees of ~0.4% (if you hold the fund on the Vanguard platform and not via another platform) leaves 2.4%.

    No one knows, and it's not a prediction or forecast, I just find it helpful to know what to expect.


  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    To ensure a positive return on equities minimum investment period would need to be 12 years. Any shorter timeframe (historically) could result in a potential loss. 
    After a decade of exceptional equity returns. The next decade may not be as rewarding. 

  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    sixpence. said:
    @bowlhead99 Say I am invested in the VLS 80% equity and after 5 years it's up 30%
    I want to buy a car or a cottage or a pedigree dachshund, so I want to sell 5%. Can I ever sell immediately or am I subject to the market dropping in the three days it takes for the sale to go through? Probably also something to check with Vanguard's customer service. 
    It might take three or so business days to settle the trade and give you the money, but it wouldn't take as long as three business days to fix the price you're going to get.

    You can place your order 'immediately' as soon as you have access to an internet-connected computer or mobile and can remember your account details.

    However, the order will only be processed at the next dealing point, which is once per day.

    You'll get the value at the next available valuation point after placing the order - will be 9pm that day assuming you get your order in before the cut-off in the morning, or 9pm the next business day if you didn't get your order in before the cut-off and need to wait another day to be included in the subscriptions and redemptions that are queued to be processed.

  • 83705628
    83705628 Posts: 482 Forumite
    100 Posts Name Dropper First Anniversary
    To ensure a positive return on equities minimum investment period would need to be 12 years. Any shorter timeframe (historically) could result in a potential loss. 
    After a decade of exceptional equity returns. The next decade may not be as rewarding. 

    /
    Yep, worst periods for UK equity since the war have been 1972-1983 (11 years) and 1999-2013 (14 years). I don't have global data but it's probably similar-ish. So unless we're walking into something worse, I.e. WWIII, COVID 2, a great depression, and a complete breakdown of the globalised world order all at once, that's the worst that can happen.
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