Vanguard Strategy Options

dunstonh

there is plenty of evidence that having a simply investment portfolio with even 1 or 2 global/balanced funds is a decent strategy. 

The term "balanced" can mean different things.   You then have to question what knowledge and ability do you have to do things better than the fund house operating the balanced fund that requires you to break their asset allocation model.

Whilst a core and satellite approach (in this case the multi-asset balanced fund being the core) can work, it still requires rebalancing and adjusting.  After all, typically the satellite holdings tend to be managed or focused investment funds and those are often not good for the whole cycle but only parts of it.   That doesn't fit with a low maintenance requirement.

nirajn123

fizio said:

I am looking to invest a few hunderd k i have in cash, intio the stockmarket and looking for a low risk/low maintenance investment strategy that will last the next 20 years in retirement. I also have some property income and DB pension so not totally dependent on the stock marketr for income but looking to simply take out and spend any growth on luxuries. Having done lots of reading I have decided to go with Vanguard for reasons of cost and simplicity and reputation. I see 3 options and was looking for any comments

1. Stick it all in VLS 80/20

2. Split between VWRL and BND ( worldwide index and worldwide bonds) - similar to above but less fees as far as i can tell

3. Worldwide exc US (VEU), US (VTI) and BND

I am fancying a more US bias than UK to be honest as UKL seems to in for a long haul of pain

Not sure of the split but maybe 80/20 for option 2 and 50/30/20 for option 3

Not an advise but here is my personal take on each of the options you listed, ultimately one has to choose based on their own risk tolerances and knowing that there are no guarantee of a certain % of return in these instruments.
1. If your objective was to benefit from automatic rebalancing ideally VLS 80/20 would have been a great choice but for some reason Vanguard has decided to structure it differently to a simple global 80/20 and has a UK and Developed world bias, so it may not fit with the point you mention about your own bias & return expectations 
2. This appears to be a better choice to me personally purely based on level of diversification. Fees aren't going to be massively different (as VLS and VWRL has same fees, so it will come down to the Bond fund fees difference (I assume you meant VAGP as BND isn't available in Europe as far as I can see) which will be tiny (for a £200K portfolio it will be £48/year cheaper than holding a VLS80/20). This needs periodic rebalancing - so some housekeeping involved. 
3. This and loads of other combinations are possible and as with all options comes down to personal expectations of future returns, which differs depending on who you ask but nobody can predict. You could try out Portfolio visualiser to see the difference between each portfolio side by side and see what works best for you - this will be based on past performance though so US tilt will appear far better than say EM which may not continue in future.

Have you looked at the CGT considerations if you are holding this outside ISA? and the fact it may be easier to hold distribution unit rather than accumulation if this is going to be outside a wrapper for future tax liability calculations. Bogleheads has great wiki & forum with plenty of experienced Vanguard investors if you want to dig deep into this.

I do not agree about some unfair criticism above, although there are no guarantees of return over a certain period of time and you could have huge drawdowns even with 80/20 in a particular year, there is a huge amount of evidence available to suggest a long term (15 yrs+) equity return of close to 6% - plenty of good evidence based material on this on StarCapital, Vanguard sites. You could also check out Ben Felix's YouTube channel - my personal favourite. Low cost ETFs are one of the best ways to achieve such long term returns for a regular investor like me.

fizio

nirajn123 said:

Not an advise but here is my personal take on each of the options you listed, ultimately one has to choose based on their own risk tolerances and knowing that there are no guarantee of a certain % of return in these instruments.
1. If your objective was to benefit from automatic rebalancing ideally VLS 80/20 would have been a great choice but for some reason Vanguard has decided to structure it differently to a simple global 80/20 and has a UK and Developed world bias, so it may not fit with the point you mention about your own bias & return expectations 
2. This appears to be a better choice to me personally purely based on level of diversification. Fees aren't going to be massively different (as VLS and VWRL has same fees, so it will come down to the Bond fund fees difference (I assume you meant VAGP as BND isn't available in Europe as far as I can see) which will be tiny (for a £200K portfolio it will be £48/year cheaper than holding a VLS80/20). This needs periodic rebalancing - so some housekeeping involved. 
3. This and loads of other combinations are possible and as with all options comes down to personal expectations of future returns, which differs depending on who you ask but nobody can predict. You could try out Portfolio visualiser to see the difference between each portfolio side by side and see what works best for you - this will be based on past performance though so US tilt will appear far better than say EM which may not continue in future.

Have you looked at the CGT considerations if you are holding this outside ISA? and the fact it may be easier to hold distribution unit rather than accumulation if this is going to be outside a wrapper for future tax liability calculations. Bogleheads has great wiki & forum with plenty of experienced Vanguard investors if you want to dig deep into this.

I do not agree about some unfair criticism above, although there are no guarantees of return over a certain period of time and you could have huge drawdowns even with 80/20 in a particular year, there is a huge amount of evidence available to suggest a long term (15 yrs+) equity return of close to 6% - plenty of good evidence based material on this on StarCapital, Vanguard sites. You could also check out Ben Felix's YouTube channel - my personal favourite. Low cost ETFs are one of the best ways to achieve such long term returns for a regular investor like me.

Thank and I very much appreciate someone actually giving me some useful feedback on the 3 options and I am also leaning towards option 2 at the moment. I will look into bogleheads for sure. The investment will indeed be outside ISA (though most likley i will also use teh same model in my ISA's) and I need to look into the distribution versus accumation and CGT angle as thats new to me.

NedS

fizio said:

Thank and I very much appreciate someone actually giving me some useful feedback on the 3 options and I am also leaning towards option 2 at the moment. I will look into bogleheads for sure. The investment will indeed be outside ISA (though most likley i will also use teh same model in my ISA's) and I need to look into the distribution versus accumation and CGT angle as thats new to me.

If you are investing outside of a tax wrapper and may be subject to CGT, the thinking is that by using distribution units as opposed to accumulation units, it will make it easier for you to work out how much of the overall return is due to a capital gain (fund going up in value) and how much is due to dividends. For an accumulation unit where the dividends are automatically reinvested back into the fund for you by the fund manager it is not at all transparent whereas the distribution units will distribute (pay out) the dividends to you so at that point you know any rise in value of the fund unit is due to capital gain.

gm0

The global equities passive cheap + bonds fund as two funds i.e. option 2 in your example lets you adopt a variety of extraction and rebalancing approaches which a self managing multi-asset fund does not. 

In the literature and web back testing of these there are many options for how often and how to approach sales for income and rebalancing during drawdown where SORR is more pressing than in long term accumulation.  The latest ERN article (on rebalancing frequency) and McClung Living off your Money - are both good surveys of this particular "extraction mechanics + rebalancing" topic.  So as a long term structure - option 2 appeals if the maintenance is acceptable to you.

No view on option 3

fizio

NedS said:

fizio said:

Thank and I very much appreciate someone actually giving me some useful feedback on the 3 options and I am also leaning towards option 2 at the moment. I will look into bogleheads for sure. The investment will indeed be outside ISA (though most likley i will also use teh same model in my ISA's) and I need to look into the distribution versus accumation and CGT angle as thats new to me.

If you are investing outside of a tax wrapper and may be subject to CGT, the thinking is that by using distribution units as opposed to accumulation units, it will make it easier for you to work out how much of the overall return is due to a capital gain (fund going up in value) and how much is due to dividends. For an accumulation unit where the dividends are automatically reinvested back into the fund for you by the fund manager it is not at all transparent whereas the distribution units will distribute (pay out) the dividends to you so at that point you know any rise in value of the fund unit is due to capital gain.

Sorry for the ignorance but does the same apply to ETF's as thats what I am looking at - I would guess that ETF's are accumulation be default.. In fact most of vanguard global index funds seem accumulation.

I came acros an article along these lines detailing this sort of issue

https://www.itinvestor.co.uk/2019/06/vanguard-all-world-etf-vwrl/

The long and short of it is that there is some work involved in working out cap gains once a year - which is not a disaster

fizio

Having decided on a strategy after a couple of days reading and  thinking, I am now trying to figure out timing - i know you can't time the market etc but I don't feel comfortable making a huge investment in one go given all the uncertainties so am thinking of doing lump sums every month for next 6-12 months or when i see any market drops or pound value increases..

Not sure so will think it over but welcome any thoughts on this..

gm0

The "long term" data on backtesting doesn't really support trickle feed over lump sum investment for a one off lump of cash which is going to be invested (to a given risk appetite, for an appropriate duration say 5-10yr+).  Emotionally though it suits many better. Pound cost averaging arguments through volatility are more applicable to regular saving such as pension contribution from salary where you get paid and save on a regular cadence and buying through the dips is all part of the overall game.

However the remorse of a short term volatility event immediately on a lump sum investment does mean that for many of us - trickling in makes it emotionally easier to deal with.  I have found 2020 difficult and been confounded by the post Feb correction rally notwithstanding the minor bumps of recent days.

fizio

The COVID/Brexit/Trump combo is just to much psychologically but i get your point..

NedS

fizio said:

NedS said:

fizio said:

Thank and I very much appreciate someone actually giving me some useful feedback on the 3 options and I am also leaning towards option 2 at the moment. I will look into bogleheads for sure. The investment will indeed be outside ISA (though most likley i will also use teh same model in my ISA's) and I need to look into the distribution versus accumation and CGT angle as thats new to me.

If you are investing outside of a tax wrapper and may be subject to CGT, the thinking is that by using distribution units as opposed to accumulation units, it will make it easier for you to work out how much of the overall return is due to a capital gain (fund going up in value) and how much is due to dividends. For an accumulation unit where the dividends are automatically reinvested back into the fund for you by the fund manager it is not at all transparent whereas the distribution units will distribute (pay out) the dividends to you so at that point you know any rise in value of the fund unit is due to capital gain.

Sorry for the ignorance but does the same apply to ETF's as thats what I am looking at - I would guess that ETF's are accumulation be default.. In fact most of vanguard global index funds seem accumulation.

I came acros an article along these lines detailing this sort of issue

https://www.itinvestor.co.uk/2019/06/vanguard-all-world-etf-vwrl/

The long and short of it is that there is some work involved in working out cap gains once a year - which is not a disaster

VWRL pays out a dividend every quarter, so it's distributing, not accumulating.

Most fund/ETF factsheets will tell you if the fund/ETF pays a dividend, and the frequency of the payment.