Vanguard

poli123

Hi there 
my dad who is >70 invested into VLS20 6 months ago and it has dropped by £500 which has made him panic , we chose that as he wanted a return better than cash , low risk , time horizon 5 years .  In my circumstances I would not worry as you have to take a long view and it will rebound but that didn’t provide any reassurance to him so jusT wanted your advice whether such a vehicle will re bound short term or are we likely to see a further drop (i know if he loses another 500 over next 6 months he will sell!). 
their attitude to risk is slow and steady but not comfortable with big swings so my next question is what fund  would you recommend given this ?

dunstonh

my dad who is >70 invested into VLS20 6 months ago and it has dropped by £500 which has made him panic 

What context is the £500 loss?

On £1000 its a lot.  on £10,000 it is nothing.   VLS20 is only around 0.2% down over 6 months.   It is down around 2.5% over 3 months.  That is nothing when it comes to investing.

 we chose that as he wanted a return better than cash , low risk , time horizon 5 years .

It probably wasn't the best time to be investing 80% of your risk assets in fixed interest securities and only having around half an economic cycle as your timescale (are you going to get the good half or the bad half?).   

However, even with that, he is only 6 months into a planned 5 year investment period.  You both knew the value will go down as well as up.  So, its gone down, as expected.   So, why the panic?

so jusT wanted your advice whether such a vehicle will re bound short term or are we likely to see a further drop (i know if he loses another 500 over next 6 months he will sell!). 

Fixed interest securities, which make up 80% of these investments, are not like equities.  They tend to be more wavy line than zig zag and the falls and recoveries are often played out over longer periods than equities.     The last decade has been good for fixed interest securities.   Far better than the norm as inflation and interest rates have been low.   The expectation is that reverse is going to happen.  Fears of it have just played out.

i know if he loses another 500 over next 6 months he will sell!). 

In which case he should sell now as no-one can say it won't reduce by that amount or more.

so my next question is what fund  would you recommend given this ?

None.  He should stay in cash and continue to accept that his money will lose value in real terms as he cannot handle even the slightest bit of volatility that ALL risk-based investments have.

underground99

It hasn't lost £500 from where it was 6 months ago; this week last September it was the same price as it is now, give or take a few pennies per share and with some income received along the way.  The peak for the accumulation version of the fund got up to £174.9 in November (now 169.7) while the income version has slightly different numbers. So the maximum drop he's seen is maybe 3.5% and not unexpected. A bond fund that holds some equities can easily do that, and could do it again next month and again the month after.   

If you look back a year, to 6 March 2020, it was at 166.50, but dropped about 10% within a fortnight as there was a pandemic-induced collapse. When he was considering investing six months ago, that would have been in the recent history for him to look at.  If he was comfortable with the fact it could swing 10% in a month or a year (presumably you had pointed that out, when 'we chose it'), but is now not comfortable with it dropping 3% in a few months and would sell up if he sees that happening again, it sounds like he has reconsidered his attitude to risk. Some people like the idea of having something that can grow over time but simply don't like the idea that they are not 'in control' of their money - it is at the whim of the market, where part of it might be taken from them without knowing when it might come back.

Cautious funds will have annualised volatility of under 10% but that doesn't mean there can't be occasional shocks. If 3% is £500 and freaks him out, and he is only expecting to be in the investment game for 5 years because he might need the money back for a care home or a new roof or new car or something, it is simply not worth using low volatility investments to 'try' to get a slightly better return from cash over that limited time-frame. If you succeed, you won't have made millions so will not be ecstatic, while if you fail, you'll be disappointed and feel silly for not just keeping the cash.

The bottom line is that a fund like this which is 80% invested in bond indexes and has some equities could certainly lose money over a 1-5 year timeframe. Bond indexes had a very good run for 30+years, so appear relatively 'slow and steady' compared to equities, but are not particularly cheap and will lose their value if interest rates and inflation rise; they could easily have a bearish period instead. Equity indexes are good things to hold over the long term for growth, but can easily have negative 5-year periods (losing 30-60% in a year or two), especially if you are buying them after the worst of the pandemic when they have bounced up from the cheap prices of last mid-March.  So combining 80% bonds with 20% equities is definitely not something that would be expected to avoid any 3-5% drops to the overall portfolio value.

So, if the time horizon is short, and 3% drops are intolerable because of the feelings of worry they induce, steer clear of investment funds altogether. There's nothing else available from Vanguard (or indeed the majority of fund houses) which would suit.

poli123

dunstonh said:

my dad who is >70 invested into VLS20 6 months ago and it has dropped by £500 which has made him panic 

What context is the £500 loss?

On £1000 its a lot.  on £10,000 it is nothing.   VLS20 is only around 0.2% down over 6 months.   It is down around 2.5% over 3 months.  That is nothing when it comes to investing.

 we chose that as he wanted a return better than cash , low risk , time horizon 5 years .

It probably wasn't the best time to be investing 80% of your risk assets in fixed interest securities and only having around half an economic cycle as your timescale (are you going to get the good half or the bad half?).   

However, even with that, he is only 6 months into a planned 5 year investment period.  You both knew the value will go down as well as up.  So, its gone down, as expected.   So, why the panic?

so jusT wanted your advice whether such a vehicle will re bound short term or are we likely to see a further drop (i know if he loses another 500 over next 6 months he will sell!). 

Fixed interest securities, which make up 80% of these investments, are not like equities.  They tend to be more wavy line than zig zag and the falls and recoveries are often played out over longer periods than equities.     The last decade has been good for fixed interest securities.   Far better than the norm as inflation and interest rates have been low.   The expectation is that reverse is going to happen.  Fears of it have just played out.

i know if he loses another 500 over next 6 months he will sell!). 

In which case he should sell now as no-one can say it won't reduce by that amount or more.

so my next question is what fund  would you recommend given this ?

None.  He should stay in cash and continue to accept that his money will lose value in real terms as he cannot handle even the slightest bit of volatility that ALL risk-based investments have.

dunstonh said:

my dad who is >70 invested into VLS20 6 months ago and it has dropped by £500 which has made him panic 

What context is the £500 loss?

On £1000 its a lot.  on £10,000 it is nothing.   VLS20 is only around 0.2% down over 6 months.   It is down around 2.5% over 3 months.  That is nothing when it comes to investing.

 we chose that as he wanted a return better than cash , low risk , time horizon 5 years .

It probably wasn't the best time to be investing 80% of your risk assets in fixed interest securities and only having around half an economic cycle as your timescale (are you going to get the good half or the bad half?).   

However, even with that, he is only 6 months into a planned 5 year investment period.  You both knew the value will go down as well as up.  So, its gone down, as expected.   So, why the panic?

so jusT wanted your advice whether such a vehicle will re bound short term or are we likely to see a further drop (i know if he loses another 500 over next 6 months he will sell!). 

Fixed interest securities, which make up 80% of these investments, are not like equities.  They tend to be more wavy line than zig zag and the falls and recoveries are often played out over longer periods than equities.     The last decade has been good for fixed interest securities.   Far better than the norm as inflation and interest rates have been low.   The expectation is that reverse is going to happen.  Fears of it have just played out.

i know if he loses another 500 over next 6 months he will sell!). 

In which case he should sell now as no-one can say it won't reduce by that amount or more.

so my next question is what fund  would you recommend given this ?

None.  He should stay in cash and continue to accept that his money will lose value in real terms as he cannot handle even the slightest bit of volatility that ALL risk-based investments have.

The amount invested is 20,000 so not much for you or I but his attitude to risk has changed , I can’t re assure the panic as my attitude to risk is very different. That was exactly the conversation I was having with him last night ( stick it in cash !!if you can’t take the lows !) but he then quizzes me why my mums fidelity multi asset allocator fund ( strategic ) has faired better which has had less swings but she has had 3 years ....

Alexland

I wouldn't suggest anyone should go heavily into bonds given they offer such a low return at current valuations and carry the risk of reducing in value if interest rates start to increase. Although equities are more volatile and could also be affected by interest rates rising their return potential is good enough to earn that back and more over enough time. My view is the maximum bonds that would be tolerable would be 40% (ie VLS60) not 80% (VLS20). He might be better just accepting that he and his circumstances is not suited to making a new investment and sticking with the best cash rates he can find.

Albermarle

As above in simple terms ;
It was always a given that lower % equities and higher % bonds ,was lower risk than the other way around .
In current market conditions this is less clear cut and a 40% equity fund might be less risky than a 20% one .

dunstonh

but he then quizzes me why my mums fidelity multi asset allocator fund ( strategic ) has faired better which has had less swings but she has had 3 years ....

It has been far more volatile and more in equities. Nearly twice as much.  You would expect it to have better returns than VLS20.

Not seeing the volatility does not mean the volatility is not there.    For example, if your dad wasn't looking at the value of the VLS20 then he wouldn't know the value is down.

eskbanker

poli123 said:
he then quizzes me why my mums fidelity multi asset allocator fund ( strategic ) has faired better which has had less swings but she has had 3 years ....

On the basis that a picture is worth a thousand words, show him a chart of the two funds (A being the Fidelity one and B VLS20):

poli123

Thank you all, very helpful.