Vanguard funds and investment approach

whatstheplan

TheAble said:

I think just get your thoughts in order a bit, it all sounds a bit incoherent. Your primary objective is retire asap but worst case working till you're 65 is ok?
Personally I don't think you should build a retirement age around the short term vagaries of the stock market.

Yes and if being honest I don't really see anything wrong with that.  Let's say I do nothing else investment wise and stick to my 9-5 with my pension and my BTLs.  That means I'll be working to 65 give or take a year or two either way.  If that happens it happens, so whilst I wouldn't be entirely ok with it, it's the fallback plan ... keep on working.

However, rather than have money sitting there doing nothing, I've decided to put it to work in the hope it can accelerate my retirement plan.  My goal of 58 is perhaps overly ambitious, realistically I'll probably be working to 60ish, however these are preliminary goals that I've set myself, subject to adjustment over the next 2-3 years as I settle into doing something with the aforementioned money.  So I suppose yes, some might refer to it as incoherent, I prefer to look on it as a preliminary plan with some penciled in objectives

I agree the stock market guarantees nothing, however the potential returns over the next decade are a better use for my savings than leaving them sitting there doing nothing.  Yes I could in theory go out and buy a cheap as chips BTL outright in a not very desirable area and use it as a cash cow, however that doesn't really appeal and, depending on the tenants that sort of property would attract, the actual profits over a decade might not be that attractive and there would be close to zero capital appreciation.

Bar buying myself a Bitcoin and riding that wave, I don't really see how else I can put the money to work?

whatstheplan

JohnWinder said:

I think you’re on the right track, although some have/could argue you used the wrong map so far.

Ignoring everything already written, one probably gets the best investing results by:

1  starting early to get the benefit of compounding (you’re not wasting another minute, so, good). 

2 choosing an asset allocation to match your risk appetite. I know bonds are promising poor returns, but just be sure you’re ok with a big equity price drop at a bad time for you.

3 diversifying the equities. You’ve done that very well with a developed world and an emerging markets holding(s).  ESG may turn out to be just a flavour of the month, but the returns are unlikely to be much different from a similarly diversified non-ESG fund (my uneducated guess only). I think the most efficient portfolio would be cap weighting the EM fund, so about 15% of your equities, not 50%, but it’s small print stuff.

4 keeping costs down. You’ve done that with Vanguard funds, most likely.

5 using index fund because you get market returns (less costs) which nothing else can ‘guarantee’.

6 matching your assets to your liabilities. You keep mentioning a 10-15 year time frame, but if you live to age 85 it’s 36 years of investing still to go. That’s more like an equity time frame.

Choosing funds on the basis of performance over the last few years is suboptimal. The best risk adjusted returns from equities is likely to be from a widely diverse global fund; be careful straying too far from that (which you haven't) as you tinker. And have a think about whether currency hedging and ‘home bias’ are issues you’re later going to regret you overlooked, if you have.

Thanks.  Re point 6 in your reply, I think this is what I'm not explaining very well.  Let's say I retire at 60, by then I'll have 27 years paid into my pension, with overpayments made.  I can draw that pension with no penalties from 67.  My residential mortgage will be paid off at 60 and I'll retain one of my BTLs from that point with the mortgage cleared.  So in reality what I need the shares investment to contribute towards is the interim period i.e. 60 to 67.  If the pot has increased sufficiently over the next decade, it doesn't bother me if I essentially have to sell it all to help fund the aforementioned interim period.

I don't need this extra investment pot from 67 as I'll have my work and state pensions.  So if it all needs to go from 60 I don't necessarily care.  It's purely a vehicle to fund earlier retirement.  Similarly, if the investment doesn't increase sufficiently, I keep on working beyond 60 for however long I need to, that's the plan B if you like.

I get that most on here are more about long term investing up to and beyond retirement, in reality I don't really need the latter part.  And I have no desire to plan everything around working up to 67 i.e. leaving the investment untouched for the next 17 years.  I appreciate that approach perhaps makes more sense and could be linked to less risky funds (longer term investment) however if I knew now that I would be working up to 67 no matter what, then  my objective and at least trying to achieve it has been completely missed.

To me it kind of makes sense? 

bostonerimus

Well done choosing Vanguard, passive indexing with a rebalancing strategy will help you in tough times and will keep costs down. I've been doing that for 30 years and retired at age 52. I live in the US and I have the vast majority of my money in just 3 funds: 55% US Total Stock Market Index, 30% International Stock Market Index, and 15% US Bond Market Index. So I'm not over weighting sectors like emerging markets. There was a time when I'd rebalance when my allocation diverged by 5% from my target, but in retirement I've stopped doing that. I look at my balance maybe once a month, but have done very little in the last 5 years...I did rebalance from bonds into stocks last year when the markets were falling, meaning that I bought stocks at low prices. Over the last 10 years my average annual return is 9% which is more than enough for me.

dunstonh

Well done choosing Vanguard, passive indexing with a rebalancing strategy will help you in tough times and will keep costs down. 

Except it's not really a passive strategy as the op is making management decisions.   Unless you go with a global tracker, you are pretty much making management decisions to some degree.  Some minor. Some significant.

I live in the US and I have the vast majority of my money in just 3 funds: 55% US Total Stock Market Index, 30% International Stock Market Index, and 15% US Bond Market Index. So I'm not over weighting sectors like emerging markets. 

In the US it makes sense to use trackers only.  US managed funds are generally poor quality and internal taxation hurts them more than passive funds.  In the UK, there is no internal taxation.

You are also making management decisions.  Such as your heavy home bias, weightings split and rebalancing strategy.

If the OP is happy to be 100% equity based and has restricted himself to the church of Vanguard then he may as well go with their global tracker.   The amounts do not really justify building a portfolio that includes single sector funds that require weightings decisions.   If he has an ESG preference (which appears not), then use the ESG version.

JohnWinder

Making decisions about your portfolio, management decisions if you like, doesn’t invalidate it as a well justified investment strategy. Those management decisions are essential.

We could say that to be ‘more passive’ than what was envisaged would be to own bonds and stocks in proportion to their value around the globe, which would mean holding more bonds than stocks because the bond market is bigger than the equity market; and it would also mean holding junk bonds which is unnecessary for a wise portfolio. So to dismiss an approach that addresses the need for an appropriate asset allocation, has a diversified equity holding, and uses low cost cap weighted index funds as not being passive is to risk robbing one of the chance for a simple, effective DIY investment strategy that will likely outperform one devised by the average expert. https://www.ifa.com/articles/investing-and-market-efficiency-tbs/

dunstonh said:

In the US it makes sense to use trackers only.  US managed funds are generally poor quality and internal taxation hurts them more than passive funds.  In the UK, there is no internal taxation.

All three of those propositions could be true: poor US funds; internal taxation in US; no taxation in UK. But that doesn’t lead to the conclusion that it makes sense not to use trackers in UK, if that was the suggestion.

Not only in the US does it make sense to use index tracking equity funds, but elsewhere also, since they can give the broadest diversification at the least cost and thus the best risk adjusted returns, and the research continues to show better performance over the longer term than the majority of non-index funds on a risk adjusted basis. GBP denominated funds in the recent SPIVA report underperformed their index benchmark by a large majority in all categories over a 10 year period. https://www.spglobal.com/spdji/en/spiva/article/spiva-europe

dunstonh

All three of those propositions could be true: poor US funds; internal taxation in US; no taxation in UK. But that doesn’t lead to the conclusion that it makes sense not to use trackers in UK, if that was the suggestion.

I did not say it didn't make sense to use trackers in the UK.   Just that the case is stronger in the US than in the UK.

bostonerimus

dunstonh said:

Well done choosing Vanguard, passive indexing with a rebalancing strategy will help you in tough times and will keep costs down. 

Except it's not really a passive strategy as the op is making management decisions.   Unless you go with a global tracker, you are pretty much making management decisions to some degree.  Some minor. Some significant.

I live in the US and I have the vast majority of my money in just 3 funds: 55% US Total Stock Market Index, 30% International Stock Market Index, and 15% US Bond Market Index. So I'm not over weighting sectors like emerging markets. 

In the US it makes sense to use trackers only.  US managed funds are generally poor quality and internal taxation hurts them more than passive funds.  In the UK, there is no internal taxation.

You are also making management decisions.  Such as your heavy home bias, weightings split and rebalancing strategy.

If the OP is happy to be 100% equity based and has restricted himself to the church of Vanguard then he may as well go with their global tracker.   The amounts do not really justify building a portfolio that includes single sector funds that require weightings decisions.   If he has an ESG preference (which appears not), then use the ESG version.

The tax point is valid. Using only Vanguard gives you more than enough choice to successfully invest. It's not the only solution, but it is simple and inexpensive which are features that I like. For the regular investor too much choice can be paralyzing and staying away from some of the funds pushed by some platforms isn't a bad thing.

dunstonh

bostonerimus said:

dunstonh said:

Well done choosing Vanguard, passive indexing with a rebalancing strategy will help you in tough times and will keep costs down. 

Except it's not really a passive strategy as the op is making management decisions.   Unless you go with a global tracker, you are pretty much making management decisions to some degree.  Some minor. Some significant.

I live in the US and I have the vast majority of my money in just 3 funds: 55% US Total Stock Market Index, 30% International Stock Market Index, and 15% US Bond Market Index. So I'm not over weighting sectors like emerging markets. 

In the US it makes sense to use trackers only.  US managed funds are generally poor quality and internal taxation hurts them more than passive funds.  In the UK, there is no internal taxation.

You are also making management decisions.  Such as your heavy home bias, weightings split and rebalancing strategy.

If the OP is happy to be 100% equity based and has restricted himself to the church of Vanguard then he may as well go with their global tracker.   The amounts do not really justify building a portfolio that includes single sector funds that require weightings decisions.   If he has an ESG preference (which appears not), then use the ESG version.

The tax point is valid. Using only Vanguard gives you more than enough choice to successfully invest. It's not the only solution, but it is simple and inexpensive which are features that I like. For the regular investor too much choice can be paralyzing and staying away from some of the funds pushed by some platforms isn't a bad thing.

in the UK, Vanguard do not have the best trackers in every area.   They have a decent range but HSBC, L&G and iShares come out better in some areas.   In my portfolio, there are 3 vanguard trackers, 2 HSBC trackers, 2 iShares trackers and a Fidelity tracker and 5 managed funds.

I agree you should avoid many of the funds that platforms push.  That is more marketing than anything else.  Often they do it to try and generate enough through them to justify or obtain superclean share classes.  Not because they are any good.

bostonerimus

dunstonh said:

in the UK, Vanguard do not have the best trackers in every area.   They have a decent range but HSBC, L&G and iShares come out better in some areas.   In my portfolio, there are 3 vanguard trackers, 2 HSBC trackers, 2 iShares trackers and a Fidelity tracker and 5 managed funds.

I agree you should avoid many of the funds that platforms push.  That is more marketing than anything else.  Often they do it to try and generate enough through them to justify or obtain superclean share classes.  Not because they are any good.

I don't think you need to worry about having "the best" tracker...whatever that means, nor that you need to slice and dice geographically or within asset classes much. So for broad indexes use HSBC, Vanguard, iShares etc. Maybe even use a target date retirement fund, although you'll pay a bit more for that and you will usually get a bit of a potpourri of constituent funds. For most people a simple strategy that they can effectively implement themselves will work just fine. I'd rather get the guaranteed saving of reducing management fees than the premium promised by active funds and advisors. In hindsight the simple self managed approach will definitely not be the path of highest return, but it will be one that will probably get them to their goal safely and without too much aggravation. I say that because it worked for me...so I'm biased...and I'm happily retired and financially independent. Honestly, I think the thing people should do before they even think about investing is to understand their spending so they can free up more money to save and invest.

Thrugelmir

bostonerimus said:

dunstonh said:

in the UK, Vanguard do not have the best trackers in every area.   They have a decent range but HSBC, L&G and iShares come out better in some areas.   In my portfolio, there are 3 vanguard trackers, 2 HSBC trackers, 2 iShares trackers and a Fidelity tracker and 5 managed funds.

I agree you should avoid many of the funds that platforms push.  That is more marketing than anything else.  Often they do it to try and generate enough through them to justify or obtain superclean share classes.  Not because they are any good.

For most people a simple strategy that they can effectively implement themselves will work just fine. 

The world is changing. Pricing is increasingly competitive. Vanguard are likely to become squeezed. Even their actively managed passive products may have seen their best days pass. Reputation alone (not as strong in the UK as in the US ) is no longer sufficient.