Vanguard lifestrategy 80 for newbies

[Deleted User]

justme111 said:

It measures performance of 500 largest companies. Do you think it would be the only one that has been down for 8 years while everything else went up ? 

From what I can gather, it's it heavily biased towards US tech companies. Tech is my industry, I know how fast paced and turbulent it is. I think vanguard know that too, which is possibly why their lifestrategy funds are not entirely S&P 500, but are more diverse, and include stocks and shares outside of S&P 500 plus bonds.

I realise it sounds like I've made up my mind and am looking for confirmation that I've done the right thing, but that's not the case, and I can still pull out easily, having only invested a tiny amount so far. The impression I'm getting so far is that people's fears are based on less diverse portfolios. 

JohnWinder

Diversification is a protection, but when a big market goes down other markets feel the pressure too.

'So you had two back-to-back bear markets, 1927-1936 and 1937-1945, separated only by three months. Depending on what, exactly, you are looking at, by many criteria--both psychological and financial--two back-to-back seven-or-eight year bear markets are similar in their effect to a single 15-year bear market.' https://www.bogleheads.org/forum/viewtopic.php?f=10&t=345246&p=5926482&sid=def8fc7c2381c630b453a33601d328f4#p5926482

'Interesting to compare this period (1966-81) to the Great Depression. The total real return for the 16 years from 1929 through 1944 was 20.58%. This isn’t a very handsome total return for 16 years of investing, but it’s lots better than -5.54%. We usually think of the Great Depression as a bad time for investors (and it was), but that 1966-81 period was actually quite a bit worse.'  https://www.bogleheads.org/blog/2019/06/01/choosing-an-asset-allocation-behavioral-aspects/

justme111

Beardybaldy said:

justme111 said:

It measures performance of 500 largest companies. Do you think it would be the only one that has been down for 8 years while everything else went up ? 

From what I can gather, it's it heavily biased towards US tech companies. Tech is my industry, I know how fast paced and turbulent it is. I think vanguard know that too, which is possibly why their lifestrategy funds are not entirely S&P 500, but are more diverse, and include stocks and shares outside of S&P 500 plus bonds.

I realise it sounds like I've made up my mind and am looking for confirmation that I've done the right thing, but that's not the case, and I can still pull out easily, having only invested a tiny amount so far. The impression I'm getting so far is that people's fears are based on less diverse portfolios. 

Nothing to do with "pulling out" and "fears". 
So you think a "diverse portfolio" like vanguard life strategy  would not have went down and stayed down in the time frames described ?

whatstheplan

Beardybaldy said:
It seems to me, that unless we have a crystal ball, we can't really know what's going to happen when. Nobody predicted in summer of 2019 that by the end of the year we'd be seeing mass deaths, panic, and economic shutdowns. Someone acting on advice to invest for 10 years or more back in 2009 would have seen their investment crash.

To your first point, that kind of holds true for many things in life?  I'm only a few weeks into my investment journey, however it's already apparent many people like to project the idea they have some sort of insider knowledge.  Opposite to that, and these are the guys/girls I'd be more inclined to listen to, are those asserting no one actually knows what's going to happen with the markets, otherwise they'd all be billionaires.  Obviously those with greater knowledge are better placed to make balanced calculated risk-weighted decisions, however even they don't categorically know to what extent something will be positive or negative impact wise.

To your second point, if we take the S&P500 as an example, let's say someone invested £15 (rounded) in December 2007.  Yes that investment dropped to £9 by November 2009, however by early 2013 it had recovered and by December 2017 (10 years) the investment had risen to £27.  So it recovered albeit investors had to wait a good few years.

I kind of witnessed the 2007/08 crash happening real time (although didn't realise at the time) and suffered a bit financially from it.  I completed on a property in November 2007, prices were still crazy when I bought, with buyers advised to offer circa 10% over the asking price to secure a property.  I got caught up in that hype, luckily just on a relatively low value property I was buying for BTL.  I remember sitting in the estate agents one day looking over mortgages with their advisor.  There were circa 140 BTL mortgages available to me.  24 hours later this had dropped to under 100 and 24 hours after that I think it was circa 30 available mortgages.  This was the start of it, with lenders starting to pull products.

In a way we can maybe look on the markets and property as being similar for buyers/investors.  Generally, they trend upwards with some dips and peaks along the way.  If you can ride a peak, great, however the dips will hurt depending on where you are in your investment cycle.  And who knows exactly what's going to happen when?  No one.

[Deleted User]

JohnWinder said:

'So you had two back-to-back bear markets, 1927-1936 and 1937-1945, separated only by three months.  

Coinciding with the rise of fascism in Europe, the world war 2.

I get that these things can happen, and sadly I don't think we as a global society don't seem to have learn enough to prevent it happening again, but I think if we have a new rise of fascism followed by all out, global war, the value of my ISA won't be at the forefront of my mind.

I'd be more concerned about the risk of repeats of the later examples. The recession of the 80s force ample (I lived through that but I was too young to really understand the causes), or the 2008 one, but hopefully banks have learned not to lend money to those that can't afford it, and governments hopefully have learned to not turn a blind eye to practices that really test the boundaries of regulation. 

eskbanker

Beardybaldy said:

JohnWinder said:

'So you had two back-to-back bear markets, 1927-1936 and 1937-1945, separated only by three months.  

Coinciding with the rise of fascism in Europe, the world war 2.

I get that these things can happen, and sadly I don't think we as a global society don't seem to have learn enough to prevent it happening again, but I think if we have a new rise of fascism followed by all out, global war, the value of my ISA won't be at the forefront of my mind.

I'd be more concerned about the risk of repeats of the later examples. The recession of the 80s force ample (I lived through that but I was too young to really understand the causes), or the 2008 one, but hopefully banks have learned not to lend money to those that can't afford it, and governments hopefully have learned to not turn a blind eye to practices that really test the boundaries of regulation. 

But the fundamental point is that market crashes can happen for a wide variety of underlying reasons, so however unlikely it is that there'd be, say, another credit crunch in the same way as the previous one, that shouldn't be interpreted as reducing the likelihood of future crashes, economic recessions, etc.

[Deleted User]

eskbanker said:

Beardybaldy said:

JohnWinder said:

'So you had two back-to-back bear markets, 1927-1936 and 1937-1945, separated only by three months.  

Coinciding with the rise of fascism in Europe, the world war 2.

I get that these things can happen, and sadly I don't think we as a global society don't seem to have learn enough to prevent it happening again, but I think if we have a new rise of fascism followed by all out, global war, the value of my ISA won't be at the forefront of my mind.

I'd be more concerned about the risk of repeats of the later examples. The recession of the 80s force ample (I lived through that but I was too young to really understand the causes), or the 2008 one, but hopefully banks have learned not to lend money to those that can't afford it, and governments hopefully have learned to not turn a blind eye to practices that really test the boundaries of regulation. 

But the fundamental point is that market crashes can happen for a wide variety of underlying reasons, so however unlikely it is that there'd be, say, another credit crunch in the same way as the previous one, that shouldn't be interpreted as reducing the likelihood of future crashes, economic recessions, etc.

So from what I think I'm beginning to gather, risk is being considered in a binary fashion. Risk X can happen, or can not happen. 

If that's correct, perhaps we shouldn't do anything. There is a risk Russia or China will breach the computer systems of Britain and allies and effectively shut us down, so we should keep some of our money in actual paper cash in case that happens. There's a risk that some huge asteroid is going to plough straight through the earth next week, so no point investing at all, we should just blow all our cash in one massive hedonistic blowout.

I might still be missing the point. But so far we've seen examples from a period of global war, and examples of one very narrow fund suffering massive fluctuations. But I'm still no closer to understanding the risks over the relatively short term of a diverse fund such as vanguard's lifestrategy range. 

eskbanker

Beardybaldy said:

eskbanker said:

Beardybaldy said:

JohnWinder said:

'So you had two back-to-back bear markets, 1927-1936 and 1937-1945, separated only by three months.  

Coinciding with the rise of fascism in Europe, the world war 2.

I get that these things can happen, and sadly I don't think we as a global society don't seem to have learn enough to prevent it happening again, but I think if we have a new rise of fascism followed by all out, global war, the value of my ISA won't be at the forefront of my mind.

I'd be more concerned about the risk of repeats of the later examples. The recession of the 80s force ample (I lived through that but I was too young to really understand the causes), or the 2008 one, but hopefully banks have learned not to lend money to those that can't afford it, and governments hopefully have learned to not turn a blind eye to practices that really test the boundaries of regulation. 

But the fundamental point is that market crashes can happen for a wide variety of underlying reasons, so however unlikely it is that there'd be, say, another credit crunch in the same way as the previous one, that shouldn't be interpreted as reducing the likelihood of future crashes, economic recessions, etc.

So from what I think I'm beginning to gather, risk is being considered in a binary fashion. Risk X can happen, or can not happen. 

If that's correct, perhaps we shouldn't do anything. There is a risk Russia or China will breach the computer systems of Britain and allies and effectively shut us down, so we should keep some of our money in actual paper cash in case that happens. There's a risk that some huge asteroid is going to plough straight through the earth next week, so no point investing at all, we should just blow all our cash in one massive hedonistic blowout.

I might still be missing the point. But so far we've seen examples from a period of global war, and examples of one very narrow fund suffering massive fluctuations. But I'm still no closer to understanding the risks over the relatively short term of a diverse fund such as vanguard's lifestrategy range. 

Not sure how you're reaching your conclusion about binary risk from my post that you were quoting!  I was simply observing that it's inadvisable to assume that avoiding past known mistakes means that there's less risk of future unknown events that will significantly impact markets.  Nobody can meaningfully quantify short-term investment risk - if they could predict this then they'd make themselves very rich very quickly - so it's more prudent to consider risk in a more generic sense....

AlanP_2

I would think that if you plotted the various underlying trackers in the VLS (on Trustnet for example) you will see that the S&P500 and Nasdaq arre the ones that have driven the vast majority of the returns. The US markets have been on a strong upward trajectory for a good few years now.

Bonds also have been on an upward trajectory, benefiting from QE (as have equiities by the way). WIth interest rates and inflation on the floor there is little scope for such growth in Bonds over the next 10 years.

The S&P 500 isn't that narrow a market as many of the tech stocks are listed on Nasdaq and not in the S&P 500.

The overall economic climate and worldwide monetary policy has been extremely favourable to investments over the last 10 years or so. Whether this will continue we don't know but keep in mind you will be starting your invest journey at a much higher entry point than the younger you would have done 10 years ago and whilst we don't know "when" we can be certain that at some stage there will be a significant crash and an unknown period of recovery.

Diversification using something like VLS makes sense as you are covering a lot of bases but don't be fooled in to thinking values only go up. As mentioned the flexibility to delay taking the cash is in your favour but not everyone is that fortunate and we see posts on here about investing property deposit savings for a couple of years as interest rates are so low.

Invest with your eyes open is the bottom line I guess and have a plan for your overall financial well being as a household unit if there is a significant other that makes the best use of the tax wrappers available and is directed at meeting your financial objectives. I plan on retiring later this year, my objective isn't to get the highest returns possible and I don't want to work for another few years if markets crash so I would be opting for lower risk investments than you.

[Deleted User]

eskbanker said:

Beardybaldy said:

eskbanker said:

Beardybaldy said:

JohnWinder said:

'So you had two back-to-back bear markets, 1927-1936 and 1937-1945, separated only by three months.  

Coinciding with the rise of fascism in Europe, the world war 2.

I get that these things can happen, and sadly I don't think we as a global society don't seem to have learn enough to prevent it happening again, but I think if we have a new rise of fascism followed by all out, global war, the value of my ISA won't be at the forefront of my mind.

I'd be more concerned about the risk of repeats of the later examples. The recession of the 80s force ample (I lived through that but I was too young to really understand the causes), or the 2008 one, but hopefully banks have learned not to lend money to those that can't afford it, and governments hopefully have learned to not turn a blind eye to practices that really test the boundaries of regulation. 

But the fundamental point is that market crashes can happen for a wide variety of underlying reasons, so however unlikely it is that there'd be, say, another credit crunch in the same way as the previous one, that shouldn't be interpreted as reducing the likelihood of future crashes, economic recessions, etc.

So from what I think I'm beginning to gather, risk is being considered in a binary fashion. Risk X can happen, or can not happen. 

If that's correct, perhaps we shouldn't do anything. There is a risk Russia or China will breach the computer systems of Britain and allies and effectively shut us down, so we should keep some of our money in actual paper cash in case that happens. There's a risk that some huge asteroid is going to plough straight through the earth next week, so no point investing at all, we should just blow all our cash in one massive hedonistic blowout.

I might still be missing the point. But so far we've seen examples from a period of global war, and examples of one very narrow fund suffering massive fluctuations. But I'm still no closer to understanding the risks over the relatively short term of a diverse fund such as vanguard's lifestrategy range. 

Not sure how you're reaching your conclusion about binary risk from my post that you were quoting!  I was simply observing that it's inadvisable to assume that avoiding past known mistakes means that there's less risk of future unknown events that will significantly impact markets.  Nobody can meaningfully quantify short-term investment risk - if they could predict this then they'd make themselves very rich very quickly - [b] so it's more prudent to consider risk in a more generic sense....[/b] 

That's my point. Surely risk is not generic in real life. Surely it's a sliding scale of probability. As in my example, we've seen the markets crash due to global war, so we know from past experience that that can happen. But if we let fear of global war get in the way, on the basis that its happened before so could happen again, then we surely have to rule out every conceivable threat that's ever happened, or feasibly could happen.

My view so far is that I might lose half my money, but that would take a cataclysmic event. Or I might lose 5% of my money, in a much higher probability event. Or I might gain money. Or I might not invest, and just keep my money in a savings account that pays negligible interest, and know with 100% certainty that my money will lose value when set against inflation.