Vanguard lifestrategy 80 for newbies

dunstonh

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. 

one narrow fund?    hardly.

There have been three major market crashes in the last 20 years.  Two over 40% and one at 35%.    Some markets suffered more than those figures. Some less.   There have also been multiple crashes in that period in excess of 20%.       Most market crashes recover within a relatively quick period (viewed as 6 months to 2 years).    Major ones tend to take much longer.

Most crashes are down to unique events.  However, history does tell us that we do not learn and complacency is a common cause of repeated crashes.      Since 1956, there has been a financial crisis around every 7 years.  Some areas get hit harder than others (some miss them altogether).    Some are global events and hit everything.

Understanding VLS is easy as its underlying assets are similar to the underlying assets of other multi-asset funds that have been running for generations.  The weightings vary but they are very similar.

Being complement about risk following a major sustained growth period is a common mistake for a new investor.  It is also a telltale sign to experienced investors that the market is possibly overvalued and ripe for a fall.

eskbanker

Beardybaldy said:

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.

I don't really understand the point you're making to be honest, but there's nothing stopping you from trying to identify (and quantify) every risk that could influence global markets, which would indeed include significant wars and pandemics among numerous other possibilities, but my point is that it's impractical to believe that you'd succeed - if you'd asked the question fifty years ago, how many would have envisaged a tech bubble bursting or a credit crunch from insufficiently regulated lending?  So, to me the more realistic view is to take the Donald Rumsfeld approach:

Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don't know we don't know. And if one looks throughout the history of our country and other free countries, it is the latter category that tends to be the difficult ones.

Thrugelmir

Beardybaldy said:

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. 

If you like statistics. Then you'd enjoy a read of this as is full of copious amounts of data. 

This Time Is Different: Eight Centuries of Financial Folly by Reinhart and Rogoff

justme111

Op , why don't you try to identify diversified finds that has not gone down in the past crashes then if you think they should not have gone down ?
You seem to be mixing up two different arguments -"we should invest despite crashes " and " crashes do not matter as they last measly few months and then the value goes up again".
Nobody argues with the former statement. People given you examples of crashes having a massive impact as they lasted for years but you keep dismissing those examples because they are referring to a particular indices arguing that there is somewhere a diversified investment  that would have been better than those indices.
How do you imagine a fund with 80%equities and 20%bonds would protect you from an 8 year slump? Or what exact constituents that fund should have to be able to do so as you seem to be assured they should ?

Eco_Miser

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 think you're confusing cause and effect there. The markets crashed in 1929. Hitler was elected in 1933, mainly on the promise he'd fix the economy. WW2 started in 1939.

We're seeing a rise in nationalism, some call it fascism, but the stakes for all out global war are rather higher than in 1939, so it probably won't happen, and your ISA may stay at the forefront of your mind.