VLS

JustinEvans9964

Hi, still very new to the site and investing in general. After some great advice on here I decided that I would open up a S&S ISA with a modest lump sum and a monthly top up. I chose the VLS 60 as it suits my risk (balanced with a lean towards the (slightly!) riskier end) and was managed by people who know a lot more about than me! I did some research; read a few articles and watched some tubes supplied by some of the members here from the likes of Lars Kroijer. I know I am simplifying things but in broad brush terms pretty much everything I have read has suggested that although there will be undoubted peaks and troughs of bull and bear markets, ultimately, as long as you are prepared to hold your nerve when the drops drop, and play the long game (10-20 years), the general consensus would be that the peaks will always outweigh the troughs and over the course of time your investment will grow and be worth more than you put in. So my question would be: If the above statement is true then is my 40/60 split conservative and should I be looking to push it up to 20/80 or even 0/100?

Interested in what you guys think.

virenque

I think the VLS split you choose is partly governed by your age and how long it will be until you need the cash. If you're in for another 20 years then stick it all in VLS100 for at least 10 of those!

ColdIron

It's one thing to intellectually accept that the value of your portfolio could drop by 30% or more and quite another to experience it drop by, say, your annual earnings. You need to be comfortable with the level of volatility you take on

underground99

Risk is lowered by holding for a long time - the eventual results are more likely to reach the long term average if you hold for the long term ; if you only hold for the short term it is less likely to be exactly 'normal'.  Like tossing a coin 1000 times might give you 400-600 heads, while if you toss a coin only once you will either get one or none.

Going 80 or 100% equities will give you more sleepless nights but likely a higher eventual return over long periods. But if 60% equities 'suits my risk' as its balanced, and you don't need more returns than a medium-risk to hit your objective, you don't need to throw that caution to the wind. 

ColdIron said:

It's one thing to intellectually accept that the value of your portfolio could drop by 30% or more and quite another to experience it drop by, say, your annual earnings. You need to be comfortable with the level of volatility you take on

This.

You know that in theory, if you hold your nerve through the long game you will ride out the undoubted peaks and troughs and will be fine.  However, you may find the reality is not as much fun as the 'theory'. If you buy a 100% equity fund and at some point your investment is worth 50% less than it had been worth a year or two earlier, some people will bottle out and cash in that loss. So, if you think there's a chance that might be you when it happens, best not to go too aggressive. 80% equity does not reduce the risk a whole lot compared to 100% equity. 

Also remember that if you are drip-feeding, if it does crash in value you will be able to keep buying more shares in the fund at those nice low prices and get a decent result in the end.   However, although you are investing for a long time, as the money is dripped in for e.g. 15 years, only the initial 'modest' amount gets the full 15 years of market exposure. Some of the money you haven't earned and invested yet will only get 10 years, some 5. If you are cashing out in '10-20 years', some of the money you invest years from now will only get 1 year until those '10-20' are up. So you may prefer to reduce your risk over time as you reach the eventual withdrawal point, if there is one and it's not just going to be 'indefinite'.

Eyeful

Only you know your age, personal circumstances and risk tolerance. It is one thing to read about the markets ups & downs. It is another living through a large market crash holding your nerve and not leaving the game as you see your money fall . Some bottle it and jump ship, never to go back in. 

Chose the share/bond split which you are comfortable with, that will let you sleep at night and stay the course. If that is VLS 60 then so be it.

 

 

bostonerimus

I had roughly 60/40 (equity to bonds) from 1990 to 2014. It worked out well for me, but bonds were giving some good returns back then. Still 60/40 is a good place to start for someone who can think long term. See how things go and if you get comfortable with things you might add some VLS100 to increase your equity percentage. Don't forget to keep 6 months spending cash in the bank, that's always nice to have when things are falling or you lose your job.

Thrugelmir

JustinEvans9964 said:

I chose the VLS 60 as it suits my risk (balanced with a lean towards the (slightly!) riskier end) and was managed by people who know a lot more about than me! 

Then stick with it.  As times passes you can modify your plans accordingly. Investing is a marathon not a sprint.  There's many different views to listen to. All will be right at some point of the time, none all of the time. 

JustinEvans9964

• Thanks all. As always very much appreciated.

george4064

I tend to agree with others that if your investment horizon is initially 10-20 years one should be able to afford the risk (and reward) of going for a 100% equity portfolio.

One can expect to be rewarded with a higher portfolio return as a result of taking the higher risk with the 100% equity portfolio.