Vanguard LifeStrategy 100 or Index Tracker?

MaxiRobriguez

YellowDuc said:

If you are starting from scratch with a monthly contribution, for the first 5-10 years it makes  little difference which broadly based global fund you use.  Most of the increase in the value of the pot will come from the contributions.  So just start ASAP and by the time your pot has reached say £30K you should have the experience to reconsider your investment choices.

I was thinking of starting with a £10K down payment and then monthly contributions of £500. I figured if I got 8% / yr, if I did this and didnt put any further lump sums in, then it would equate to around £1.1M in 30 years by the time I'm 60. Obviously I can increase this or put more lump sums in, if I need/want to down the line.

Going to start up an account next month. On my list of things to do :-) 

Thanks for the help all.

You need to let go of the 8% figure.

You might get 8% sometimes, maybe even a couple of years in a row, but not consistently over that timeframe, certainly not real returns anyway. Chances of a 30 year 8% annualised real return are <5% and so your £1.1m figure is whilst possible, mostly fantasy. Try plugging in 4% real returns to get a more realistic picture.

In regards to VLS100 or an Index tracker - they do similar jobs (if you get a global index tracker anyway). VLS100 will overweight the UK compared to a global index tracker, so it depends on your opinion of UK markets. If you think the FTSE is full of old dogs with limited growth prospects then go for a global tracker, if you think the UK might be full of old dogs but cheap valuations and predictable cash flows make them a decent bet against frothy US growth market then buy the VLS100.

As Linton said, early years your gains are largely irrelevant as your contributions are doing the lifting. I'm five years in to my journey and contributing 4x your monthly amount and my contributions are still double the amount of any annual gain. 

YellowDuc

bostonerimus said:

VLS100 is a perfectly fine multi-asset fund for a young investor who is ok with some risk. The chances of it giving you 12% pa over the long term are small and you should plan on less, probably half. Is there any particular reason you mentions 8-12%? You should know where you want to go, and set your saving rate and portfolio to reach that goal.

I'm not sure what made me think of that to be honest. I think it might be a mixture of people talking about the S&P500 averaging 10% (I know thats different though..) and a couple of people I spoke to in real life talking about VLS giving them 8-12% - but that might just be "pub" talk so to speak.

I was also looking at this
https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-100-equity-fund-accumulation-shares/price-performance

Is NAV not performance then? Am I being a massive noob?  I saw it said 1.95 one year and then 24.88 on another year.

Tbh, 6-8% is still really good.

Linton

YellowDuc said:

bostonerimus said:

VLS100 is a perfectly fine multi-asset fund for a young investor who is ok with some risk. The chances of it giving you 12% pa over the long term are small and you should plan on less, probably half. Is there any particular reason you mentions 8-12%? You should know where you want to go, and set your saving rate and portfolio to reach that goal.

I'm not sure what made me think of that to be honest. I think it might be a mixture of people talking about the S&P500 averaging 10% (I know thats different though..) and a couple of people I spoke to in real life talking about VLS giving them 8-12% - but that might just be "pub" talk so to speak.

I was also looking at this
https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-100-equity-fund-accumulation-shares/price-performance

Is NAV not performance then? Am I being a massive noob?  I saw it said 1.95 one year and then 24.88 on another year.

Tbh, 6-8% is still really good.

The problem is that the past 10 years or so have seen unprecedented growth in real terms in the global market.   Historically the returns are not normal.  Anyone whose experience does not go back to say 2000 or even 2008 is likely to be dangerously optimistic.

Note that the VLS funds date from around 2011 so have never experienced a major fall.

MaxiRobriguez

YellowDuc said:

bostonerimus said:

VLS100 is a perfectly fine multi-asset fund for a young investor who is ok with some risk. The chances of it giving you 12% pa over the long term are small and you should plan on less, probably half. Is there any particular reason you mentions 8-12%? You should know where you want to go, and set your saving rate and portfolio to reach that goal.

I'm not sure what made me think of that to be honest. I think it might be a mixture of people talking about the S&P500 averaging 10% (I know thats different though..) and a couple of people I spoke to in real life talking about VLS giving them 8-12% - but that might just be "pub" talk so to speak.

I was also looking at this
https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-100-equity-fund-accumulation-shares/price-performance

Is NAV not performance then? Am I being a massive noob?  I saw it said 1.95 one year and then 24.88 on another year.

Tbh, 6-8% is still really good.

The S&P over the last 30 years has returns of 9.8% annualised. Inflation has averaged about 3% so you're talking real returns of 6.8% - but that is being driven entirely by the last 5 years of outstanding growth.

You can take a look at slightly different timescales to see what is normal and what is not.
2000-2020 yielded about 2% nominal returns, 0% after inflation. (Coronavirus sell off)
1995-2015 yielded about 7% nominal returns, 3% after inflation.
1985-2015 yielded about 8% nominal returns, 4% after inflation.

Given that outstanding growth of the last five years valuations look to be very stretched in US markets and there's every chance that another 20 year period of underperformance could follow.

Again - you need to drop your 8% target. Even in the best conditions which leads to very expensive valuations the chances of 8% annualised real returns over a 30 year period are close to zero. Your £1.1m is fantasy. It aint going to happen on £500 contributions. Sorry but you need some realism. 

A globally diversified portfolio will likely get you around 3 or 4% returns after inflation. Use that as your base case with "bad" (0-2%) and "good" (5-7%) scenarios to give you an alternative view on how things might pan out.

billy2shots

To be fair to the OP they never said X% plus inflation so historically they are not too far off the mark by quoting 8% returns. 

As more experienced investors, the follow up questions should be along the lines of 'Have you thought about inflation'. 

Newer investors can get bamboozled by people quoting 'real returns' or saying "8% is too high to expect' as the person making the comment has added in the inflation drag but not verbalised that fact. 
Best to clarify what the person asking the question has factored in or not before then moving on to the next step. 

eastmidsaver

another option is HSBC Global Strategy too.

tebbins

When talking about return expectations, all one can do is attempt to guess less badly.

I wouldn't rule out 8%, for example since its total return data started on 31/12/1985 "even" the "dire" FTSE 100 has returned 8.7% annualised. But don't count on it. Over that period the FTSE 100s market cap grew faster than nominal GDP, net equity issuance reduced the index's growth to about the same rate as nominal GDP (5%) in spite of the index's global earnings (the UK is a globalised economy too and large corporations tend to be the part of the economy that does most of the trading) and dividends added just over 3% to the return. Stock market caps don't tend to exceed the GDP of the economy of the country they are in by much for long unless in smaller cases such as Hong Kong (debatably a country) and Denmark so we can't count on that phenomenon to continue. If we get 3-4% inflation and the FTSE 100s earnings keep up with that with, an average 3-4% dividend yield, both reasonably realistic, 8% is possible.
At the global level with currency fluctuations, globalised supply/sales chains and differing inflation rates things become harder to try and predict. Also there are lots of different indices that include/exclude the UK, emerging markets, mid/small/micro caps etc. But most global equity indices will be very strongly correlated with each other and produce similar returns.
Say the £ doesn't move much over the next say 30 years, world inflation averages 2-3%, real GDP growth averages 1-2% (which translates approximately into the same amount of capital growth) and the dividend yield averages 2-3%, again 8% is possible. However valuations are high, debt and QE are very high, and there are climate and demographic challenges to overcome, so who knows, really.

tebbins

Also just to check your maths...

£10k x 1.08^30 = £100.6k
£6k x (1.08^30-1)/0.08 = £679.7k
Totals £780.3k

Now if you're increasing the £500/month with inflation that would improve things, so let's try working in teal terms using a 3% real return - I think 4 is more realistic but this allows for costs which with VLS100 are around 0.4% plus some realistic pessimism.

3% with the same numbers gets you £309.7k in today's money

4% gets you £368.9k in today's money

In reality, returns are never smooth, you may not stick to that £500/month, your asset allocation may change, but this should give you an idea of what you can realistically expect.

YellowDuc

tebbins said:

Also just to check your maths...

£10k x 1.08^30 = £100.6k
£6k x (1.08^30-1)/0.08 = £679.7k
Totals £780.3k

Now if you're increasing the £500/month with inflation that would improve things, so let's try working in teal terms using a 3% real return - I think 4 is more realistic but this allows for costs which with VLS100 are around 0.4% plus some realistic pessimism.

3% with the same numbers gets you £309.7k in today's money

4% gets you £368.9k in today's money

In reality, returns are never smooth, you may not stick to that £500/month, your asset allocation may change, but this should give you an idea of what you can realistically expect.

I used this calculator
https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

£10,000 Lump sum.
£500 in a month
8% interest
30 Year Period
Increase deposit with inflation at 3% (I Should've said this, sorry) 

and it came out as

Future investment value £1,108,696.37
Total interest earned £813,246.61

Initial balance £10,000.00
Total additional deposits £285,449.76
Effective Annual Rate (APY)8.3%


I'm in a bit of a rush this morning but will reply to the other in detail later on. 

When I spoke about % Returns, I wasn't factoring in inflation. Still 8% minus 3% = 5% and that's not bad. Still a hell of a lot better than I'm getting in the bank.
I'm not looking at setting up VLS or HSBC as an income stream. It's just an out of sight / out of mind retirement fund, like a pension fund.

My main businesses are my main income, then crypto, pension, (soon to add VLS to the mix) and once I've moved house I plan on getting into rental properties in a big way. Then depending how that goes and how my main businesses go, I can look at either expanding that + double or tripling down on my investment deposit each month.

Thans for all the help again. Much appreciated.

Albermarle

Future investment value £1,108,696.37

The issue here ( I think ) is that inflation is not taken into account , so that £1.1 Million will not buy the same goods and services in 30 years time as it would today . Using the normal estimate for inflation of 2.5% , it would only be worth about £300K in todays money ( very approximately )