FT & Vanguard downgrade 60:40 mix.

Linton

ranciduk said:

Hmm

i recently made my first step into investing and went with the LS60 fund as it’s seemed the best option for me

I’m hoping for half decent returns over the next 5 years - nothing brilliant, just a nice return , I’m not greedy

reading the above is making me think I might have made a mistake?!

You aim for "a half decent return, nothing brilliant"  for VLS60 seems reasonable to me and the bond questions probably wont get in the way.  However 5 years is a very short time frame and no matter what happens to bonds you run a moderate/low risk that in 5 years time you may get returns that you dont see as half decent.  The choice of bonds may increase the probability somewhat.

Extend your time frame to say 10 years then the picture should be rosier.

ranciduk

Thanks 

I shouldn’t need to money for over 5 years anyway 

Linton

csgohan4 said:

Linton said:

csgohan4 said:

Linton said:

People on these forums have been saying for months if not years that safe government bonds such as UK Gilts are no longer as appropriate as previously for the purpose that most investors buy them.

Since the Great Crash government bonds have been increasing in price significantly as interest rates fall .  This is unsustainable because when they mature they are redeemed for the same £100 they originally cost and now interest rates are very close to zero so cant fall much more.

There is no completely satisfactory alternative.  Perhaps 70/30 equity/cash rather than 60/40 equity/bonds may partly do the job.  However if you are a hands-off investor with limited experience, ie the sort of investor for whom multi-asset funds are intended, then in my view you probably should continue investing as you have been.  If you stay with high/medium % equity VLS I believe there will be somewhat lower overall returns than would otherwise be the case but the problem with safe bonds should not cause a catastrophe.

Some multi-asset funds, unlike the VLS series, change their allocations to keep the risk level constant.  For example L&Gs multi index fund closest to 60:40 appears to be holding significant cash or close to cash, higher risk bonds, more niche investments such as forestry and infrastructure but a low % (if any) Gilts.

Would WP be something you will still do, in conjunction with income and equity ?

I still maintain separate Equity Income and Wealth Preservation portfolios and cash.  According to morningstar the WP portfolio is approx:

25% equity 
22% inflation linked bonds (I think it's mainly US TIPs)
9% government bonds (probably not much UK government)
15% corporate bonds
12% cash
plus some "other"

So the bond component is very different to a standard bond allocation you would find in a multi-asset fund.  I am more than happy to let the funds manage global bond allocations as its far beyond my knowledge to come up with something meaningful.

Looking at the performance of my current portfolio and VLS20 which is fairly close in broad allocations I see over 10 years the WP portfolio has outperformed VLS20 by a small amount with a lower volatility.  Looking at the past 5 years discrete data VLS20 returns varied between 0.1% and 11.2% in individual years.  The WP portfolio figures show a minimum of  1.8% and a maximum of 8.9%.

However I dont think my allocations are that relevent to a discussion of bonds in multi-asset funds since my objectives are very different to most multi-asset fund investors.  I am after safety in the medium term specifically for the WP assets rather than generally damping volatility in a broader portfolio.

Interesting to include 15% corp bonds, volatile from my understanding.

Either way your previous allocation of equity, income and WP seems a reasonable strategy come retirement, I would put 1/5 in equity, 2/5 Income and WP


but in 30 years time who knows what will happen, maybe bonds will come back in favour alot more. 

Corporate bonds generally are more volatile than gilts but less so than equity.  INn30 years time I probably wont be around so real long term performance isnt part of my considerations.

Albermarle

ranciduk said:

Hmm

i recently made my first step into investing and went with the LS60 fund as it’s seemed the best option for me

I’m hoping for half decent returns over the next 5 years - nothing brilliant, just a nice return , I’m not greedy

reading the above is making me think I might have made a mistake?!

All what is being said ( and many times on this forum over the last 18 months ) is that bonds are not the safe bet that they used to be . Some bond funds have already dropped 5 to 10% earlier this year. So you have not made a mistake necessarily , only that returns are likely to be less than expected . You may be better off with a similar low cost multi asset fund , that has more flexibility in its bond allocations , like HSBC global strategy or Blackrock my map series,  

Thrugelmir

Albermarle said:

ranciduk said:

Hmm

i recently made my first step into investing and went with the LS60 fund as it’s seemed the best option for me

I’m hoping for half decent returns over the next 5 years - nothing brilliant, just a nice return , I’m not greedy

reading the above is making me think I might have made a mistake?!

All what is being said ( and many times on this forum over the last 18 months ) is that bonds are not the safe bet that they used to be . Some bond funds have already dropped 5 to 10% earlier this year. So you have not made a mistake necessarily , only that returns are likely to be less than expected . You may be better off with a similar low cost multi asset fund , that has more flexibility in its bond allocations , like HSBC global strategy or Blackrock my map series,  

There are wider issues of whether bonds are worth buying at all at the current time. If both higher interest rates and persistant inflation are on the near horizon. 

ranciduk

Albermarle said:

ranciduk said:

Hmm

i recently made my first step into investing and went with the LS60 fund as it’s seemed the best option for me

I’m hoping for half decent returns over the next 5 years - nothing brilliant, just a nice return , I’m not greedy

reading the above is making me think I might have made a mistake?!

All what is being said ( and many times on this forum over the last 18 months ) is that bonds are not the safe bet that they used to be . Some bond funds have already dropped 5 to 10% earlier this year. So you have not made a mistake necessarily , only that returns are likely to be less than expected . You may be better off with a similar low cost multi asset fund , that has more flexibility in its bond allocations , like HSBC global strategy or Blackrock my map series,  

To be honest my main concern is that I don’t end up losing money - not how much profit I make 

barring any (more!) catastrophic world events - is this fund likely to end up losing me money, in the long term?!

csgohan4

ranciduk said:

Albermarle said:

ranciduk said:

Hmm

i recently made my first step into investing and went with the LS60 fund as it’s seemed the best option for me

I’m hoping for half decent returns over the next 5 years - nothing brilliant, just a nice return , I’m not greedy

reading the above is making me think I might have made a mistake?!

All what is being said ( and many times on this forum over the last 18 months ) is that bonds are not the safe bet that they used to be . Some bond funds have already dropped 5 to 10% earlier this year. So you have not made a mistake necessarily , only that returns are likely to be less than expected . You may be better off with a similar low cost multi asset fund , that has more flexibility in its bond allocations , like HSBC global strategy or Blackrock my map series,  

To be honest my main concern is that I don’t end up losing money - not how much profit I make 

barring any (more!) catastrophic world events - is this fund likely to end up losing me money, in the long term?!

if you are worried about losing money, you should review your risk appetite. Investing is not risk free 

Albermarle

ranciduk said:

Albermarle said:

ranciduk said:

Hmm

i recently made my first step into investing and went with the LS60 fund as it’s seemed the best option for me

I’m hoping for half decent returns over the next 5 years - nothing brilliant, just a nice return , I’m not greedy

reading the above is making me think I might have made a mistake?!

All what is being said ( and many times on this forum over the last 18 months ) is that bonds are not the safe bet that they used to be . Some bond funds have already dropped 5 to 10% earlier this year. So you have not made a mistake necessarily , only that returns are likely to be less than expected . You may be better off with a similar low cost multi asset fund , that has more flexibility in its bond allocations , like HSBC global strategy or Blackrock my map series,  

To be honest my main concern is that I don’t end up losing money - not how much profit I make 

barring any (more!) catastrophic world events - is this fund likely to end up losing me money, in the long term?!

Normally it should not lose you money long term ( > 10 years )  and should show a return above inflation . However that is not guaranteed but based on historical statistics it is highly likely ( we all hope !)

ranciduk

Thanks 

i don’t really understand all the charts and everything but It does look like it’s only ever gone up and up in recent years...!

Linton

ranciduk said:

Thanks 

i don’t really understand all the charts and everything but It does look like it’s only ever gone up and up in recent years...!

Exactly, that is the problem.  You buy a bond for £100, get fixed interest for a specified number of years and then get your £100 back, much like a fixed term savings account.  Bonds have been increasing in price by more than the interest paid since the Great Crash if not longer.  Clearly that is unsustainable.