Is MyMap3 / Lifestrategy20 a substitute for cash savings

7sefton

I am saving for a house deposit and think I will buy in the next 12-18 months. Up until now I’ve been totally invested in stocks and shares (which have done very well) but know I need to de-risk in case markets take a bad turn just when I find my dream house.

However, I feel sick at the thought of my hard earned money losing through inflation by sitting in a cash account for the next 18 months. 

So I’m considering putting all the money (around £120k) in the lowest risk multi asset I can find, eg vanguard’s 20% life strategy or Blackrock MyMap3. All I’m aiming for is to keep up with or slightly beat inflation… 

is this totally mad?

Yes you might say the thought of losing it all in crash should make me feel sick too - but I just can’t imagine it taking such a turn that would affect a low equities allocation like 20%.

Kind thoughts welcome…

Cus

£120k at say 1% in a one year bond is £121.2k in a year. If inflation is actually 5%, then you have lost out on £4.8k.  Does that make you feel sick? Do you think the markets will be 5% lower in a year? 

7sefton

Yes it does make me feel quite sick, because I think meanwhile house prices will continue to rise so I’ll be falling behind again.

Also, it’s not quite as simple as your scenario is it, because I won’t be 100% in equities.

dunstonh

is this totally mad?

Yes

es you might say the thought of losing it all in crash should make me feel sick too - but I just can’t imagine it taking such a turn that would affect a low equities allocation like 20%.

I wouldnt be so worried about an equities crash but a fixed interest securities crash is more likely.   You have very little upside benefit at this point in the cycle but would be taking on a lot of downside.

MX5huggy

LS20 does not have a long enough trading history, through ups and downs. The US equivalent :- https://www.google.co.uk/search?q=lifestrategy+income+fund+graph&client=safari&hl=en-gb&sxsrf=AOaemvIbC3gkFTaAJRF-HT_gAUAU0D_G0g%3A1633895673659&ei=-URjYaLMJ--BhbIP9sWrsAE&oq=LifeStrategy+Income+Fund+gra&gs_lcp=ChNtb2JpbGUtZ3dzLXdpei1zZXJwEAEYADIFCCEQoAEyBQghEKABMgUIIRCgAToECAAQRzoFCAAQgAQ6BggAEBYQHlD4LViiSWC1ZWgAcAJ4AIABwgGIAaIDkgEDMy4xmAEAoAEByAEIwAEB&sclient=mobile-gws-wiz-serp

looks like 2007 high took till 2012 to recover, not a good plan keep your money in cash. 

Alice_Holt

Vanguard 20% life strategy: 


Down 2.5% over the last month.

£120k  becomes  £117k.

How would you cope with further losses in the next 12-18 months if interest rate rises hit bond prices? 

https://www.forbes.com/sites/mikepatton/2013/08/30/why-rising-interest-rates-are-bad-for-bonds-and-what-you-can-do-about-it/

ChilliBob

I suppose wealth preservation funds are what some may consider here, e.f cg absolute return. However, I think for your timescale you might just have to sit on the cash and do the best you can eith interest accounts (which yes, is a pittance, and real terms a loss) 

aroominyork

dunstonh said:

I wouldnt be so worried about an equities crash but a fixed interest securities crash is more likely.   You have very little upside benefit at this point in the cycle but would be taking on a lot of downside.

How are IFAs investing their clients' non-equity money these days?

JohnWinder

As to your first question which flew under the radar not having a question mark: VLS20 is not a cash substitute as it holds mostly bonds and stocks.

A few considerations: the average duration of the bonds is relevant. If it's 8 years, then a 1% rise in interest rates in the next year is likely to drop the bond values by 8%. That the size of the problem; as to it's probability, no one knows, but it's not zero.

You can look at any long term chart of stock prices to learn what can happen to those over 12 months. Second lastly, VLS20 has 4 times as much bonds as stocks, 8% fall in bond prices would affect you as much as 32% drop in stock prices (I think; check the maths). Lastly, house prices might not be immune to factors affecting bond and stock prices. Despite the known unknowns, there's a lot of unknown knowns.

I'd say ignore wealth preservation funds. They're stock and bond funds, with a touch of exotics, that fall in value like anything else. Their objectives don't include 'short term'.

Thrugelmir

7sefton said:

However, I feel sick at the thought of my hard earned money losing through inflation by sitting in a cash account for the next 18 months. 

Hardly hard earned if you've been invested in equities. You've been lucky that's all. Now you can sit and watch interest rates rise. 

dunstonh

aroominyork said:

dunstonh said:

I wouldnt be so worried about an equities crash but a fixed interest securities crash is more likely.   You have very little upside benefit at this point in the cycle but would be taking on a lot of downside.

How are IFAs investing their clients' non-equity money these days?

I can't speak for all models but the ones we use have increased the equity content and cash.  We have also moved investment-grade bonds out of passive to managed.