Vanguard S&S

numbersrule

Alexland said:

Thrugelmir said:

No guarantees of beating inflation with a higher equity allocation over the medium term. The SP500 has previously spend an entire decade underperforming cash. Unhedged portfolios also are exposed to currency risk. 

Which VLS fund would you suggest to provide an inflation beating return in the medium term?

If the inflation blip is temporary ( and we still can't rule that out ) then the higher inflation would be relatively short duration compared with a normal investment horizon for equities.  It could be argued that the 80% and 100% equity allocations should be considered for very long term investment horizons.  The possible short term inflation blip is likely to be easily catered for by most equity dominant funds provided the correct time frame is allowed for.  You don't need to beat inflation as it happens, just look to beat it over a well planned investment period.

GeoffTF

Alexland said:

Thrugelmir said:

No guarantees of beating inflation with a higher equity allocation over the medium term. The SP500 has previously spend an entire decade underperforming cash. Unhedged portfolios also are exposed to currency risk. 

Which VLS fund would you suggest to provide an inflation beating return in the medium term?

What is the medium term? Returns are likely to be depressed over the next ten years. More to the point the depressed underlying returns will be swamped by random volatility. Beating inflation is touch and go, whatever we do. Nonetheless, we have to do the best we can.

This is all is exactly how the government and the Bank of England wanted it. That was the whole point of very low interest rates and quantitative easing. They wanted us to spend our money to keep the economy going, not to save it. Now they are letting inflation run...

Alexland

GeoffTF said:

What is the medium term? Returns are likely to be depressed over the next ten years. More to the point the depressed underlying returns will be swamped by random volatility. Beating inflation is touch and go, whatever we do. Nonetheless, we have to do the best we can.

I was just playing back Thrug's question as I'm sure we all know there is no perfect answer but given where valuations are at the moment I would rather put a higher weighting on equities that have the ability to outgrow valuation concerns than admit defeat and just pile into low return bonds. The devil in me just wants to sell and walk away until there's a better opportunity but then with inflation cash savings will struggle and I don't want to try market timing on large sums so it's just a case of taking enough risk for a good long term result and seeing what happens in the medium term.

Thrugelmir

Alexland said:

Thrugelmir said:

No guarantees of beating inflation with a higher equity allocation over the medium term. The SP500 has previously spend an entire decade underperforming cash. Unhedged portfolios also are exposed to currency risk. 

Which VLS fund would you suggest to provide an inflation beating return in the medium term?

I'm not. Sometimes it's just a question of protecting your capital. Rather than taking additional risk. 

GeoffTF

Alexland said:

GeoffTF said:

What is the medium term? Returns are likely to be depressed over the next ten years. More to the point the depressed underlying returns will be swamped by random volatility. Beating inflation is touch and go, whatever we do. Nonetheless, we have to do the best we can.

I was just playing back Thrug's question as I'm sure we all know there is no perfect answer but given where valuations are at the moment I would rather put a higher weighting on equities that have the ability to outgrow valuation concerns than admit defeat and just pile into low return bonds. The devil in me just wants to sell and walk away until there's a better opportunity but then with inflation cash savings will struggle and I don't want to try market timing on large sums so it's just a case of taking enough risk for a good long term result and seeing what happens in the medium term.

Lets put some numbers on this. First lets look at index linked gilts. The Treasury 1 1/4% 2032 I/L Gilt has an after inflation redemption yield of -2.631%:

https://www.fixedincomeinvestor.co.uk/x/bondtable.html?groupid=3530

That means that you are guaranteed to lose out to inflation by 2.631% for every year that you hold this bond to maturity. The equity risk premium is defined to be the extra return that investors demand to hold equities in place of risk free bonds. This article quoted Morgan Stanley as having measured the equity risk premium as 2.9% last May (the global equity market is now about 10% higher):

https://www.ft.com/content/773261d2-c68e-41de-93c8-2d76c1528559

On that basis, it is touch and go whether equities will beat inflation at the current prices. You might conclude that your only chance of beating inflation is to hold 100% equities. That may be true, but you would then face a very big loss if the dice roll against you.

The answer to the question of "what percent equities?", is that it depends on how much risk you are willing to take. The risk adjusted return should be the same for all the LS funds. A risk neutral investor would not care which one he held. A fearless investor would go for LS 100, and a wobbly kneed investor would go for LS 20.

Thrugelmir

Alexland said:

GeoffTF said:

What is the medium term? Returns are likely to be depressed over the next ten years. More to the point the depressed underlying returns will be swamped by random volatility. Beating inflation is touch and go, whatever we do. Nonetheless, we have to do the best we can.

 I would rather put a higher weighting on equities that have the ability to outgrow valuation 

Valuations of some equities have grown considerably since 2018. At some point actual financial performance of companies themselves has to meet these valuation levels. There's no shortage of investors buying funds such as passive global equity on the basis of historic performance. Money flow drives markets. Momentum creates momentum. Apple is now trading on a PE double of that in 2018. Has some significant growing to do in order to outgrow its valuation. Likewise Tesla which trades at over 100 times annual revenue and 350 times profit. 

JohnWinder

Past performance appears to be impressive for the last 5 years with just 2018 being a negative return 4.04% and averaging return for the 5 years at c. +7.7% p/a.  

  So as a complete novice would this be a good choice?

That conjunction hints at a line of thinking which one should be wary of, and perhaps ditch in favour of something with a better foundation.

Have a look at the Callan periodic table of investment returns of different 'asset classes', ranking the best to worst each year, and notice how the better and worse performing asset classes jump around from year to year. https://www.callan.com/periodic-table/

To draw useful conclusions about the quality of a fund from only 5 years of returns could be very misleading; the longer the time period the more reliable such a conclusion is likely to be, until you get to very long periods when 'tech' starts taking over from 'oil' or 'railroads' as the 'must have' asset.  You're better off looking to see if the fund is well diversified and follows sensible indexes, and closely, if it's a tracker, and base your choices on those and your risk tolerance (as well as 'running' costs). 

Alexland

Thrugelmir said:

At some point actual financial performance of companies themselves has to meet these valuation levels.

Agreed - you seem to have selectively quoted me to make it look like I was suggesting it was a good thing when equities "outgrow valuation" rather than "outgrow valuation concerns" ie the companies grow to better justify their valuations which is what we would probably all like to see and would give us less concerns.

P933alilli

Thanks for the replies!
Ive finished working so know my pension situation and was just hoping to get better returns than from my fixed rate cash savings. The VLS funds appear to be diverse enough to achieve this especially taking into account the previous decades peformance! Whilst i'm not expecting those returns to continue i'd hope that they could keep up with inflation.
  If an accumulation fund is chosen initially can it later be changed into one for income? Indeed can a lifestrategy fund be transferred into another?
    

Thrugelmir

Alexland said:

Thrugelmir said:

At some point actual financial performance of companies themselves has to meet these valuation levels.

Agreed - you seem to have selectively quoted me to make it look like I was suggesting it was a good thing when equities "outgrow valuation" rather than "outgrow valuation concerns" ie the companies grow to better justify their valuations which is what we would probably all like to see and would give us less concerns.

Not selectively. As dig deeper and a few companies have produced the majority of recent stellar returns. Most companies are doing what they've always done. That's to chug along. An era of cheap money has inflated asset prices. A generation of new investors has been piling in thinking that this is the norm. No understanding of what equities actually are. Just that it's easy to make money for doing nothing.