Vanguard S&S

ColdIron

Collyflower1 said:

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?

Yes, generally you can sell at any time you choose and buy anything you want with the proceeds

GeoffTF

ColdIron said:

Collyflower1 said:

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?

Yes, generally you can sell at any time you choose and buy anything you want with the proceeds

Yes, but it can be slow:

https://www.vanguardinvestor.co.uk/need-help/answer/how-long-does-it-take-to-switch-from-one-fund-to-another

GeoffTF

GeoffTF said:

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.

That should have been JP Morgan, not Morgan Stanley! (I have now been banned from reading the article unless I pay the FT a subscription.) These numbers are dire for someone with all in costs of 2%. Mine are down to 0.1%, and I am mostly using savings accounts for the bond element of my portfolio. If inflation averages 3% (that is 1% over the BOE target), equities yield inflation and my bonds yield 2%, I only lose 0.5% + 0.1% against inflation if I go right down to 50% equities, and I would probably be able to make some rebalancing profit. With wholesale "risk free" bonds (as in LifeStrategy), however, you will be lucky to get 0%, and the numbers are not as good.

Thrugelmir

"That means that you are guaranteed to lose out to inflation by 2.631% for every year that you hold this bond to maturity. "

Asked rhetorically. At the current time what's the loss in holding cash or premium bonds as a divisifier. RPI was 7.1% in November. (Although everybody's inflation rate is different I should add).  

GeoffTF

Thrugelmir said:

"That means that you are guaranteed to lose out to inflation by 2.631% for every year that you hold this bond to maturity. "

Asked rhetorically. At the current time what's the loss in holding cash or premium bonds as a divisifier. RPI was 7.1% in November. (Although everybody's inflation rate is different I should add).  

Theoretically the return is 1%, but you need a big account to get near that:

https://www.moneysavingexpert.com/savings/premium-bonds/

With my assumption of 4% inflation, you lose a bit more than 2% every year to inflation. With 5 year 2% savings accounts, a standard rate tax payer gets only 1.6%, so you would lose 1.4% every year. Even with my costs, I am going to have to be lucky to beat inflation with a 60 / 40 portfolio.

SeniorSam

Collyflower1 - I did exactly that in November but 10K in the 60% and 10k in Vanguard's all cap global index.  The markets have come down since, but I see this up and down all the time and am not at all concerned that the performance over the longer term will be good.

I intend doing the same again after April 6th and the reports of Vanguard seem to be good from everyone.

Thrugelmir

GeoffTF said:

Thrugelmir said:

"That means that you are guaranteed to lose out to inflation by 2.631% for every year that you hold this bond to maturity. "

Asked rhetorically. At the current time what's the loss in holding cash or premium bonds as a divisifier. RPI was 7.1% in November. (Although everybody's inflation rate is different I should add).  

Theoretically the return is 1%, but you need a big account to get near that:

https://www.moneysavingexpert.com/savings/premium-bonds/

With my assumption of 4% inflation, you lose a bit more than 2% every year to inflation. With 5 year 2% savings accounts, a standard rate tax payer gets only 1.6%, so you would lose 1.4% every year. Even with my costs, I am going to have to be lucky to beat inflation with a 60 / 40 portfolio.

Start of new era. The Fed has 3 interest rate rises pencilled in this year. What the Fed does, other Central Banks will follow. Then there's tapering of the balance sheets. Government debt is going to become a lot more expensive to service. Equity risk premium will need to increase to compensate.

GeoffTF

Thrugelmir said:
Government debt is going to become a lot more expensive to service. Equity risk premium will need to increase to compensate.

That is right. It is a mistake to think that if interest "risk fee" interest rates rises by 1% the equity market only has to fall enough to increase its expected return by 1%. It is abundantly clear from reading forums like this that people do not like the guaranteed poor return from bonds and have been piling into equities. That also shows up in equity valuations. The equity risk premium has been going down as (more visibly) have credit spreads. That will go into reverse when people start losing big money on equities.

Alexland

GeoffTF said:

That will go into reverse when people start losing big money on equities.

I welcome the reductions seen in expensive growth stocks as the market is making a healthy adjustment and building better resilience. The ups and downs are all part of how equities deliver their long term superior returns. Lower valuations will allow the dividend reinvestment and new contributions to work harder. The companies themselves will just chug along as Thrug describes. As a long term accumulating investor I want to build up ownership of as much of these companies as possible and that's much easier when economic circumstances cause valuations to be lower.

P933alilli

There is so much negativity now i'm not sure if i should just save in equities! I'm thinking the VWRL fund but there is over reliance on the US & technology! Then again i could just drip feed in either VWRL or a 100% VLS and smooth out any volatility?