Lifestrategy 60 or 80 ?

aroominyork

The Times considers VLS60 a close equivalent to cash in its Money section today, which is being its usual responsible self in looking for something to write about. In a feature titled "Ten ways to survive (and thrive) in a world of sky-high inflation", the first tip is "Get out of cash", and it advises "You don’t need to take too much risk, and a fund like Vanguard’s LifeStrategy 60% Equity could help to preserve your savings. It’s up 18.6 per cent over three years while the best three-year fixed rate savings bond pays 2.6 per cent, according to the consumer website Savings Champion." Ho hum.

masonic

aroominyork said:

The Times considers VLS60 a close equivalent to cash in its Money section today, which is being its usual responsible self in looking for something to write about. In a feature titled "Ten ways to survive (and thrive) in a world of sky-high inflation", the first tip is "Get out of cash", and it advises "You don’t need to take too much risk, and a fund like Vanguard’s LifeStrategy 60% Equity could help to preserve your savings. It’s up 18.6 per cent over three years while the best three-year fixed rate savings bond pays 2.6 per cent, according to the consumer website Savings Champion." Ho hum.

That is an astounding comment. I think for balance they should print a guest article by Type45.

Albermarle

Presume Vanguard are a heavy advertiser in the Murdoch press........

tebbins

Journalist's Advocate.

There is some merit considering our debates about using VLS20-40 as bond funds - mixing equities with bonds tends to lower overall volatility, boost returns and provided an asset related to price levels in the economy, whereas most bonds offer no protection against inflation.

Markneath

Im in LS100 and have increased my monthly contribution, a year of two of volatility doesn’t bother me.

Thrugelmir

Markneath said:

Im in LS100 and have increased my monthly contribution, a year of two of volatility doesn’t bother me.

A market correction might. Bear markets can be savage. 

Greylocks

Thrugelmir said:

Markneath said:

Im in LS100 and have increased my monthly contribution, a year of two of volatility doesn’t bother me.

A market correction might. Bear markets can be savage. 

As a very rough guide I thought 80% of market crashes recover within 1 year and 95% with 2 years for a balanced portfolio?

Hence the idea of holding 2 years of spending in a cash buffer if already retired…?

masonic

Greylocks said:

Thrugelmir said:

Markneath said:

Im in LS100 and have increased my monthly contribution, a year of two of volatility doesn’t bother me.

A market correction might. Bear markets can be savage. 

As a very rough guide I thought 80% of market crashes recover within 1 year and 95% with 2 years for a balanced portfolio?

Hence the idea of holding 2 years of spending in a cash buffer if already retired…?

I don't think that statistic looks very accurate. Looking at the last three market crashes (>20% drop in equities) and a globally diversified 100% equities portfolio as suggested above by VLS 100, only one of them recovered within 2 years. One was a little over that, but the other was around 7 years to recover in real terms. A 60:40 portfolio performed similarly, but with a lower peak to trough fall.

It makes a big difference if you are drip feeding and at the start of your accumulation phase, vs having the most of your lifetime accumulated assets invested, as if already retired. medium-low risk investments can bridge the gap between depleting cash reserves and having to sell equities. Having separate pots for growth and capital preservation makes sense in this scenario. You can't sell just the bonds component of VLS60.

Greylocks

masonic said:

Greylocks said:

Thrugelmir said:

Markneath said:

Im in LS100 and have increased my monthly contribution, a year of two of volatility doesn’t bother me.

A market correction might. Bear markets can be savage. 

As a very rough guide I thought 80% of market crashes recover within 1 year and 95% with 2 years for a balanced portfolio?

Hence the idea of holding 2 years of spending in a cash buffer if already retired…?

I don't think that statistic looks very accurate. Looking at the last three market crashes (>20% drop in equities) and a globally diversified 100% equities portfolio as suggested above by VLS 100, only one of them recovered within 2 years. One was a little over that, but the other was around 7 years to recover in real terms. A 60:40 portfolio performed similarly, but with a lower peak to trough fall.

It makes a big difference if you are drip feeding and at the start of your accumulation phase, vs having the most of your lifetime accumulated assets invested, as if already retired. medium-low risk investments can bridge the gap between depleting cash reserves and having to sell equities. Having separate pots for growth and capital preservation makes sense in this scenario. You can't sell just the bonds component of VLS60.

It’s just a quote I remembered from Meaningful Money on You Tube. I think it refers to a balanced portfolio and the 2 years will be a median average so there can be significant outliers.
Years 3-5 can be covered by low risk investments giving a 5 year buffer.

masonic

Greylocks said:

masonic said:

Greylocks said:

Thrugelmir said:

Markneath said:

Im in LS100 and have increased my monthly contribution, a year of two of volatility doesn’t bother me.

A market correction might. Bear markets can be savage. 

As a very rough guide I thought 80% of market crashes recover within 1 year and 95% with 2 years for a balanced portfolio?

Hence the idea of holding 2 years of spending in a cash buffer if already retired…?

I don't think that statistic looks very accurate. Looking at the last three market crashes (>20% drop in equities) and a globally diversified 100% equities portfolio as suggested above by VLS 100, only one of them recovered within 2 years. One was a little over that, but the other was around 7 years to recover in real terms. A 60:40 portfolio performed similarly, but with a lower peak to trough fall.

It makes a big difference if you are drip feeding and at the start of your accumulation phase, vs having the most of your lifetime accumulated assets invested, as if already retired. medium-low risk investments can bridge the gap between depleting cash reserves and having to sell equities. Having separate pots for growth and capital preservation makes sense in this scenario. You can't sell just the bonds component of VLS60.

It’s just a quote I remembered from Meaningful Money on You Tube. I think it refers to a balanced portfolio and the 2 years will be a median average so there can be significant outliers.
Years 3-5 can be covered by low risk investments giving a 5 year buffer.

Two years cash, followed by 3 years low risk, seems eminently sensible. Without running the numbers, I believe there would have been only two occasions in the last century that would have resulted in a significant crystallised loss when decumulating. From your first post it seemed you were suggesting 2 years was enough to ride it out, but an added 3 years of low risk assets would make a huge difference.