For a novice is Vanguard Lifestrategy 60 Isa and Lifestrategy 80 SIPP a reasonable combination?

Milkmaid1

Hi, not sure if should be posting on this board or the Pensions one.

I am late 40s with a DB pension due sometime in my 60s, mortgage free, no dependants.  Some kind and helpful posters on the Pension board suggested that I have a look at opening a SIPP to take advantage of the tax benefits.

I have a S&S isa with Vanguard with a Life Strategy 60 fund wrapped in it.  I am happy with the risk level, platform, fees etc.  For convenience, I was thinking about opening the SIPP with Vanguard too and putting one of the other LS funds in that, probably LS80.

I am looking to invest for a minimum of 10 years, as I can't access the SIPP before the age of 57.  I don't yet have a firm "target" end date in mind, so therefore I have discounted their Target Retirement Fund due to the automatic reallocations in the leadup to the target date.  

I compared the main holdings in the LS60 and LS80 and there appears to be a lot of duplication, which I suppose is not a surprise, albeit the weighting are difference.  Is it reasonable to have both a SIPP and ISA containing 2 VG LS funds?  

I considered the risk level of the LS80 on its own to be a bit too high (although VG appear to give them the same rating of 4) when I opened the ISA, but given the length of time that I am looking too invest and, presumably, the LS60 would balance out the risk at bit - is my logic on this correct?

As a contrast, I also looked at "HSBC global strategy balanced portfolio" and "Blackrock my map 4 and 5."  From what I could see they have similar risk levels to my VGLS60; similar fees to VG, actively managed (which is a contrast to VG), less home bias than VGLS and HSBC includes classes such as property which the VG doesn't seem to, but I would have the inconvenience of using another platform for the SIPP.  

Would something like the HSBC one compliment my VGLS60 better than another VG fund? Or am I barking up the wrong tree entirely?

Apologies if I am asking daft questions here, but I am trying to learn.

Many thanks for any opinions on the above

dunstonh

As a contrast, I also looked at "HSBC global strategy balanced portfolio" and "Blackrock my map 4 and 5."  From what I could see they have similar risk levels to my VGLS60; similar fees to VG, actively managed (which is a contrast to VG), less home bias than VGLS and HSBC includes classes such as property which the VG doesn't seem to, but I would have the inconvenience of using another platform for the SIPP.  

VLS is also active managed.  VLS is not passive.     Both HSBC GS and VLS use underlying passives but both make management decisions on how much should be invested in the different areas.

Would something like the HSBC one compliment my VGLS60 better than another VG fund? Or am I barking up the wrong tree entirely?

At different times, one will perform better than the other.   HSBC is risk targetted to remain within a volatility band.   VLS is returns focused and will move around the risk profile depending on different periods of time.

HSBC tends to have slightly more equities than the equivalent VLS fund in most periods.  So, in the long term, that will probably make a difference.  

masonic

VLS has sufficient diversification. There is little to gain from going with another provider's fund for diversification purposes (an added miniscule allocation to property is not going to make much difference). VLS80 is more volatile than VLS60 as it has more in equities. The holdings will be pretty much the same, just different weightings. If you are comfortable with the somewhat higher risk, then you could opt for VLS80. Overall you would then sit somewhere between 60-80% equities between ISA and SIPP.

Which account will you want to touch first, as typically higher risk investments would be left for longer holding periods? You may wish to de-risk as you approach a drawdown event.

Thrugelmir

Milkmaid1 said:

I am looking to invest for a minimum of 10 years, as I can't access the SIPP before the age of 57.  I don't yet have a firm "target" end date in mind, so therefore I have discounted their Target Retirement Fund due to the automatic reallocations in the leadup to the target date.  

Correspondingly equity markets could plumment shortly before you decide to take action. Blowing your plans off course. People often don't understand their own risk appetite until they experienced markets in all weathers. 

Milkmaid1

dunstonh said:

As a contrast, I also looked at "HSBC global strategy balanced portfolio" and "Blackrock my map 4 and 5."  From what I could see they have similar risk levels to my VGLS60; similar fees to VG, actively managed (which is a contrast to VG), less home bias than VGLS and HSBC includes classes such as property which the VG doesn't seem to, but I would have the inconvenience of using another platform for the SIPP.  

VLS is also active managed.  VLS is not passive.     Both HSBC GS and VLS use underlying passives but both make management decisions on how much should be invested in the different areas.

Would something like the HSBC one compliment my VGLS60 better than another VG fund? Or am I barking up the wrong tree entirely?

At different times, one will perform better than the other.   HSBC is risk targetted to remain within a volatility band.   VLS is returns focused and will move around the risk profile depending on different periods of time.

Dunstonh: many thank for your comments.  They highlighted that I don't fully understand the basis of the funds yet.  I will go back and do some more  reading before I commit to anything.

masonic said:

Which account will you want to touch first, as typically higher risk investments would be left for longer holding periods? You may wish to de-risk as you approach a drawdown event.

Thanks for helping clarify the diversification and risk issues that were in my mind.  It would be ISA then my SIPP, so I would be looking to leave my SIPP for longer. I will need to think about potential drawdown events and "de-risking." I will do some research on different approaches and will probably come back with further questions in due course.

Thrugelmir said:

Milkmaid1 said:

I am looking to invest for a minimum of 10 years, as I can't access the SIPP before the age of 57.  I don't yet have a firm "target" end date in mind, so therefore I have discounted their Target Retirement Fund due to the automatic reallocations in the leadup to the target date.  

Correspondingly equity markets could plumment shortly before you decide to take action. Blowing your plans off course. People often don't understand their own risk appetite until they experienced markets in all weathers. 

Thanks Thrugelmir, I read somewhere about investors picking a later "target date" in some cases.  I will go back and look at the Target Retirement Fund again in light of your comments.

You have all given me "food for thought."  Thank you

Albermarle

Dunstonh: many thank for your comments.  They highlighted that I don't fully understand the basis of the funds yet.  I will go back and do some more  reading before I commit to anything.

The problem is one of definition, often an issue in this area.

An index tracker that just follows an index , is a passive investment .

A fund that tries to beat the market, by picking 'winners' or has a special strategy etc, is an actively managed investment.

VLS and HSBC global strategy, use a mix of passive funds, but decisions are taken on the exact mix of these funds. So they are ' passively managed' or 'managed passively' - not official terms but hopefully explains what I mean OK.

The HSBC fund ( and mymap) seems to be  a little more managed than VLS .

 considered the risk level of the LS80 on its own to be a bit too high (although VG appear to give them the same rating of 4) 

I suppose on a scale of 1 to 7 , the two funds are not that different. In any case risk rating is not an exact science. In the first few months of this year VLS 20 performed worse than VLS80, in a falling market.

OldMoneySaver

Albermarle said:

VLS and HSBC global strategy, use a mix of passive funds, but decisions are taken on the exact mix of these funds. So they are ' passively managed' or 'managed passively' - not official terms but hopefully explains what I mean OK.

The HSBC fund ( and mymap) seems to be  a little more managed than VLS .

Yes, Monevator highlight that as a key difference, to the extent of actually referring to HSBC GS as 'active' and Vanguard LS as 'passive', according to its own view of what those terms signify, i.e. that Vanguard's commitment to a fixed percentage of equities is 'stable', whereas most of its competitors aren't:

So far, so similar – but only Vanguard’s LifeStrategy range and Fidelity’s Multi Asset Allocator family (including its Allocator World fund) offer stable asset allocations that you can be sure they’ll stick to.

The rest give their managers licence to chop and change. For example, the HSBC Global Strategy Balanced fund can allocate any amount from 40% to 70% in equities, depending on the manager’s market view.

[...]

It’s true that the active HSBC fund has pipped its passive Vanguard rival over five years.

dunstonh

Yes, Monevator highlight that as a key difference, to the extent of actually referring to HSBC GS as 'active' and Vanguard LS as 'passive', according to its own view of what those terms signify, i.e. that Vanguard's commitment to a fixed percentage of equities is 'stable', whereas most of its competitors aren't:

Monevator offers an opinion, but the reality is that both Vanguard and HSBC make active decisions on what their asset allocation models are.  HSBC update it more frequently than Vanguard.   And Vanguard make the active decision to stick to a rigid equity content.  

VLS60 North American equities was 29.45% on 31st March 22 but 26.82% on 31 Oct 19.  
HSBC GS Balanced was 36.46%  and 31.90%.

So, whilst HSBC has more movement, it's not massive.    HSBC tries to maintain a volatility range as they target those that accept a certain degree of volatility and try to keep it within that.   Vanguard does not.  It decides to target a fixed equity ratio and will have periods of lower or higher volatility than HSBC.

Vanguard make the active decision to have home bias.  HSBC do not.

The only other real differences are that VLS is fettered and HSBC is unfettered.  i.e. Vanguard uses Vanguard funds.  HSBC uses HSBC or ishares.  And OCF for HSBC is 0.18% and VLS is 0.22% 

Apart from that, it is really comparing one apple to another apple, and that is reflected in the returns comparison.  Here is 6 months (to see if there is a change as the markets switch from growth to value), 3 years, 5 years and since launch in 2011.



HSBC has done better in every period, but there is so little between the two that it doesn't really matter.  And this is because they are so very similar.   

I have long suspected monevator has a vanguard bias (they would not be alone with that).    Monevator has more articles on their site about Vanguard than any other fund house and not one article specifically about HSBC GS.  That is, of course, their right when they write an opinion article and investing is very much about opinions, but it is worth noting potential bias in articles from all media sources or anyone for that matter.

You are talking about two fund houses doing something very similar but in marginally different ways.  There isn't a massive difference in strategy, and that is why there isn't a massive difference in the outcome.

25_Years_On

masonic said:

VLS80 is more volatile than VLS60 as it has more in equities. The holdings will be pretty much the same, just different weightings. If you are comfortable with the somewhat higher risk, then you could opt for VLS80.

However as we have found bonds can suffer significant losses. They might not go down or up so quickly but overtime losses can be bigger than shares. Hence the VLS funds with more shares have done better in the last sixth months (lost less) than those with more bonds and may recover closer to previous higher levels more quickly (here's hoping). These may be unusual times but they are the only times we have.

masonic

25_Years_On said:

masonic said:

VLS80 is more volatile than VLS60 as it has more in equities. The holdings will be pretty much the same, just different weightings. If you are comfortable with the somewhat higher risk, then you could opt for VLS80.

However as we have found bonds can suffer significant losses. They might not go down or up so quickly but overtime losses can be bigger than shares. Hence the VLS funds with more shares have done better in the last sixth months (lost less) than those with more bonds and may recover closer to previous higher levels more quickly (here's hoping). These may be unusual times but they are the only times we have.

Indeed. There is never any short term period within which bonds are assured to perform better than equities. However, using such an argument to suggest that opting for 100% equities is the best option would be misguided. As would be an assertion that bonds are just as risky as equities just because both had fallen to the same extent over the short term. Unusual times admittedly, but "past performance is no guide to the future" has perhaps never been so prescient.

25_Years_On

masonic said:

However, using such an argument to suggest that opting for 100% equities is the best option would be misguided. As would be an assertion that bonds are just as risky as equities just because both had fallen to the same extent over the short term. Unusual times admittedly, but "past performance is no guide to the future" has perhaps never been so prescient.

Yes I agree. It's more about the right balance. I'm in with VLS 60/40 and 80/20 but if I was recommending I'd go for 80/20 and I'm not sure that the 40/60 or 20/80 are good options in these times.