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40-60% Funds Worried

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  • Audaxer
    Audaxer Posts: 3,547 Forumite
    Eighth Anniversary 1,000 Posts Name Dropper
    edited 4 June 2022 at 12:09PM
    Vanguard Lifestrategy 60%
    £17,060 Invested ( Currently down by 1.88% since January)

    VLS 60 is down 7% Year to date, and 5% down since the end of January.

    Thanks, not sure what I'm doing wrong here, I was looking at the AJ Bell figures which showed the change in fund value based on cost when bought, against current value
    The YTD figure (i.e. from the start of Jan) for the VLS60 page of AJ Bell shows it as 7.27% down. I'm sure that the YTD figures on AJ Bell are correct as they match my calculations of the fund's performance looking at my own spreadsheet figures.

    Royal London Sustainable Diversified on AJ Bell is shown as 13.7% down YTD.

    When did you buy the funds, and have you made an additions or withdrawals to the funds during this year?
  • JohnWinder
    JohnWinder Posts: 1,862 Forumite
    Fifth Anniversary 1,000 Posts Name Dropper

    I’m not suggesting any fund, as I’d have to dig into what you already have and know your mind. But I think anyone having bonds has to at least think about inflation linked bonds.

    One weakness of nominal bonds is you redeem them for their original value, and inflation could have trashed the value of £100 after 12 years. Of course, their yield includes some reward for anticipated inflation, but if there’s unanticipated inflation you lose out to that extent. But not with linkers; they move with inflation (up or down). That’s protection against one of the few risks nominal bonds face (interest rate changes; default; unanticipated inflation).

    Backtesting shows US linkers have done better than nominal bonds, after inflation adjustment. The future may be different, and linkers might turn out to be worse but the difference shouldn’t be huge for the potential benefit. EU comparison at backtest.curvo.eu shows a bit different, but it’s unclear if there’s inflation adjustment to the nominal’s returns.

    There is no other liquid investible asset that protects against unexpected inflation over the medium term as reliably; all offers will be considered.

    Whether 15% of bonds in linkers is worth the effort, not sure.

  • Iain_For
    Iain_For Posts: 134 Forumite
    Fifth Anniversary 100 Posts


    There is no other liquid investible asset that protects against unexpected inflation over the medium term as reliably; all offers will be considered.


    Voluntary NI contributions to the triple-locked state pension to max it out! 🙂
  • Iain_For
    Iain_For Posts: 134 Forumite
    Fifth Anniversary 100 Posts
    Perhaps there is something to be said for using an active bond fund such as Royal London Global Index Linked for inflation hedging which is ca. 45% US, not too expensive to pay someone else to work it out (hopefully).
  • safe_hands2
    safe_hands2 Posts: 166 Forumite
    Fifth Anniversary 100 Posts Name Dropper Newshound!
    Just wondering - with funds like LifeStrategy 20 and 40, is the average bond duration about 9 years too? Aren't these sold as lower 'risk' which can be held for shorter length of time, say 5-7 years? Is that then potentially problematic?

    In the coming years I'll be looking to de-risk as I get closer to wanting to access money. Is this something I'll need to consider?
  • masonic
    masonic Posts: 27,182 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 4 June 2022 at 6:10PM
    Just wondering - with funds like LifeStrategy 20 and 40, is the average bond duration about 9 years too? Aren't these sold as lower 'risk' which can be held for shorter length of time, say 5-7 years? Is that then potentially problematic?

    In the coming years I'll be looking to de-risk as I get closer to wanting to access money. Is this something I'll need to consider?
    They can be held for a shorter length of time with a low probability of sustaining a loss over those 5-7 years. The risk is never zero, but the extent of your loss over that timeframe would be relatively small. VLS 20 over 5 years has now delivered an annualised return of +1.7%, down from nearly 4% just 6 months ago. It may not have quite bottomed out, but even over this particularly bad time it has performed only a little worse than fixed term cash.
    It is something that you should consider in so far as it is probably not the best place for money you will need to spend in the next year or two. It would be a shame for someone to be forced into selling units right now. The ability to fund a couple of years spending from a rolling ladder of fixed term savings can come in useful in situations like this. Chances are things will look rather better by that time.
  • I still can't get my head around why bonds are desirable in a fund like VLS if they are more than likely going to lose you money, I realise they are there to reduce volatility  and usually correlate with equities, but currently they are going in the same direction as equity so by the time 7 years or 10 years comes along aren't the bonds likely to be worthless?
  • masonic
    masonic Posts: 27,182 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 4 June 2022 at 7:33PM
    I still can't get my head around why bonds are desirable in a fund like VLS if they are more than likely going to lose you money, I realise they are there to reduce volatility  and usually correlate with equities, but currently they are going in the same direction as equity so by the time 7 years or 10 years comes along aren't the bonds likely to be worthless?
    If the bonds typically held by VLS become worthless, then it means money has become worthless, governments have lost control, and society as we know it has collapsed. If you believe that's going to happen, then you wouldn't invest in a fund like VLS, or in anything at all.
    Over what time period have you looked to come to the conclusion that bonds gradually lose money until they become worthless? Have you come across any other data that suggests otherwise?
    Perhaps some basic background reading about what bonds are and how they work would be worthwhile.
  • masonic said:
    I still can't get my head around why bonds are desirable in a fund like VLS if they are more than likely going to lose you money, I realise they are there to reduce volatility  and usually correlate with equities, but currently they are going in the same direction as equity so by the time 7 years or 10 years comes along aren't the bonds likely to be worthless?
    If the bonds typically held by VLS become worthless, then it means money has become worthless, governments have lost control, and society as we know it has collapsed. If you believe that's going to happen, then you wouldn't invest in a fund like VLS, or in anything at all.
    Over what time period have you looked to come to the conclusion that bonds gradually lose money until they become worthless? Have you come across any other data that suggests otherwise?
    Perhaps some basic background reading about what bonds are and how they work would be worthwhile.
    Thanks, I guess reason I am concerned over bonds, is I read all the fantastic links to various websites such as those you very thoughtfully posted, and I read them  and then start to feel reassured  then I see another article which then says, bonds aren't what they used to be or you can expect a return of possibly 1% if you are lucky, or if the interest rate goes up, then the bond you have will lose value because its no longer attractive due to a prettier higher interest one now available.
    So not sure if bonds behave in this way in a mutual pool like VLS
  • masonic
    masonic Posts: 27,182 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 4 June 2022 at 8:12PM
    masonic said:
    I still can't get my head around why bonds are desirable in a fund like VLS if they are more than likely going to lose you money, I realise they are there to reduce volatility  and usually correlate with equities, but currently they are going in the same direction as equity so by the time 7 years or 10 years comes along aren't the bonds likely to be worthless?
    If the bonds typically held by VLS become worthless, then it means money has become worthless, governments have lost control, and society as we know it has collapsed. If you believe that's going to happen, then you wouldn't invest in a fund like VLS, or in anything at all.
    Over what time period have you looked to come to the conclusion that bonds gradually lose money until they become worthless? Have you come across any other data that suggests otherwise?
    Perhaps some basic background reading about what bonds are and how they work would be worthwhile.
    Thanks, I guess reason I am concerned over bonds, is I read all the fantastic links to various websites such as those you very thoughtfully posted, and I read them  and then start to feel reassured  then I see another article which then says, bonds aren't what they used to be or you can expect a return of possibly 1% if you are lucky, or if the interest rate goes up, then the bond you have will lose value because its no longer attractive due to a prettier higher interest one now available.
    So not sure if bonds behave in this way in a mutual pool like VLS
    Bonds went through a long period of unusually high, equities-like, returns, as interest rates have gradually (then sharply) fallen. The opposite is happening now that interest rates are normalising. The bond funds held in VLS are already yielding 3% as mentioned earlier in the thread. That seems to price in the expected course for interest rates, although there are no guarantees. Interest rates can only go so high, and there will be no appetite for mass repossessions when people can't afford their mortgages, or causing a recession because companies can no longer afford their borrowings. It is not beyond the realms of possibility that if we are tipped into recession rates will have to come back down again, which would see bonds rise sharply in value. All of this is irrelevant to a long term holder of bonds, who buys them for their future income, not to trade them for profit.
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