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40-60% Funds Worried
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People have come to expect double digit annual gains from stocks and even bonds in recent times. The danger is that they then use these optimistic returns to plan and assess their portfolios. Be thankful that your bond allocation has saved you from being 20% down right now. A sensible plan is built on historically realistic stock and bond returns and a diverse portfolio that will take you through good times and bad and that includes cash, fixed income -bonds and equities. You might add a rental, REITs, annuities, state pension and you might also have DB pensions. Don’t put all your eggs in one basket so have some in the equity basket, some in the bond basket etc. Your portfolio should be designed to fund your retirement with the maximum probability of success not to provide the maximum possible return according to some potentially erroneous assumptions.“So we beat on, boats against the current, borne back ceaselessly into the past.”4
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VLS20 has an average duration of 9.46 years and an effective maturity of 11.54 years. Whether that is right for an individual investor in or approaching retirement depends on goals and strategy. It's not that difficult to put a portfolio together that mirrors the VLS funds but with shorter duration bonds, useful video on doing so from Ramin, just substitute appropriate shorter duration bond funds if desired:safe_hands2 said: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?
https://youtu.be/jrNyl5u93xI
On a personal note, it is worth noting, however, that even in retirement (which I am) it can still be necessary to have at least part of a portfolio focussed on growth on a 10+ year timeframe. Just a personal opinion, but one difference between accumulation and deccumulation is perhaps not to think of your portfolio as a single entity but to split it into different timeframes.0 -
One of the limitations of multi-asset funds like VLS is that you don't get to chose which assets you can sell when. I don't know how much of a bad thing that might or will be, but if you have a global stock fund and a global bond fund you could pick and chose what to sell. I think people should start to think about annuities again as their fixed income component with equities as the growth component. If you can fund your basic income needs from state pension and an annuity and keep something in equities for inflation, extra spending and to pass on to the next generation that that's a nice situation.Iain_For said:
VLS20 has an average duration of 9.46 years and an effective maturity of 11.54 years. Whether that is right for an individual investor in or approaching retirement depends on goals and strategy. It's not that difficult to put a portfolio together that mirrors the VLS funds but with shorter duration bonds, useful video on doing so from Ramin, just substitute appropriate shorter duration bond funds if desired:safe_hands2 said: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?https://youtu.be/jrNyl5u93xI
On a personal note, it is worth noting, however, that even in retirement (which I am) it can still be necessary to have at least part of a portfolio focussed on growth on a 10+ year timeframe. Just a personal opinion, but one difference between accumulation and deccumulation is perhaps not to think of your portfolio as a single entity but to split it into different timeframes.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
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,
They could lose you money over short terms, and have over 2 or 3 years in the last 50 years, but Vanguard say ‘The fund is more appropriate for long term investments’ in the KII. And in the long term bonds which don’t default can’t lose you money if their yield is positive (which it is now) because you’re promised to get your money back. That ignores inflation, but so we also do commonly when talking of stock returns.
Rising interest rates can threaten to lose you money in bond funds but in the longer term it seems not to happen. Look at this chart of an ever appreciating bond fund during a period of rising rates; the fund just chugs along making you money. And it illustrates that getting in and out of bond funds (for cash) required impeccable timing to avoid it being a losing strategy. https://www.bogleheads.org/forum/viewtopic.php?t=151665.
Someone here illustrates which bond fund you choose is a tenth order issue.
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Interesting backtest. There’s not a huge range in duration between the bond funds chosen, ca. 5-8 years, an easier range to find bonds funds for in 🇺🇸 or 🇪🇺 but not 🇬🇧. An argument for a global aggregate bond fund such as AGBP.JohnWinder 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,They could lose you money over short terms, and have over 2 or 3 years in the last 50 years, but Vanguard say ‘The fund is more appropriate for long term investments’ in the KII. And in the long term bonds which don’t default can’t lose you money if their yield is positive (which it is now) because you’re promised to get your money back. That ignores inflation, but so we also do commonly when talking of stock returns.
Rising interest rates can threaten to lose you money in bond funds but in the longer term it seems not to happen. Look at this chart of an ever appreciating bond fund during a period of rising rates; the fund just chugs along making you money. And it illustrates that getting in and out of bond funds (for cash) required impeccable timing to avoid it being a losing strategy. https://www.bogleheads.org/forum/viewtopic.php?t=151665.
Someone here illustrates which bond fund you choose is a tenth order issue.
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Its relatively easy to build your own duration by combining a short term and standard bond fund in the percentages required.Iain_For said:
Interesting backtest. There’s not a huge range in duration between the bond funds chosen, ca. 5-8 years, an easier range to find bonds funds for in 🇺🇸 or 🇪🇺 but not 🇬🇧. An argument for a global aggregate bond fund such as AGBP.JohnWinder 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,They could lose you money over short terms, and have over 2 or 3 years in the last 50 years, but Vanguard say ‘The fund is more appropriate for long term investments’ in the KII. And in the long term bonds which don’t default can’t lose you money if their yield is positive (which it is now) because you’re promised to get your money back. That ignores inflation, but so we also do commonly when talking of stock returns.
Rising interest rates can threaten to lose you money in bond funds but in the longer term it seems not to happen. Look at this chart of an ever appreciating bond fund during a period of rising rates; the fund just chugs along making you money. And it illustrates that getting in and out of bond funds (for cash) required impeccable timing to avoid it being a losing strategy. https://www.bogleheads.org/forum/viewtopic.php?t=151665.
Someone here illustrates which bond fund you choose is a tenth order issue.
There is also a Gilt ETF by Goldman Sachs that does it by only holding 1-3 and 7-10 duration bonds.
Asset Allocation|Top 10 Holdings|Goldman Sachs Access UK Gilts 1-10 Years UCITS ETF CLASS GBP (Dist)|ISIN:IE0003MKK4H3 (morningstar.co.uk)
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Interesting backtest. There’s not a huge range in duration between the bond funds chosen, ca. 5-8 years,Yes, but there’s more interest. Use portfoliovisualizer to compare short, medium and long US treasuries during 2003-2008 when the cash interest rate was rising from 1.5% to about 5.4%, and you see the long bonds returned 5%/year, the medium ones 4%/year and the short 3%/year.
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Many Thanks again John, will take a look at the links and my mind is now starting to rest a little now, I wish my IFA had the same commitment to help as all of you on this threadJohnWinder 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,They could lose you money over short terms, and have over 2 or 3 years in the last 50 years, but Vanguard say ‘The fund is more appropriate for long term investments’ in the KII. And in the long term bonds which don’t default can’t lose you money if their yield is positive (which it is now) because you’re promised to get your money back. That ignores inflation, but so we also do commonly when talking of stock returns.
Rising interest rates can threaten to lose you money in bond funds but in the longer term it seems not to happen. Look at this chart of an ever appreciating bond fund during a period of rising rates; the fund just chugs along making you money. And it illustrates that getting in and out of bond funds (for cash) required impeccable timing to avoid it being a losing strategy. https://www.bogleheads.org/forum/viewtopic.php?t=151665.
Someone here illustrates which bond fund you choose is a tenth order issue.
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Thanks Prism, that looks interesting, will take a lookPrism said:
Its relatively easy to build your own duration by combining a short term and standard bond fund in the percentages required.
There is also a Gilt ETF by Goldman Sachs that does it by only holding 1-3 and 7-10 duration bonds.
Asset Allocation|Top 10 Holdings|Goldman Sachs Access UK Gilts 1-10 Years UCITS ETF CLASS GBP (Dist)|ISIN:IE0003MKK4H3 (morningstar.co.uk)0 -
For most people one significant advantage of having an IFA, is so they so not have to think or worry about these types of issues.ChainsawCharlie said:
Many Thanks again John, will take a look at the links and my mind is now starting to rest a little now, I wish my IFA had the same commitment to help as all of you on this threadJohnWinder 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,They could lose you money over short terms, and have over 2 or 3 years in the last 50 years, but Vanguard say ‘The fund is more appropriate for long term investments’ in the KII. And in the long term bonds which don’t default can’t lose you money if their yield is positive (which it is now) because you’re promised to get your money back. That ignores inflation, but so we also do commonly when talking of stock returns.
Rising interest rates can threaten to lose you money in bond funds but in the longer term it seems not to happen. Look at this chart of an ever appreciating bond fund during a period of rising rates; the fund just chugs along making you money. And it illustrates that getting in and out of bond funds (for cash) required impeccable timing to avoid it being a losing strategy. https://www.bogleheads.org/forum/viewtopic.php?t=151665.
Someone here illustrates which bond fund you choose is a tenth order issue.
You are paying an IFA, and worrying, and getting into some quite deep details about bonds.........1
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