Vanguard lifestrategy predictions

P933alilli

I've just read a report that Vanguard expects it will take between 2-3 years for their vls20-60 funds to recoup what they've lost this year and return to the high points of December 2021. They expect inflation to fall back to 6.3% in 2023 and predict returns of 5.7% and 6.3% for vls20 and vls40 respectively. So they're basing the prediction of time taken to return to previous highs on the predicted returns next year. This can be taken with a large pinch of salt.? 

jimjames

Any market predictions can generally be taken with a large pinch of salt

dunstonh

Vanguard lifestrategy predictions

You cannot predict the unpredictable.

 So they're basing the prediction of time taken to return to previous highs on the predicted returns next year. This can be taken with a large pinch of salt.? 

Yes.  They are largely playing with statistical averages.  Most major falls recover within 2 years.   However, we don't know if we have seen the complete fall yet.   2000-2002 for example, had three negative years in a row.  A rare event.   Double negative years are also rare, not as rare as three but rarer than single negative years.

That said, I think VLS20 will be the longest to recover as you are highly unlikely to see gilts return to their high unit pricing.   It will be reliant on yield and at current yields that could take 5 years.

P933alilli

Thanks dunstonh! So, knowing that the future cant be predicted and despite the problems this year with the bond market, in your opinion, how likely would say the vls60 be likely to keep up with inflation over 10 years? Still a decent chance and would be unlucky not to or looking less favourable but still better than being stuck in cash?

dunstonh

Thanks dunstonh! So, knowing that the future cant be predicted and despite the problems this year with the bond market, in your opinion, how likely would say the vls60 be likely to keep up with inflation over 10 years?

The issues with fixed interest securities have pretty much happened.  Gilts fell back to 1990s pricing.   All the gains from low inflation and low interest rates and QE have basically been removed in the space of 12 months.   So going forward from this point, gilts are nicely priced.  Bonds have suffered as well but there will be pressures on low graded bonds during the recessionary period.  

A 10 year period is not complete economic cycle.  There have been 10 year periods in recent history where equities saw no growth over the 10 year period. (2000-2009 for example).    Statistically, you would expect growth in the majority of 10 year periods.  Especially as markets are still down at this point.  If they were high, the risk of not being higher in 10 years is greater.

Linton

Collyflower1 said:

Thanks dunstonh! So, knowing that the future cant be predicted and despite the problems this year with the bond market, in your opinion, how likely would say the vls60 be likely to keep up with inflation over 10 years? Still a decent chance and would be unlucky not to or looking less favourable but still better than being stuck in cash?

In the past 10 years VLS60 (it has only been running for just over 10 years) increased by about 90%.  This period of course includes the recent events. .  CPI increased by 25-30%. So it would seem that it beating inflation over the next 10 years is a reasonable hope, based on one data point.

The behaviour of the world economy in the next 10 years is completely unknown  On the other hand over 10 years the effects of events which are seen as highly significant at the time begin to fade away and longer term trends start to become more important.  10 years is arguably the minimum period where that applies.

P933alilli

Thanks, i could potentially leave it for 12-15 years possibly. Is there a particular strategy for taking an income when the fund is showing a return other than just taking profit when its up? 

dunstonh

Collyflower1 said:

Thanks, i could potentially leave it for 12-15 years possibly. Is there a particular strategy for taking an income when the fund is showing a return other than just taking profit when its up? 

There are a number of different income/withdrawal strategies.    Such as total return, bucketing, yield etc.
 
VLS somewhat limits you to total return unless you have a low income requirement.  You could use bucketing with it though. 

Linton

Collyflower1 said:

Thanks, i could potentially leave it for 12-15 years possibly. Is there a particular strategy for taking an income when the fund is showing a return other than just taking profit when its up? 

As Dunstonh says there are a range of different strategies for taking income .  To aid diversification of underlying assets it is best in my view to use more than one.    I rebalance allocations once a year and take income as a lump sum at that time.  The net effect is that excess gains from higher performing funds are sold up to a point in preference to those which perform less well.  I also hold a set of funds that produce high dividends/interest which naturally produce a fairly stable income spread over the year with minimal management effort.

P933alilli

Thanks for the replies! Is there anywhere online to learn about how to put the above strategies into action or do i need to buy a book? Talking of books is JL Collins' 'The Simple Path To Wealth' the best one to look at?