Vanguard LifeStrategy 40%

eskbanker

adindas said:

retiringtoosoon said:

Always go 100% equities

I have been saying this for sometimes now for those whose aim is to grow their wealth and still have a lot of time to run. I even showing the historical evidence and quoting strategy from proven billionaire investors who have proven track record of making money in the stock market.

But when you said in this MSE forum you will get heavily attacked by the same group of people cheering up each other.

I'm sure many could quote all that copypasta from memory, given how frequently you post it, but the fact remains that this thread is about someone with a time horizon of three years, not "a lot of time to run"....

adindas

eskbanker said:

adindas said:

retiringtoosoon said:

Always go 100% equities

I have been saying this for sometimes now for those whose aim is to grow their wealth and still have a lot of time to run. I even showing the historical evidence and quoting strategy from proven billionaire investors who have proven track record of making money in the stock market.

But when you said in this MSE forum you will get heavily attacked by the same group of people cheering up each other.

I'm sure many could quote all that copypasta from memory, given how frequently you post it, but the fact remains that this thread is about someone with a time horizon of three years, not "a lot of time to run"....

VLS40, VLS 60 is very popular here on MSE since the early inception of VLS, some people here are just following the crowd. Also I am referring to those whose aim is to grow their wealth and still have a lot of time to run.

eskbanker

adindas said:
Also I am referring to those whose aim is to grow their wealth and still have a lot of time to run.

Exactly, so off-topic for this thread....

Pipthecat

Thanks all, I'll keep things as they are for now and maybe report back in 12 months.  I have the funds to make up any short fall so lets see where this goes. 

Alexland

Albermarle said:
That would be my opinion too. Bonds/Gilts  will ( or already have done) should  revert to normal behaviour, but could take a few years to recover recent losses.

I think we have to remind ourselves what normal bond behaviour might be as the decades of lowering interest rates gave the impression they were as much about the capital growth as the interest coupon. A few years ago several of us on the forum noted that bonds were then market priced as a 'return free risk' and were warning about going too heavy on them by using funds like VLS20 and 40.
Just because bonds are less volatile than equities doesn't mean they should be held for inappropriately short periods. While money market funds are OK for short term, most bonds and equities should be held for a minimum of 7-10 years (with derisking to cash as the withdrawal date approaches) preferably much longer to have a high chance of a positive outcome.
I would suggest the OP tries to put the £1k loss aside and identifies the most suitable investment until they need the money in 3 years and my vote would be to go for the money market fund or cash savings account (which by chance should also recover the loss not that it should be a deciding factor) rather than taking deeper inappropriate risk using either a higher proportion of equities or running the clock down on VLS40 as the withdrawal date gets closer.
Alternatively if it's an option then paying for the car early as dunstonh suggests may be better depending on the costs.

JohnWinder

We know risk and return go hand in hand, and by risk we mean volatile prices, as an imperfect working rule. And we largely agree that the best returning, most volatile assets like stocks are more suited for longer term holding as are longer maturing bonds compared to shorter bonds (which are less volatile than longer bonds but usually return less).
For simplicity we can assume one gets most of the return one will get from any investment at the time one sells or relinquishes it. This simplification avoids us discussing ‘duration’, but we can talk in those terms if it helps.
If investing in bonds for a specific spending need like Pipthecat’s, a crude attempt at theory says choose the bond which will mature the day before the money is needed. That guarantees you’ll get what you’re expecting, and your bond return (or coupons) should have been maximised because you chose the longest bond that was safe; a bond maturing later than the day you need the money risks falling in value if interest rates rise some time before the bond needs to be sold.
We could picture the same with a savings account that locked the money away for several years; the longer, the more interest it should pay, but too long and there’s a penalty for early withdrawal.
In short, and accepting assumptions like favourable yield curves and the crudity of the model, one chooses an investment whose maturing date matches the date the money is needed.
I think the same can be said about stocks, except that they have no definite maturing date like bonds or a term deposit do; but folk do take into account how much they progressively pay in dividends as well as how long price drops last for so as to come up with an estimate of 20 years,  30 years maybe, some figure like that.
What does that mean for Pip’s VLS40? The money is needed in three years, but I don’t know when it was bought - let’s say 7 years ago. How optimal, according to my theory above, was VLS40 for a 10 year investment?
Firstly, its bond funds have a maturity time of about 10 years; and we’ll assume 20 years for stocks. That gives 14 years for VLS40 if you calculate a weighted average of the 10 years and 20 years.
Vanguard says their USA 40/60 fund with similar bonds is suitable for someone with a 5+ years investing horizon, but they may not be imagining the fund being completely liquidated after 5+ years, rather some drawings from it are made. Who knows.
But now Pip has 3+ years to go, is VLS40 optimal? Not according to the theory that you should match maturity time with time to withdrawal.

Alexland

JohnWinder said:

Vanguard says their USA 40/60 fund with similar bonds is suitable for someone with a 5+ years investing horizon, but they may not be imagining the fund being completely liquidated after 5+ years, rather some drawings from it are made. Who knows.

I've seen some S&S providers suggest as little as 3 years which strikes me as very irresponsible marketing.
I think it comes down to what they might consider acceptable probabilities of a bad outcome and their commercial incentive to signup customers might be at odds with the individuals ambition to get a return for the volatility they are taking on.
I'm on the investor's side and in normal market condition would say 7+ years although I can see how sometimes when valuations are attractive eg during a bad market crash a shorter timescale might be equally likely to work.
It gets complicated in drawdown situations where you are both selling soon while also investing long term but for simple lump sum withdrawals 5 years seems too short especially if you are looking to get to at least as you might have earned in a savings account.

Albermarle

Vanguard says their USA 40/60 fund with similar bonds is suitable for someone with a 5+ years investing horizon

Pretty much every fund factsheet I have looked at , recommends to hold the fund for at least 5 years. It seems to be a standard comment

I agree with Alexland that 7 years would be better, as historically the chance of loss seems to diminish quite significantly between 5 years and 7/8 years. It still goes down further if you go to longer, but at a slower rate.

masonic

It's just a probability distribution at the end of the day. What a fund house will put in their factsheet will be the minimum holding period they can get away with in regulation, because why discourage anyone from investing in their fund? What is best for the consumer depends on their circumstances and attitude to risk, i.e. what likelihood and magnitude of loss their plans could tolerate and they'd be comfortable taking.

JohnWinder

Pretty much every fund factsheet I have looked at , recommends to hold the fund for at least 5 years. It seems to be a standard comment

Vanguard US on their 80/20 fund: 'In general, such funds are appropriate for investors who: have a long-term investment horizon (ten years or longer),' https://investor.vanguard.com/investment-products/mutual-funds/profile/vasgx#portfolio-composition

The real return on US stocks during the last century over ten-year holding periods has ranged from -3.81% to +17.87%.