Complementary Fund to Vanguard Lifestrategy 100

clt1979

Sorry to jump on this but I have a question about the VLS100. I have this and also the VLS80 as changed my mind. So, as I have x amount of £££ in each, would it be better to sell and just do one of them or continue to do both? Thanks

Alistair31

clt1979 said:

Sorry to jump on this but I have a question about the VLS100. I have this and also the VLS80 as changed my mind. So, as I have x amount of £££ in each, would it be better to sell and just do one of them or continue to do both? Thanks

Do you want to own bonds, or not?

clt1979

Alistair31 said:

clt1979 said:

Sorry to jump on this but I have a question about the VLS100. I have this and also the VLS80 as changed my mind. So, as I have x amount of £££ in each, would it be better to sell and just do one of them or continue to do both? Thanks

Do you want to own bonds, or not?

I guess it’s a bit more diversified but it’s more the fact that I wondered if owning both sort of waters each of them down so to speak?

InvesterJones

clt1979 said:

Alistair31 said:

clt1979 said:

Sorry to jump on this but I have a question about the VLS100. I have this and also the VLS80 as changed my mind. So, as I have x amount of £££ in each, would it be better to sell and just do one of them or continue to do both? Thanks

Do you want to own bonds, or not?

I guess it’s a bit more diversified but it’s more the fact that I wondered if owning both sort of waters each of them down so to speak?

Owning both is valid if you're aiming for something between 0 and 10% bonds, but it's probably cheaper to own one and adjust bond proportion via a separate fund (in fact quite a lot cheaper if you go for a cheap global tracker + bond fund vs lifestrategy).

The only watering down occurs in the differences between the funds - so in fact you are concentrating what they have in common (ie equities)

JohnWinder

I would think VLS 100, or an equal mix of both that and VLS80 would have very similar results. If you hold both, you have 90% stocks instead of 100%.
Stocks return about 7%/year; 10% of 7% is 0.7%, so you miss out on 0.7%/year return; but you gain 3%/year with bonds, or 10% of 3% since your portfolio is 10% bonds, ie 0.3%/year. Overall you’d expect to be 0.4%/year worse off with both VLS funds than just VLS100. It’s not much difference; you’ll probably only see it over a long period, and it carries less risk. You choose, but you have to have some sense of your risk tolerance.

adindas

JohnWinder said:

Most feel it would makes more sense to invest in a proper global tracker (like HSBC FTSE All World as above, or if limited to Vanguard funds, VWRL or their FTSE Global All Cap) with proper UK weighting

You have a strong theoretical basis for that, with the efficient market theory, but other considerations include how securities are taxed at home and abroad (for those elsewhere), as well as which currencies.

Some people miss these points when comparing VLS100 with HSBC FTSE All World as they are just comparing the OCF. Certainly the OCF for VLS100 is more expensive as the OCF for UK funds are generally more expensive and VLS100 has a UK bias. But in the meanwhile you are more protected from the currency movement, for instance.

There has been argument put forward the drawback of having too much unnecessary diversion which might have worse impact on the portfolio return.

A good example for this is that if the fund include very risky countries such as Venezuela, Afghanistan, Yemen, North Korea because the investor just blindly believe in diversification, thinking that the more diversified the better return while less risky. Another example that have come forward many times in this forum is having too much bonds or having other assets class on your portfolio. Some assets while it might provide a high return but might not be worthy if considered from the risk/reward perspective.

InvesterJones

adindas said:

JohnWinder said:

Most feel it would makes more sense to invest in a proper global tracker (like HSBC FTSE All World as above, or if limited to Vanguard funds, VWRL or their FTSE Global All Cap) with proper UK weighting

You have a strong theoretical basis for that, with the efficient market theory, but other considerations include how securities are taxed at home and abroad (for those elsewhere), as well as which currencies.

Some people miss these points when comparing VLS100 with HSBC FTSE All World as they are just comparing the OCF. Certainly the OCF for VLS100 is more expensive as the OCF for UK funds are generally more expensive and VLS100 has a UK bias. But in the meanwhile you are more protected from the currency movement, for instance.

There has been argument put forward the drawback of having too much unnecessary diversion which might have worse impact on the portfolio return.

A good example for this is that if the fund include very risky countries such as Venezuela, Afghanistan, Yemen, North Korea because the investor just blindly believe in desertification, the more diversified the better return while less risk. Another example that have come forward many times in this forum is having too much bonds or having other assets class on your portfolio. Some assets while it might provide a high return but might not be worthy if considered from the risk/reward perspective.

You're only a little more shielded from currency gain/loss (it works both ways) with VLS vs a balanced global tracker (20% UK vs 4%) - and bear in mind the underlying top UK equities are themselves global companies so actually there's no shielding there either. If you go with their bond funds then yes, vanguard provide hedging on bonds, but there are no bonds in VLS100.

I'm not sure UK funds have higher OCFs - iShares UK equity index is only 0.05% OCF - I can't see anything cheaper.