Life Strategy, self management, fund choices

Steve_666_

I have a couple of questions about life strategy funds.
Scenario:
Soon I will either have to buy an annuity or self manage a signifcant portion of my pension, about 50%. The thought of potentially giving a lifetimes worth of savings to a pensions company should I die early, irks me considerably. So I edge towards the self management route.
As an example, lets say I have 250K that I'm working with, an annuity might give my 15K per year. I'm happy to have a little less in the self management route from this pot.
The risk of putting all my eggs in one self managed basket is a worry. The rest of my pension savings, will provide a 2 year reserve for the "bad times" and supplement the annual income.

Q1:What are the advantages/disadvantages of these 2 options for the life strategy route
1) Put all 250K in to vanguard 40/60 lifestrategy (or 60/40) or combined giving a blend 50/50
2) splitting the 250K into 5 equal multi-asset funds, say as an example:
Vanguard 40/60 lifestrategy
Blackrock mymap
HSBC global Strategy
L&G multi-index
BNY Mellon Sustainable Real return

The additional cost under II is negligible, 4x£4.

Q2 Is there any difference in cost (ignoring the platform fee and trading charges) from buying vanguard life strategy under II compared to using vanguard directly (also blackrock, LG etc etc) .

Please note this is an example and I'm not using my personal situation data, I'm interested in the two questions to help guide me through some decision making.

leosayer

Can you be specific about what your "all my eggs in one self-managed basket" concerns are?

I'm not a fan of holding multiple funds that do the same or similar things. It adds a layer of complexity and confusion for no obvious reason I can see.

But that does mean you need to buy a fund that you are 100% comfortable with. If you're not 100% comfortable with any of those then buying more funds is probably not the way to gain comfort.

Albermarle

leosayer said:

Can you be specific about what your "all my eggs in one self-managed basket" concerns are?

I'm not a fan of holding multiple funds that do the same or similar things. It adds a layer of complexity and confusion for no obvious reason I can see.

But that does mean you need to buy a fund that you are 100% comfortable with. If you're not 100% comfortable with any of those then buying more funds is probably not the way to gain comfort.

Due to the fact that all these funds are similar but not the same, I do see some sense in having more than one to balance out any differences in performance. Although the differences will not be great, it can be a sensible strategy if the fund size is large.
I would not bother having five though, two or three would be sufficient.

hara____

On Q1, one disadvantage of both options (1) and (2) is that all of the 250k would be in funds of 'medium duration'.

The classic alternative would be a bucket strategy of some cash for the early years, lifestrategy or similar for the medium-term, and a pure or high % equity fund for the longer-term.

Sure, your overall total would still be of 'medium duration' but behaviourally it might help to know you have the range of fund types, and an obvious order in which to draw from them. Could also help with future rebalancing decisions.

One extra consideration: some of these funds can sound similar but have very different bond components. Lifestrategy has some fairly long duration bonds, other funds less so. Which means it's worth digging into the details of each fund to check you're happy with the bond holdings.

Cus

Is there any more risk in holding a very large amount in one multi fund versus a few with respect to compensation/company fraud/default?

older_and_no_wiser

I quite like this bucket strategy for retirement planning. It's an American channel but the concepts still apply 

https://www.youtube.com/watch?v=J7rrUnp4Mtw

leosayer

older_and_no_wiser said:

I quite like this bucket strategy for retirement planning. It's an American channel but the concepts still apply 

https://www.youtube.com/watch?v=J7rrUnp4Mtw

This channel outlines a different view:

https://youtu.be/fNP62fSLg1U?si=nfL8eEaNA-nHmDjp

gm0

Perception of absence of evidence is not evidence of absence.

My own take is that there is a tradeoff of holding more than one fund covering the same asset class and geographical scope.  But there is a case.  5 is a lot though.

Example:

I hold some Vanguard (VEVE) (world developed equties distributing (VHVG would be the accumulation equvialent) and some L&G World ex UK, blended with UK.   Both are holdings of global developed equities at weight within my overall holdings.  And part of a passive core before "tilts" are added.   Separate platforms. One is a fund. One is an ETF. Across two different fund managers.  Same underlying major stocks (more or less).  Both Physical replicators.  Together they make up the passive global developed equities portion.

The positive of doing this is that any issues arising with "the tax wrapper",  "the fund manager organisation - L&G, VG)", the trading platform(s) if held separately say S&S ISA from pension), their IT platform when it fails; only impact the section of your investments in that holding. 

IT platforms can be a common failure point (if they use the same provider), custody and settlement organisations, LSE.  Not everything is visible or accessible but some things are so the fact it is not a complete solution does not invalidate the part where it is.

If you have two funds across two platforms - only half the impact if something bad happens to one of them.  Three, 1/3.  Albeit you now deal with more than one organisation so the tiny probablity of something happening to someone and that being one you use - has just increased alongside the major shift down in disruptive impact to you should an (unlikely) event occur.

Residual tail risks - known (happened before) and unexpected - IT failure, fraud impact, business failure, legislative changes (which can (hypothetically) impact a UK OEIC fund and a Luxembourg ETF differently), counterparty failures due to other financial difficulties (derivatives and synthetics).

Whether you adopt this is for you to decide. 

The problem being addressed has *very low* probability but you are going to run the game for 40 years +  The probabilities of incident are not zero. 

It is fairly trivial to contain the impact of these events. 

I choose to make that a feature of my investment statement under the category "not all eggs in one basket" (which is itself an idea following on from avoiding major impact mistakes by not trusting any *one* thing - investment approach, portfolio design, fund manager, tax wrapper etc. across the full assets.  I chose this approach because I don't know what I don't know. And avoidance of major error via naivety is more important to me than picking the single "best" investment approach.

The negative of doing this is that it can cost a little more (not a lot if you are careful what investments are held where and attendant to incentives and thresholds.   And there is arguably also an added complexity to rebalancing although again not a huge issue compared to other required knowledge to DIY invest.  You might take one view as an early retiree and another leaving affairs simple and tidy for a partner who isn't interested in the topic.

99% of the time this approach will seem (and is) redundant and people will argue the effort is better directed to something else away from investing, or into a more active approach to asset allocation and monitoring - investment selection.   And 1% of the time it will look prescient.

Your investments and your choice

In operational contexts we used to refer to it as minimising or eliminating single points of failure

Linton

I agree that managing single points of failure is important and that it would be imprudent to put all your money in one investment on one platform.  On the other hand spreading too much makes management more difficult.  Fortunately I dont think it necessary to go that far...

If you have a spouse and both have an S&S ISA there is little to be lost from having each account on a different platform if you wish since each is completely independent of any other.  Then given you need different accounts there is nothing to be lost for example from having one holding a global index  ETF and another holding a fund version.

If you only have one account holding more than 2 parallel funds does seem to me to be pretty pointless.  Even holding 2 is probably unnecessary since the risk of your single platform having problems must surely be greater than any risk from a broad mainstream fund. If you do have multiple funds better to use them positively to invest in different things.  You can then choose different fund managers and fund types without complicating matters.

gm0

What @Linton said. 

I use the L&G funds on a cheap occupational platform that I currently have to retain as there is a residual workplace uncrystallised pension there. So it is one of my platforms for a few years whether or not it is the "best retail offer" which it isn't on range, digital and convenience for sure.

And yet - insured funds (100% protection) and cheap at the same time.  So I didn't see significant advantage in moving it.  Someone with a more active trading posture would not tolerate the way it works.

But the assets are the same more or less.  It is hard for passive index trackers to 0.5% accuracy to be seriously good or bad over a longer term whether they are Vanguard, HSBC or L&G. 

Fund fact sheet details matter of course.  The much debated "home market bias" (UK equities % being different from the small at weight % you would expect in some popular "global" funds - which brings a different market exposure and also a slight change in how your currency exposure works out.