LifeStrategy 20% Accumulation

DennisTenus

dunstonh said:

I can sit this out but is it likely that when interest rates start to go down this fund will increase?

Yes but not to where it used to be.   That will rely on the yield and take much longer.

If you take a look at the chart below, it shows the unit price of a gilt fund excluding income (blue) and including income reinvested (red).



Unit prices without income reinvested would typically float around the same price but not go up over the long term. 

The credit credit crunch led to quantitative easing that drove down yields and pushed the unit price up into a bubble.   So, this meant gilts had a much better than typical return for a decade but in 2022, the effects of quantitative easing unwound and we are back to ballpark where gilts are expected to be.      

The unit price (excluding income reinvested) is not going to return to where it was in our lifetime.  Technically, I cant say that but it would require a return to post credit crunch style interest rates and you have to go back 300 years to find rates similar previously.

However, the yield is now higher than what it was post credit crunch.  So, some of the return has moved more to income.   Its going to take a long time for the value to return in terms of total return.

So if its not going to return to where it was in our lifetime then I might as well sell now!!??

By "long term" do you mean few years, 5+, 10+ or more?

GazzaBloom

It surprises me that professional fund managers and advisors didn't take action on bond funds when inflation started to race up at the back end of 2021. It wasn't exactly unforeseeable that interest rates would be hiked up in efforts to try and contain it.

masonic

DennisTenus said:

dunstonh said:

I can sit this out but is it likely that when interest rates start to go down this fund will increase?

Yes but not to where it used to be.   That will rely on the yield and take much longer.

If you take a look at the chart below, it shows the unit price of a gilt fund excluding income (blue) and including income reinvested (red).



Unit prices without income reinvested would typically float around the same price but not go up over the long term. 

The credit credit crunch led to quantitative easing that drove down yields and pushed the unit price up into a bubble.   So, this meant gilts had a much better than typical return for a decade but in 2022, the effects of quantitative easing unwound and we are back to ballpark where gilts are expected to be.      

The unit price (excluding income reinvested) is not going to return to where it was in our lifetime.  Technically, I cant say that but it would require a return to post credit crunch style interest rates and you have to go back 300 years to find rates similar previously.

However, the yield is now higher than what it was post credit crunch.  So, some of the return has moved more to income.   Its going to take a long time for the value to return in terms of total return.

So if its not going to return to where it was in our lifetime then I might as well sell now!!??

Are you not interested in the income it produces?

Easyjet77

DennisTenus said:

dunstonh said:

I can sit this out but is it likely that when interest rates start to go down this fund will increase?

Yes but not to where it used to be.   That will rely on the yield and take much longer.

If you take a look at the chart below, it shows the unit price of a gilt fund excluding income (blue) and including income reinvested (red).



Unit prices without income reinvested would typically float around the same price but not go up over the long term. 

The credit credit crunch led to quantitative easing that drove down yields and pushed the unit price up into a bubble.   So, this meant gilts had a much better than typical return for a decade but in 2022, the effects of quantitative easing unwound and we are back to ballpark where gilts are expected to be.      

The unit price (excluding income reinvested) is not going to return to where it was in our lifetime.  Technically, I cant say that but it would require a return to post credit crunch style interest rates and you have to go back 300 years to find rates similar previously.

However, the yield is now higher than what it was post credit crunch.  So, some of the return has moved more to income.   Its going to take a long time for the value to return in terms of total return.

So if its not going to return to where it was in our lifetime then I might as well sell now!!?? 

By "long term" do you mean few years, 5+, 10+ or more?

Firstly, I always adhere to the advice I was given....
Don't invest in anything you don't understand!

Finally,  I also adhere to another piece of advice often given here and elsewhere....
multi/mixed asset and global equity tracker funds such as those offered by Vanguard etc are often described as long term investments "invest and forget".

Eyeful

The amount by which prices swing up and down are:

Shares: These have the largest swings. So carry the largest risk.
Bond funds: Swing up & down less than shares but more than cash. So bonds have less risk than shares but more risk than cash.

Cash: Cash value stays the same but Interest rates will swing up & down over time
           The risk here is that of inflation, this means that the same amount of cash will buy you less & less as time goes by.

(a) If you need the cash within 5 years, it should be in a Bank or Building Society savings account.
(b) If you do not need the money for 10 years or longer, you can expect a better return from shares or bonds (but this is not guaranteed).
    You expect a better return on your money, because you are taking a greater risk with it.

To get a better under standing of the VLS funds, I suggest you watch

   https://www.youtube.com/watch?v=lGQ9KyQq8Jw       

JohnWinder

So if its not going to return to where it was in our lifetime then I might as well sell now!!??’

I’ll leave your lifetime out of this, but if the coupon payments from bond funds are reinvested into the fund then we have a fair idea of how long it will take to firstly, get back to ‘ground zero’ when the fall began, and secondly to get up to the return level you would have been at if ‘ground zero’ didn’t happen. Beyond that second level your fund is doing better than it was just before ground zero - what’s not to like if you can live long enough.

The rough and ready formulae are: makes it back up beyond the ground zero level to where it would have been without the interest rate increases: 1D(uration) after the last interest rate rise; and it makes it up to there if interest rates keep rising continuously after: 2D-1. Duration of your bond fund is about 8 years we think. You’ll have made up in 8 years (as interest rate rises seem to have stopped), otherwise in 15 years if they haven’t. Read all about it here: https://www.bogleheads.org/forum/viewtopic.php?t=360575. And here: https://forums.moneysavingexpert.com/discussion/6470635/how-long-do-bond-funds-take-to-recover-after-a-sharp-rise-in-yields#latest 

Qyburn

DennisTenus said:

So if its not going to return to where it was in our lifetime then I might as well sell now!!??

What's the relevance of it returning to "where it was"? You're considering taking the loss and putting the proceeds into cash savings. Surely the question should be whether LS20 will grow from its current value by more or by less than you'd get from cash savings. Assessed over your required timescale.

InvesterJones

GazzaBloom said:

It surprises me that professional fund managers and advisors didn't take action on bond funds when inflation started to race up at the back end of 2021. It wasn't exactly unforeseeable that interest rates would be hiked up in efforts to try and contain it.

Agreed, but I guess it depends what their mandate is.

Beddie

You sound like you wanted low risk but actually got something a bit higher risk than expected. Perhaps a money market fund, paying over 5% currently, or a fixed rate cash ISA might be better for you. I doubt LS20 will beat either of those while base rate stays where it is, but you never know.

Forget the loss and how long will it take to "make it back" - the loss has still happened whether you sell now or stay put. What should really concern you is future returns and a risk level you feel comfortable with.

DennisTenus

Beddie said:

You sound like you wanted low risk but actually got something a bit higher risk than expected. Perhaps a money market fund, paying over 5% currently, or a fixed rate cash ISA might be better for you. I doubt LS20 will beat either of those while base rate stays where it is, but you never know.

Forget the loss and how long will it take to "make it back" - the loss has still happened whether you sell now or stay put. What should really concern you is future returns and a risk level you feel comfortable with.

Loss hasnt happened unless I sell it

This is supposed to be a low risk fund which is why I bought it, everyone constantly says bonds are safe but clearly they aren't.