Vanguard Life Strategy

Veloflyer

Been reading a few threads on this forum  and elsewhere ref. Vanguard Life Strategy (VLS) funds and if possible I'd appreciate a few thoughts from those who know far better than me.  

I am 61, still working, though considering retirement, and have 2 SIPPs with HL and Bell made up of 100% equity funds/ETFs - low cost global/S&P trackers in the main. It's fairly simple stuff, nothing complex, fairly diverse and I don't mess around chopping and changing things unless there is good reason to do so - i.e. bugging out of Woodford's funds, that sort of thing. Not enacted drawdown/lump sum as yet, all is uncrystallized. 

I would now like to consider how to better preserve what I have within the SIPPs and to that end  VLS 20/80 eq/bond seems to appeal. I am not a fan of their UK bias in the equity portion so perhaps not all of my SIPP would be transferred over. I like the simplicity of VLS, the diversification, and the low fees, but perhaps some Qs - and apologies for any over-simplifications.

If there were a market crash - let's say for 4 years or so - am I right in thinking something like VLS  20/80 would offer reasonable protection - at least for 80% of it?

Clearly c/w equities I would not expect the same level of growth, but after 5 years or so, would it be reasonable to expect some growth - assuming interest rates remain as today.

Any pitfalls to be aware of please?

         

MK62

As with any stock market investment, the truth is nobody knows for sure........that said, VLS20 is likely to suffer much less than an all equity fund in a market crash....providing that crash is restricted to the equity markets and doesn't spread to the bond markets (perhaps unlikely, but can't be ruled out entirely)
Personally, once retired and in drawdown, if using only one or two funds, I'd prefer separate equity and bond funds rather than an all in one as it would allow me to decide which asset to sell (and when), but others might prefer an all in one fund to manage that.

There are alternatives to Vanguard Lifestrategy though - perhaps one of those might have an asset mix more to your liking......you could check out HSBC Global Strategy, CT Universal MAP, Blackrock MyMAP to name a few (there are others too)

DodgyDave88

If you are worried i would hold some as cash (inc perhaps pbs) to offset (along side 20/80 or 40/60) maybe even look into a annuity with a portion for guaranteed returns.

dunstonh

I would now like to consider how to better preserve what I have within the SIPPs and to that end  VLS 20/80 eq/bond seems to appeal.

Do you mean a split between VLS 20 and VLS80 or are you mistakenly referring to VLS20 as VLS20/80?

Assuming VLS20, that would be a brave choice.

 I am not a fan of their UK bias in the equity portion so perhaps not all of my SIPP would be transferred over.

Seeing as you don't have access to the non-UK home bias version (only available via IFAs), why not use one of the other multi-asset funds that doesn't have home bias?

I like the simplicity of VLS, the diversification, and the low fees, but perhaps some Qs - and apologies for any over-simplifications.

It doesn't have the lowest charges in its class and you don't like the management charges.  So, again, this points to using an alternative.

If there were a market crash - let's say for 4 years or so - am I right in thinking something like VLS  20/80 would offer reasonable protection - at least for 80% of it?

Which markets?     The different bond types are still markets.  Just not stockmarket.     Whilst in most periods, bonds suffer smaller loss periods, it is worth noting that over 2021-2023 bonds suffered losses that were greater than a typical stockmarket crash.

Clearly c/w equities I would not expect the same level of growth, but after 5 years or so, would it be reasonable to expect some growth - assuming interest rates remain as today.

Bonds play out in longer cycles than equities.  5 years is far too short a timescale for either equities or bonds.

Over the last 5 years, you would have seen no growth. It would have been a small loss on a basket of bond funds.

VLS20 is not really that useful.     It's not ideal for the short term.  It's not ideal for long term, and if it's medium term you are looking at, would you really want to risk being so heavy in bonds when you don't know if you are going to get a good bit of the cycle or a bad bit.

Diversification is important and VLS20 puts a lot into on asset class.

If you are drawing funds out in the short term, then use Short term money markets or platform cash (depending on your platform interest rate).   If you are having short term, medium term and long term withdrawals, then you could bucket the portfolio with appropriate equity ratios to match the different periods.    However, if you look at each bucket and average their equity ratio, you can find that a single multi-asset fund would match that average equity ratio.

SVaz

It won’t protect you if both Equities and Bonds go down together - it doesn’t happen often but the risk is still there.  Not such an issue with Bonds if you plan to buy an annuity of course.

The only really protective things at least for the short term, imho, are cash + Short term money funds.
Anyone thinking of retiring in the next 3-5 years needs a few years income in the above. 

80% in bonds if you aren’t buying an annuity is very risky.  

hara____

As suggested by others above, some investors wouldn't realise that the bonds in VLS20 are of relatively long overall duration. That's why it dropped as much as it did in 2022, which came as a surprise to some people.

So it's worth asking yourself whether you'd prefer to shorten the duration of your fixed income, either by mixing one of the VLS funds with a MMF (or a short-term bond fund) or by directly selecting your own blend of a short-term bond fund and an equity tracker.

SVaz

I think that an awful lot of people believe that Bonds are ‘Safe’, ( I know I did 5 years ago) probably because most default work pensions are Lifestyled to move from equities to Bonds as you get near to retirement and most people think that’s what needs to happen.  

Veloflyer

To clarify perhaps

David - Yes indeed. I also have an ISA to draw on - though this is held in ETF's not cash - at the moment. Annuity - yes worth considering.

Dunstonh - Yes VLS20 - why a brave choice? I am assuming an equities only crash, so as MK62 suggests, a safer bet perhaps? If true diversification is to also invest in bonds of some sort then whilst VLS20 may not be ideal it may be a good start?  Point taken about 21/23 but I would be looking to hold something like VLS20 for 15 years plus......
 

SVaz

If you are considering retiring,  what happens if you pull the plug then there’s a crash and you have no cash buffer?
Do you have substantial cash savings outside your pension that you could live on for 2 + years?  
Having to sell funds in a prolonged downturn can massively affect the next 20/30 years. 

Veloflyer

OK - as perhaps in a previous post - would this be any improvement. When considering retirement, have 4 years in cash as a buffer to see out any potential future equities crash, consider annuity purchase of (say) 30/40% of total pot value as an additional buffer, and keep the rest invested in equities - low cost trackers - drawing down on them when required.

Forget bonds?

  

dunstonh

OK - as perhaps in a previous post - would this be any improvement. When considering retirement, have 4 years in cash as a buffer to see out any potential future equities crash, consider annuity purchase of (say) 30/40% of total pot value as an additional buffer, and keep the rest invested in equities - low cost trackers - drawing down on them when required.

Forget bonds?

Not necessarily forget bonds.  Just use the right type of bonds.

People have different views on the size of the cash float.    Having one is important.  The size is an opinion.    I tend to use 5 years worth of withdrawals and that would be split between platform cash and short term money money market (unless held externally of the pension where it would be replicated outside of the wrapper).

An annuity purchase would allow you to reduce/remove the bond element as bonds are about income provision and not growth.     The annuity gives you the income provision.      That would leave the equities not needing to be touched until very much later and over the years you can always refloast the cash in positive periods.

However, using some short-term bonds could also be used in conjunction with a short-term money market fund.