Nutmeg, Vanguard Lifestrategy or Ready-Made Portfolio?

matt1983 wrote: »

Must admit im confused as to why its wrong to have the 5 vanguards, im sure ive read people saying they have more than one of them.

Can anyone explain in simple terms why it is wrong to have all 5 of the vanguards?

The funds each hold a very similar portfolio of assets, they just offer a different proportion of global equities (company shares) to bonds (loans to companies and governments).

As equities will perform very differently to bonds (because equities have the potential for much higher rises and much faster and larger falls), they will each give a different level of performance.

The idea of Vanguard offering you the different percentage of equity versions is for you to decide what level of equities is right for you. Higher equities is very likely to give the highest return over a period of multiple decades but in the short term anything can happen and it would not be impossible for the "100% equity" version to lose over half its value over the course of a year or two, before recovering, eventually, over the decade that followed.

So if you didn't want the 'extreme' level of returns from the 100% equities fund, maybe just one notch lower than that extreme level, you could put £1000 into the 80% equities fund. Doing that, you'd get £800 of equities, with a quarter of them in UK listed companies (£200) and three quarters in companies listed overseas (£600) and the remaining £200 in bonds.

Or you could put £1000 into the 40% equities fund whereby only £400 is going into equities (with the same mix of a quarter in UK equities (£100) and three quarters in international equities(£300) and you get £600 bonds.

It is up to you, which of these you prefer. If you prefer to get something in between the two positions of 80% equities and 40% equities you could INSTEAD put £1000 in their 60% equities fund and get £600 equities (£150 UK / 450 Intl) and £400 bonds.

So, if you want that 'middle' level of equities out of the five funds in the product range, you can just buy that 60% equities fund.

Alternatively if you are a bit mad, and have £3000 to spend, you could buy £1000 of each of the 80%, 60% and 40% funds. By doing that, from the above summary of what is in each of them, you would have:
£800+600+400 in equities (total £1800)
split as £200+150+100 UK equities (total £450)
and £600+450+300 international equities (total £1350).
And £200 + £400 + 600 in bonds (total £1200).

But buying three funds to get the average of all three when they are all basically structured the same way, is silly. You could have just bought £3000-worth of the middle fund 60% equity and been left with £1800 equities (450 UK, 1350 overseas) and £1200 bonds.

If you buy all three of these funds you are making life more complicated for yourself than it needs to be. More holdings to transfer elsewhere if you decide to move platforms. A longer list of things in your account, all trying to achieve the same objective as the one 'middle' option you could have used. And in your case, you are looking to do five, which is even more extreme, and gaining nothing from it really.

Your problem will be that these funds will all have different levels of performance. Over the long term you would expect the higher equities ones to grow relatively bigger. So instead of having £1000 in the 40 and the 60 and the 80 you might have £1100 in one, £1300 in another, and £1500 in another.

So now you have relatively more in the high-equities fund and relatively little in the low-equities fund, so this means you are now taking more risks than you were before. When you work the maths through you now have 62% of your overall £3900 in equities, instead of the 60% that you started at, and presuming you do not actually want more than 60% in equities you will need to sell some of the higher fund and buy more of the lower fund. If you have five funds instead of three that's even more funds to do buying and selling with. Whereas if you had just bought the 60% fund and kept it, the fund manager would do all the 'rebalancing' for you every day or week or month for free, maintaining the original allocation that you said you wanted.

The point of an out of the box multi-asset fund is to save you having to mess around with loads of holdings to pursue your objective. If you are not sure what you want, there is no harm in sitting back to pause before buying, rather than just buying everything that the shop sells and hoping it averages out to whatever you want.

If you're at the pub and want a shandy, ask the bartender for a glass with beer and lemonade in it, at your preferred ratio. Don't ask for a small beer and a small lemonade and a big glass to pour them both into. And don't ask for five very small shandies all of different strengths and a big glass to pour them into at the same time before you drink them. You are achieving nothing other than overcomplicating your life.

bowlhead99 wrote: »

As a side note and small ramble from what we both wrote in our posts above in support of just going with the 60 if that's the asset mix you want... if you don't mind doing your own rebalancing and are on a platform that doesn't charge for it or take you out of the market to do so, you should get marginally more tax efficiency by holding half VLS 100 half VLS 20, than holding 60.

But it is only a small amount and too much of a distraction to worry about, especially for someone who is brand new to investing and not sure if he should get one or three or five multiasset funds from the same range

OK, that is good to know. I wasn't aware of that. But yes, such nuances aren't his priority at this point! : )