Next recession, trade wars, up to 50% portfolio losses

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  • bowlhead99
    bowlhead99 Posts: 12,295
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    MM2002 wrote: »

    Why do people only talk about vanguards life strategy products when they offer so many others?

    Because they are the funds that they offer which have a reasonable mix of different asset classes in one fund from the perspective of a UK based investor and are periodically rebalanced back to the same proportion of equities vs bonds as they started with, while those markets go up or down from time to time.

    Whereas most of the funds they offer are specialist funds focused on just one type of investment (eg, UK stock market, US stock market, Japan stock market, Pacific stock markets, Europe stock markets, emerging markets, government bonds, corporate bonds, overseas bonds, etc etc) from which you would have to construct a portfolio yourself. Which is too much like hard work for most people new to investing, and not worth the effort on small amounts, so if someone comes on here as a newbie and is guided to the vanguard range of products, the lifestrategy products within that range are the most common to mention because they're most likely to be most suitable.
    MM2002 wrote: »
    So what are people!!!8217;s deciding factors in going for vls60/80/100 for a ten or twenty year investment.
    Studying charts, obviously 100 is they way to go, as long as one is prepared not to touch it
    Which chart for VLS100 did you look at that showed you how much it lost in the large crashes from 1999 to 2003 and 2007 to 2009? They don't have any real results to show you for that because they only launched the product in 2011 after the world equities markets had started to recover and have been going broadly upwards ever since.

    Still, I can tell you from FTSE's factsheet for the FTSE All World equities index (composed of large and medium sized companies around the world, weighted by company size) that that particular index of global companies (which doesn't have quite the same construction as VLS100) lost 58% in US dollars from peak to trough between 2007 and 2009. Conveniently for a UK investor, the USD was strengthening against the pound during that time so the loss in pounds on a global all-equities fund was not as big as 58% for us, even if it was for an American. That time.

    As you say, if you're prepared not to panic and sell out of the fund because you're not scared of a 45-50% loss - and will happily hold on to willingly take further paper losses at that point rather than dump the fund in fear; you don't need to worry because as you say, it's fine"as long as one is prepared not to touch it" in the bad times.
  • MM2002
    MM2002 Posts: 157
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    Thanks for the explanation bowlhead.

    The day I invest in a vls product, I get all stocks at that moments price I’m guessing? So theoretically I could(not that one would) dip in and out on the peaks and troughs and make profit(apart from costs associated)?

    I had a chat with an IFA who told me vls are good and his company use them, along with others.
    I’m loathed to pay an ifa for him to put my hard earned into vls when I can do it for free, what other advantages are there in using an ifa? And looking at my figures in my previous post would, if you were in my position feel vls 80 is about the right move?
  • MM2002
    MM2002 Posts: 157
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    Also in answer to your question bowlhead, which chart did I look at, it!!!8217;s here:-

    https://www.sharesmagazine.co.uk/article/weighing-up-the-vanguard-lifestrategy-funds
  • MM2002 wrote: »
    Thanks for the explanation bowlhead.

    The day I invest in a vls product, I get all stocks at that moments price I’m guessing? So theoretically I could(not that one would) dip in and out on the peaks and troughs and make profit(apart from costs associated)?

    I had a chat with an IFA who told me vls are good and his company use them, along with others.
    I’m loathed to pay an ifa for him to put my hard earned into vls when I can do it for free, what other advantages are there in using an ifa? And looking at my figures in my previous post would, if you were in my position feel vls 80 is about the right move?

    I would say and its just my opinion that at present an ifa isnt worth it for now . Unlike some others on this board i am not anti Ifa. They definitely have their place. The advantage of seeing an ifa is they will assist if you don't know how to plan financially to meet your long term goals. With larger amounts its also worth getting their advice as Vls can by its nature only give you the average return of the market. Then when youve made your money ifas can assist with tax efficient drawdown.

    Ive got about 130k in my work pension and 25 k in an isa. Id def consider using sn ifa in the future when those numbers are higher
  • bowlhead99
    bowlhead99 Posts: 12,295
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    MM2002 wrote: »

    The day I invest in a vls product, I get all stocks at that moments price I'm guessing? So theoretically I could(not that one would) dip in and out on the peaks and troughs and make profit(apart from costs associated)?
    VLS, like other open ended funds, isn't traded in real time at 'that moment's price'. Basically the day you place your order to buy into or sell out of a VLS product, only assuming you make it early enough in the day to catch the 'cut off' for the next valuation point, you will get the next dealing price which is calculated and announced based on the market prices at the end of the US trading session at 9pm that evening. So whenever you place an order you are joining a the list of people who want to buy or sell at the next opportunity to join or leave.

    This means you are dealing at a price per share you don't know at the time you place your order, rather than the last price you saw which reflects the level of the market in the past. It wouldn't be fair to let you trade at the orchid days announced price when the market has already moved on, as you could cheat the system which would be unfair to those who were just buying and holding.

    So, if you place the order first thing Thursday morning you'll get Thursday night's entry or exit price. If you place it mid Thursday afternoon you'll have missed the cut off for that day and your deal will be accepted by the manager for Friday night's entry or exit price instead. You can't just say at 2.13pm ok I want to buy or sell based on the market price right now based on all share values at 2.13pm, because the fund accountants are not going to be able to put that price together for you in real time. Your order will be accepted for the following business day's dealing and you will get the price they calculate at the end of that next business day's market close, and receive your contract note with the full price details some point later.

    So, you can't dip in and out in real time to catch the peaks and troughs. But of course if over the weekend you think to yourself that the global market by end of day Monday will be lower than it's going to be in the near future, you could place an order to be processed on Monday which will get you a share of the fund and all the things it holds at a fair price calculated at the end of Monday. Then towards the end of the week you might think all the companies that VLS owns will be valued higher on Friday night than they will be for the foreseeable future, you can place your order before Friday's orders cut-off and get Friday's exit price, and be really happy when there's a global stock market collapse the following week and you just escaped it.

    In that sense, yes you can dip in and out to try to catch the peaks and troughs. Of course, that's going to require your judgement or foresight to determine whether the fact that the market is a boy higher or lower than it recently was, will really represent a peak or through when viewed from a few days, weeks or months or years later. You might think it's a peak because it's relatively higher than it was, but it keeps going up. Same with a trough looking to you like it might be the bottom.

    But in a simple sense you can have a go at market timing, within the scope of the daily pricing points and cut off times to make your buys and sells. Typically people will do better by leaving it alone because they won't catch the top of a rise or the bottom of a dip, which can only be found with hindsight, and the market will frequently move against them while they're in or out of it
    I had a chat with an IFA who told me vls are good and his company use them, along with others.
    I!!!8217;m loathed to pay an ifa for him to put my hard earned into vls when I can do it for free, what other advantages are there in using an ifa? And looking at my figures in my previous post would, if you were in my position feel vls 80 is about the right move?
    If you have an amount of money to invest where the amount you could lose or miss out on by investing yourself badly is greater than the fee the adviser would charge, it can be sensible to spend money buying advice to ensure what you are doing is sensible.

    The adviser would consider your needs and objectives and your level of understanding and willingness or ability to accept volatility etc, and find something suitable for you to do with the money you want to invest. It might end up being something like VLS 60 or 100 or 80 or 40, or indeed any other fund or mix of funds that you could buy yourself if you wanted to do it without taking advice.

    For a relatively small amount of money being invested and a newbie investor it wouldn't be too surprising of they suggested a fund similar to VLS, inside an ISA or pension, on the basis of simplicity. They could explore with you which of the VLSs might be best.

    For example if you have read a chart or table which implies that VLS100 looks best because it had the highest annual return over a period in which the dollar went up against the pound and global stock markets generally rose, you might think that would always be the best thing to buy, but an adviser might point out that it was a very flattering set of results, and that matters don't always rise and the pound doesn't always fall to that extent over a five year period, and recalibrate your expectations in terms of what returns it might get in the longer term and how badly it could do in a crash. Likewise if you thought the VLS40 would be fine for your retirement objective because the table said it averaged 7.89% over five years which seems like it would build a big enough retirement pot over twenty years at that rate, the adviser would point out that's an unrealistic expectation to have.

    For small amounts of money, it's very inefficient to buy the advice of an educated and experienced professional. For some people though, even if they think they want to buy VLS 80 it could be reassuring to be told by someone independent and knowledgeable that yes that's a suitable thing to buy for your circumstances. And having an adviser at their side they may be discouraged from selling it at a 40% loss during a bad time for the markets and then might not lock in a loss - hence the money to engage the adviser was well spent, even though the money spent on advice would be extreme relative to the total being invested

    But generally they are not going to work miracles for you, as the markets will do whatever they want whether or not you are using advice. I generally believe it's more about not making fundamental silly mistakes; an adviser will check their recommendations for fundamental silly mistakes because they carry liability for it; whereas you neighbor, friend, fellow forum user, or IFA mate who isn't actually selling you advice, will be less thorough
    MM2002 wrote: »
    Also in answer to your question bowlhead, which chart did I look at, it's here:-

    https://www.sharesmagazine.co.uk/article/weighing-up-the-vanguard-lifestrategy-funds
    Yes, it was just a cheeky rhetorical question really. The point was, whichever table or chart you looked at which showed VLS100 at the top of it, it was not going to be a chart showing VLS 100's actual results during the '99-03 market drop or the 07-09 market drop, because VLS100 didn't exist then. The returns would have been rather less pretty.

    Generally though you would expect an 80-100% equity fund to do better over the long long term than a fund with lower equities, because over a long (eg 20-30 year) period, equities pretty much always do better than bonds. They do better in the good times and worse in the bad times but over the long long term there are more periods of up than down as the economy gets bigger and not smaller over time, and being a shareholder of profitable companies over time is generally more profitable for you as an investor than just lending the company or a government some money for a fixed return, because you are taking bigger risks.

    Good luck with it all anyway.
  • MM2002
    MM2002 Posts: 157
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    Thanks again BH.
    I!!!8217;m pretty sure vls80 is the way forward considering I don!!!8217;t need the 40k for hopefully a long time. This next financial year I!!!8217;m going to add 30k ish, but may go for something with less risk, as may look to invest for between 5-10yrs.
    Saying that, with us-China trade relations at the moment, it may pay to hold off until things calm down?
  • Glen_Clark
    Glen_Clark Posts: 4,397 Forumite
    MM2002 wrote: »
    it may pay to hold off until things calm down?
    Can't see things calming down whilst Trump is still posting on Twitter :eek:
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
  • slapmatt
    slapmatt Posts: 104 Forumite
    MM2002 wrote: »
    So what are people!!!8217;s deciding factors in going for vls60/80/100 for a ten or twenty year investment.
    Studying charts, obviously 100 is they way to go, as long as one is prepared not to touch it
    A rough rule of thumb is deduct your age from 100, so if you're 20 go for Life Strategy 80, if you're 40 go for 60 and so on.

    The idea being the closer you get to retirement, the less volatility (expose to stocks) you want.
  • Anonymous101
    Anonymous101 Posts: 1,869
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    slapmatt wrote: »
    A rough rule of thumb is deduct your age from 100, so if you're 20 go for Life Strategy 80, if you're 40 go for 60 and so on.

    The idea being the closer you get to retirement, the less volatility (expose to stocks) you want.

    Sack that! 100 all the way!!! :j:j:j:j
  • TBC15
    TBC15 Posts: 1,443
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    +1
    The age things is now old hat, no line in the sand.
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