Why doesn't everyone just buy Vanguard LifeStrategy?
Comments
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Do we know that for sure? If so why are people still investing in bonds and why are the likes of VLS20 and VLS40 still considered low risk?
This is what I was wondering as well, so if people wanted a low risk fund with maybe a equity/something else split (like the VLS 40) what would they look at if avoiding bonds?0 -
That is the conundrum.0
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dellboy102 wrote: »This is what I was wondering as well, so if people wanted a low risk fund with maybe a equity/something else split (like the VLS 40) what would they look at if avoiding bonds?
There are variable rate bonds available i.e. those that invest in RMBS. Not all are fixed.0 -
Do we know that for sure? If so why are people still investing in bonds and why are the likes of VLS20 and VLS40 still considered low risk?
Risk looks at potential downside. Not potential upside.
When bonds crash, it tends to be no more than 5% (talking conventional/general bonds and not the higher risk ones). Maybe 10% at the most. So, the downside is much lower than the 40-50% potential on general equities.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Okay, that makes sense. I'm interested to know if you as an IFA thinks 'bonds can only fall from here', as some people on here seem to think? Do you think it is better to reduce volatility in a portfolio by holding a percentage of cash rather than bonds?Risk looks at potential downside. Not potential upside.
When bonds crash, it tends to be no more than 5% (talking conventional/general bonds and not the higher risk ones). Maybe 10% at the most. So, the downside is much lower than the 40-50% potential on general equities.0 -
Risk looks at potential downside. Not potential upside.
When bonds crash, it tends to be no more than 5% (talking conventional/general bonds and not the higher risk ones). Maybe 10% at the most. So, the downside is much lower than the 40-50% potential on general equities.
Maybe in your lifetime. I've seen bonds lose more than 50%. Consols and War loan were way below £50 for most of the 70's and early 80's. Long-dated gilts were also trading around 50% of par. Now we have gilts trading way above par e.g. Treasury 4% 2060 priced at £166; think where that'd go if bank base rates rose to 8% and your average savings account were paying at least 6% !0 -
How much fixed interest prices move is also determined by how long it is before they get repaid. If my £100 bond is going to mature next year the price someone would pay is not going to vary much regardless of how much interest rate changed.
In the case of war loan - which had no fixed redemption date - the price that someone would pay was determined totally by market interest rates. So if market rates were 3.5% my £100 3.5% war loan would have been worth £100 but if market interest rates rose to 7% my £100 bond would only have been worth £50. Most bonds are between these two extremes. The longer they are to maturity the more volatile the price. The bonds held in most index funds are quite long duration. I remember when war loan was trading at around £30 in the late 1960's and when redeemed a few years ago it was around £100 for the same bond - so to say bond prices do not move much is simply wrong.
Finally remember markets also price in expectations so a small interest rate rise is probably already priced in.0 -
Exactly. Bonds are close to record highs, pumped up by record low/negative interest rates. So I find the advice from an IFA that they can only fall 'maybe 10% at the most' quite surprising.EdGasketTheSecond wrote: »Maybe in your lifetime. I've seen bonds lose more than 50%. Consols and War loan were way below £50 for most of the 70's and early 80's. Long-dated gilts were also trading around 50% of par. Now we have gilts trading way above par e.g. Treasury 4% 2060 priced at £166; think where that'd go if bank base rates rose to 8% and your average savings account were paying at least 6% !“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair0 -
Glen_Clark wrote: »The reason I haven't bought Vanguard Life Strategy is because its not an Exchange Traded Fund.
Which means there are platform charges for holding it.
And it isn't so easily and cheaply traded which I do to use up Capital Gains Allowance, selling one ETF and buying an equivalent one with another ETF provider (eg Vanguard, BlackRock, HSBC)
This is also very important to us as well. Not just switching to lock profits in to avoid future CGT, but I also switched to lock losses in, so I could carry forward those losses against CGT when I sell my investment property (I sold one this year, so I will be using that soon). So when the market wen back up, I recovered everything, but now I also have almost £100k of loss to offset CGT.Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop0 -
ETF v Index read this:
http://monevator.com/etfs-vs-index-funds-differences/
PS I am with Halifax & my platform fee is £12.50 per year & trades can be from £3.95.0
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