Life Strategy Funds
-
- Posts: 4
- Joined: Tue Apr 26, 2011 1:21 am
Life Strategy Funds
As a new member, I have been searching through the forums and posts for information and opinions about Vanguard's Life Strategy Funds. How do they compare with the Target Date funds? I hear/read very little about them, but they look like a pretty good idea.
Re: Life Strategy Funds
Here's the main difference:Hotrod56425 wrote:As a new member, I have been searching through the forums and posts for information and opinions about Vanguard's Life Strategy Funds. How do they compare with the Target Date funds? I hear/read very little about them, but they look like a pretty good idea.
The LifeStrategy funds each contain an allocation to the Vanguard Asset Allocation Fund. The Asset Allocation Fund pursues "tactical asset allocation" ... moving money around between stocks, bonds and cash based on a computer model.
For you, this means loss of control over your stock/bond split with the LifeStrategy Funds. It will vary depending on the decisions of the manager of the Asset Allocation Fund.
If certainty of your stock/bond split is important, then pick a Target Retirement Fund. Pick the Target Retirement Fund with the stock/bond split that's right for you, not the one with your estimated year of retirement in the fund title.
Good luck
- nisiprius
- Advisory Board
- Posts: 52211
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
My take. Strictly my own opinion. The LifeStrategy funds are obsolete, and should be considered to have been replaced by the Target Retirement funds. I don't mean there's anything wrong with them, I just mean they're vinyl and Target Retirement is compact discs.
I think it's a simple as this: "Lifecycle investing" was a nineties fashion, and "Target-date funds" with glide slopes were a year-2000 thing. (And there's been enough sniping at target funds generally lately that I expect some fresh new trendy thingie-for-this-decade will emerge).
The Target Retirement funds are nothing more than Total Stock + Total International + Total Bond in a mix that adjusts--very very slowly--to more bonds, less stocks, as you age. The LifeStrategy funds are mixtures of essentially the same three funds plus a joker--the Asset Allocation fund, which shifts "tactically" between stocks and bonds according to whatever Vanguard's quantitative magic 8-ball thinks will do best... i.e. a slow-motion kind of market timing.
My recollection is that their magic 8-ball pegged the Asset Allocation slice at 100% stocks going into the 2008-9 crash, thereby pinning the LifeStrategy funds at their maximum-stocks level and failing to soften the blow. But, of course, that also gave them benefit from the recovery. And the Asset Allocation slice is only 20% of the Lifestrategy pie, so it doesn't matter a lot and, who knows? Maybe it works.
Here's the thing. If you aren't going to just shrug and pick a target fund, it's pretty easy to just buy a three-fund portfolio of Total Stock Market, Total International, and Total Bond Market as separate funds and adjust the proportions yourself--maybe once a year.
Old funds seem live on forever at Vanguard, I think because a) that seems to be what Vanguard does, b) there's no good reason to kill them. Vanguard's indexed and index-y funds do OK so there's no imperative to kill them just to get them off the record.
The LifeStrategy funds were introduced in 1994. In fact, I suspect that "life cycle investing" is actually a concept that originated in the 1980s. For example, Malkiel's book was just titled "A Random Walk Down Wall Street" up through 1985, with the appendage "Including a Life-Cycle Guide to Personal Investing" first appearing in the 1990 edition.
The first target-date funds I heard of were the Fidelity Freedom series, introduced about 1997, with Vanguard joining the party in 2003.
I think it's a simple as this: "Lifecycle investing" was a nineties fashion, and "Target-date funds" with glide slopes were a year-2000 thing. (And there's been enough sniping at target funds generally lately that I expect some fresh new trendy thingie-for-this-decade will emerge).
The Target Retirement funds are nothing more than Total Stock + Total International + Total Bond in a mix that adjusts--very very slowly--to more bonds, less stocks, as you age. The LifeStrategy funds are mixtures of essentially the same three funds plus a joker--the Asset Allocation fund, which shifts "tactically" between stocks and bonds according to whatever Vanguard's quantitative magic 8-ball thinks will do best... i.e. a slow-motion kind of market timing.
My recollection is that their magic 8-ball pegged the Asset Allocation slice at 100% stocks going into the 2008-9 crash, thereby pinning the LifeStrategy funds at their maximum-stocks level and failing to soften the blow. But, of course, that also gave them benefit from the recovery. And the Asset Allocation slice is only 20% of the Lifestrategy pie, so it doesn't matter a lot and, who knows? Maybe it works.
Here's the thing. If you aren't going to just shrug and pick a target fund, it's pretty easy to just buy a three-fund portfolio of Total Stock Market, Total International, and Total Bond Market as separate funds and adjust the proportions yourself--maybe once a year.
Old funds seem live on forever at Vanguard, I think because a) that seems to be what Vanguard does, b) there's no good reason to kill them. Vanguard's indexed and index-y funds do OK so there's no imperative to kill them just to get them off the record.
The LifeStrategy funds were introduced in 1994. In fact, I suspect that "life cycle investing" is actually a concept that originated in the 1980s. For example, Malkiel's book was just titled "A Random Walk Down Wall Street" up through 1985, with the appendage "Including a Life-Cycle Guide to Personal Investing" first appearing in the 1990 edition.
The first target-date funds I heard of were the Fidelity Freedom series, introduced about 1997, with Vanguard joining the party in 2003.
Last edited by nisiprius on Tue Apr 26, 2011 7:30 am, edited 3 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
You may save a little by rolling your own as well depending on trading cost.
If you look at VTWNX 2020 plan its about a 34/66 bond/stock mix with a expense of .17%. If you go out to a 2035 fund the expense goes up to .19%
If you roll your own based on the 2020 plan using ETF's this is what I come with.
Bond (BND)______.20% expense * 20% = .0400%
US Stock (VTI)___.07% expense * 33.6% = .0403%
Int Stock (VXUS)_.12% expense * 46.4% = .0325%
Total expense of rolling your own = .1128%
On $100,000 that works out to be $170 vs $113 to roll your own.
Is the $37 savings worth it? You can still take the wife out for a nice dinner!
At this point making a good savings plan may be better time spent. With that said I think its better to split things up (if so inclined) when you have a smaller amount as the mistakes would smaller. There is always to sides to the coin.
If you look at VTWNX 2020 plan its about a 34/66 bond/stock mix with a expense of .17%. If you go out to a 2035 fund the expense goes up to .19%
If you roll your own based on the 2020 plan using ETF's this is what I come with.
Bond (BND)______.20% expense * 20% = .0400%
US Stock (VTI)___.07% expense * 33.6% = .0403%
Int Stock (VXUS)_.12% expense * 46.4% = .0325%
Total expense of rolling your own = .1128%
On $100,000 that works out to be $170 vs $113 to roll your own.
Is the $37 savings worth it? You can still take the wife out for a nice dinner!
At this point making a good savings plan may be better time spent. With that said I think its better to split things up (if so inclined) when you have a smaller amount as the mistakes would smaller. There is always to sides to the coin.
- Taylor Larimore
- Posts: 32842
- Joined: Tue Feb 27, 2007 7:09 pm
- Location: Miami FL
Life Strategy or Target funds?
Hi Hotrod:
Not to diminish other replies, Nisiprius's has given you a very good analysis.
Nisiprius took the time and made the effort to make 3 edits to polish his reply.
Not to diminish other replies, Nisiprius's has given you a very good analysis.
Nisiprius took the time and made the effort to make 3 edits to polish his reply.
Last edited by Taylor Larimore on Tue Apr 26, 2011 8:38 am, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle
I owned LifeStrategy Growth for years in my IRA, but I'd recommend Target Retirement funds now. I like the fixed allocation of the LS funds but they really need to get rid of that 25% sub-allocation to the Asset Allocation Fund, which did not have a good track record as a market-timing fund the last time I looked at it (admittedly years ago). The whole idea behind the AA Fund is anathema to me as a Boglehead anyway!
Plus, the TR funds give you access to TIPS as well (eventually).
Plus, the TR funds give you access to TIPS as well (eventually).
"Optimum est pati quod emendare non possis." |
-Seneca
I may need just one fund, it appears I cant add or subtract, would hate for my AA to be off to muchRabbMD wrote:Jay thats $57 difference a year:)... You can order a few drinks as well on your dinner date.
We are getting close to real money, if you had $500,000 thats turns into $285/year. Now we could take a few friends out and have some good beer
-
- Posts: 4
- Joined: Tue Apr 26, 2011 1:21 am
Life Strategy Funds
Thanks to all for helping me out. As I look to "bucketizing", they looked like an easy way to take care of a part of one bucket. Thanks to your wonderful help, I think I will go back to "Plan A", and use my own mix/aa of Vanguard funds or Target Date funds.
Would this asset alloc make sense for a taxable account ?Jay69 wrote:Bond (BND)______.20% expense * 20% = .0400%
US Stock (VTI)___.07% expense * 33.6% = .0403%
Int Stock (VXUS)_.12% expense * 46.4% = .0325%
And later on for a 60yr old, would you flip the percentages and put say 50% into the bond fund.
Lastly, what about spliting the bond between say... VBMFX, VIPSX, etc -
Nisi has (of course) given an excellent summary of the background of the Life Strategy and Target Retirement funds. I can think of only two small items I would like to add.
The idea of moving to more conservative asset allocations as you get older seems on the face of it to make sense. But not everyone agrees that the target of the target retirement funds (currently 30% stocks, 65% bonds, 5% cash in retirement) is enough to beat inflation over a long retirement (which could last 50 years or more if you are unlucky enough to live a long time). Most of the studies of retirement withdrawal strategies that I have read have assumed a constant allocation to stocks (and often of more than 30%). I am not advocating that position, indeed I am currently reducing my allocation to stocks each year as I approach retirement, I am simply saying that there are people who believe a constant allocation to stocks is appropriate and they might prefer something closer to the Life Strategy funds.
But the other point is the one raised by TD earlier. The Life Strategy funds do not invest in a fixed allocation as they include the Asset Allocation Fund which tries to play the market. If they just included a specified mix of passive stock and bond (and cash) funds, I could see them meeting the need for investors who don't want their asset allocation to change over time, but with the inclusion of the Asset Allocation Fund, they don't seem to fit the bill.
The idea of moving to more conservative asset allocations as you get older seems on the face of it to make sense. But not everyone agrees that the target of the target retirement funds (currently 30% stocks, 65% bonds, 5% cash in retirement) is enough to beat inflation over a long retirement (which could last 50 years or more if you are unlucky enough to live a long time). Most of the studies of retirement withdrawal strategies that I have read have assumed a constant allocation to stocks (and often of more than 30%). I am not advocating that position, indeed I am currently reducing my allocation to stocks each year as I approach retirement, I am simply saying that there are people who believe a constant allocation to stocks is appropriate and they might prefer something closer to the Life Strategy funds.
But the other point is the one raised by TD earlier. The Life Strategy funds do not invest in a fixed allocation as they include the Asset Allocation Fund which tries to play the market. If they just included a specified mix of passive stock and bond (and cash) funds, I could see them meeting the need for investors who don't want their asset allocation to change over time, but with the inclusion of the Asset Allocation Fund, they don't seem to fit the bill.
I own LS Growth in my Roth and do not find the 20% AA Fund allocation to be a major problem.That being said, I still wish that VG would restructure the LS Series to:
(1) Eliminate the AA Fund
(2) Have a static bond allocation in each of the series funds
(3) Split the bond allocation 50/50 between TBM and
Short Term Investment Grade.
(4) Add a 70/30 and 50/50 fund option to the series.
(1) Eliminate the AA Fund
(2) Have a static bond allocation in each of the series funds
(3) Split the bond allocation 50/50 between TBM and
Short Term Investment Grade.
(4) Add a 70/30 and 50/50 fund option to the series.
All the Best, |
Joe
Tactical Allocation
John Bogle has some interesting reading in his book Bogle on Mutual Funds found on pages 244-252. In the summary found on page 257 he states "Fourth is the decision as to whether to introduce an element of tactical allocation. It carries its own risks. Changes in the stock/bond ratio may add value, but they may not. In an uncertain world, tactical changes should be made sparingly."
I feel, as others the asset allocation fund is the key with lifestrategy funds. Now, if one wants a little dose of tactical allocation. a life strategy fund may be fine. I think a prudent thing would be to read the information about who manages the asset allocation fund-make sure you understand the risks and are comfortable with it.
I also agree with some other posters, that Nisiprius response was right on target. Thanks and good luck-keniles
I feel, as others the asset allocation fund is the key with lifestrategy funds. Now, if one wants a little dose of tactical allocation. a life strategy fund may be fine. I think a prudent thing would be to read the information about who manages the asset allocation fund-make sure you understand the risks and are comfortable with it.
I also agree with some other posters, that Nisiprius response was right on target. Thanks and good luck-keniles
Re: Life Strategy Funds
Hotrod56425 wrote:As a new member, I have been searching through the forums and posts for information and opinions about Vanguard's Life Strategy Funds. How do they compare with the Target Date funds? I hear/read very little about them, but they look like a pretty good idea.
Vanguard wrote:Vanguard LifeStrategy Growth Fund (VASGX)
1 Vanguard Total Stock Market Index Fund Investor Shares 44.0%
2 Vanguard Total International Stock Index Fund Investor Shares 24.3%
3 Vanguard Asset Allocation Fund Investor Shares 20.0%
4 Vanguard Total Bond Market II Index Fund Investor Shares* 11.7%
Total — 100.0%
Exclude Vanguard Asset Allocation Fund Investor Shares and you have a Target Retirement Fund.
The problem I find is that the AA FUND can change from Stocks, to Bonds, to Cash, to any combination of the three and you don't control your asset allocation. If you don't mind some uncertainty in your AA and some manager intervention in your portfolio, then I see no other issues in a tax-advantaged account.
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde