Life Strategy Income Fund

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woodedareas
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Life Strategy Income Fund

Post by woodedareas » Sun Oct 18, 2015 6:02 pm

The Vanguard. Life Stategy Income Fund seems to have the AA that meets my needs at the age of 75. I am not certain the fund will do much better than 1% or slightly more this year. Yet at this age I can not accept any more risk. Is it worth taking risk for such a modest return? If rates ever went to 3% I would not consider this fund. I am still employed and considering converting everything in my IRA to cash with almost no return. Would appreciate your thoughts.

tibbitts
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Re: Life Strategy Income Fund

Post by tibbitts » Sun Oct 18, 2015 6:11 pm

woodedareas wrote:The Vanguard. Life Stategy Income Fund seems to have the AA that meets my needs at the age of 75. I am not certain the fund will do much better than 1% or slightly more this year. Yet at this age I can not accept any more risk. Is it worth taking risk for such a modest return? If rates ever went to 3% I would not consider this fund. I am still employed and considering converting everything in my IRA to cash with almost no return. Would appreciate your thoughts.
It's not possible to make any useful comments without more information on your situation.

Stonebr
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Re: Life Strategy Income Fund

Post by Stonebr » Sun Oct 18, 2015 6:27 pm

Like tibbitts says, you are asking questions that can't be answered -- at least not based on the information given. Is this going to be 100% of your portfolio? Why are you concerned about 1 year returns? Most long term investors have no clue about the next 12 months, but assume that over the long term things will work out.

As for Life Strategy Income, my elderly mother owned it for about 15 years, from age 77 to 92. It was about 50% of her portfolio along with an equal amount in CDs. When the market tanked in 2008 and 2009, she was happy with the results.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear

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ruralavalon
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Re: Life Strategy Income Fund

Post by ruralavalon » Sun Oct 18, 2015 7:11 pm

Don't base any decision on one years return.
Last edited by ruralavalon on Mon Oct 19, 2015 10:18 am, edited 1 time in total.
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Toons
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Re: Life Strategy Income Fund

Post by Toons » Sun Oct 18, 2015 7:18 pm

Based on the overview offered by Vanguard,if it fits what my goals are, then yes, I would invest in the fund
No risk,no reward. :happy

" Vanguard LifeStrategy Income Fund seeks to provide current income and some capital appreciation "
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

dbr
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Re: Life Strategy Income Fund

Post by dbr » Mon Oct 19, 2015 8:11 am

woodedareas wrote:The Vanguard. Life Stategy Income Fund seems to have the AA that meets my needs at the age of 75. I am not certain the fund will do much better than 1% or slightly more this year. Yet at this age I can not accept any more risk. Is it worth taking risk for such a modest return? If rates ever went to 3% I would not consider this fund. I am still employed and considering converting everything in my IRA to cash with almost no return. Would appreciate your thoughts.
Where are you getting that 1% number? In any case you don't pick a fund based on one year return. That fund is an investment in 80% bonds and 20% stocks. That is very conservative. With that much in bonds, it might be an argument that one could just as well put everything in CDs at this point in time. But, as pointed out, the real issue is what is your situation and what do you need this fund to do for you?

woodedareas
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Re: Life Strategy Income Fund

Post by woodedareas » Mon Oct 19, 2015 8:24 am

My situation is that I still work and if my health holds out I will do so for several years. I do not need any income at this time but felt I would begin to place some of my assets into this fund with the expectation of 3% return which is all
I would need upon retirement. I have other assets that are doing fine and cash. I also felt that this fund was conservative and over time I would add more into it. The purpose of my post is a very basic question.Should I take any risk even minimal for almost no return at the age of 75 with a substantial annual income that I hopefully anticipate for several years? Why not hold cash and wait until I need the hopefully 3% return which might be at a time when the Feds might wake up and rates might increase to the benefit of all seniors. Sorry I didn't provide supplemental info with my original post.
Thanks

dbr
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Re: Life Strategy Income Fund

Post by dbr » Mon Oct 19, 2015 8:46 am

It is difficult to forecast returns. A rough estimate might be that you are at 1.5% SEC yield on intermediate government bonds, if that is what this fund mostly holds and maybe 6% for the stocks. That averages out to maybe 2.5%. If you want to say 3% that might be close enough.

This is not a risky investment, and I doubt you can get that much in CDs now. If you just hold in the best interest rates you can get from cash the whole business is probably a wash. If you can't get the yield from cash I am not sure I would wait.

A different comment is that what you need for income is not necessarily related to the expected return of your holdings. The real question is do you mean for the assets to retain value or do you expect to spend down your savings, to spend what you saved over all these years? Secondly, that needs to be done in real, after inflation, dollars. You assets will not be preserved and provide constant spending power if you take any more than the real return of the assets. If you plan to spend down the assets and do so at a rate of 3% of the initial portfolio value increased in dollars by inflation annually, then that fund could work though having more in stocks is probably better. Depending on you total income situation another option could be to sacrifice some of the holding for an SPIA, but there is lots to discuss about that one way or the other.

woodedareas
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Re: Life Strategy Income Fund

Post by woodedareas » Tue Oct 20, 2015 7:58 am

Good and thoughtful comment. All of my concerns and probably the concerns and worries of seniors would not exist if the Fed stopped playing with the system. I hope I am around long enough to see a rise in interest rates. Old folks like me are playing with fire in the stock market and thus originates the original question I posted.

Lafder
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Re: Life Strategy Income Fund

Post by Lafder » Tue Oct 20, 2015 8:57 am

Life Strategy Income is a very solid all in one fund of funds with an AA of 20/80. If that is your desired AA, I think it is a very reasonable choice for a simple Boglehead portfolio that rebalances for you .

It is made up of:
Total Stock Market
Total International Stock Market
Total Bond Market
Total International Bond Market

The Target Date Retirement funds with a date now in retirement add TIPS to the above holdings, and are also a great all in one fund.

I am not planning on being so conservative as 20/80. But if that is your preference, the Life Strategy or appropriate Target Date funds are very reasonable all in one funds.

I currently use mostly a 3 fund portfolio holding the funds held in the Life Strategy funds, but I plan to shift to an all in one fund at some point so my husband does not have to deal with "managing" any accounts and has the simplicity of all in one funds in the various accounts.

lafder

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Taylor Larimore
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Re: Life Strategy Income Fund

Post by Taylor Larimore » Tue Oct 20, 2015 9:39 am

woodedareas wrote:The Vanguard. Life Stategy Income Fund seems to have the AA that meets my needs at the age of 75. I am not certain the fund will do much better than 1% or slightly more this year. Yet at this age I can not accept any more risk. Is it worth taking risk for such a modest return? If rates ever went to 3% I would not consider this fund. I am still employed and considering converting everything in my IRA to cash with almost no return. Would appreciate your thoughts.
Woodedareas:

Based on the information you have provided, I believe your Vanguard Life Strategy Income Fund is appropriate. You might do a little better with another fund(s), but you are much more likely to do worse.

No one can forecast any fund's future return.

Stay the course.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

woodedareas
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Re: Life Strategy Income Fund

Post by woodedareas » Wed Oct 21, 2015 8:21 am

Thanks so much for the excellent responses to my question and concerns. I know my profession but investing is not my expertise. The Boglehead advice is better and more qualified than I could expect from any investment adviser. By the way stay away from the free financial reports from Vanguard. They provide this so called service after a customer has a certain amount of $ in their account.
Thanks again.

azanon
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Re: Life Strategy Income Fund

Post by azanon » Wed Oct 21, 2015 8:38 am

woodedareas wrote:The Vanguard. Life Stategy Income Fund seems to have the AA that meets my needs at the age of 75. I am not certain the fund will do much better than 1% or slightly more this year. Yet at this age I can not accept any more risk.
I would just say that I don't agree with your statement, or at least implication, that a more advanced age, means you're in a less position to take risk. I hope that you don't mind that I looked at an actuary table for a 75 year old man and woman, but I found that it was 11 years and 13 years, respectively. So if you were conservative, and pushed that out to 20 years from an optimistic viewpoint, that's still not very long that a portfolio has to survive. So what that would mean to me, then, is that you're actually in a position to be far more aggressive than someone who's, say, just 60.

Though this would have been intuitive for me, I came to understand that Dr. Pfau (and one or two others) actually have research supporting what I'm essentially saying above, which is that the older you are, the more aggressive you're able to be. That's not a jab at Dr. Pfau btw. I was in graduate school myself once, so I very familiar with the art of testing a hypothesis that you're 98% sure will pan out because common sense demands it.

In short, "at that age", you can actually accept a very healthy dose of risk ... if you have the stomach for it.
Last edited by azanon on Wed Oct 21, 2015 8:41 am, edited 1 time in total.

beardsworth
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Re: Life Strategy Income Fund

Post by beardsworth » Wed Oct 21, 2015 8:41 am

woodedareas (original poster wrote:I am not certain the fund will do much better than 1% or slightly more this year.
dbr wrote:Where are you getting that 1% number?
I can't presume to say where the OP got the number, but as of the close of business yesterday, 10–20-2015, this fund's year-to-date return was 0.86%.

http://www.morningstar.com/funds/XNAS/VASIX/quote.html

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Taylor Larimore
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Re: Life Strategy Income Fund

Post by Taylor Larimore » Wed Oct 21, 2015 10:41 am

woodedareas wrote:The Vanguard. Life Stategy Income Fund seems to have the AA that meets my needs at the age of 75. I am not certain the fund will do much better than 1% or slightly more this year. Yet at this age I can not accept any more risk.
woodedareas:

I agree. Do not risk losing your life savings trying to get more. Stay-the-course.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

azanon
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Re: Life Strategy Income Fund

Post by azanon » Wed Oct 21, 2015 2:50 pm

Taylor Larimore wrote:
woodedareas wrote:The Vanguard. Life Stategy Income Fund seems to have the AA that meets my needs at the age of 75. I am not certain the fund will do much better than 1% or slightly more this year. Yet at this age I can not accept any more risk.
woodedareas:

I agree. Do not risk losing your life savings trying to get more. Stay-the-course.

Best wishes.
Taylor
So this actually brings up a very good point, and question. Woodedareas, how much income (if any) would you need this portfolio to produce? If you were to say 2% or less, inflation adjusted, I would highly endorse something like Vanguard's Life Strategy Fund. Taylor exactly right - why reach for more if you don't need it. I couldn't agree more, actually.

If you're wanting more like 3% inflation-adjusted or the often-quoted 4% SWR, then you're going to need more equities. In that case, it's time to steer the boat a different direction instead of hitting a lighthouse.

azanon
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Re: Life Strategy Income Fund

Post by azanon » Wed Oct 21, 2015 2:53 pm

As far as losing one's life savings go, I'm not aware of any legitimate portfolio that has ever done or caused that. Now i'm aware of certain withdrawal rates that have done that, but not portfolios. Stated in short, and quite bluntly, Vanguard doesn't have any balanced funds that will lose your life savings.

miles monroe
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Re: Life Strategy Income Fund

Post by miles monroe » Wed Oct 21, 2015 3:46 pm

NOT making a recommendation, but just throwing it out there that an immediate annuity can pay 9,252 per year per 100,000; or 9.52% percent (which includes return of capital). 10 year cerain can pay 8,340 per year. PERHAPS this is something to look into. Again, NOT a recommendation.

https://www.immediateannuities.com/

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Taylor Larimore
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What a bear market is like.

Post by Taylor Larimore » Wed Oct 21, 2015 4:07 pm

azanon wrote:As far as losing one's life savings go, I'm not aware of any legitimate portfolio that has ever done or caused that. .
azanon:

There are few portfolios that are untouched in bear markets and without needed withdrawals. This is a post I wrote several years ago:
Hi Bogleheads:

Our family owned "Larimore's Diner" in Foxboro, Mass. in 1929. When the depression hit, my parents lost the Diner and we moved to Miami into one of my grandfather's empty homes.

My Grandfather, Christopher F. Coombs, was one of the three principals of the American Founders Group, the largest investment trust (now called 'mutual funds') in the roaring 20s. He lost nearly everything (approximately $50M)--including the Miami home we lived in (next door to where I live today).

These figures show what REAL bear markets are like:

BEAR MARKET OF 1929-1937 (Dow plunged 89%)

-1929--1930--1931--1932
(-31%)(-25%)(-43%)(-08%) Large Cap Stocks
(-34%)(-35%)(-47%)(-06%) Mid/Small Cap Stocks
(-47%)(-38%)(-50%)(-05%) Micro Cap Stocks

(+04%)(+07%)(-02%)(+09%) 5-Year Treasury Bonds

BEAR MARKET OF 1973-1976 (S&P fell 43%)
-1973--1974
(-15%)(-26%) Large Caps
(-39%)(-29%) Micro Caps

(-70%) Coca-Cola
(-82%) Intel
(-73%) McDonald's
(-86%) Merrill Lynch
(-86%) Walt Disney
(-71%) Xerox

Figures cannot convey the horrifying and debilitating effects of a deep and long bear market. You watch in agony as month after month your life savings evaporate before your eyes. Gloom and doom articles are in the media, radio, (and now TV and internet). Nearly everyone else is selling. You have no idea when, or if, your portfolio will stop losing money.

Your friends and relatives urge you to sell. Nearly all financial experts recommend "sell". You are ridiculed for trying to hold on. You begin to have self-doubt. Dispair sets in. Buying stocks is unthinkable. Suicide's increase.

That's what a bad bear market is like.
Azanon, I have learned that it can be a serious mistake for most investors to increase their stock allocation (with risk of loss) as they enter retirement. It is no accident that ALL company target funds reduce stocks as investors get older.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

azanon
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Re: Life Strategy Income Fund

Post by azanon » Thu Oct 22, 2015 7:20 am

Taylor,

A few points:
1. I fail to see the relationship between my suggestion to pick a balanced fund portfolio with a bit more equities, and you quoted returns of 100% equities in an extreme bear market. A balanced fund will include debt instruments will which lessen the decline during a bear market. Thank you for posting how 5-yr treasuries do during those bear markets just to give an idea of how much having those in your balanced fund, will help.

2. Life strategy income has about 80% bonds, 20% Stocks. Benjamin Graham once said, "We recommend that the investor divide his holdings between high-grade bonds and leading common stocks; that the proportion held in bonds be never less than 25% or more than 75% with the converse being necessarily true for the common-stock component."

I agree with the late Mr. Graham.

3. If I had more time, I could post examples of how devastating the effects of inflation and rising interest rates can be on a portfolio not designed to combat these forces, coupled with a retiree withdrawal rate that's too high for such an extremely conservative portfolio. As I said, he may, god willing, have a retirement period of 20 years or more, so he might want a portfolio that can keep up with both his withdrawal rate and possible future inflation.

Most asset allocation tools, when you enter a time horizon of 15-20 years, or more, will have your equities holdings quite a bit higher than 20%.

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