Anyone else concerned about future tinkering of LS Funds?

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lassevirensghost
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Anyone else concerned about future tinkering of LS Funds?

Post by lassevirensghost » Wed Mar 27, 2019 11:26 am

In my situation, I have rapidly over the past few months gotten some debts taken care of (referenced in previous posts) and am looking to start contributing more to investments. I have a small amount already in an IRA that I will augment and may add some to taxable (my main concern).

As my signature indicates, LS Moderate Growth almost perfectly aligns with my desired AA. But I fear any shifts in the wind even of customer opinion might influence Vanguard to mess with the allocations. It seems every few years there is something.

I am not really concerned about holding the bonds on taxable as I am low bracket. I think the behavioral upsides of a balanced fund help me more than the taxes hurt. But I will be really peeved if VSMGX changes course when the whole point is for it to help me stay the course.

Is this concern at all founded? I am considering iShares AOR or something else that mirrors LS. (Don't know of any others besides this one.) That has an ER of .25 versus the .13 of VSMGX.
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

asif408
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by asif408 » Wed Mar 27, 2019 12:30 pm

I don't think it's unfounded. But couldn't you just switch at a later time if they decided to change things? IMO the behavioral aspect is more important than the tax efficiency aspect. Any company could make a change to a strategy, so you just have to check your e-mails when Vanguard announces a change to a fund (like they did with their precious metals fund this past year) and decide if the change is enough for you to change.

rkhusky
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by rkhusky » Wed Mar 27, 2019 12:34 pm

Any changes that Vanguard would make in LS would be minor. The only thing that would make them simpler is if they went to Total World stock and bond sub-funds. TR funds are more ripe for tinkering in regards to the glide path.

iShares could make changes to AOR too.
Last edited by rkhusky on Wed Mar 27, 2019 12:36 pm, edited 1 time in total.

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lassevirensghost
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by lassevirensghost » Wed Mar 27, 2019 12:34 pm

That's a good point. I probably just need to live with the imperfections of a balanced fund if that is what I want! :D
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

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Artsdoctor
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by Artsdoctor » Wed Mar 27, 2019 5:39 pm

lassevirensghost wrote:
Wed Mar 27, 2019 12:34 pm
That's a good point. I probably just need to live with the imperfections of a balanced fund if that is what I want! :D
For many, LifeStrategy funds are not tax-efficient enough to hold in a taxable account so holding them in a tax-deferred account (or Roth) would be preferable. If you're doing that, you're free to sell them in the future if the makeup no longer suits your needs, and you'll be able to do that without any tax ramifications.

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vineviz
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by vineviz » Wed Mar 27, 2019 6:23 pm

lassevirensghost wrote:
Wed Mar 27, 2019 11:26 am

As my signature indicates, LS Moderate Growth almost perfectly aligns with my desired AA. But I fear any shifts in the wind even of customer opinion might influence Vanguard to mess with the allocations. It seems every few years there is something.
If you hear people accuse Vanguard of “tinkering on a whim” then you can safely add them to your list of people to ignore.

Vanguard is extremely conservative when it comes to making changes, and they’ve never made even a minor improvement that wasn’t ruthlessly investigated and thoroughly justified.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Taylor Larimore
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by Taylor Larimore » Wed Mar 27, 2019 6:41 pm

lassevirensghost:

Vanguard has made several changes in their Target and LifeCycle funds. I believe most were an improvement (like when they eliminated the underperforming Asset-Allocation fund).

I feel certain that any future changes by Vanguard will be thoroughly considered before implementation.

Consider this quote from John Maynard Keynes:
When I find new information I change my mind; What do you do?
Best wishes.
Taylor
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yogesh
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by yogesh » Wed Mar 27, 2019 7:24 pm

LS in taxable isn't good. Robos are better in this regard.
I actually called and asked Vanguard a feature request: Tax Managed LifeStrategy funds (Fund of funds)
If munis need to be at least 50% for regulations at least we can get income, conservative and balanced if not moderate and growth.
- Tax-Managed LifeStrategy Income Fund: 20% Stocks, 80% Munis
- Tax-Managed LifeStrategy Conservative Growth Fund: 40% Stocks, 60% Munis
- Tax-Managed LifeStrategy Balanced Fund: 50% Stocks, 50% Munis
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040

Dead Man Walking
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by Dead Man Walking » Fri Mar 29, 2019 3:49 am

Anyone who has followed Vanguard index funds and Life Strategy Funds knows that Vanguard doesn’t have a problem changing indices for their funds. Furthermore, Vanguard has no problem changing the asset allocation of Life Strategy Funds or Target Retirement Funds. If an investor doesn’t agree with those changes, a plethora of ETFS that follow a variety of indices and/or asset allocations are available. Investors must determine if the experts at Vanguard have made prudent choices. Blindly following the experts at Vanguard may not be the prudent choice for every investor.

DMW

rich126
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by rich126 » Fri Mar 29, 2019 6:06 am

I'll ignore the tax stuff and let others answer those questions but if you are worried about it changing, instead of buying the fund, just buy the 4 funds that make up the index and once a year or whenever, you can re-balance it.

Vanguard Total Stock Market Index Fund Investor Shares 36.30%
Vanguard Total Bond Market II Index Fund Investor Shares† 27.90%
Vanguard Total International Stock Index Fund Investor Shares 24.20%
Vanguard Total International Bond Index Fund 11.60%

rkhusky
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by rkhusky » Fri Mar 29, 2019 6:08 am

yogesh wrote:
Wed Mar 27, 2019 7:24 pm
LS in taxable isn't good. Robos are better in this regard.
While there are better ways to handle taxable, if you want to do a little extra work, robos are not the answer for many, if not most, people: viewtopic.php?f=2&t=276701#p4456521, especially if you don't give them access to all your accounts so they can try to avoid wash sales.

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nisiprius
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by nisiprius » Fri Mar 29, 2019 6:12 am

Short answer: I see no good reason to do anything now because of suspicion of tinkering in the future. Any exchange will have tax consequences. Vanguard's past changes have been small, sensible, arguably improvements (or not). There have been no big, violent step changes. So my approach would be "cross that bridge when I come to it."

What's the nightmare scenario? Let's say you leave your investments on autopilot. Maybe a glance at the end of the year when you do your taxes. Let's say Vanguard suddenly announced that in a couple of months, they were changing LifeStrategy Moderate 1% stocks, 1% bonds, and 98% bitcoin. You don't notice the announcement, your portfolio gets swapped into 98% bitcoin, and bitcoin crashes between then and the end of the year. If you think that's ridiculous, back it off to what you see as a plausible scenario. Is there a serious need to anticipate it before it happens?

iShares AOR doesn't make any "no-tinkering" pledge.

The prospectus says, my boldfacing:
As of July 31, 2018, the Fund invested in the iShares Core International Aggregate Bond ETF, iShares Core MSCI Emerging Markets ETF, iShares Core MSCI International Developed Markets ETF, iShares Core S&P 500 ETF, iShares Core S&P Mid-Cap ETF, iShares Core S&P Small-Cap ETF, iShares Core Total USD Bond Market ETF and money market funds advised by BFA or its affiliates (“BlackRock Cash Funds”). BFA may add, eliminate or replace any or all Underlying Funds at any time.
I don't think it makes sense to switch on the basis of thinking one company is more likely to do future tinkering than the other.

The composition of the the LifeStrategy funds has changed, but it is and always has been really simple. It's always been a fund of a small number of Vanguard funds you could easily buy yourself. Right now, it's

Vanguard Total Stock Market Index Fund Investor Shares 36.30%
Vanguard Total Bond Market II Index Fund Investor Shares** 27.90%
Vanguard Total International Stock Index Fund Investor Shares 24.20%
Vanguard Total International Bond Index Fund 11.60%

It's perfectly easy to exchange the fund for its components. If you liked the fund as it is today, the obvious way to "protest" is to wait until Vanguard announces a dealbreaker change, and, at that point, exchange the fund for those four components in those percentages. They usually give many months notice; if not, being late in responding is not a big deal unless it's a fantastically humongous change.

I wouldn't flail around between cake mixes, switching to Duncan Hines because out of fear Betty Crocker will someday change the recipe. I would exchange LifeStrategy for its four components. That's no change at all at the time I make it, but I would now be in control myself, no longer at the mercy of Vanguard or iShares.

Betty Crocker changes the recipe? I don't care, I can just go on using Betty Crocker's former recipe.

But I'd wait until Vanguard announced an upcoming dealbreaker change.

I might exchange it for AOR if something about the tax situation made it a good time to change, and I liked the flavor of iShares' mix better than Vanguard's, and I liked ETFs better than mutual funds. (However, why does the ability to make intraday trades matter if the premise is that it will be a total portfolio on long-term autopilot?)

Finally, just for the record--since inception of AOR. Blue, AOR. Orange, LifeStrategy Moderate. And for comparison, 100% bonds (green, Total Bond) and 100% stocks (yellow, Total Stock). The outperformance of LifeStrategy Moderate is almost certainly due its having a lower international stock allocation than AOR. (Balanced Index, VBINX, which is 100% US, outperformed both). So, you know, it really means nothing, but it shows that you do need to think about the two firms' choices of portfolio.

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Dandy
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by Dandy » Fri Mar 29, 2019 7:12 am

Vanguard has made a lot of changes to their TD and LS funds and leaves the door open to make others. Soon after introduction they upped the equity allocations as I recall. Many of the fund content changes were ok but some I found questionable e.g. adding significant allocation to International bonds and upping the international equity allocation. Did they properly think things through before introducing them? If so, why would you change the overall equity vs fixed income allocation soon after introducing them? Moving to ST Tips fund was a tweak, others much more significant.

I would love to use TD or LS funds but I like to know what I am buying. e.g. adding more international equities could have been problematic since I had the amount I wanted in my taxable account. So, would I have to sell and get cap gains?

So, I consider these funds ok and I might use them in my TIRA so it would be simple for my non investment savvy wife/heirs but I dislike that VG makes so many changes and keeps that option open. It almost seems like a slow moving active fund.

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Re: Anyone else concerned about future tinkering of LS Funds?

Post by whodidntante » Fri Mar 29, 2019 7:25 am

lassevirensghost wrote:
Wed Mar 27, 2019 12:34 pm
That's a good point. I probably just need to live with the imperfections of a balanced fund if that is what I want! :D
You've turned over asset allocation decisions to a professional. If you would rather control you asset allocation, do that.

Dandy
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by Dandy » Fri Mar 29, 2019 7:38 am

You've turned over asset allocation decisions to a professional.
True. But keep in mind the professional doesn't know you, your risk tolerance or your other investments so he will make changes that seem right for many but maybe not for you. Not horrible choices but ones that you may not want or have covered in your taxable account and have to make adjustments to keep your overall investments as you like.

Not set it and forget it but more like set it and keep an eye on it.

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Re: Anyone else concerned about future tinkering of LS Funds?

Post by dkturner » Fri Mar 29, 2019 9:35 am

I think Vanguard should be encouraged to tinker with its LifeStrategy funds whenever it thinks the latest tinker is in the best interests of its customers. What concerns me is the possibility that much of the prior tinkering has been in an attempt to moderate the accumulation of excessive positions in U.S. equities by the Vanguard Group.

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Re: Anyone else concerned about future tinkering of LS Funds?

Post by Artsdoctor » Fri Mar 29, 2019 3:00 pm

Dandy wrote:
Fri Mar 29, 2019 7:12 am
Vanguard has made a lot of changes to their TD and LS funds and leaves the door open to make others. Soon after introduction they upped the equity allocations as I recall. Many of the fund content changes were ok but some I found questionable e.g. adding significant allocation to International bonds and upping the international equity allocation. Did they properly think things through before introducing them? If so, why would you change the overall equity vs fixed income allocation soon after introducing them? Moving to ST Tips fund was a tweak, others much more significant.

I would love to use TD or LS funds but I like to know what I am buying. e.g. adding more international equities could have been problematic since I had the amount I wanted in my taxable account. So, would I have to sell and get cap gains?

So, I consider these funds ok and I might use them in my TIRA so it would be simple for my non investment savvy wife/heirs but I dislike that VG makes so many changes and keeps that option open. It almost seems like a slow moving active fund.
Research can add new information that might be "actionable." It wasn't that long along that international equities were "more expensive" to hold which was an argument to keep the allocation low; that's no longer the case. Likewise, international bonds were prohibitively expensive to hold but now not so much. The data analysis has also been augmented; you can see that information on the vanguard.com/research site. So I'm not surprised that Vanguard changes its make-up in the LifeStrategy funds. All of that said, you can always make your own individual fund portfolio so if you're at all uncomfortable with the possibility of change, then just don't buy the LS or TR funds. (That in itself is an excellent reason to not hold these funds in a taxable account.)

columbia
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by columbia » Fri Mar 29, 2019 8:47 pm

Any further changes would involve moving to full market cap for equities and 40-50% international bonds. If that’s a concern, then one shouldn’t own the VG target date and life strategy funds.

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lassevirensghost
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by lassevirensghost » Fri Mar 29, 2019 8:57 pm

columbia wrote:
Fri Mar 29, 2019 8:47 pm
Any further changes would involve moving to full market cap for equities and 40-50% international bonds. If that’s a concern, then one shouldn’t own the VG target date and life strategy funds.
Full market cap would be welcome.
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

anil686
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by anil686 » Fri Mar 29, 2019 9:06 pm

No - I think most studies have shown the biggest determinant in portfolio returns is the stock/bond ratio which is fixed. For that reason, I think the variance of returns will be relatively muted over really long holding periods (like 50 years or so). JMO though...

And I would only have it in a tax advantaged account for tax reasons - again marginal rate dependent but JMO...

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Re: Anyone else concerned about future tinkering of LS Funds?

Post by pdavi21 » Fri Mar 29, 2019 9:27 pm

vineviz wrote:
Wed Mar 27, 2019 6:23 pm
Vanguard is extremely conservative when it comes to making changes, and they’ve never made even a minor improvement that wasn’t ruthlessly investigated and thoroughly justified.
While that is probably true about Lifecycle Funds (as relevant to OPs concern), it wasn't about the Tax Managed International Fund or Precious Metals and Mining Fund to name two.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

Dandy
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Re: Anyone else concerned about future tinkering of LS Funds?

Post by Dandy » Sat Mar 30, 2019 5:01 am

Vanguard is extremely conservative when it comes to making changes, and they’ve never made even a minor improvement that wasn’t ruthlessly investigated and thoroughly justified.
I think that is generally true but doesn't account for significant upping of equity allocation shortly after introduction. That was either a mistake or a response to competition since there have been decades of studies on allocations for different age groups. If I'm buying an all in one retirement plan that is the last thing I want to have significant changes to.

And I might buy that international bonds and to a lesser extent international equities were a bit too costly until recently but don't think that accounts for going from zero especially in the case of international bonds to perhaps 50% of fixed income down the road. VG has several active funds that have performed well that don't have extremely low ERs. You would think the benefits of some additional international diversity would offset some additional costs

My guess is that Bogle was very much US oriented and it took some time VG to acquire a more international focus. They were also in a bit of a bind since their beloved founder was on record not supporting international investments to any extent. So, maybe they focused on the reason they were going to more international based on lower cost was to not directly make it seem that Bogle was wrong. If so, that was diplomatic.

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