Vanguard Lifestrategy 20

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Francisco
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Vanguard Lifestrategy 20

Post by Francisco » Sat Aug 24, 2019 3:44 am

Good morning,

I am new in this forum and I wanted to ask a question. I have roughly £40k in savings (I am from the UK) and I strongly believe in bonds [deleted -- mod oldcomputerguy].

My question is, how safe is a Vanguard Lifestrategy 20 fund? My risk appetite is low to medium and I was wondering what kind of risks there is with a LS20 fund if the market crashes? Sorry if this sounds like a daft question, I am kinda new to the stock market.

I am investing for next 17 years, my idea is that if I contribute monthly then I will have enough money with the compound interest to retire earlier ( I am 38).

Any advice or suggestions?

Thanks a lot.

Francisco

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oldcomputerguy
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Re: Vanguard Lifestrategy 20

Post by oldcomputerguy » Sat Aug 24, 2019 5:46 am

This topic is now in the Non-US Investing forum.
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)

actuallyxy
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Re: Vanguard Lifestrategy 20

Post by actuallyxy » Sat Aug 24, 2019 6:17 am

LS20 is 80% bonds.

It should be safe in the event of a market crash - it will probably go down by less than 10%.

On the other hand, investing mostly in bonds exposes you to other risks.

Firstly, bond yields are very low right now, so you should expect minimal returns that may not even keep up with inflation. You'll be missing out on the potential returns you could get by allocating a higher proportion of your investments to stocks.

Also, bonds expose you to other risks.They can lose value if interest rates go up (and now they are already extremely low). They may lose real value if inflation goes up.

To be honest, LS20 is not appropriate for somebody of your age and time horizon. LS80 or LS60 would be better, or even LS40 if you can't bring yourself to hold more stocks.

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Francisco
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Re: Vanguard Lifestrategy 20

Post by Francisco » Sat Aug 24, 2019 6:36 am

My fear is that the LS funds are a bit too heavily weighted toward the UK and the UK might have a poor growth in the next few years at least because of Brexit. I just need to tell myself that this is the long term and that what happens in the next 3 years should not matter but it is hard to when you watch your money melt :)

LS60 would probably be best for me even though LS20 has returned almost 8% in the past 12 months. I will rebalance this year if the global market improves.

Thanks

actuallyxy
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Re: Vanguard Lifestrategy 20

Post by actuallyxy » Sat Aug 24, 2019 6:55 am

If you don't like the UK overweigh, you can buy something like the Vanguard Global All Cap Index fund (which has the UK just at its market weight, and includes a bit of global small cap companies), and then add the bonds separately at a proportion that suits you. For example, with the Vanguard Global Bond Index Fund.

steveyg50
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Re: Vanguard Lifestrategy 20

Post by steveyg50 » Sat Aug 24, 2019 8:05 pm

https://finpage.blog/2019/01/03/three-f ... 18-update/

This article sums up historical performance of 20/80 portfolio as well as other allocations. Although it's a 20/80 3 fund portfolio, it will be fairly similar to Vanguard 20% I'd think. It only went down 3.8% in 2008.

If you look at the cumulative gains figures long term, it makes me seriously wonder if a 40/60 portfolio is sufficient equity for long term investing. I mean look at last 20 year figures -

80/20 5.64%
60/40 5.57
40/60 5.32

40/60 has half the equity and only 0.3% less annual returns than 80/20? That's quite astonishing.

On the other hand many people (Inc Jack Bogle himself) suspect gains over next 20 years will be significantly less than previous. If that's the case I suppose we may need more equity to keep up with previous 20 years.

At the moment though, having recently invested a lump sum I couldn't stomach any more than 25 % Equity right now,. rightly or wrongly.

I am a noob myself by the way. I'd strongly recommend reading Bogleheads guide to investing, as I did recently.
Last edited by steveyg50 on Sat Aug 24, 2019 9:00 pm, edited 3 times in total.

steveyg50
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Re: Vanguard Lifestrategy 20

Post by steveyg50 » Sat Aug 24, 2019 8:36 pm

https://personal.vanguard.com/us/insigh ... llocations

you may find this link interesting also, if you haven't seen it.

Historically worse case drop for 20/80 portfolio is approx 10%, but this was in 1931, how relevant this is today I dont know, I'm hoping the 2008 drop is more like what we may be looking at?

You can see historical annual returns are much higher than the last 20 years, but this data is 1926 to 2018. I personally am thinking the data in the first link, the 20 year data may be more pertinent.

andrew99999
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Re: Vanguard Lifestrategy 20

Post by andrew99999 » Sat Aug 24, 2019 10:55 pm

steveyg50 wrote:
Sat Aug 24, 2019 8:05 pm
If you look at the cumulative gains figures long term, it makes me seriously wonder if a 40/60 portfolio is sufficient equity for long term investing. I mean look at last 20 year figures -

80/20 5.64%
60/40 5.57
40/60 5.32
You are including two enormous drawdowns in a short period of time, and the the first one occurred just a year into your time period.
If you suspect this is the likely scenario going forward, then of course a 40/60 makes more sense than any higher allocation to stocks.

rich126
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Re: Vanguard Lifestrategy 20

Post by rich126 » Sat Aug 24, 2019 11:48 pm

Besides the interest are you factoring in inflation?

And while I’m in the camp of not expecting rates to rise for at least a few years what will happen to bond funds if rates go up over those 17 years? And if rates remain low, bonds are not really providing you any interest in terms of real returns. The returns look good right now due to rates dropping or expecting to drop and the value of the bonds themselves are going up but that won’t continue to occur, especially over 17 years.

If you are going to retire in 17 years, mostly on bonds, then it will have to be because you are saving a huge percentage of your earnings.

Maybe you already know this or disagree but those of my thoughts.

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Francisco
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Re: Vanguard Lifestrategy 20

Post by Francisco » Mon Aug 26, 2019 3:40 am

Hi Rich,

I am mainly investing in bonds because of the current climate (trade war, potential recession in the US, Brexit etc). I will rebalance next year and have a portfolio with 40% bonds and 60% equity if the outlook is better.

TedSwippet
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Re: Vanguard Lifestrategy 20

Post by TedSwippet » Mon Aug 26, 2019 6:30 am

Francisco wrote:
Mon Aug 26, 2019 3:40 am
I am mainly investing in bonds because of the current climate (trade war, potential recession in the US, Brexit etc). I will rebalance next year and have a portfolio with 40% bonds and 60% equity if the outlook is better.
Not aiming to change your mind, but ... it is worth noting here that once the outlook is 'better', the markets will already have risen to reflect that outlook. In other words, rebalancing later rather than now will cost you more (assuming the outlook does improve, of course). And going from 20/80 to 60/40 is a huge change in risk profile.

Honestly, if your own personal tolerance for losses really is low then sticking at the lower end of risk/reward might be the best way forwards for you. Don't take this the wrong way, but from your posts so far you sound like you might shift back from 60/40 to 20/80 as soon as the 'improved' outlook deteriorates. Switching back and forth like this more or less guarantees that you miss run-ups but catch most drops.

Better just to stick at a level you can tolerate. If that's 20% stock though, you will need to do a lot of heavy lifting for yourself, in the form of saving from income, so potentially a pretty daunting task. But the only way to sidestep this would be to take on more risk.

Finally, take a close look at what your own risk really is here. Stock and bond price volatility is risk, and is probably the one that comes to mind first. But being too timid and so facing a funds shortfall in retirement due to inflation is also a risk. Also a longer-term one; over time, price volatility sort-of evens out, but inflation is gradual yet corrosive over decades.

actuallyxy
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Re: Vanguard Lifestrategy 20

Post by actuallyxy » Mon Aug 26, 2019 6:59 am

I would like to add the observation that stock volatility can work to your advantage at your stage in life.

When stocks drop in price, you have many years to wait out their recovery. In the meantime, you are buying cheap with every monthly contribution.

You want to buy cheap and sell expensive. While you are working and saving, you are mostly buying stocks. Bear markets are great for you because they allow you to buy cheap.

When you retire and want to sell off your stocks, that's when a bear market can hurt you.

Anyway, if you have a fixed allocation between stocks and bonds, either by holding a Vanguard Lifestrategy fund or by rebalancing yourself, you will naturally buy cheap and sell expensive. On the other hand, most people who try to time the market end up doing the opposite.

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Francisco
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Re: Vanguard Lifestrategy 20

Post by Francisco » Mon Aug 26, 2019 7:52 am

Very valuable feedback, thanks guys.

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Re: Vanguard Lifestrategy 20

Post by NearlyRetired » Mon Oct 28, 2019 11:48 am

steveyg50 wrote:
Sat Aug 24, 2019 8:05 pm

On the other hand many people (Inc Jack Bogle himself) suspect gains over next 20 years will be significantly less than previous. If that's the case I suppose we may need more equity to keep up with previous 20 years.
You might find this report from the FCA in 2017 looking at expected revised returns. Page 77 and 78 are the interesting ones....
To err is to be human, to really mess up, use a computer

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David Jay
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Re: Vanguard Lifestrategy 20

Post by David Jay » Mon Oct 28, 2019 12:21 pm

20% stocks is much too low for someone who is age 38 with only a £40K portfolio.

If you are bound and determined to try to time the market, limit yourself to a narrower band. How about 40% equity when you are fearful and 60% equity when you are optimistic?
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

xxd091
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Re: Vanguard Lifestrategy 20

Post by xxd091 » Tue Oct 29, 2019 5:05 am

Would it help your ability/confidence to hold a higher stock ratio in your investment Portfolio if you held one or two years of living expenses in cash?
You should have an emergency fund of 6months expenses anyway. Expanding this to one or two years allows you to weather sudden downturns and stops you having to have a forced sale of Equities or Bonds
Downturns/crashes usually only last a year or two-occur every few years and are part of the investing scene
Mostly this kind of advice is for retired people but it might help you
xxd091

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