Time to shift from vanguard lifestrategy 60 to 80?

[Srd11]

Hi

I aggregated and shifted a lump sum to vanguard lifestrategy 60 just over 2 years ago. Unfortunately it was at a peak and to date I'm still down 8% (appreciate primary due to bond performance/global macroeconomics)

I'm still likely a good 10 years out from semi retirement and wondering whether there's merit in shifting to vanguard lifestrategy 80 as not confident bonds will markedly improve in next few years ... Though equally I could equally see a lot of disruption in stocks (AI/tech consolidation)

Thoughts appreciate

Cheers

[Urbandreamer]

In my opinion you need to take time and have a serious think.

Why did you chose the 60:40 split? I'm sorry but I have to ask, did you think when you bought it, or is it just that it is/was the standard advice?

There is lots of debate upon the subject. Vanguard argue that the future for this split looks rosy.
https://www.vanguard.co.uk/professional ... -portfolio
While others argue the opposite.
https://www.ftadviser.com/investments/2 ... d-be-dead/

I doubt that anyone here can provide better arguments than those already existing and out there, if indeed arguments are appropriate.

Speaking personally, I've now retired, but have never desired such a high bond component. Currently bonds are less than 2.5% of my portfolio, and were never as high as 10%.
However not everyone can sleep at night with such high exposure to the markets. I know that the 40% drop in my wealth at the start of Covid caused me more than a little distress. While I am still happy with such risks they are not for everyone.

As I said, you need a serious think.

Further thoughts. I will in time get a full state pension. In addition I will, in time, receive a small final salary pension. They provide me some de-risking.

[GeoffF100]

Nobody knows what will happen. Nonetheless, it is a bad idea to sell bonds just because they have fallen in value. Most fund investors behave like that, and, as a result, underperform the market by about 2% per annum, before costs, according to some studies. You make money by buying low and selling high, not the other way around.

[Adamski]

Hi Srd11, I hold vls60 as my second largest investment. 2022 was an exceptionally bad year for bonds. Hence they're out of fashion now. However rising interest rates in the US was last year's story. The US being largest bond market. Now bond market normalising and return for last 12 months has been steady. Vls60 returned c. 3%, which is good vs some of my other holdings. So I'm holding, and also don't see any problem with 60:40 split over long term, as returns good and less volatility than fully in equities. You are effectively owning the entire equity and bond world market which is better strategy than picking stocks and switching each time they fall, which is what retail investors tend to do.

[xxd09]

Investments and their Asset Allocation are very personal
Your choice of this 60/40 split represents your current attitude to risk-suggesting a middle of the road investor
Currently down 8%-Urbandreamer,s stocks went down 40% at one point!-could you cope with that?
You obviously feel safer and can live with this 60/40 Asset Allocation-ie you didn’t sell-yet
Once you decide your personal ability to cope with volatility of your portfolio -up and down -you have little option but to stick with it
Constant changing your portfolio seems a proven way to generate losses
Stay the course and let the market alone do its thing -usually rises in the long term
Having said all that -an investor facing his first downturn gets a good lesson in his actual ability to cope with volatility
Concentrating on those factors under your direct control like keeping costs low,saving as much as you can and living frugally are the way ahead -once your Asset Allocation is in place
Personally I am more conservative than you and retired 20+ years ago with a 30/70 Asset Allocation-still unchanged
Worked for me
Making your choice and sticking with it seems to make for success in the long term -so far!
xxd09

[BullDog]

VLS 60 v 80? Really, in the final analysis, what difference is it going to make? A few per cent here or there one way or the other? Nobody knows.

In truth, whilst still accumulating, volatility is your friend. As long as you buy like clockwork every month irrespective of what happened last year or last week, you'll do just fine.

[JohnW]

shifting to vanguard lifestrategy 80 as not confident bonds will markedly improve in next few years

Two reasons that’s wrong thinking in my view: you can’t hope to guess accurately what will happen to bond returns in coming years, even the experts can’t do that 6 months ahead; secondly, shifting to more stocks/less bonds is about what sort of risk you’re comfortable with and what returns you need to chase while you still have a wage to rescue your finances if it goes badly.
60/40 has done poorly in the last 3 years or so. Then look at the last 4 years and the return is quite reasonable. That’s three poor years. A 60/40 investment is one for a timeframe of about 8 years minimum. It’s hardly relevant to say it has had a bad three years when no one should hold it for only three years.
That FT article is a puff piece to promote LG; why else name three different managers we’ve never heard of when it purports to be educating us about investment strategy? And I’d have been a lot more impressed with the LG boss’ views on how bad 60/40 was if he’d expressed them four years ago when 60/40 was about to have a bad three years. After the event it’s too late to impress me. And he wants us to move into emerging market debt, which sounds to me like more bonds but this time quite risky. Why not just hold more equities if you want more risk/return?

What you can do is view the history of different assets’ returns, volatility and pants poo-ing drops, to give yourself a feel for how comfortable you’ll be with different risk levels, and don’t choose a mix you’ll be uncomfortable with lest you do something silly when something else hits the fan, but go as high as you can hoping for better returns. Good luck, and you're in a good place.

[Urbandreamer]

That FT article is a puff piece to promote LG; why else name three different managers we’ve never heard of when it purports to be educating us about investment strategy?

Sorry about that. However it is NOT the only article out there questioning the future for bonds and hence the traditional 60:40 split Nor are all of them recent.
I.E here is an article by the active fund Ruffer*, dated back to 2020. Ie just before the OP chose the 60:40 portfolio.
https://www.ruffer.co.uk/en/thinking/ar ... 0-11-60-40

I'd argue that the existence of such articles prove MOST points on this thread. Yes even the ones arguing that the OP should remain in the 60:40 fund.
The point is that asset allocation is a very personal.

Mr Markowitz did some serious analysis and produced a theory about asset allocation, yet picked 50:50 for himself.

*For those who haven't heard of Ruffer, they intend to be a wealth preservation investment trust. Recently they have not had great performance, but they laughed off the Covid market fall. I hold Ruffer in my portfolio.

[JohnW]

Sorry about that.

I didn’t intend a criticism of you putting forward the FT article. In fact it’s a perfect example of so many put-downs of the 60/40 that active fund managers use to promote their wares, and useful to evaluate.
The Ruffer piece had some good historical perspectives and made some sense. It would have been informative in 2020 when written to see the lie of the land in broad perspective, but a few quibbles arise.
Lots of ‘may’ happen or ‘may’ do this. They’re quasi predictions without consequences for being made to look silly if they don’t eventuate; it’s hedge sitting, so just admit you don’t know or don’t pretend you might.
They say ‘Inflation is a much bigger risk to bonds – they will not protect the real value of portfolios.’ Firstly, that’s completely untrue if you consider linkers to be bonds which they are. Secondly, no one insists the 60/40 should hold only nominal bonds. Thirdly and somewhat deceitfully, the Ruffer fund holds 25% as inflation linked bonds, while they run down bonds for not protecting real value but Ruffer will save you.
They complain about a bad 5 year period from 1970, but 60/40 is not a five year investment.
‘In a market regime change, in which equities and bonds fall together, investors will need an asset with low correlation to these markets’. Does anyone have a crystal ball telling them what future correlations will be? I think not.
They lament that bonds have (in 2020) negative yields, but 2.5 years later they have positive real yields. What’s not to like? If you can’t wait 2.5 years in a 60/40 portfolio you’re in the wrong portfolio.
‘Bonds (in December 2020) have historically acted as an offset to equities in market crises. But this chart demonstrates that bonds are very unlikely to do this job in the future.’
What they omit to advise with bonds, is that you need to consider duration when you choose your bonds. When interest rates start to rise and values fall, you need wait only one ‘duration’ to get back to how the bonds would have performed without the rate rise, and you need about two durations if the rate rises continue indefinitely. Choose the right duration bonds, and you’d be praying for interest rates to rise, while Ruffer tries to frighten us about that.

[tjh290633]

In my view the idea of lifestyling came to a shuddering halt towards the end of the last century. When I retired in 1998 my thoughts had been to make a switch into fixed interest securities. However it was impossible to make a coherent case for doing that. One of the factors that proponents use is the market index, UKX, but the performance of that index was affected by the dot-com boom and later by the general financial crisis. It suffers because of being weighted by market capitalizations, and so is affected by a few large shares. Equal weight portfolios have been shown to give better results, as have higher yield portfolios.

For those in retirement, an income which increases at least in line with inflation should be a prime objective. Sadly, index-linked gilts do not provide enough income to satisfy this requirement. Very little indexed by inflation is still very little. At the other extreme we had War Loan, a recipe for losing money, if ever there was one.

I have yet to see any convincing argument in favour of lifestyling, and have seen many examples of 100% share portfolios which achieved the desired objective. Of course there are periods when bonds can outperform stocks, but over long periods stocks have outperformed.

TJH

[Urbandreamer]

Very little indexed by inflation is still very little.

I actually see the worse problem as sequence. That is to say that it is obviously impossible to know what the increase in costs is until they are measured. Yet you pay them BEFORE they are measured. Hence, historically keeping pace with inflation is only good enough if the additional amount paid covers that delay.

I can't see a way to ensure that. Of course it is also fair to say that I have an ideological objection to buying government debt, though the likes of Tesco have also issued index linked bonds.

[scotia]

I'd hesitate to give advice - my opinion is that success in investing is a random event
However I thought it might be useful to look at the Vanguard Life Strategy Accumulator total returns over the past 5 years to get some idea on volatility and return. I'm well aware that the next 5 years may be quite different.
I have saved the following plots (from Hargreaves Lansdown), for Vanguard Life Strategy 40,60,80 and 100% equity - the rest are bonds.



I think it will be easy to judge which is which, but if you need any help the total returns after 5 years are

[NotSure]

I don't take much notice of "X years" return - it so depends on the exact choice of starting point - but the plot above is a nice illustration. Bonds have greatly limited volatility (e.g. look at the Covid crash), but the price paid is of course lower returns.

However, to me, bonds look like quite a different prospect now as compared to a few years ago (the "TINA" years). Then, a typical bond fund yield to maturity was a fraction of 1%. "Reward-free risk". Now, they do at least wash their face in income, and if interests rates do stabilise, or even drop a bit, you won't be kicking yourself for holding a few as a hedge against equity troubles.

To the OP, if 60/40 seemed about right for you a couple of years ago, it is hard to see why it would not look even better today? However, there is no need to limit yourself to VLS, unless you want the UK bias. Other mixed asset funds are available, or maybe even a mix of global equity tracker/fund plus a fixed income fund. You can then control, to some extent, the duration of the bonds, and hence the associated risks/potential rewards.

[mc2fool]

At the other extreme we had War Loan, a recipe for losing money, if ever there was one.

I bought War Loan, hmm, I don't remember when but it was while you could still buy gilts at the Post Office, at a running yield of 9%. Pocketed the coupons for many years and then sold it for 2.5 times what I paid for it. Had I waited another year or two for when George Osborne decided to redeem all undated gilts I'd have got 3 times....

[Srd11]

Thanks all for insight and views. Very helpful.

I'll stick with the current mix and as a few have commented, has given me a taste of risk.. and relatively speaking the drop is within my appetite.

[JonnyT]

An option to consider other than bonds is a Physical Gold ETF. i.e. You could be 60% World Tracker ETF and 40% Physical gold ETF and be up around 56% over the past 5 years with a lower volatility than the Vanguard Funds. The 10 year return is 137% compared to the Vanguard 60:40 77%

[Srd11]

An option to consider other than bonds is a Physical Gold ETF. i.e. You could be 60% World Tracker ETF and 40% Physical gold ETF and be up around 56% over the past 5 years with a lower volatility than the Vanguard Funds. The 10 year return is 137% compared to the Vanguard 60:40 77%

Really interesting point. I will look into that

[Hariseldon58]

Hi


I'm still likely a good 10 years out from semi retirement and wondering whether there's merit in shifting to vanguard lifestrategy 80 as not confident bonds will markedly improve in next few years ... Though equally I could equally see a lot of disruption in stocks (AI/tech consolidation)

Thoughts appreciate

Cheers

You have 10 years to go, interest rates are much higher, this is great news for you as a bond investor. The duration of the bonds in LifeStrategy is well under 10 years, you will be better off.

If your undecided, then move half your VLS60 to 80 and you will have An effective LifeStrategy 70

[GeoffF100]

If your undecided, then move half your VLS60 to 80 and you will have An effective LifeStrategy 70

Until equities out perform bonds or vice versa.