https://www.vanguard.co.uk/documents/adv/literature/trf-adviser-guide.pdf
Knowing investors often prefer their domestic market and are unwilling to take on too much currency risk with overseas investing, the funds will always have exposure to all segments of the broad UK stock market, including large-, mid- and small-cap equities.
At the beginning the Target Retirement Funds invest 80% equities, including 20% UK equities and 60% Global ex-UK.
So their UK equity weighting is 25%.
That seems like a large home bias. Is there any benefit to this? I have seen it mentioned on these forums that there may be a tax benefit associated with a certain degree of home bias. What might this be in the context of a SIPP? Could it make up for loss of diversification?
Given the overall fee of 0.24% for a Target Retirement Fund, how would investing in a Target Retirement Fund, e.g. Target Retirement 2055, compare with say:
- 80% in Vanguard FTSE ALL Cap [0.23%]
- 10% in Vanguard U.K. Gilt UCITS ETF (VGOV) [0.07%]
- 10% in Vanguard Global Aggregate Bond UCITS ETF (VAGP) [0.1%]
Would the above allocation not be a) cheaper and b) superior in terms of greater diversification?
And what about over the long term? Could I simply reduce the bond allocation and retain a 50/50 split between VGOV and VAGP?
I am open to suggestions regarding split between VGOV and VAGP is 50/50 is sub-optimal.
I see that that the Vanguard Retirement Fund introduces inflation-linked bonds at a late stage. Presumably I could do that too.
What I am trying to work out is whether there is a tangible benefit in setting up my own allocation compared with just opting for the appropriate Vanguard Target Retirement Fund.
Thoughts on this much appreciated.