Reader Ham asked a great question last week about the Vanguard LifeStrategy funds. These funds offer an excellent way of buying a diversified market portfolio using index funds, without the faff of managing the portfolio yourself or the expense of paying someone else to do it for you.
Ham wanted to know how easy it is to increase your bond allocation in the LifeStrategy funds as your biological clock ticks towards retirement.
The answer is it’s quite straightforward, if a bit fiddly, and it may well save you a lot of pain in later life.
Nudging your portfolio’s asset allocation towards bonds as you age is a widespread investing practice known as lifestyling. It steadily reduces your exposure to risky equities to reflect how you’ve ever less time left to recover from stock market falls.
By employing lifestyling, you’re less likely to be one of those case studies in the newspapers’ money pages, grimacing beneath the headline: “I lost half my pension 6 months before retirement and must now stack shelves until I’m 102”.
Lifestyling in action
A well-known rule of thumb is to hold an equity allocation equal to your age subtracted from 100, with the remainder held in bonds.
For example, a 40-year-old would hold 60% in equities and 40% in bonds. (Hmm, I just wrote ‘and 40% in bones’, a Freudian slip if ever there was one).
On hitting 41, a passive investing lifestyler would respond by raising his bond allocation to 41% while winding down his equities allocation to 59%. And then perhaps a little party (with hats) and a quick look at Oil of Olay products online.
Keep up the lifestyling and by the time our surprisingly smooth-looking hero reaches 60, his asset allocation will be a less volatile 40% equities and 60% bonds.
Stuck in time
As Monevator reader Ham recognised though, the Vanguard LifeStrategy funds have a static asset allocation – your equities / bond mix is effectively frozen in aspic.
Invest in the Vanguard LifeStrategy 60% Equity Fund at age 40 and you can rely on it to still be rebalancing you back to 40% bonds by the time you’re 60, even though a 60% bond allocation might be more appropriate.
Vanguard in America offers target retirement funds that automatically lifestyle your assets for you. We’re a bit behind the curve as always in the UK.
It is possible however to lifestyle manually for only a little bit more effort.
The trick is that instead of investing in one fund, we must invest in two [swoons with shock].
To continue our example above, our age-defiant investing role model would start out 100% in the Vanguard LifeStrategy 60% Equity Fund but would gradually raise his bond allocation by increasing exposure to the Vanguard LifeStrategy 40% Equity Fund.
This is the lifestyle
Our Vanguard LifeStrategy fund lifestyling strategy works like this:
| Age | Fund | Fund allocation | Portfolio equities/bond split |
| 40 | LifeStrategy 60% Equity Fund | 100% | 60:40 |
| LifeStrategy 40% Equity Fund | 0% | ||
| 45 | LifeStrategy 60% Equity Fund | 75% | 55:45 |
| LifeStrategy 40% Equity Fund | 25% | ||
| 50 | LifeStrategy 60% Equity Fund | 50% | 50:50 |
| LifeStrategy 40% Equity Fund | 50% | ||
| 55 | LifeStrategy 60% Equity Fund | 25% | 45:55 |
| LifeStrategy 40% Equity Fund | 75% | ||
| 60 | LifeStrategy 60% Equity Fund | 0% | 40:60 |
| LifeStrategy 40% Equity Fund | 100% |
All you need do is annually invest an additional 5% of your total portfolio in the Vanguard LifeStrategy 40% Equity Fund to achieve the required 1% lifestyle uplift in your bond allocation per year.
At age 42, 10% of our hero’s portfolio would be in the 40% Equity Fund, at 43 it’s 15% and so on until by age 60 he’s 100% in the bond-biased fund and preparing to spend the lot on experimental stem cell regenerative injections.
Notes on this lifestyling LifeStrategy
- Include new contributions as well as your current assets when calculating your 5% annual shift.
- The two funds will grow (or shrink!) at different rates so you’ll also need to rebalance.
- Vanguard funds are only available through a limited number of outlets.
- You’ll pay a dealing fee to Alliance Trust every time you buy and sell a fund but get off Scot-free with Bestinvest – except Bestinvest charge higher annual fees! So the best option depends on your trading habits and account needs.
- Aside from these cost concerns, switching between the two funds in an ISA or SIPP shouldn’t be an issue.
Our lifestyling strategy holds true for any two LifeStrategy Funds that sit on adjacent rungs of Vanguard’s equity / bond allocation ladder. As long as you shift 5% of your assets per year into the next bond-skewed fund along, then you’ll lifestyle your funds on time and reduce your exposure to risk.
Take it steady,
The Accumulator
Comments on this entry are closed.
I can see life-styling is a big deal in a pension, where you are legally bound to close the fund and purchase an annuity (although there is a lump sum and nowadays a little bit more flexibility over timing).
An alternative strategy is to save mega-pounds in investments, and simply live off the everlasting dividends. This obviously requires a bigger capital sum (or to start investing much younger), but on the plus side you do get to stop the hungry insurance companies from robbing your children’s inheritance.
Due to the pension rules you can’t do this in a pension, so your only tax shelter is an ISA.
Anyhow, following this strategy you need to lifestyle from growth to income, although value investors might prefer to use income shares/funds from day one, and so would have no need to lifestyle.
The risk of a slump in capital values does not matter so much, so long as your dividends are still paid. In fact I think Buffet once said something about not caring about capital values of shares, if the underlying investment was sound. Also you can diversify with a decent ETF (or direct investments for the more adventurous). This way a long term income should be a feasible option.
This is just a thought, to add to the mix of your excellent and well researched articles. It maybe not be for the widows & orphans. Thanks & keep it up. 🙂
Isn’t there somebody out there that does this for you? There has to be a fund somewhere called the 100 minus your age fund where you give them your age and they put you into the right fund?
If I’m 40 then I’d go in the 60 years-to-live fund, which would be 60% equities. Then they do the fiddly rebalancing bit while I watch Neighbours or something.
I guess that’s what most pensions should do; the question is, why don’t they because mine certainly doesn’t.
@John
I was trawling through funds the other day and noticed that Fidelity have a product matching your description
e.g. you buy a fund relating to the date you want to retire
e.g. Fidelity Target 2020
And they lifestyle it up to that date
Charges are horrendous though so not one to invest in
@ Loads o money
I don’t think you’re quite right on the pension rules – If you meet a minimum pension income requirement (about 20k currently I think) then you can have a go at ‘income drawdown’. I think this just means an alternative to buying an annuity, e.g. you can skim off interest from your pension pot instead. Its a relatively recent change to the rules making pensions a bit more flexible and therefore hopefully more attractive so we’ll all save save save and prevent the govt having to look after us when we’re old…
@ Ben
I was not clear on the rules, although I did hear something had changed (hence, “…and nowadays a little bit more flexibility over timing”). Thanks for putting a name to it. With your help by naming it I was able to find this link on Google:
http://www.pensionsadvisoryservice.org.uk/annuities-and-income-drawdown/income-drawdown-plans
I’m still not clear what happens to the capital once you have shuffled off this mortal coil.
This may shed some light
http://www.hl.co.uk/pensions/income-drawdown/what-happens-when-i-die
Wow – thanks for this! I was expecting maybe a comment, but not a full-blown article.
Your description of lifestyling the lifestrategy sounds interesting, although I would probably adjust it for my needs, probably by buying into the 20% equity fund rather than the 40% equity fund. I could imagine that into retirement, the 20% fund is where most of my pension would end up anyway.
I guess I’m kind of hoping that by then Vanguard will have introduced the American-style lifestyling bonds in the UK too, so that I can just pick Vanguard Lifestyle 2040 or something like that and be done with it.
Thanks for the comprehensive guide nonetheless and keep up the good work!
@ Loads – The Investor has written extensively about investing for income. Here’s a link to the Monevator High Yield Portfolio: http://monevator.com/2011/05/12/buying-high-yield-portfolio/
There is of course the danger that dividends can be cut and sometimes I worry how often the solution ‘just save more, work longer, live for less’ is trotted out in the blink of an eye whenever there’s a discussion that retirement income ain’t what it used to be. I know you didn’t say that, I’m just extending the discussion slightly. I hear it quite often whenever there’s talk that returns in the future may not be as bountiful in the past. That may well be the solution but it’s not acknowledged how hard that is to do.
@ Ben – thanks for the pointers. There are auto-rebalance products out there, but you have to be prepared to pay. Again, we’re probably left waiting for Vanguard to shake up the UK market by offering a target retirement fund at a competitive rate, just as they forced the likes of HSBC to cut some of their index fund charges from 1% to 0.27%.
@ Ham – no worries, it was a good point well worth addressing.
I tend to think of a pension as a hedge against poverty in old age as opposed to a sole income stream to cover everything.
i.e. my thinking is I would like to buy an annuity at some point to cover my ‘essential’ outgoings, e.g. food, energy, water, council tax etc. and no more
I could amass other income generating assets alongside the pension to provide over and above this ‘bare minimum’
I see a huge annuity as being quite a risky and inflexible investment
It may be possible to blitz a SIPP for a few years to generate a pot that is forecast to cover this strategy then just leave it and focus on other investments.
Trouble is, I don’t have the brains to figure out what the figures would need to be, i can envisage tricky estimations of inflation and potential returns and the like.
Another thing which seems like a no-brainer is to add extra to the pension pot so you can extract the max tax free lump sum at some point. So I would have to factor that in as well
If anyone has any pointers on how I could figure out how to do this, I would be very appreciative…
@ Ben – “This may shed some light”; Thanks 🙂
@ Accumulator – Yep, I follow both the The Investor’s portfolio posts and your passive portfolio posts with eager anticipation each time a new update arrives. I have a blended approach – using your passive strategy (but not necessarily the same investments) when I am time poor, and The Investor’s style (but not necessarily the same investments) at times when I have a bit more time.
Yes, dividends go up & go down, my plan is to invest more than most while I’m earning, so even when dividends are lower I’ll be okay. I do not plan to work longer!!
@ Ben(later post) – I agree about annuities. I like your strategy on not relying on the Pension. My strategy is probably similar to yours, to try and second guess the future tax situation & to mix Pension / ISA to optimise the tax breaks of each, although I have never been as keen on pensions due to all the restrictions. Plus I’m still smarting from Equitable Life!!
Not to detract from The Accumulator‘s elegant solution at all, but more active investors with suitably large portfolios might consider establishing their own side portfolio of gilts as an alternative way to adjust to increasing decrepitude. You could stick with just the one LifeStrategy fund and begin buying gilts directly on the side at 40, either by selling down your Vanguard fund or (better!) by adding new money. You would then keep steadily adding to your directly held gilts over the next 20-30 years.
Initial costs are perhaps higher (dependent on deal sizes) and it’s certainly more hassle, but equally there’s no annual running costs on owning your own gilts.
@ Ben – Tim Hale’s book Smarter Investing is the best source I’ve read to enable you to work out how much you may need. It enables you to work out how much to put away in order to reach different levels of income based on different growth rate and withdrawal rate scenarios.
I’m interested by your flexible approach to your pension. I’m contributing enough to mine to hopefully achieve a basic level of income that I know I can live within – though pension calculation assumptions often seem optimistic. ISA investments will provide a margin of error / more flexibility to work part-time / retire early / cover personal corporate obsolescence later in life.
@ accumulator
good idea – I’ve already got the book, read it about a year ago, but I’d forgotten it covered that area in detail. Time for a re-read I think (when Ive finished Graham, the last few chapters are proving heavy going 😉
@everyone – a question on bonds
You’ll have to excuse the ignorance (as a relatively new passive investor). My understanding is that bonds are used as a low risk investment, with the aim to dampen any large fluctuations in the equities market. Is the expectation of a bond (over say 5-10 years) to also outperform a fixed interest savings account over the same period (best currently 4.65% Gross I believe), albeit at an increased risk?
Otherwise why not simply balance equities with cash savings?
Hi Jonny, you’re spot on. Historically gilts have earned a risk premium over cash. Whether that is true over the next 5-10 years nobody knows. The current 10-year gilt yield is 2.25% but then the last time I looked at the gilt fund held in the Monevator passive portfolio it was up around 8% this year. Ultimately it’s a question of diversifying your portfolio against an uncertain future.
I’ve been completely confused by the return on my gilt fund compared to the 10 year gilt yield – where has that extra 6% come from?
@Jonny — Great question! Cash and bonds are not quite the same thing, though the return they earn often appears similar over some time periods. You might want to read my post on the differences.
The main difference is cash doesn’t decline in value in nominal terms but the interest you’re paid might (though as private investors we can lock in fixed term cash savings) whereas bonds do fluctuate in value, but pay a fixed income (and so you can calculate on the day you buy exactly what return you’ll get, provided you hold the bonds to maturity, and that they don’t default).
Bond funds are a bit different again, in that you get an average yield from all the bonds the fund holds, which *will* rise and fall over longer periods of time as older bonds mature and new bonds are bought — on top of the fluctuation of the value of the underlying bonds! (That wasn’t as clear as I tried to make it, was it!? 😉 )
Still, I agree with you that new investors with starting portfolios might well consider a straight split between cash and an index tracker until their portfolios grow a bit more in size and they’re more comfortable with investing. It’s not much more work to create a diversified portfolio of index funds and to top it up each month, but it’s a bit more of a mental leap.
@Ben – Perhaps my answer above (or the links contained within it) will help.
Over-simplifying: because bonds are traded, investors can pay more or less money for the income they generate. If the income is more in demand, they’ll bid up the price for a bond, reducing its yield in turn (because yield is annual interest paid / price you pay).
Bonds have been in demand this year, so overall your bond fund’s holdings have risen, which is reflected as a capital gain. You can expect this to continue to fluctuate up and down over time.
I’m not sure if this thread is still “live” but I found it extremely useful to the point of examining the fees I’m charged on my smaller personal pension (~£48k) and comparing to Vanguard funds in a SIPP.
I know that…
– I’m 22 years from retirement.
– I invest ~£150 per month into this pot (before tax relief).
– My current pension provider had an annual fee for holding my pension, makes transaction charges the fund I’m invested in has a TER.
– There is bid/offer spread on my fund (a cost to me to transfer).
– The SIPP would also have annual charges, transaction charges and the Vanguard fund has a purchase fee and a (much lower) TER.
I assume that…
– both funds performed exactly the same before fees
– none of the wrapper or fund providers change their fees
– I stick with £150 investment per month
– average growth is 3% p/a in real terms every year over the next 22 years (!)
Putting all the numbers as accurately as possible in a spreadsheet I find that…
– in my case I’ll recover the cost of the transfer within 8 years.
– by the time I’m 66 I’d be £9.9k better off (or ~7.5%) for having made the change.
FANTASTIC!! If I bought an annuity with the “free money”, at current rates I’d be about £600 per year better off for the rest of my life. Good value for an hour or two’s effort now.
BUT… BUT… BUT… As I understand it, if my current pension provider goes bust for any (?) reason the FSCS will guarantee me at least 90% of my pension. If Vanguard goes bust for any (?) reason the FSCS will only guarantee £50,000. Under the assumptions above my Vanguard pot would be just over £140k by this point.
Of course 22 years is a long time and the guarantee system may be very different by then, and you’d hope the limits would have changed too. But do I want to bet my PENSION on Vanguard living that long or (if they die) the FSCS keeping pace?
This is a big decision for me and I’d like to hear anyone’s/everyone’s opinion before I jump.
Thanks 🙂
@ Simon – Is that 140K in 22-years time adjusted for inflation or is that the amount you expect to have in today’s money? If inflation-adjusted I guess compensation limits will move over time. Still, it’s impossible to know what the landscape will be like in 22-years time. For the sake of £600 per year, if it was my pension, I’d stick with the 90% guarantee, or invest a proportion in Vanguard so at least you’re somewhat better off and the 50K covers 90% of that part of your pot.
@Accumulator – Thanks for your views, very much appreciated. Yes estimates of £140k total (and £600 p/a) are in today’s money.
After more thinking, triggered by your reply, I now think my best option might be to transfer everything into a SIPP and balance the money between (index) fund suppliers so that I don’t have more than the FSCS limit invested with any single fund supplier at any one point.
For example I could put (say) £45k into a Vanguard fund now leaving space for 10% growth and start contributions to the “next best” (index) fund from a completely different fund supplier straight away. At the end of each year I’ll rebalance the Vanguard fund back to 10% below the FSCS guarantee and move any excess into the second fund. Similarly if the second fund got above my 10% safety margin I’d start investing in a third fund from yet another provider. That way each fund would be fully “protected” and I’d get a type of extra diversification (between index fund providers) “for free”.
If this is valid (within the FSCS rules) I’d generally have 100% protection – actually better than the protection on my current pension plan (90% protection). If one fund crashed at least I’d have the other(s) live while I argued for my compensation. If more than one fund company died at the same time we’d probably all be in trouble and I’ll still be doing a paper-round when I’m 80 🙂
Of course I’d have to keep a close eye on the FSCS limits and any M&A between fund providers.
Do you think that makes sense as a strategy? Am I missing anything?
Simon
PS Hopefully this is interesting to the group and not just me!!
It does make sense. I can see this being too much trouble for a lot of people but it’s the kind of tweakage I enjoy, and if it helps you sleep at night then so much the better. I had a brief look at the FSCS rules yesterday and they seem byzantine to say the least. The impression I got is that if your SIPP provider embezzled your funds then you’d only be covered for 50K in that circumstance, if it’s a trust-based arrangement. So, if you’re going to diversify your fund risk, you might consider diversifying your SIPP provider risk at the same time.
@Accumulator – Thanks agian for the feedback and taking the time to fight through the FSCS website. (I also tried but missed the point you make above.)
I do like fiddling because it makes me feel in control and keeps me busy enough so that I don’t have time to stock pick / sector pick / time the market or all those other things that I’m sure that clever people can do but I know that I’d just get wrong.
I’ll have a long think now about the best way to go, and let you know in 2034 if it worked out 🙂
Simon
Unfortunately there doesn’t seem to be a 71/29 Vanguard option to start off with!
Would the theory be that you start with a mix of the 80/20 and 60/40 funds first, and since I’d be 9 years into it, the split would be 45% (9 years * 5%) in the 60/40 fund, and the remaining 55% in the 80/20 fund?
Then at age 40 I’d close the 80/20 fund, and start moving from the 60/40 to the 40/60 as per the above example?
In practice, I think as I’m starting out late, I’d be better doing 10 years fully in the 80/20, before doing a full switch to the 60/40 – and following the example posted in this article. Would not following the rule of thumb in bond allocation up to age 40 seem reckless?
im 50/single
mortgage free in two years
no pension
5k savings
would the 50%/50% option be advisable or take more risk till im 60
100%/p/time 65 retire 70
will hav about £850 a month to invest
@David — That’s a good deal of specific information but at the end of the day nobody can give you specific personal advice via the web, least of all us. In terms of generalities I’d say the 50/50 option is a decent one for a 15 year time horizon, though not without risk. Speaking personally, in the current climate I’d perhaps increase the equity weighting a tad and at the same time divert some of my monthly contribs into fixed rate cash savings via an ISA, to try to get a better yield on my non-equity portion. You may benefit from a session with a flat fee charging advisor; you have options and a good balance sheet (congrats!) but not a lot of time.
thx –appreciated
With regard to the rebalancing of a Vanguard portfolio (which is still being funded) from Equity:Bonds 60:40 to 40:60 over a period of years would be to start with (a lump of) 60:40 and then invest regularly in 20:80 and also the original 60:40 such that at retirement you have equal holdings of both. Combined this would be the same as 40:60. Shouldn’t be too dificult to do a back-of-a fag packet calculation every few years to see if you’re on the right track? Doesn’t need to be accurate.
accum is it worth holding the 60/40 an 40/60 for better bond asset allocation considering the £24 platform fee?
fee + charges
60%\40% .27+.31 +£24
40%\60% .29+.30+£24
what sum do you have to invest to make bond allocation break even?
thx
van 100% equity
van 20%/80% equity
is it possible to mix the two–for bond/equity allocation?
For argument’s sake, how would I lifestyle when my initial holding is in the 100% Equity Fund? I’m currently aged 29.
Any thoughts appreciated, my ratio brain isn’t working today 😉
Thanks for the great article, which I am using to set the principles of moving from equity bias to bond bias over a 10 year period.
Just a query though, if I am starting at say 60/40 equity/bond, and want to eventually get to 40/60, then surely I need to be investing in the 20/80 lifestyle fund as even if I totally stopped investing in the 60/40 fund, no matter how much I invested in the 40/60 fund I could never reach a total portfolio split of 40/60, as the equity amount would always be above 40% due to my .
Or do you mean selling some of the 60/40 fund and buying the 40/60 fund?
Thanks again, and sorry if it is confusing!
Gary.
Hi Gary, yep, you’d be selling out of the 60:40 fund as you gradually move to the 40:60 fund.
I was setting up my monthly payment into my portfolio, some of my Vanguard funds allocation are under the minimum investment of £200 a month and are not allowed with TD as regular investments. I may have to re-think the plan and move over to a lifestyle fund.
Has the accumulator come across this before? They like to play tough when it comes to saving the pennies
Doesn’t selling out of a fund and buying into another incur costs?
If you have a kid instead of bonds you could always open up an account with Halifax paying 6%!
Sounds like a lot of hassle. Why don’t you just have the one product with a bond allocation based on younger than your age (40% if you are, say 45) and then use a cash ISA to increase the non equity allocation that suits your age. Cheaper and easier than running two accounts. Simple!
@ Marcus – you’re not running two accounts, just two funds. Certainly no more hassle than running an investment account and a Cash ISA which is two accounts. A Cash ISA is also not a ringer for a bond allocation.
@ The Accumulator – ok running “two funds” seems like too much hassle to me, especially as you are going to experience extra charges whilst you try to rebalance funds in order to get to your optimum allocation based on age.
Surely the idea of these funds is that you are just supposed to leave them to avoid unneccesary trading charges. With regard to a cash ISA not being a ringer for a bond allocation – does that REALLY matter.
Having read a few of your articles in the past I get the impression that you may just be overcomplicating things for yourself.
@ The Accumulator – sorry, pressed submit too early. With regard to all this tweeking and fannying around you do with these funds you have, could you give some insight into just how much financial advantage you actually gain, factoring in the additional time and effort expended and additional fees involved, compared to leaving well alone.
@Marcus — There are no fees for moving money from one to the other. There is a small risk of tracking error as your money is out of the market for a bit, but we’re talking tiny percentages.
I don’t disagree that LifeStrategy + Gilt fund would be an acceptable alternative.
@ Marcus – if you choose the right broker then rebalancing will cost you zero. Even if you didn’t it’s only going to cost you about a tenner per year anyway.
From my perspective, managing an allocation through a fund is no more work than a cash ISA.
Over the last 50 years bonds have beaten cash by 1.2% per year in real terms.
But the reason people lifestyle is to avoid exposure to market crashes that they can’t easily recover from.
Imagine you’re an adventurous 20-something with little money to lose. You pick the Vanguard 80 fund and never change it. 40 years later you’re still 80% in equities, ready to retire and sell off your fund.
The market crashes. 50% is wiped off the value of your portfolio and you don’t have time to recover from the loss before you start selling. If you’d lifestyled down to a more conservative 40% equity position then your loss would be much smaller and you save yourself a lot of stress.
I can understand the recent question from @Marcus about incurring extra charges on rebalancing but I don’t understand the answers from The Investor and The Accumulator unless the you both mean that Vanguard UK has developed a special “free transfer” transaction as an interim solution until automatic rebalancing is available, as in the Vanguard US versions of these funds.
Lyle, if you choose a broker that doesn’t charge for fund trades then your charges will be zero e.g. Charles Stanley.
Alternatively, choose a broker like iWeb – no platform charge and £5 per transaction. Then rebalance annually. Total cost = £10.
@The Accumulator – thanks for your very informative reply.
Sorry if I am being silly here. Can’t you just have lifestrategy 100% as the allocation for equity? For example, using the rule of thumb above, a 20 year old young investor could just invest in 80% LifeStrategy 100% and 20% Government Bond Index. As he ages, just decrease the percentage of the portion of LifeStrategy 100% and increases the bond portion. That seems much easier compared to trying to figure out the ratio of 2 lifestrategy funds, right?
I see what you mean, hv. If anyone at Monevator could respond then it’d be much appreciate.
@ Hv – yes, absolutely you could do that. It’s a good idea.
Just found this thread so apologies if I appear to appear to be rather behind the times, but I was having a closer look at these Vanguard LifeStyle funds 100% thru 20% and whilst they seem like a very diverse investment [so, on the one hand ‘good’] I can’t help but notice the most conservative fund ie the 20% equity / 80% fixed has a lot of its allocation outside of the UK
Fund market diversifcation
Global Bond 19.3%
European Corporate Bonds 4.1%
European Government Bond 8.8%
Japan Government Bond 6.2%
US Corporate Bonds 7.5%
US Government Bond 7.3%
UK Corporate Bonds 8.1%
UK Index Linked Bonds 6.0%
UK Gilts 12.8%
UK Equites 4.9%
European ex-UK Equites 2.6%
North American Equites 8.6%
Japan Equites 1.3%
Asia ex-Japan Equites 1.0%
Emerging Markets Equites 1.5%
If you were retired / taking a conservative approach, would you not want things more UK focused rather than spread across bonds in Japan, Euro and US?
Perhaps there’s a reason for this, I just thought the general rule was that you’d try to invest more in your home market as you got older to avoid currency risks etc?
@ Mika – Vanguard have recently argued for a more diversified approach to fixed income. See their paper here: https://advisors.vanguard.com/iwe/pdf/ICRIFI.pdf?cbdForceDomain=true
This follows the decline in yields for quality bonds and the downgrading of supposedly risk-free countries like the US and the UK.
If your international bond allocation is hedged to Sterling then you aren’t prey to currency movements. If not then an older investor will experience less volatility with domestic bonds.
@the accumulator – thanks for the link, an interesting read.
Looking at the Vanguard UK website, it sort of implies that these international bond funds are hedged – i’m assuming to sterling if they are selling it to the UK market? Anyone know for sure?
Is there any way of avoiding the 0.1% entry charge with the Lifestyle funds?
@Mike: No. There is a reason for the 0.1% entry charge.
The ‘pre-set dilution levy’ that the firm charges new investors in its funds, pays for the cost of creating the new units and investing the money in the market.
The firm already decreased the levy following recent analysis that found those funds had “experienced decreased market trading expenses” and that costs had decreased as the funds’ assets grew.
You can however get some funds from Vanguard without any levy such Vanguard U.K. Inflation-Linked Gilt Index and Vanguard U.K. Long Duration Gilt Index
http://www.ftadviser.com/2014/07/01/investments/etfs-and-trackers/vanguard-reduces-initial-charge-on-retail-funds-KQrnW3OZVeJCjxwasPZTlL/article.html
If you want to trade, Vanguard funds is not for you. Check the ETFs.
@John Investor
Would you get charged the 0.1% if you were to rebalance within an ISA?
Now that Vanguard has released their UK Target Retirement funds (December 2015), will we be getting an update with your thoughts on these funds versus the “lifestyling Lifestrategy” approach outlined above? Pretty please?
@Michael — Yep, somethings on the slate! 😉
Thanks for the informative article. Just so I’ve got this completely straight in my mind, please can you confirm my following understanding is correct?
I’m 30 years old and therefore aim to have an equity bond mix of 70/30. In order to achieve this I will need to invest 50% Into the LS80 fund and 50% into the LS60 fund.
Thanks for your help!
In these times of uncertainty, with a 50k pot in the 60/40 fund, is it worth a nervous 50 yr old, switching to the 40/60 (or even 30/70) fund ?