The Vanguard LifeStrategy funds are excellent if you want to put your money to work in a quality investment that you can leave to grow over time.
These funds are easy to understand, need minimal maintenance, and should perform well over the long term. There are no worries about constantly having to manage it.
Vanguard LifeStrategy funds are like the iPads of investing. They take a product category that was overly complex and made it super-simple for anyone. All while still delivering good results.
Think there must be a catch – such as that LifeStrategy funds are sub-standard? You’re dead wrong.
The truth about investing is you can achieve life-changing results just by getting the basics right:
- Diversify across the global equity markets.
- Mix your risky equities with high-quality bonds for additional diversification.
- Choose a low-cost fund. This way your money fattens your balance not some fund manager’s.
- Choose passive investing for a great balance of results, simplicity, and best practice.
The Vanguard LifeStrategy funds tick all of these boxes.
What are Vanguard LifeStrategy funds?
Vanguard LifeStrategy funds belong to an investment category known as multi-asset funds.
Multi-asset products bundle multiple asset classes into a single package. It’s a convenient format that contrasts with the majority of funds that specialise in a single market.
Traditionally, you’d construct a portfolio from several individual funds. Each would be invested in a particular market.
For example, you’d choose one fund for UK shares1. Another for emerging markets. Yet another for government bonds, and so on.
But LifeStrategy funds do away with all that. Instead they invest across global equity and bond markets in a one-er.
It’s like buying a multi-pack of crisps. Except this bumper deal enables you to scoop the major investment flavours in one easy purchase.
This is known as a fund-of-funds approach. That’s because a Vanguard LifeStrategy fund nests several index funds inside it.
Each nested fund ensures you’re covering a major market. For example here are the individual funds that the Vanguard LifeStrategy 60 fund automatically invests in for you:
Those underlying funds amount to an instant portfolio. Et voila! You’re now diversified around the world in thousands of shares and bonds. But instead of you doing the work, Vanguard did it for you.
Who is Vanguard?
Vanguard has grown to become one of the biggest asset managers in the world. It is famous for index funds and driving down investment costs on behalf of consumers.
Vanguard was founded in 1975 the US by the late John Bogle. Bogle was a visionary. His mission was to offer a better deal to investors and disrupt the fund industry.
It took decades, but Bogle ultimately won the argument. Vanguard’s success forced competitors to respond with their own ranges of cheap index funds and ETFs.
When Vanguard arrived in the UK in 2009 it repeated the trick.
UK investors have enjoyed a cheaper and wider range of investment products ever since. Index tracking funds continue to take market share from the traditional fund industry.
Which Vanguard LifeStrategy fund?
There are five LifeStrategy funds in the range. How do you pick one?
The key difference between the funds is their asset allocation split between equities and bonds.
Here’s the strategic asset allocation for each Vanguard LifeStrategy fund:
| Fund name | Equity allocation | Bond allocation |
| LifeStrategy 20 Equity Fund | 20% | 80% |
| LifeStrategy 40 Equity Fund | 40% | 60% |
| LifeStrategy 60 Equity Fund | 60% | 40% |
| LifeStrategy 80 Equity Fund | 80% | 20% |
| LifeStrategy 100 Equity Fund | 100% | 0% |
At one end is LifeStrategy 100. It’s purely invested in equities.
LifeStrategy 20 is at the other end. It is 20% allocated to equities, with the rest in bonds.
The rule of thumb is:
The higher the percentage of equities in a Vanguard LifeStrategy fund, the better its prospects for growing your wealth in the long-term.
Equities have historically been the best performing asset class over most periods of at least ten years.
But there’s a trade-off. Equity-dominated portfolios are riskier. They’re prone to falling harder and faster during stock market crashes and bear markets.
The role of bonds in a portfolio is to take the edge off such stock market slumps.
Bonds have historically earned less than equities over the long-term. But they’re typically less risky in the short-term. That’s because bonds can weather recessions better than equities.
Bonds may even rise in value during a stock market crisis.
Think of equities as wealth rocket-boosters that are prone to misfire.
Bonds can act as parachutes that soften the landing.
However, they don’t always work. And their extra weight slows down your rocket ship a little over time.
In short, picking the right Vanguard LifeStrategy fund means balancing the amount of growth you need versus the risk level you’re comfortable with.
Choosing more equities means exposing yourself to more risk in the hope of greater gains.
Expected equity/bond portfolio behaviour
Here’s how Vanguard illustrates the risk vs reward compromise using historical UK returns:
Notice that the average annualised return increases as you hold more equities. But the downside risk is also more severe.
The minus number reveals the worst return each portfolio suffered in a single calendar year from 1901-2020.
This encapsulates the expected behaviour of the different Vanguard LifeStrategy funds.
You can’t expect a repetition of those precise numbers. But you can expect the LifeStrategy 20 fund to suffer less than riskier, equity-heavier versions in downturns. (Not always, not all the time. But that’s the historical trend.)
Conversely, the Vanguard LifeStrategy 100 is likely to deliver the best returns over the decades. (No guarantees, mind.) Yet watching 50% of your wealth vaporise in a year can be a sickening experience. And this is almost certain to happen at some point.
The risk is that you then panic. You sell up and lock in your losses. Or you lose a large amount of money just before you need it and don’t have time to wait for a bear market recovery.
That’s why choosing a LifeStrategy 100 or even a LifeStrategy 80 fund based on long-term performance is not a no-brainer. They’re too risky for some people.
Which is the best Vanguard LifeStrategy fund for me?
The best Vanguard Lifestrategy fund depends on your attitude to risk and need for growth.
The less growth you require to achieve your financial goals, the less point there is taking on the risk inherent in a 100% equities portfolio.
How much growth do you need? Work that out using our guide to creating an investment plan based on your circumstances.
If you dream of financial independence then try this walkthrough on how to achieve FI.
We can also help you answer the question: “How much do I need to retire?”
To understand more about handling risk, you should read our primer about risk tolerance.
Many people though can’t find the time to make a plan or get to grips with their risk tolerance. Or they discover it’d be easier to nail jelly to a wall.
Instead, you can substitute rules of thumb for a proper plan – at least to get started.
One of the best known rules of thumb suggests you choose your equity allocation like this:
110 minus your age = your equity holding
You can then round up or down to the nearest Vanguard LifeStrategy fund.
Potentially you can even blend Vanguard LifeStrategy funds. Take your equity allocation to 50% or 70% or whatever you prefer.
Rule of thumb assumptions
The rule of thumb above assumes young people can afford to take more risk than older investors.
That’s because young ‘uns have more working years to recover from a stock market crash. And they’ve less wealth on the line in the first place.
But while that’s broadly true, every individual is different.
Ultimately, it’s best to choose a fund in line with your risk tolerance. Because even seasoned investors can find stock market crashes very hard to handle.
Know though that the industry default position is a 60/40 equity/bond asset allocation. That equates to the LifeStrategy 60 fund.
As you close in on your goal, you can mitigate the danger of a stock market crash by transferring from riskier funds into the less volatile LifeStrategy 40 or LifeStrategy 20 fund.
It’s definitely time to consider doing so once a big financial objective (such as retirement) lies within seven years.
Vanguard LifeStrategy performance
Compare the Vanguard LifeStrategy performance below. The graph shows you the cumulative return for every fund in the range since launch in 2011:
Source: Trustnet. Dividends reinvested. The table shows nominal annualised returns.
As a passive investing product, Vanguard LifeStrategy returns are in line with stock market performance and your bond allocation.
Over the last 11 years, you’d be happy with your choice.
Perhaps you’d be less stoked about results over the last year. But that’s not a problem confined to the LifeStrategy range.
Equity and bond markets have had a terrible 2022. This happens occasionally. It’s why investing is said to be risky. Sometimes nothing seems to work.
But given time, world markets recover. Batten down the hatches, ride out the storm, and a diversified portfolio like Vanguard LifeStrategy should deliver over longer periods.
And, as you can see above, the actual performance of the LifeStrategy funds over the past decade or so does resemble the historical illustration we looked at earlier in the piece.
Vanguard LifeStrategy 100 leads the pack, followed by 80, with LifeStrategy 20 bring up the rear.
Vanguard LifeStrategy fund performance in a recession
Where the bond-orientated funds will often show their mettle is in a crash.
Look at the plunge that happened a few months before the June 2020 line in the graph below. You’re seeing the gouge torn out of the markets by the pandemic.
Markets recovered in record speed that time due to massive government intervention.
But the crash still illustrates why bonds can be useful.
Because we can see how the usual LifeStrategy pecking order was completely reversed:
Investors anticipated the mother of all recessions, so they sold down shares. Hence the Vanguard LifeStrategy 20 performed best. Meanwhile the LifeStrategy 100 cratered over 25%.
Granted, the LifeStrategy 20 did still fall nearly 10%. But its large bond allocation acted as a counterbalance to out-of-favour equities. And it rebounded faster than the others, too.
The other LifeStrategy funds dropped progressively more, in relation to bond allocation.
It didn’t matter much in 2020. Because as I said it proved to be the shortest bear market of all time!
However the defensive qualities of bonds could have played a more useful role if the slump lasted years. That does happen.
Nothing is guaranteed
Sadly, bonds don’t always ride to the rescue. High inflation is particularly toxic for bonds and equities.
Both can plummet like Holmes and Moriarty at the Reichenbach Falls when inflation spirals.
That’s what’s happened in 2022. And it’s been bad news for the bond-heavy LifeStrategy funds:
The purple line of the LifeStrategy 100 fell furthest in February and much of March. Just as you’d expect when stock markets come under pressure.
But from April, the hierarchy inverted. Since May the funds have buckled in proportion to their bond holdings. LifeStrategy 20 has actually done worst.
This is an unusual situation, though not unprecedented. Markets are capricious. Sometimes investing reality doesn’t match expectation.
Vanguard LifeStrategy performance charts: what they don’t tell us
Performance charts contain helpful lessons. However they are a bad way to choose between funds.
It’s a hard fact for new (and indeed old) investors to accept. But it is true:
- You do not have the ability to predict which investments will outperform in the future.
- Past performance charts do not contain predictive data. This is stated in all fund literature.
- You can pay someone else to predict the future. But they will probably either overestimate their ability, or else charge you so dearly that you’re actually worse off anyway.
- In many cases they overestimate their ability and charge you dearly. This eats up your profits.
Passive investing products have surged in popularity over the past decade. That’s because the evidence is overwhelming that most people are better off with a passive strategy.
Though past fund performance is not relevant, historic asset class returns do matter.
You can expect a highly-diversified portfolio of equities to outperform bonds and bonds to outperform cash, over the long term. Otherwise, investors would not invest in riskier assets.
Equity returns are your reward for taking the risk that for some years – even decades in extreme cases – equities underperform bonds and cash.
The following three articles explain why you should ignore past performance as a variable, and be wary of anyone’s claims about investing skill:
- You have no investing edge.
- Why passive investing wins.
- Don’t study past performance.
Vanguard LifeStrategy portfolio
To check the portfolio of each Vanguard LifeStrategy fund you can go to its home page.
Here’s the full line-up.
Once you’re on your fund’s page, tap on the Portfolio Data tab.
Now you can see every individual index fund that comprises your LifeStrategy’s portfolio.
However to save you time, below we’ve plucked out Vanguard’s breakdown of the underlying asset classes held in each portfolio.
(The bond duration data is from Morningstar.)
The Vanguard LifeStrategy 100 portfolio
- 100% equities, 0% bonds
- Bond duration: No bonds, so not applicable
The Vanguard LifeStrategy 80 portfolio
- 80% equities, 20% bonds
- Bond duration: 8.92
The Vanguard LifeStrategy 60 portfolio
- 60% equities, 40% bonds
- Bond duration: 8.98
The Vanguard LifeStrategy 40 portfolio
- 40% equities, 60% bonds
- Bond duration: 9.02
The Vanguard LifeStrategy 20 portfolio
- 20% equities, 80% bonds
- Bond duration: 9.01
What are the Vanguard LifeStrategy fees?
Vanguard LifeStrategy fees range from 0.24% to 0.30% depending on the fund in question.
The Ongoing Charge Figure (OCF) of all Vanguard LifeStrategy funds is currently 0.22%.
Next we must add the (tiny) transaction costs. They vary by fund.
- LifeStrategy 100: 0.02% (transactions) + 0.22% (OCF) = 0.24% total
- LifeStrategy 80: 0.04% (transactions) + 0.22% (OCF) = 0.26% total
- LifeStrategy 60: 0.06% (transactions) + 0.22% (OCF) = 0.28% total
- LifeStrategy 40: 0.06% (transactions) + 0.22% (OCF) = 0.28% total
- LifeStrategy 20: 0.08% (transactions) + 0.22% (OCF) = 0.3% total
What does that total cost percentage mean?
Let’s say your total costs are 0.28%. Essentially, you pay Vanguard £2.80 annually to manage your fund for every £1,000 you have in it.
That’s highly competitive. You can compare it against similar funds by tracking down their OCFs and transaction costs.
Both numbers can be found in the Fees And Expenses section of each fund’s Morningstar page.
Some managers refer to the Total Expense Ratio (TER). That is broadly comparable with the OCF.
Ignore references to Annual Management Charges (AMCs). These exclude important costs and are misleading.
Best way to buy Vanguard LifeStrategy funds
You can buy and sell Vanguard LifeStrategy funds through Vanguard or through other financial platforms. See our broker comparison table.
Currently, investing directly with Vanguard is the cheapest option if you’re just starting out:
Investing in a Stocks and Shares ISA
- Use Vanguard if your fund portfolio is less than around £40,000.
- Check out Lloyds Bank Share Dealing if your fund portfolio is worth more than £40,000.
Investing in a SIPP
- Use Vanguard if your fund portfolio is less than around £125,000.
- Check out Interactive Investor if your fund portfolio is worth more than £125,000.
Simply choose your platform, set up a direct debit, and then employ your platform’s regular investment tools to automate your investing.
Vanguard LifeStrategy: the good
You get a low-cost, globally diversified, passive investment product in one simple package. It’s an off-the-shelf portfolio that’s extremely low maintenance.
Vanguard automatically rebalances your holdings daily. This helps control risk. And it saves you the time and cost of doing it yourself.
Each LifeStrategy fund’s asset allocation is clearly fixed between equities and bonds.
In contrast rival multi-asset funds typically allow asset class exposure to float over a wide range. That means you don’t really know what you’re getting.
Vanguard is FCA-authorised. The LifeStrategy funds are UK domiciled, so they benefit from the UK’s FSCS investor compensation scheme.
Vanguard LifeStrategy: the bad
The funds hold more UK equities than investing theory suggests is optimal. This skew is called ‘home bias’. It typically exists because people like holding shares in firms from their own country.
The LifeStrategy prospectus states that the UK stock market typically accounts for 25% of each fund’s equity allocation. You’d expect around 4% UK in a global index fund free of home bias.
Taken to extremes, this tendency can leave investors under diversified. But Vanguard hasn’t overdone it. It’s more of wrinkle than a rankle.
Another snag: if your fund is more than 60% invested in bonds and cash at any point during its accounting year then its distributions count as interest payments – not as dividends.
Interest payments are taxed at a higher rate than dividends. So beware if you hold LifeStrategy 20% (and potentially LifeStrategy 40%) outside of your ISA and SIPP tax shelters.
Note: this is a general issue with bond fund taxation. It’s not Vanguard-specific.
Vanguard LifeStrategy: the indifferent
LifeStrategy funds do not invest directly in other asset classes like property and gold.
However, they do hold equities with exposure to these markets (for example, mining companies). And you can add other asset class funds to your portfolio later with specialist index trackers if you want.
Multi-asset funds like LifeStrategy work by holding individual funds within a single ‘fund-of-funds’ wrapper. It is slightly cheaper to hold the underlying funds separately. With LifeStrategy you pay a small OCF premium for the convenience of buying in bulk.
That said, your overall costs may still be cheaper with an all-in-one fund. You’re not paying dealing fees for trading and rebalancing multiple funds.
Either way, the time savings alone are well worth it.
Alternatives
See how rival funds-of-funds stack up.
Read more on the best global trackers.
Vanguard LifeStrategy ETFs exist but not on the London Stock Exchange. These products are multi-asset just like their fund counterparts. Intriguingly, they are free of home bias.
You can buy the LifeStrategy ETFs if your platform enables you to trade ETFs on the German, Dutch, and Italian stock exchanges.
Some financial advisors may also be able to offer home bias-free versions of LifeStrategy. They need to access the LifeStrategy MPS Global range.
Finally, if you’re pondering the differences between the inc or acc versions, this accumulation vs income funds post should help.
Are Vanguard LifeStrategy funds good?
Vanguard LifeStrategy funds are a good investment if you need to invest money to achieve a major financial objective.
Think retirement, financial independence, and sending the kids to Uni in a decade or two.
Are they always best? No, you can always find a different investment which would have been amazing in retrospect. One year it’s crypto, the next it’s oil futures.
But absent a crystal ball, you’re best off choosing a simple, passive, diversified portfolio that captures the growth of the world’s major markets.
Vanguard LifeStrategy does that at a low cost. And you aren’t sacrificing much in the process.
The crucial decision is selecting which version best fits your financial objectives and risk tolerance.
After that you can just review your LifeStrategy fund once a year, and learn a few simple portfolio management techniques that help control your risks as you age.
Take it steady,
The Accumulator
- Also known as equities. [↩]
Comments on this entry are closed.
Hi Simple_socrates, it’s for the year. Trustnet are offering a similar number. That will be a time weighted return though, not £ weighted. If you invested in it through the course of the year then your returns will look different.
I seem to be at the “end” stage of accumulation and am now looking to move into de-accumulation. I therefore need to put together a portfolio which I will draw from over the next 20-30 years. I’ve read many many articles on passive investing and putting together a diversified portfolio based on something around a 70/30 equity/bond split whilst keeping a cash pot to cater for an inevitable bear market(s) during this period. To be honest I feel totally exasperated with it all and am wondering if I should just invest the whole pot into one of the Vanguard lifestyle funds but still keep the cash pot. This would give me a fully diversified and managed portfolio from which to draw from without me getting too involved and keeping costs to a minimal. What do you think?
Hi Chris,
There isn’t a simple answer to managing your finances in retirement. There are a lot of factors to consider. I’ve just reviewed a fantastic book that could help you with this very problem – there’s a link to a free sample of the book from here: http://monevator.com/review-living-off-your-money-by-michael-mcclung/
If that looks too complicated then a simpler solution that takes a lot of the challenges off the table is creating a minimum income floor with the remainder of your pot going into a riskier portfolio. These posts explain more:
http://monevator.com/the-most-important-goal-for-every-retiree/
http://monevator.com/secure-retirement-income/
Hi,
If I have maxed out my ISA. What is the best way to invest more into Vanguard LifeStrategy funds? I assume its just to open an account with them and the total cost should be the 22bps OCF right?
Thanks!
James
Hi James, Vanguard will also charge a 0.15% platform fee. You can find out more on your options here: http://monevator.com/compare-uk-cheapest-online-brokers/
Hi all. I am in the process of transferring half of my Isa pot(vgls) to my wife but this still means we will both still be touching the FCSC compensation limits, I’m not so much worried about Vanguard more so the platform Iweb but would like to invest further under the Isa wrapper, if you any thoughts please let me know Thanks.
Accumulator, I have recently been comparing the Vanguard funds with the Blackrock consensus funds; are you familiar with these and how do you see the comparison between the two?
Hi Matt,
I’m not a fan of the Consensus funds because the managers have a wide remit to change the asset allocation. The Consensus 85 fund can change equity exposure from anywhere between 40-85%. That’s a huge range and essentially means I don’t know what I’m buying into. I prefer the Vanguard approach so I can stay in control of my own asset allocation.
Hi,
This might be quite a simple question, but how would I find a break down of the total investment market into distinct asset classes for LifeStrategy 20-100%?
Thanks in advance!
Hi Jonathan, it’s simplest to look at an ETF or an index that covers the global market inc emerging markets:
https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf/portfolio-data
Hi,
I’m just starting out and am on the fence regarding opening a Vanguard ISA or Vanguard General Account. I’m still a student and don’t pay tax at the moment. Also, will taking a job overseas make a difference.
Thank you!
The Investor has written a great deal about regretting not investing in ISAs in his younger days: http://monevator.com/get-an-isa-life/
Vanguard don’t charge more for an ISA so there’s no reason not to.
Re: overseas move: https://www.gov.uk/individual-savings-accounts/if-you-move-abroad-or-die
Hi,
Considering that the VLS100 fund has a bias towards the UK, have you looked at the ‘Fidelity Allocator World Fund Y Acc’ fund? The fund seems to have a similar ongoing charge, invests predominantly in indexes, is less bias towards UK and also invests in property.
Cheers,
Rhod
On the topic of Vanguard: you say
“An aggressive investor prepared to bear much stock-market-related pain might pick the LifeStrategy 80% Equity Fund in the pursuit of higher expected rewards.”
If you were young, with the investment expecting to span one or perhaps several decades….is there a reason why you would not pick the 100% equity fund path?
Over longer periods, I believe equities generally outpace ‘the other things’ (bonds etc) in their portfolios….wondering why the ‘aggressive’ investor would not do that for a period of time, shuffling down perhaps after some years in?
(apols if already asked, a lot of comments to skim!!)
@MikeW — If one is very young (under 30) then I believe there’s case for starting with 100% equities, in terms of maximizing your chances of the highest returns. However that doesn’t mean any particular person *should* do it. Firstly because people’s risk tolerance is very different which means both emotional pain and potential financial losses (selling all your shares at the bottom of a bear market and missing a bounceback is a wealth killer). And secondly because just because the chances are high that 100% shares will prove long-term the better bet, that doesn’t mean they *will* prove the better bet, and most of us aren’t in a game to try to squeeze out the very best returns at the chance of doing worse, if we could get good returns with a lower chance of doing badly.
So yes, I think for some 23-year olds, say, 100% in shares for 10 years then dialing down risk might be fine. But as always, it depends.
The following article goes into the pros and cons in quite a bit of detail (a few years old so the numbers will have changed but the gist is the same).
https://monevator.com/shares-deliver-the-best-long-term-returns-so-why-invest-in-bonds/
On risk tolerance: https://monevator.com/how-to-estimate-your-risk-tolerance/
Hello,
Is it possible to get a product like the Vanguard LifeStrategy fund with a pension wrapper or within a personal pension instead of within an ISA?
Many thanks
No….Vanguard have been working on that for some time, I believe, but for some reason do not offer the ability to have a pension: https://www.vanguardinvestor.co.uk/need-help/answer/do-you-offer-a-pension-or-a-sipp
Thanks Mike for your speedy response, will continue to explore the options .
Hi,
I decided to invest in the LS80 fund, however, as I read more about finance (i’m a late starter really), i hadn’t cottoned on that it has such a UK bias. Some people say that suits them and some say not but don’t really explain why.
What questions should I be asking myself to decide if it suits me or not?
Hi Jumble, here’s the counter to UK bias:
https://monevator.com/why-a-total-world-equity-index-tracker-is-the-only-index-fund-you-need/
The author of that piece, Lars Kroijer, has written a great book on simple investing and the advantages of a global portfolio. The book is linked from the post.
@ Daniel – you can get the LifeStrategy funds in a SIPP wrapper through many different platforms (just not Vanguard themselves yet). Most of the vendors here will provide LifeStrategy options: https://monevator.com/compare-uk-cheapest-online-brokers/
Brilliant thanks
Hi,
Me again. I bought Lars book and he is not keen on home bias for sure but I am unclear which tracker he is suggesting for equities – he mentions VT but i’m not sure that’s really one for the UK (not offered by HL for example)?
I’d be interested if anyone has followed his strategy and which ETF(s) they chose (and why).
Thanks.
@Jumble — Hi, this article and the comments below will probably help you:
https://monevator.com/how-to-chooose-total-world-equity-trackers/
Hi. Steve B here.
R.e. Life strategy funds. Can the overall costs and fees differ depending on the way you fund your Vangard ISA account. For example paying an initial £20,000 lump sum as opposed to smaller lump sums or setting up a monthly direct debit.
With regards
As a now US resident, i have some savings still in the UK. Post brexit the gbp:usd is very poor and no signs of recovery have led me leave them in the UK. I am now considering investing them in a vanguard index fund in the UK. Would CGT be due to be paid on these on an annual basis? Would US taxes also be due? Unfortunately as UK non resident an ISA is not an option. What would be the equivalent of VTSAX in the UK?
@everyone — As you can see we’ve updated the (10 year old — eek!) post above, so some of these previous comments (indeed all before comment #224) may reference aspects of the original version of the article, which came out when the LifeStrategy funds had only recently launched.
I’m a big fan of LifeStrategy. I don’t have access in my pension but the 80 version is the bulk of my ISA. This is a good article that is well worth keeping up to date. If you think of all the people who believe investing is too much work or are too hesitant to invest beyond cash, just being invested in one of the LifeStrategy funds would transform their financial lives. This is a great read for anyone in that situation.
I wish there was a LifeStrategy 0 version, perhaps with some short term bonds and commodities to go with the other bond mix. That would enhance the range further I feel, but what do I know. I’m not as big a fan of the 100 because of the UK bias, and feel the biggest win is the automatic rebalancing that obviously the 100 doesn’t benefit from. I think I’d invest in their All-Cap fund if I wanted a 100% equity global tracker. But the 20 through 80 versions are all brilliant depending on someone’s goals.
Hi – Just wondered why you put a savings limit on the LS funds. I have a ISA and currently have well over your £40K “limit” in a LS fund. Also what do you see as the benefits of contacting Lloyds Bank Share Dealing? Would they offer something similar to the LS funds?
Definitely deserved a repost TA /TI.
As you point out they’re a lovely simple way to target save. However one of those targets might be the deposit for a house but that highlights the lack of a LISA and its 25% boost in the Vanguard offer. So sorry V but get your act together in the UK or it’s off to AJ Bell we go (and we can also put a small percentage into gold there too)…. unless Monevatorians have heard differently?
Also the overweighting the UK seems to be based on the assumption that UK investors are as hard to pry away from local markets as their US counterparts. I don’t think that’s correct especially on this site even with the forecast or should that be ‘GUESSED AT’ Great Rotation.
It’s a real pity about the uk percentage in these funds which is the reason I don’t invest in them, instead I have to flaf around with their separate funds – lower overall ocfs, but would prefer to pay higher not to juggle. Maybe someone from the vanguard product team will stumble across this article and think about adding some different funds with the proper global percentages? please?
Great article. One other indifferent point is that I have a significant unwrapped position in these funds having utilised all other alternatives and found the fund was not ideal to harvest CGT annual gains given (a) lack of direct alternatives (b) fund not an etf so time to sell buy. The main issue with these funds as you highlight is the overweighting to the UK, which really needs to be removed I feel. That said I actually chose this fund as I liked the UK low valuation and thought the overweight would feed the active itch. So it served a purpose.
All my (older) relatives now hold these funds, as they’re an excellent veichle for those who do not want anything to do with investing. As Europeans we are lucky in that Vanguard recently launched the UCITIS versions with no home-bias at all – they hold only VWRL and Global Agg, and they are available both in the distributing and accumulating options.
@Luke — You had me at “As Europeans…” 😉
@Chris Moore
I think you’ll find it’s about the platform charges of the respective services. Over a certain portfolio size the platform charges are more economical. Some platforms are fixed fee, some are a percentage of your total portfolio.
I noticed Vanguard have ETF versions of their LifeStrategy funds traded in Europe. Given Brexit I was not sure of the implications of holding these now or for that matter anything else held on a European exchange.
Enjoyed the article. Perhaps you could do something on tracker holdings/ platforms for drawdown sipps. I’m close to transferring out of my 2 x personal pensions, and have about the same amount in ISA savings. Also, I have a current small Pub Sec pension paying out now. I’m a year away from the State Pension, so it’s big decision time in the next few months. Some thoughts might be helpful to others in my position.
I agree KTK, more drawdown info would be great. I really like the Lifestrategy option in accumulation, but in the drawdown phase I would go for a global equity index fund and U.K. gov bond fund separately so that I can take income from selling the best performing asset class in the annual rebalancing process. Selling units of Lifestrategy could inevitably lead to selling equity or bonds when the market is down.
@ KTK – I don’t think there’s much need to change anything in drawdown specifically, as opposed to say the last 5 years of accumulation where you’re liable to have already derisked.
Here’s my thoughts on my personal decumulation portfolio:
https://monevator.com/decumulation-a-real-life-plan/
Naturally, you might want to switch to income versions of a fund instead of accumulation depending on how you want to receive dividends.
Platform-wise, that’s a really good point. There may well be some sweetspot on drawdown charges plus flat-rate fee. I’ll look into that.
@ Chris – once you reach that threshold or thereabouts then you may well be better off with a flat-fee platform rather than percentage fee.
Most flat-fee platforms will stock Vanguard LifeStrategy funds.
Note, the threshold will vary for you personally because it depends on how much you trade. Here’s how to work it out for you and whether the savings are worth the switch:
https://monevator.com/work-out-cheapest-platform/
@ Never give up – yeah, agreed, I’d likely be in the Global All-Cap fund too for 100% equities. I can understand someone in drawdown or near it preferring the home bias though to reduce currency risk. Moreover, the UK market is more cheaply valued than most, so who knows, UK biased funds could easily end up over-performing.
@ Luke – yes, I’ve got some of my relatives into it too. They’ve done well and the convenience takes all the hassle away. My guess is they’d never rebalance if left to their own devices so it’s great that this fund takes care of that.
@ John T – it doesn’t look like Brexit changed anything. Check out this – ahem – wildly popular article:
https://monevator.com/irish-etfs-post-brexit-cdi-switch/
@TA (#236):
IIRC, Vanguard LS funds are not currency hedged.
Perhaps a “homebrewed” combo of VWRL plus currency hedged bond fund of choice [in ratio to suit] might offer something albeit at the cost of manual re-balancing.
The bond funds in LS are currency hedged as I recall, not the equity holdings though. I hold LS80 as a cheap diversified fund, happy with a bit if home bias there. I also hold HSBC Global Strategy cautious which is 20% equities, no home bias, hedged bond holdings. Unfortunately I am getting drawn in to all the market chatter about US top capitalisation stocks being over valued and bonds being potential victims of funding tightening, inflation and interest rate rises. The passive funds clearly follow the market and have high a high weighting in US tech stocks and the HSBC cautious fund is 75% bonds. I wonder if ‘cautious’ really is cautious at the moment.
@ MrOptimistic (#239):
You are correct – a quick check seems to show all non-UK bonds in Vanguard LS funds are hedged to GBP. My bad.
VWRL combo could remove UK home bias if required.
Re: “cautious” – I know what you mean.
@TA #237
“I can understand someone in drawdown or near it preferring the home bias though to reduce currency risk”.
Not sure whether home bias actually reduces currency risk that much.
Using some numbers I remember reading, though likely aged now:
– FTSE 100 = c. 80% of FTSE All Share and 2/3 of revenue non-GBP derived = 53%
– FTSE 250 = c. 17% of the FTSE All Share and 35% of revenue non-GBP derived = 6%.
So total of say 59% of FTSE All Share not exposed to GBP. I’m sure someone else has more recent numbers but point remains.
@TA, a comparison of SIPP platforms for drawdown would be excellent. When we needed on a few years ago (to transfer wife’s DC pension fund at retirement, since that would only buy an annuity) we had to do it the hard way though Monevator’s table was a helpful starting point.
It turned out to my surprise that Hargreaves Lansdown came top, I had always thought of them as expensive but they don’t charge extra for drawdown. Also their percentage fee is only charged on investments, and we were cautious and kept the first 3 years drawdown in cash. At the time there was hope that they would allow investment into Building Society fixed term bonds within their SIPP, which would have been ideal for us, but that hasn’t happened.
While the transfer was a bit drawn out (probably due to the pension managers) they have been totally efficient in paying out.
@TonyB (#236):
I tend to agree as I cannot see how Vanguard LS Funds and McClung’s Prime Harvesting for deaccumulation are compatible. Other drawdown approaches are, of course, available.
@Jonathan B (#242):
Could you possibly say a bit more about “they have been totally efficient in paying out”. For example, are you:
a) using regular (e.g. monthly, quarterly, etc) withdrawals or are you using an ad-hoc withdrawals approach;
b) using Flexible Drawdown with previously crystalised funds, or UFPLS, or some form of phased retirement, or ….;
c) do your payouts involve selling units of just harvesting of cash;
d) roughly how many payouts have you made;
Also, what have been the typical timescales from request to cash in the bank and how is the payroll (tax deduction) aspects – e.g. do you always overpay tax and have to claim it back from HMRC?
Thanks for any info you are happy to share on this.
@Al Cam.
(a) she takes monthly “pay” designed to leave her just within the tax threshold (we also do a bit of drawdown of savings accounts as necessary to meet spending, but that was the plan). The first month she was on emergency tax, but after a couple of months that was sorted out and reimbursed and thereafter the tax code was applied. There was one ad hoc payment requested in her first year, simply because the transfer delay meant she missed the intended first month and we wanted to use up the tax band for the year – that again was taxed and later reimbursed.
(b) regular drawdown, she crystallised at the start and took the 25% PCLS. I am pretty sure UFPLS were an option but no experience there.
(c) at the moment it is taken from the cash pile, but buying funds wasn’t an issue and I imagine selling will be similar. Will be looking at that in a few months time.
(d) now year 3, so probably 25 payments to date. They send “pay slips” each time and a P60 at year end.
I can’t now remember the wait time for that ad hoc payment, it was probably a couple of weeks but we may have specified the date to pay it anyway.
@Jonathan B (#245):
Thanks for the additional information – very interesting and I am glad that it is working well for you.
The reason I asked is given at:
https://monevator.com/weekend-reading-diversified-reading/#comment-1284278 and in the subsequent chatter with Naeclue. Some further details are also given in the referenced chats with Mike at 7 Circles.
FWIW, I have drawn down more than the annual tax allowance for several years now, as, I think, has Mike. He is using UFPLS and I am using Flexible Drawdown, and, I understand, we are both using ad-hoc withdrawals. Mike is with HL, I am not.
It would be interesting to hear how things go once you start selling Units.
I am beginning to suspect that perhaps the regular withdrawals approach just works better (i.e. with less delays, etc) for some reason.
Maybe this is something for MONEVATOR to explore. In any case, thanks again.
@Al Cam, yes I recall that Monevator link to the article about divesting monthly or annually in drawdown. I suspect once the initial cash sum is used we will divest investments manually at intervals and keep a cash buffer for monthly payments, even though that isn’t optimal, but we will have to model things in due course. My wife will get some small residual DB pensions next year, and the plan is to reduce drawdown to keep within the tax limit; quite what the numbers look like will depend on knowing the actual values of those pensions.
Monthly payments from HL worked just like a salary when working: the overpayment of tax when starting was refunded through the PAYE computer. I can’t see why it would be different taking more than the tax limit, though I do see there might be issues for someone who didn’t set up regular identical payments.
(Apologies for those reading who feel there is a drift off-topic; as a mild excuse the investments in that SIPP are indeed in LifeStrategy).
@Jonathan B:
Re: “even though that isn’t optimal”:
I suspect that if you involve a cash buffer and delay the annual withdrawal until nearer the end of the year the result may not be so clear cut. Waiting until nearer the end of the tax year may mean you have a better handle on that years overall tax situation. But, as usual, YMMV.
Thanks for refreshing a very interesting article. After receiving quite a significant windfall recently I’m considering the lifestyle 20% option for a short to medium term investment. Could anyone confirm how much protection is provided, does the FCFs limit apply or is it outside the scope of this?
Thanks DD
@AlCam (243) – Thats a good point about VGLS and decumulation strategies, and one for which the penny dropped only recently for me. I finally got round to reading McClung and also delved into Big ERNs site and clearly you can’t implement the recommendations if you’re holding VGLS as you don’t have the necessary control to sell the constituent bonds and equities in the proportions you may want.
If you’ve got a big slug of VGLS in GIAs then having to convert to the equivalent bond and equity funds to carry out your decumulation strategy could be a CGT headache?
Worth thinking about well ahead of time!
This slightly off topic, but if one had the chance to increase one’s salary sacrifice, or increase the monthly amount invested into an existing SIPP, which would you do? My sipp is with vanguard (pretty low charges), and holds all previous employer pensions. The employer scheme is with Scottish Widows and the charges aren’t terrible (<1% if memory serves).
Does the benefit of reduced income tax on the remainder mean that the salary sacrifice trumps the SIPP?
This article has helped me to be less concerned about the Lifestrategy home bias, which was another of my background worries!
@Steven #251
It depends on your situation.
With salary sacrifice, workplace vs SIPP you’re saving the employee NI: 2% in general for a higher / additional rate tax payer and 12% for a basic rate tax payer.
Your employer may also pass on some / all of the 13.8% employer’s NI as additional pension contributions.
So for me, all I’d get is 2% extra, not worth it in my opinion with “time out of the market” risk as part of a transfer from workplace -> SIPP.
However, my wife gets an extra 25.8%, meaning it’s worth paying more into workplace pensions and then do occasional partial transfers from the workplace pension to SIPP.
So in short, run some numbers and decide what’s worth it for you.
@Genghis:
Interesting that you mention “time out of the market” in your considerations.
With a 2% NI ‘bonus’, I assume you must be [at least] a 40% tax payer.
Is it not the case that with a company scheme the tax relief at marginal rate is received [and invested] at source whereas with a SIPP only basic rate is received at source – and the difference to higher rate tax recovered later. Thus, more money may not be in the market for longer going the SIPP route.
What do you reckon?
Another thing worth noting is that not all employer schemes that salary sacrifice base contributions also salary sacrifice any additional contributions.
@Al Cam. Yes.
Good points.
To expand a little, a contribution into a workplace pension needs to be sent within 19 days of payday and as you say is all sent gross.
Paying into a SIPP gets you the basic rate relief as an additional contribution something like six weeks after your own (net) contribution.
If you are a higher or additional rate tax payer, you then have to make a claim to HMRC to be refunded the difference between your marginal rate and the basic rate. If you’re a higher rate tax payer and don’t complete self assessment, this can be done through your tax code so you could effectively get the relief within a month or two. If you’re a higher rate tax payer and complete self assessment or an additional rate payer, then this refund needs to be done as part of self assessment submission and could therefore take some time to actually come through.
@ Genghis (#254):
For the above to work as described for an employer/workplace scheme, I understand that the employer must have a net pay agreement with HMRC.
And, into a SIPP: for a HR tax payer subject to SA, an average delay of 6 months plus to get back the difference between HR and basic tax. And 6 weeks to get the basic rate tax back too.
Sorry we are way off topic now – but I suspect most folks overlook this issue.
Have followed your excellent website for many years – thank you for your contributions over those many years 🙂 Herewith my first post!
I am now in de-accumulation mode with a home brew portfolio of mainly Vanguard funds, gilts and cash.
I like the idea of moving to zero maintenance via Lifestrategy but whilst trying to avoid market timing, am slightly wary of what has been happening with the Bond Market in the current climate for reasons that may or may not be valid.
Consequently my 70:30 ( with additional modest additional floor ) has the 30 mainly in cash..
Wondering if you or any readers have similar thoughts on having the fixed element part of Lifestrategy largely in Bonds/gilts etc in current times.
If so, other that moving to 100% lifestrategy with separate fixed income pot , wondering if anyone has any other ideas?
Thanks for any ideas
@Genghis
Thanks, as I’m not higher bracket earner it probably makes more sense to sacrifice more rather than put more into the personal SIPP. I keep on thinking that there’s something I’m missing, but maybe it’s not always as mind-bendingly complicated as I assume!
@ Ex Moorgate Man – High quality government bonds are still an important part of asset allocation.
Nothing else provides that mix of low volatility and the ability to cushion losses in a crisis.
It’s complicated though and I don’t blame you for being hesitant given the circumstances.
I’m going to tackle this in an upcoming post but:
there aren’t good alternatives
cash is fine but doesn’t benefit from the flight-to-quality effect in a crisis
rising interest rates mean better yields for bond holders over time
government bond losses are minor blips in comparison to stock market crashes: https://monevator.com/bond-prices/
It makes sense to steer clear of long bonds
@Steven. Everything else being equal I can’t see why you would not take maximum advantage of the salary sacrifice scheme. I presume your employer matches up to a level but no more so your additional contributions do not draw in any further employer contribution. You must, of course, maximise the employer contribution.
In the scheme I was in my employer kicked back the employer NI saving, an extra 13.8% irrespective of salary.
From what I recall for a 20% tax payer salary sacrifice saved ( or more properly postponed) 20% tax plus saved 12% employee NI. If the employer gives you his NI saving that’s another 13.8%. If you take the salary and put it in a sipp I reckon you are losing the 12% employee NI saving. So to me it looks like 32% v 20%.
@MrOptimistic:
Re: “In the scheme I was in my employer kicked back the employer NI saving, an extra 13.8% irrespective of salary.”
Very nice indeed!!
I’m struggling to see why Halifax share dealing only becomes a better platform than Vanguard at a fund value of £170k. Could someone explain this to me please? Thank you in advance.
@ ex moorgate man. I have been in a similar place to you as I want to transfer my whole portfolio to Vanguard Lifestrategy by the time I am in drawdown in 5-10 years. For me the problem was partly my longstanding home bias so I have been wary of moving from FTSE all share (underperformed last 5 years) to a strong US (over performed) weighting. The bond issue you mention is a problem too. (Though note the duration of LS bond portfolios is around 9 years so not too much of a problem). The answer to both issues is to choose a target date of say 3,5 or 10 years and move a proportion of your portfolio across each 6 months or year according to the time frame you choose. So if you choose 5 years move say 10% of the starting amount every 6 months. It’s anxiety free, means you don’t move everything at a bad time and gets you to where you want to be in the end.
@ NC – it’s because Halifax’s SIPP platform charge plus dealing fees need to be overcome vs Vanguard’s 0.15% platform charge and zero dealing fees. I assume 12 buys (at Halifax’s regular investor rate) and 4 sells per year. Halifax becomes cheaper than Vanguard at approx the £169-170K threshold. Results will vary depending on how many trades you actually make. See this piece to personalise your threshold:
https://monevator.com/work-out-cheapest-platform/
Thank you, that makes sense now with the assumed buys/sells. I think I see why 12 buys are assumed (monthly pay-ins to match salary frequency) but why 4 sells? Wouldn’t it be unusual to sell out of Lifestrategy funds so often?
That’s an excellent point, NC. 4 sells is an artefact from the Monevator broker table where I assume more complex portfolios with multiple funds being manually rebalanced:
https://monevator.com/compare-uk-cheapest-online-brokers/
Take those costs out and the threshold for LifeStrategy will be lower for switching to flat-rate brokers assuming buys are at £1.50 type regular investor fee rates, and not standard rates.
I’ll update the piece when I get a mo to reflect that. Thank you for pointing out.
Hi accumulator – brilliant site and help
I’m 48 and looking at using my maximum ISA allowance of 20k per year (£1660 a month )and I’m intending to invest it in to the vanguard 60/40 life strategy
4 questions –
1) – are any withdrawals from my investment totally tax free if I keep under the uk max isa allowance
2) – what happens when you exceed £85000 ? Is it wise to open different ISAs with different licensed companies to protect all of your money or are there ways of keeping it simple and just continue my investment in to vanguard
3) – can my wife mirror what I’m doing too in her own isa
4) – what would you recommend I use for my 60/40 ? A uk fund or global … and is there a choice of bond you recommend ?
I’m looking to retire in 12 years, so that’s my plan
Hope this makes sense
Regards
AdeG
@ AdeG
1) you can only pay in £20k pa to an ISA. There are no restrictions on withdrawal. No income tax on dividends and no capital gains tax on sale. (But still part of estate for IHT).
2) it’s about getting a balance in my opinion. Have money with other brokers and fund providers for diversification but don’t sweat too much on the £85k. If you stick with a big name broker where unlikely to be frauds going on, the assets you own still remain. You may be asked to contribute to any administrator costs but should form part of the £85k.
Think about moving to a fixed fee broker once assets get above say £60k.
3) Yes, or use a different broker / fund provider for that diversification. It’s what we do.
4) you won’t find recommendations here. Only financial education. If you look at multiple articles on here, especially those of Kroijer, a global equity fund is best. Kroijer then argues a bond fund of home bonds, assuming a stable country. Others a global bond fund hedged to the pound. Look for articles explaining these options.
@ Ade G – I agree with Genghis. It’s worth adding you don’t need to worry about the bond side with a Vanguard LifeStrategy 60 as it’s 40% in bonds and they do the rebalancing for you. The bond allocation includes UK bonds but also other high-quality bonds from other advanced countries hedged back to the £. In other words, it’s all best practice stuff for a passive investor.
Like Genghis, I don’t sweat the £85K limit as the chance of calamity is very small. I am diversified across two platforms though, just in case. That’s worth doing because if a platform did go bust then it would take a while to clean up the mess and unfreeze your assets. Not so much of an issue in accumulation but definitely not a situation you’d want to risk when you need to sell down.
That’s the consensus approach taken by most people here I’d say, though it’d make sense to spread the (small) risk further with a much larger portfolio.
Completely agree about mirroring – I only wish I’d done that!
@TA
This popped up on my google feed this morning – whatever you’ve done with your search algorithm seems to be working. 9 days late isn’t too bad!
Keep up the great work!
Haha. Thanks Fremantle. Google knows you well 😉
Many thanks Genghis and Accumulator for your help and sharing your knowledge –
Couple of questions regarding your answers –
Genghis – you said to look at moving to a fixed fee broker when pot exceeds £60k – any particular reason?
Genghis/accumulator – diversification – use different fund providers/ platforms? Could you recommended or highlight any please , and then I can do my research – maybe I can use vanguard for mine and a recommended on for my wife’s
Again – very kind of you to share you knowledge and experience both
AdeG
@AdeG Happy to help.
Some brokers have “ad valorem” fee structures – the more you have the more you pay. Vanguard does this up to a £250k portfolio equalling £375pa max in platform fees you might pay.
This is across all accounts.
For an ISA only portfolio it works out quite expensive in my opinion. Eg on Vanguard Investor a £250k ISA portfolio is £375, on iWeb it’s zero ongoing (and if you only trade once a year it’ll be a fiver).
For a SIPP + ISA, I think Vanguard investor works out a bit more reasonable vs the competition once you add everything up.
£50-60k or so is the boundary at which it’s worth considering fixed fee brokers. Examples include iWeb (now a £100 joining fee and £5 a trade for ISA accounts) or ii (£10 a month for ISA + GIA and another £10 a month for a SIPP).
Have a a look at the Monevator broker table and see if it’s worth it for you given the accounts (and amounts) that you have.
Genghis – again, thank you very much for the pointers and the informative response
Atb
AdeG
Hi Genghis,
Couple more questions – sorry !
You mention about the ISA only portfolio and that IWEB would work out cheaper and you also mention the fixed fee >60k switch and potentially using / looking at iWeb/ii …. but do these alternatives (iWeb/Ii) do proven/similar offerings – IE, like the vanguard 60/40 life strategy fund managed share/bond thing or allow you to still use the 60/40 vanguard LS fund managed accounts through them?!
I really want to keep it simple!
Again thanks for your time
AdeG
@AgeG. Have a look on the respective broker websites. They should both offer Lifestrategy 60. This means you should then be able to do an in-specie ISA transfer.
Brilliant !! Many thanks
Excellent article, any chance you can cover how and when dividends are paid on accumulating (annually ?) and income versions of the Lifestrategy funds ?
Let’s not forget how Bonds tanked more than equities (at the same time!) recently and have never recovered. Better and cheaper to just hold a global equity ETF with a balanced holding of cash and adjusting when the delta hits 5% (or whatever you feel comfortable with).
@Chris — Hi! You write:
I would rather put it as “alternatively” rather than “better” to do as you suggest. There’s a wide range of investors out there, and a wide range of outcomes.
Personally I was not a fan of bonds in the near-zero rate interest and almost always held none. As an active investor this was an easy decision to make though — dwarfed by my being right or wrong about stock picks etc. For passive investors, it was more difficult to step away from long records of data showing the benefits of lower volatility and still acceptable returns from a mixed equity/bond portfolio.
What’s more, calls that bonds might crash were pervasive from 2010-2020, without any such crash forthcoming. Quite the opposite.
Of course now it all looks very obvious but that’s the nature of financial markets and hindsight bias.
So where are we now? Well even Vanguard’s longer-duration UK government bond fund is yielding about 4.5%, compared to 0% before the recent crash. In other words, it’s primed to deliver an acceptable return in most central scenarios, with upside if inflation and eventually rates subside.
Of course if we see persistently higher inflation for many years then all bets are off and you’d rather not hold bonds. Cash won’t be great either, of course, though perhaps a marginally better hold.
My point is we need to be careful to evaluate things as they are now, and are likely to be over the next 5-10 years, not how things *were* and what has *happened*.
Cheers!
“During the time periods of hyperinflation in the 1970s and moderately high inflation in the 1950s and 1990s, correlation between stocks and bonds was mostly positive for a total of almost 40 years, peaking in 1997 but remaining positive until the early 2000s. From then on, correlation turned sharply negative. The negative correlation regime that started in the 2000s lasted over 20 years until 2022. The correlation flipped sharply from negative to positive in March 2022. How long this positive correlation regime will last and how will it evolve from here are important questions to address.” https://www.franklintempleton.co.uk/articles/2023/brandywine-global/deconstructing-the-dynamic-duo-of-stocks-and-bonds
Also: “The correlation of equity and bond returns” https://www.bis.org/publ/qtrpdf/r_qt2312v.htm#:~:text=Amid%20a%20generalised%20increase%20in,from%20negative%20to%20increasingly%20positive.
“Wrinkle not a Rankle ? Concerning the home bias set up. I find it difficult to understand how it could be termed as such when home bias is 5 times heavier (25% allocated over 5% market share)seems massive to my uneducated understanding.could I have a brief explanation why Vanguard haven’t overdone the home bias and its wrinkle not a rankle. Thanks
Ditto on the recent comment concerning why Vanguard UK equity bias is so extraordinarily high within LifeStrategy.
With the exodus in the LSE ongoing this must be reviewed.
@all — David writes:
From memory, the justification is dampening currency risk and (perhaps?) aligning a UK retirees’ fortunes with that of UK PLC more broadly. Though I definitely await correction on that, and haven’t Googled around for Vanguard’s official position.
However what I really dropped in to comment on was your second line, about reviewing the overweight in light of the LSE’s travails.
This is a very interesting point. My antipathy for what Brexit has done to the LSE’s (/UK’s) fortunes is well-documented on this site. While the 2016 vote is far from the only reason why the crown is beginning to slip from London’s head, it’s to me the key factor. The UK capital’s proximity and ‘gateway’ status to the EU allowed us to punch above our weight for decades. Now that’s been thrown away.
With all that said, I’m not sure it makes sense to review a position because it’s going badly? If Vanguard had a good reason (if…) for the large share of UK stocks, then selling because they’ve done poorly is consistent with a money-losing strategy of chasing winners, versus a passive position of accepting ebbs and flows across your various assets, no?
On the other hand, I note you cite the company exodus from London (relistings and takeovers, for those not following) rather that actual returns achieved. And that is indeed a more justifiable reason for a rethink. Especially as it seems likely some kind of selection bias is involved in that exodus, which could conceivably be gradually making the London market even less fundamentally attractive.
It’s an interesting question for sure. Was it ever justified — and even if so, is it justified now?
I don’t have the answer, just thinking out loud.
From memory, the only reason for the U.K. overweighting was a marketing driven decision, to make the fund more attractive to the U.K. audience based on the historical desire of U.K. investors to tilt heavily towards the domestic market. I’m not sure this bias still exists…
Reasonably sure that Vanguard admitted that a UK audience expected home bias so they provided it.
You can use one of their other global trackers if you want to eliminate it (but not a multi-asset fund).
Dampening currency risk is a fair argument for near retirees / retirees – I expect you’re right that Vanguard put this case forward at some point but memory hazy.
Various investment firms that provide expected returns data have frequently posted quite encouraging figures for the UK based on its current valuation. And it’s consistently underperformed for well over a decade. Still, you’ll be in the clover if Value equities makes a come back.
@Toby B. @Accumulator — Fair enough, and interesting in itself that Vanguard would bend ‘best practice’ to the whims of the British public.
(Hard to imagine many customers of this sort of fund look so deeply under the hood? Perhaps it was targeting advisors? But of course I’m sure it did its research.)
One interesting thing that came out from all the noise about the touted British ISA was the platforms sharing the vast amount of home bias they already saw in customers’ accounts.
AJ Bell for example claimed 50% of its customers’ money already went into British assets:
https://www.trustnet.com/news/13407456/british-isa-is-a-good-start-but-not-enough-to-boost-flagging-uk-markets-experts-warn
By this light the Vanguard Target Retirement fund would be ‘underweight’, in a sense 😉
Obviously I know that’s not at all what underweight means but you take my point. As I said earlier up the thread, clever and informed Monevator readers can run rings around a product like this. But most savers for retirement aren’t both clever and informed, and often as not and not to throw shade they’re neither.
As such, I repeat again I think it and its ilk are usefully filling a role. 🙂
How does investing solely in a LifeStrategy fund of funds compare to investing solely in a cheap world equity market index tracker?
@ Russ – there’s not much between a 100% LifeStrategy fund and a World equity tracker. World equity trackers typically allocate more towards the US than LifeStrategy. The US market has dominated for over a decade now, so that’s handed world trackers an advantage. However, it’s impossible to predict whether US dominance will continue.
Potentially more durable: the most competitive world trackers are considerably cheaper now than LifeStrategy funds:
https://monevator.com/best-global-tracker-funds/