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Vanguard LifeStrategy funds turn passive investing catatonic

There is plenty of evidence to suggest that investors are into self-harm: taking wrong-headed decisions that tear chunks out of the returns they might have earned if they weren’t so busy chasing performance.

So how good would it be to own a diversified portfolio that takes most of the decision-making out of your hands, without diverting cash into the pocket of some shark-eyed advisor?

Enter the Vanguard LifeStrategy funds. Each fund is a passive investing wrapper that contains a selection of Vanguard’s low-cost index funds.

Buy an instant portfolio with a Vanguard LifeStrategy fund

With each LifeStrategy fund you get:

  • An off-the-shelf portfolio that’s ridiculously low maintenance.
  • A way to drip-feed low monthly contributions into multiple Vanguard funds (at last!)

The funds are categorised according to their equity tilt:

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%

The headline equity allocation is a rough-and-ready indication of how risky a ride each fund may deliver in the future.

  • 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.
  • A more risk-shy individual would be down in 20% territory. Most of their assets would be in less volatile bonds and they would accept lower expected returns over the long-term as the trade-off.

A six pack of funds

An individual LifeStrategy fund is essentially a bumper pack of Vanguard index funds that break down the total investment market into distinct asset classes.

For example, it works like this for the LifeStrategy 60% Equity fund:

Sub-fund Allocation
UK Government Bond Index 18.6%
UK Investment Grade Bond Index 13.3%
UK Inflation-linked Gilt Index 8.1%
UK Equity Index 21%
FTSE Developed World ex-UK Index 33.6%
MSCI Emerging Markets Stock Index 5.4%

The bond allocation is 40%, a figure that’s assumed almost default status for DIY investors with a 10-year plus time horizon:

  • Almost half that 40% bond allocation is taken by an intermediate UK Gilt fund that blends short-term, medium-term and long-term government bonds for an average duration of 9.3.
  • The 13.3% allocation to corporate bonds is pretty chunky, and can be expected to offer a greater return in exchange for more risk than if you were entirely in gilts.
  • To round off the bond piece, there’s 8.1% in inflation-linked gilts.

The remaining 60% of your assets is split among various equity sub-funds:

  • The UK equity index tracked is the FTSE All-Share. A 21% allocation provides the home bias that many investors instinctively reach for to insulate against currency risk.
  • The FTSE Developed World ex-UK index is dominated by large cap stocks in the US, Europe, Japan and the developed Pacific Rim (mostly Australia). There’s 33.6% in there.

(Semi) technically speaking, to provide a sort of jangling set of master keys Vanguard has blended together the various FTSE and MSCI indices that govern these sub-funds to create its own so-called LifeStrategy indices. The other LifeStrategy funds maintain proportionally similar holdings between the sub-funds that compose the bond and equity asset allocations, but vary the total bond versus equity mix to juggle risk versus reward.

In broad terms, each LifeStrategy fund captures the main benefits of a globally diversified portfolio, although they are entirely missing refinements such as commodities, property, and small-cap and value shares.

Of course, that’s not to say you can’t pick up those asset classes elsewhere for yourself once the LifeStrategy fund has got you off to a good start.

Cost control

Unlike at Tesco, Vanguard charge you more for buying in bulk. The annual management charge (AMC) is an average of the underlying funds plus an administrative top-up.

The quoted AMC of the LifeStrategy 60% fund is 0.31%1. That compares to a weighted average TER of 0.23%, if you held the component funds as separates.

But the difference is not a whole hill of beans in the long run, even though I’m obsessed with cutting costs like an axe-wielding Tory Minister.

You’ll also pay an upfront cost called a dilution levy. For once, this is a good cost as it’s designed to penalise market-timers switching in and out of funds like manic high-frequency traders. The dilution levy is meant to cover the transaction fees incurred by trading, and is paid back into the fund for the benefit of the buy-and-holders.

The biggest hurdle for retail investors using Vanguard funds has always been dealing fees that play havoc with small, drip-fed contributions. But the LifeStrategy route elegantly side-steps the problem by enabling you to invest in an entire Vanguard portfolio for just one dealing fee.

If you buy using Alliance Trust’s regular investing scheme, you’ll only pay a dealing fee of £1.50. That amounts to an acceptable 0.5% off a £300 monthly contribution.

The big win

For my money, the best thing about the Vanguard LifeStrategy funds is that they minimise the input of hot-headed humans.

Whether directing the flow of new monthly contributions or rebalancing the portfolio, there’s always a chance that our febrile brains can muck things up.

How many times have I hankered over gold as it’s frothed and bubbled during the last 12 months? Equally, it’s not easy to make yourself sell down an over-performing asset just to fit in with your pesky asset allocation.

These LifeStrategy funds provide a ready solution for meddlers. Just set up the direct debit and forget about it. The money flows into the predetermined allocations like water into irrigation channels. Rebalancing happens without you needing to lift a finger and so you’ve got built-in risk control that offers some measure of protection against the markets and yourself.

Passive investors often style themselves as lazy investors and you’ll be hard-pressed to find a lower maintenance option than this at the cost.

I personally don’t want to give up that level of control. I’ve enjoyed the process of working out my own asset allocation, researching my fund choices and tending to my investments. The act of rebalancing keeps me in touch with my portfolio and the market mechanisms that affect it. If I was more hands off I fear I’d lose sight of what I was doing it all for.

But for many people investing is about as much fun as slopping out. So if you want to take the pain away, then take a look at the  Vanguard LifeStrategy funds.

Take it steady,

The Accumulator

  1. The fund doesn’t have a TER yet as it’s been operating for less than 12 months. However Vanguard’s TER and AMC are usually one and the same. []

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{ 223 comments… add one }
  • 99 Chris B March 24, 2014, 8:09 pm

    Hi Dawn,

    I have £5700 in a stocks ISA that I will transfer to whoever I choose to go with, I still want to take a couple weeks to decide to be honest. I will put in £15k into chosen fund/funds in the new tax year and the following year 15k which I will put in a normal shares account will be transferred hopefully with gains over to the ISA. I will do this again the following year with the other £4300 until it is all in the ISA wrapper.

    I will leave £30000 in cash for quick access and because I don’t like the idea of having all my money in stocks. Just the majority.

    I am tempted to put 75% of my money into vanguard life strategy 80% accumulation and 25% into a couple of active funds (jupeter strategic bond fund, artemis income possibly). The high dividend rate and good history is tempting me. I know most active funds fail to compete in the long run but some funds do do well. That will be my riskier shares perhaps. I still want to stick to funds though.

    I am still reading a couple of books before I fully decide what to do. But financial independence in 13 years is my target. £900 a month at today’s money will pay all my bills, outgoings and give me a little to spend each week. I however still intend on working but the freedom of not needing to work will allow me to really chose the job I want and the hours I want, doing part time etc. financial independence not retirement per say. I will be 40 years old.

    Chris b

  • 100 dawn March 24, 2014, 9:07 pm

    chris b
    thankyou for sharing
    you sound very sensible
    I hope you do well
    dawn

  • 101 Chris B March 25, 2014, 9:59 pm

    Thanks dawn, I wish you the best also. Let me know if you have any other questions :).

  • 102 LegalBeagle April 9, 2014, 5:45 pm

    Hi The Accumulator

    First of all congratulations on a fantastic site! A wonderful resource for us novices.

    I am a 30 year old with about £10k in cash (I have a mortgage and a pension too) which I am thinking of putting into Vanguard Lifestrategy 80 through Charles Stanley. I was also thinking of topping this up with a property fund as it seems to be an obvious omission and I have an interest in it as a sector. The TERs all seem to be more expensive and I wondered if you had any recommendations on a solid global fund with low fees?

    On a separate note, I hope to have £2,000 in cash in a separate instant access ISA at any given time for emergencies and the like. Just wondering if other people do this or do they throw it all in to their portfolios and ‘cash-in’ as and when required? Any obvious advantages/disadvantages to either approach? If ither people hold cash, do they reduce their bond allocation accordingly? £2,000 would be 16% of my total holdings if I were to include it when calcualting the weight of my portfolio.

    Keep up the good work!

  • 103 The Accumulator April 9, 2014, 8:42 pm

    Hi Legal,

    I’m glad you’re finding the site useful. Good to hear. The only property index fund available is BlackRock Global Property Securities Tracker D. There are a couple of ETFs out there too but they are more expensive and you would incur dealing fees which aren’t worth it for you at this stage. These funds track an index composed of property REITs and other firms whose business is property.

    Most people hold their emergency fund in cash. If you held it in other asset classes then you’re exposed to volatility and it could be worth, say, £1000 when you need it most.

    I wouldn’t treat this cash as part of my main portfolio because you’re holding it for a different purpose, therefore its size, time horizon and asset allocation are not the same as the rest of your holdings. It is effectively your emergency fund portfolio: objective ’emergency liquidity’ asset allocation: 100% cash.

  • 104 Paul May 16, 2014, 8:07 pm

    Hi, long time fan here, making my first steps into passive investing. I was wondering about the merits of putting at least some of my bond allocation into the Vanguard Global Bond Index fund. My thinking is that this will limit my exposure to the looming UK interest rate rise. It’s hedged, so I assume currency fluctuations won’t be an issue ands comprised of a mix of gvt and corporate bonds, so I guess I’m getting a little more volatility and yield compared to gilts. The TER doesn’t seem much worse than other bond funds. Is there anything I’m missing?

    I appreciate that this is attempting to time the market to a certain extent, but I frankly can’t bring myself to get 100% into gilts at the top of what (to me) looks like a bubble.

    Any thoughts will be vastly appreciated.

  • 105 The Accumulator May 18, 2014, 12:30 pm

    Hi Paul,

    Your analysis is spot on. Global Bonds allow you to diversify interest rate risk and the compromise is that you’re taking on more credit risk. Vanguard’s UK Gov Bond fund is invested purely in AA gilts whereas their intermediate Global Bond fund invests in some securities rated BBB and the average credit quality is AA-

    The Global Bond fund’s average duration is significantly shorter than the UK fund too. 6 vs 9.5 so if interest rates went up 1% then the Global Bond fund would lose 6% versus 9.5% for the UK fund.

    Given the fact the fund is hedged I don’t think you’re missing anything about using it as a core fixed income allocation.

  • 106 Paul May 24, 2014, 9:15 pm

    Thanks Accumulator, keep up the good work!

  • 107 Westerly Falcon July 3, 2014, 1:24 am

    If I’m renting and have £200k cash, should I keep some money in cash earning 0%? Or if I have no plans to invest a significant chunk in the next few years can I put a big % of this money in the Vanguard LS fund? I’m 24, no dependents.

  • 108 LangJohnnyMore July 16, 2014, 10:10 am

    First off: I have only recently started investing and think this site is dong a fantastic job, both in terms of practical help and intellectual stimulation, More power to your elbow!
    I have become confused over the allocations for the Lifestrategy funds. I thought that (as is set out in target article above) the bonds were limited to UK bonds (and have read justification for this in a Vanguard fact sheet). However, when I look at the fund factsheet via Hargreaves Lansdown pages for these funds it looks like the bond allocation DOES include non-UK bonds. For example the 20% equity fund has underlying vanguard trackers for non-UK govt bonds and non-UK corporate bonds ie when clicking on “fund factsheet” from this page :

    http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/v/vanguard-lifestrategy-20-equity-accumulation/key-features

    Does anyone know why there is this apparent anomaly?

  • 109 LangJohnnyMore July 16, 2014, 2:30 pm

    Oops, sorry for last post, I have answered my own question: Vanguard have very recently changed their bond allocations for lifestrategy and have gone very global. That is, the change seems like more than just a tweak, e.g., UK Gilts were very large percentage (45% of bonds) and are now only approx 16%. These changes will be made for pre-existing investments in Lifestrategy funds as well as new investments.

  • 110 David P September 20, 2014, 3:12 pm

    Hi, just found this site, great news as I need some advice.
    Totally new to investing but have been looking into index trackers, when I found vanguard life strategy.
    I am 51 yrs of age and hope to retire at 60.
    I have approx £40k to invest, but am cautious, but interested in long term 10-15 yrs investment.
    Would lifeguard be a good bet or coupled with another index tracker 50% each. Look forward to any advice.

  • 111 The Accumulator September 20, 2014, 9:38 pm

    Hi David, The LifeStrategy funds can suit anyone. The trick is knowing what mix of bonds and equities suits your needs. You can find more info on making these decisions by working through the links on this page: http://monevator.com/category/investing/passive-investing-investing/

  • 112 David September 22, 2014, 12:49 pm

    Thanks for your prompt reply The Accumulator.

    Would you suggest as I am a cautious investor spreading the total sum between 2 or more index funds. If so which do you think would be compatable.

    Thanks
    David

  • 113 David September 22, 2014, 1:20 pm

    Hello again -I feel I should have mentioned as a cautious investor that I am veering towards the 40%equity vanguard life strategy fund
    also as I have used all of my and my wifes isa allowance for this year would it be best to drip feed so as to be able to use my allowance next year my instinct as its only 40% and its a 10-15yr plan one fund is fine but I would appreciate your thoughts

  • 114 The Accumulator September 23, 2014, 3:05 pm

    @ David – I’d be inclined to keep to one fund with £40K as you’re not breaching any of the FSCS compensation limits. A second fund could be a bond tracker if you wanted to decrease your exposure to equities as you approach retirement.

    Take a look at: http://monevator.com/asset-allocation-strategy-rules-of-thumb/

    On drip-feeding, it just so happens that we’ve covered that in our latest piece which you can find here: http://monevator.com/lump-sum-investing-versus-drip-feeding/

    If you want a good book that will help you pull everything together then I recommend Tim Hale’s Smarter Investing.

  • 115 David September 23, 2014, 8:58 pm

    The accumulator

    Thank you for all your help.
    Much appreciated.

    David

  • 116 phil October 1, 2014, 7:12 am

    Im a bit of a beginner who uses the Fidelity platform for a S&S isa. They don’t offer the LS60 but do offer some Vanguard funds. I’d like to build the equivalent of LS60 on my own. Could someone recommend a six pack from the funds that Fidelity do have in their supermarket. Thanks.

  • 117 phil October 6, 2014, 3:39 pm

    I asked Fidelity same question I posted above.
    Seems that they do now offer the Vanguard LS funds.

  • 118 allie October 7, 2014, 7:39 pm

    Phil, thanks for the info re Fidelity. It appears they have recently added many more Vanguard funds, even Vanguard U.S. Fundamental Fund Acc which I know very little about. Looks like a non index fund. Anyway, good news.

  • 119 David October 24, 2014, 7:21 pm

    Hello again -I am nearly there honestly slight change I now realise I have 65k in my cash isa not 40 as I previously stated the Accumulator mentioned compensation limits but being a novice ive no idea how much this is could you help. Iassume its the for savings

  • 120 The Accumulator October 24, 2014, 7:35 pm

    Hi David, here’s what you need to know about compensation: http://monevator.com/investor-compensation-scheme/

  • 121 David October 24, 2014, 9:21 pm

    Thank you the Accumulator. My thoughts are this 45k into 60/40 vanguard life strategy from my cash isa now and in april 25k into 40/60 fund in my wifes name. I realise this may seem ultra cautious as I plan to hold these funds for 10-15 years as I still have spare

  • 122 David October 27, 2014, 1:12 pm

    Hi A small step for mankind but a big step for a 52yr virgin investor. Being a little cautious I went for the 60/40 Vanguard life strategy fund as a long term investment for the full amount as stated in other posts.But would like to supplement this with £200 monthly contributions lasting 8yrs although I would not need the cash at that time.Which funds would would compliment the above. Iam considering the40/60 L.S. as a cautious investor but would appreciate any advice-
    Thanks

  • 123 David October 31, 2014, 9:29 pm

    Apologies I need to clear up one thing is this a bad time to buy bonds with interest rates probably going up next year choice of 60%/40 %
    equities/bonds or the other way.
    10yrs investment thanks for any help

  • 124 David October 31, 2014, 9:33 pm

    I should have mentioned I am investing in the Vanguard life strategy funds no more questions I promise

  • 125 The Accumulator November 1, 2014, 11:39 am

    Hi David, 60:40 equities/bonds or 40:60 – you don’t choose your allocation based on whether you think interest rates are going up. That’s market timing and neither you nor I nor virtually anyone else can do that with any hope of consistent success.

    People have thought interest rates are going up for the last 5 years and yet…

    Choose your allocation based on your best estimate of your risk tolerance. Remember bonds aren’t there to make you money, they’re there so you can hold on and not sell up at the worst possible time when the market nose-dives. They’re there to soften down turns so that you’re able to stick with your plan until the market recovers.

    No one can tell you what to do so arm yourself with knowledge. Here’s 3 pieces to read and one book:

    http://monevator.com/sell-government-bond-funds/

    http://monevator.com/asset-allocation-construct/

    http://monevator.com/asset-allocation-types/

    Smarter Investing by Tim Hale – the best book a UK passive investor can read.

  • 126 David November 3, 2014, 10:08 pm

    Thanks the Accumulator I really do need to read up

  • 127 Gordon November 10, 2014, 2:19 pm

    Looking at the charts has the FTSE All Share not outperformed every Vanguard Life Strategy fund for the last 3 years? Is the FTSE All Share inherently more risky than a high percentage Life strategy fund? I ask as an amateur looking to invest and was set on the FTSE All Share when I came across the Life Strategy funds

  • 128 David November 11, 2014, 3:52 pm

    Hello – Firstly to the Accumulator not only did I buy the book I also read it. What it reinforced is that passive well diversified funds would be my route. Being cautious the L/S 40 %e is for me on looking on Vanguard web site the 40 and60% funds have the same risk number 4 out of 7 I rang but they didn’t know why. could someone give an insight
    as I thought more equities more risk. Unfortunately I didn’t gleam much more from Tim not my usual reading material as im sure you have gathered thanks

  • 129 David November 11, 2014, 4:30 pm

    Does this make sense 40% L/S 40%equitty 15yrs /30% 20%equitty L/S /
    10% NSI /20%cash [represents savings] also to contribute £200 monthly out of earnings for 8yrs to gilt fund I realise this may be ultra cautious happy to stay ahead of the game tobeat inflation plus a little more any thoughts appreciated

  • 130 The Accumulator November 17, 2014, 11:10 pm

    @ Gordon – it’s just the FTSE had a good run for a few years.

    @ David – Congrats on getting the book and reading it! I know many who’ve fallen at that second hurdle 😉 You’re right that more equities means more risk. I wouldn’t worry about tick box risk numbers – they don’t tell you anything, they’re an artifact of compliance. Presumably a 20% jump in equities isn’t enough to push the fund over some threshold or other. But you don’t need risk ratings once you’ve read Hale.

    Can’t unravel your last comment’s asset allocation but it’s been a long day. Cheers!

  • 131 David November 19, 2014, 2:46 pm

    The Accumulator thanks for all your replies a great help I now intend to reread Tims book for thoughts on a second passive fund no doubt questions will follow regards David

  • 132 Paul November 19, 2014, 6:51 pm

    Tried to replicate one of the passive strategies from Hale (x6 funds, ranging in weights 5%-30%) through charles stanley but was faced with a £500 pm minimum investment. Any cheaper/alternative suggestions pls? I have £200 p/m max to invest.

    “The minimum monthly investment for any fund on our platform is £50, so on an absolute minimum basis if you invested equally in all six funds, a minimum of £300 total is required (6 x £50). Using the weights provided, since you can’t go below £50, the 10% that you wish to invest in the Blackrock Property Securities Equity Tracker fund would necessitate a £50 investment, meaning that the 30% weight for the Vanguard FTSE UK Equity Index would need £150 minimum spend and any 15% weight would require £75. Using the weights you provided, this would bring a total minimum spend on a monthly basis to £500.

    If you wished to invest the £200 over each of the six funds, you will need to raise it to £300 to invest the minimum of £50 equally in each fund, otherwise you could reduce the number of funds you wish to invest in to four although the weights would be equally split (25% into each fund).”

    Thanks,
    P

  • 133 The Accumulator November 20, 2014, 9:43 am

    Hi Paul – Use the Vanguard LifeStrategy fund detailed on this page and accept it’s asset allocation or invest in one or two funds at a time and then switch to the other funds in your allocation later in the year.

  • 134 David December 1, 2014, 9:45 pm

    Hello I am in the process of transferring my cash isa into vanguard life strategy 40%equity fund I have a further sum to invest before I call it a day and concentrate on savings and spending. my question is this should I diversify further and use another vanguard index fund im cautious so bonds or stick to the above thanks

  • 135 Paul December 8, 2014, 9:08 pm

    Hi Accumulator,

    I asked one of my colleagues the following question but I’m afraid to ask them to translate at risk of sounding foolish, can you help?

    Question
    “I was wondering if the new pension arrangements impact on teachers in any way? In other words, do we have access to a lump sum at retirement, do we still need to purchase an annuity?”

    Response:
    “The Teachers Pension scheme in its current form will not necessitate the purchase of an annuity as it is based on a formula of time/service and salary. The amended version post April 2015 will still work on this principle.

    A lump sum is available post 2015 by commutation ie lowering the pension by £1 to create £12 in tax free cash, it is no longer automatically built up. I hope this helps.”

  • 136 David December 9, 2014, 5:43 pm

    This also applies to the n.h.s. pension

  • 137 David December 9, 2014, 5:57 pm

    There are two parts to the scheme 1 tax free lump sum 2 taxable monthly pension there is an upper and lower limit to these figuries that you can as a lump sum or anything inbetween the higher the lump sum the lower the monthly pension it takes 12 years approx. to even out both if you take a large pension

  • 138 Christopher January 5, 2015, 2:23 pm

    Hello.

    I am currently investing in the LifeStrategy 80% Equity Fund via Charles Stanley Direct.

    In twenty years, when I’m after less risk, how would I switch to the 60% Equity Fund for example?

    Thank you.

  • 139 Sam Priestley February 10, 2015, 3:04 pm

    Christopher,

    Do you regularly invest? When I want to start swtiching I just change my regular investing to another one of the other funds. For instance you could start putting money into the 20% equity in order to bring down your overall equity %. Then when you hit the desired 60% put your money into the 60% equity.

    Thanks
    Sam

  • 140 Nick April 9, 2015, 4:52 pm

    Hi Accumulator,

    I’m wondering if you have any general advice for someone on the edge between going LS of any flavour or DIY (slow and steady rip off adjusted for risk I’m comfortable with in my case)?

    I’ve been going over it all for too long, devouring this site and others. I’ve also read Smarter Investing, as well as a handful of others around the topic.

    To me DIY is always going to work out cheaper, however I ran some past performance scenarios on trustnet and was suprised to see LS100 coming ahead of my risky 4-fund for performance over the last year and few months. They were close but it indicated to me maybe I’m best with LS100? My fund choices if curious were:

    Vanguard Dev World Ex UK -35%
    Vanguard UK All Share – 40%
    Vanguard Small Cap – 15%
    Vanguard Pacific excluding Japan – 10%

    Thanks for any advice you can provide, I imagine its a common battle working out if you should go LS or DIY. I’m certainly curious in learning this stuff but with my money on the line it makes me a bit anxious..

  • 141 The Accumulator April 9, 2015, 8:22 pm

    Hi Nick,

    I remember that sense of hesitation when I was on the verge of making my first investments. I was exactly the same and it seems to be very common.

    Run your own portfolio if you think you will enjoy the exercise.

    Go LifeStrategy if you think you will find investing a hassle or if you have any doubt about your discipline when it comes to rebalancing or by chasing the performance of the latest hot fund.

    Don’t let past performance guide your decision as it essentially tells you nothing about how this match-up will work out in the future.

    Re: fund choices – you’ll get the Pacific countries in your Dev World ex UK fund, so I’m wondering whether you’re really looking for Emerging Market Exposure with this choice.

    40% in the UK is a pretty massive tilt too. UK is only worth about 7% of the global market.

  • 142 Nick April 10, 2015, 10:32 am

    Hi Accumulator,

    thank you very much for the prompt response, I certainly appreciate it. Do you remember when that hesitation went away or was the only thing that resolved it to get in the game so to speak?

    I think I’m certainly not a hobbyist like yourself, I just want to maximize what my money is doing for me and certainly don’t want to get sucked into spending a large amount of time investigating the market. My interests lie elsewhere unfortunately for me.

    LifeStrategy is tempting but the higher costs put me off slightly, as well as all of the effort I’ve put in so far to learning this area going to waste. It is also tempting in terms of the long-term, when I have 32k+ and want to keep fund choices on iWeb minimal to avoid costs.

    However, I’m not worried about my discipline, I’m certain I’ll be able to handle the market tanking but then again there’s only one way to find out if that’s truly the case..

    If I do go DIY I essentially want to decide on my funds, re-balance yearly and other wise not touch it other than putting more money in

    Thank you for calling out my error in fund choice, I’d been switching small cap and emerging markets in order to keep it to four funds and knew something wasn’t right!

    May I be cheeky and ask what allocation you would use considering those four funds I mentioned (with emerging markets swapped in.) The high UK allocation was just home bias and currency risk reasons, though as you can tell I’m certainly not a seasoned investor!

    I’m guessing something like:
    World – 50%
    UK – 20%
    Small Cap – 10%
    Emerging – 20%

    I’m 27 so as I get older I would introduce a property fund for a few years then bonds….depending on market conditions at those times of course.

  • 143 The Accumulator April 11, 2015, 12:23 pm

    The asset allocation you suggest is entirely reasonable assuming your objective lies a good decade or two away. You are making some high-octane choices though so the big question is whether you can handle the rollercoaster. That’s impossible to truly know if you’re untested by the markets. Bonds will take the edge off the volatility and the biggest decision you are taking is not including any (or cash). I’m reminded of some wise advice which goes along the lines of “Be as conservative as you can handle.”

    It would be presumptuous of me to suggest a different allocation based on zero knowledge of you or your goals but here’s a couple of posts that can help you refine your rationale:

    http://monevator.com/passive-expected-returns/

    http://monevator.com/asset-allocation-construct/

    I got over analysis paralysis when I realised that after researching investing for something like two years, the next six months of fact-finding I had in mind was just procrastination. I had to wake myself up to the fact that there wasn’t any perfect solution waiting to be discovered and that the best thing to do was to get stuck in.

  • 144 Nick April 11, 2015, 1:20 pm

    Hello The Accumulator,

    thank you once again for the quick response, you’re certainly correct about timeline, as mentioned I’m 27 and I wish to start this as a retirement pot outside my pension. As you say I’m certainly taking the high risk route but given the timeline I have, I’m not remotely concerned as I’d say there will be a number of crashes during my lifetime to ride and also take advantage of.

    As you might expect I’ve already devoured those great articles but refreshing myself isn’t a bad idea.

    As usual you are spot on. I’m going to put my money into my DIY portfolio, in the long term the lower costs will hopefully outrun LS100 and it will only require infrequent re-balancing.

    Thank you for your words of wisdom Accumulator, please keep the great articles coming!

  • 145 Chris April 11, 2015, 2:20 pm

    Hi Nick.

    I was just thinking to myself today about how it’s very easy to feel like we will easily stomach a bear market but until it actually happens. It will be unknown how we will really handle it. I think loosing 30,000 of your hard earned money for example could really hurt however if you have the mindset that if you only use cash you will probably be guaranteed to lose in the long run.

    I personally always keep a minimum of £10,000 in cash. The rest goes in a 60% life strategy fund through iWeb. I personally like the hands off approach and pretty much never look at the amount. Only the general news detailing a huge pro longed crash would let me know that it’s tanking. I am impressed that I can do this as I didn’t think I would have it in me when I first got into this which was about a year ago now.

    Having 75k in investments would have scared me in the past. Nowadays, I’m just the arm chair investor that only cares about the long term. I think what keeps me comfortable is the idea (how really true who knows) that for me to lose all of my money long term – that the world would probably be in ruin and money in the bank would probably not mean that much either. As I feel my money is tied up in human flourishing in an economic sense and all the worlds companies and the governments with bonds. If that’s all failing – money is the least of my worries?

    I’ll see how I feel though in 20?? When I lose a large amount how I then feel 😀

  • 146 Jonny April 15, 2015, 1:38 pm

    I got over analysis paralysis when I realised that after researching investing for something like two years, the next six months of fact-finding I had in mind was just procrastination. I had to wake myself up to the fact that there wasn’t any perfect solution waiting to be discovered and that the best thing to do was to get stuck in.

    Amen! I’ve had a recent similar realisation on a separate (non-investing) project I’ve been procrastinating working on.

    So is there any alternative to the LifeStrategy funds for those who already have them but want to diversify further across providers (i.e. to another provider)?

    I read your 2014 http://monevator.com/passive-fund-of-funds-the-rivals/ article, which gave me brief hope that the HSBC World Index may be a contender, though on reading the 2012 HSBC article (http://monevator.com/hsbc-world-index-portfolio-fund-of-funds/) it seemed pretty negative!

    I fear there is no alternative, and the next step would be creating a diverse portfolio of separate tracker funds. Unfortunately that could easily lead to higher trading costs, increased complexity in implementation, and worst still probably more analysis paralysis (deciding on allocations, and then funds to fit those allocations)!

    Is there anything else for those of us who just want to get back to our grapes?

  • 147 The Accumulator April 16, 2015, 7:14 pm

    @ Jonny – here’s the alternative paired with a bond fund: http://monevator.com/how-to-chooose-total-world-equity-trackers/

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