Vanguard Life Strategy - which fund?

[Heathwood]

Hi all, I currently have a little too much stuck in cash and, with the new tax year, have funded my ISA ready to invest it somewhere.

I’m in a slightly difficult position in that we may move house in the not too distance future (hence holding cash), but I think I need to balance erosion from inflation with a little investment risk.

I’m looking at Vanguard Life Strategy funds, having already invested a bit in 80% equity acc last year. I was thinking to maybe go 40% equity acc this time, however it looks to me that the higher ratio equity funds are sufficiently well diversified to protect against significant losses/volatility and, of course, have much greater growth prospects.

Is it therefore worthwhile me opting for the lower equity content funds given the relative risk/reward ratio of the different options?

Many thanks

[gts.981]

If you are really able to say with confidence that:

‘ higher ratio equity funds are sufficiently well diversified to protect against significant losses/volatility ‘

then you should start a career in fund management ASAP.

Otherwise investing monies in the market that you may well need in the short term is kinda risky.....

[bitchstewie]

Start with how much of that cash you're prepared to lose.

So if you have £100K when you come to take it out how much do you need to be in there?

[Heathwood]

gts.981 said:

If you are really able to say with confidence that:

‘ higher ratio equity funds are sufficiently well diversified to protect against significant losses/volatility ‘

then you should start a career in fund management ASAP.

Otherwise investing monies in the market that you may well need in the short term is kinda risky.....

Well no, of course I can’t say that with confidence. It was just a amateur observation based on what I can see from past performance of the specific funds I was looking at. It may well be flawed thinking and I meant to pose it as a question as opposed to a statement - apologies.

I agree it is risky to invest money I may need. However, I’ve been holding cash for years thinking we may move and, with hindsight, that was also a mistake. I’d still be holding 60-70% in cash, so say a 20% downturn would equate to sub 10% loss overall (I know losses could be worse than that).

What I’m trying to establish if whether Life Strategy 40% for example limits exposure to risk to a worthwhile amount over say Life Strategy 80% considering the reduced potential for growth.

[xeny]

Heathwood said:

What I’m trying to establish if whether Life Strategy 40% for example limits exposure to risk to a worthwhile amount over say Life Strategy 80% considering the reduced potential for growth.

Vanguard's own LS pdf suggests a minimum investing period of I think 3 years for the most conservative LS 20% option.

To give yourself a perspective on the relative volatility, try using the HL funds tool to graph the 5 different options over the past few years - you'll see how they responded to the Covid crash last spring, which may be indicative. My recollection is that returns and volatility decrease in direct proportion as you decrease the equity portfolio.

Have you assessed the increase in cost of a larger mortgage with everything staying invested in 100% equities against the opportunity cost of staying in cash?

[Heathwood]

xeny said:

Vanguard's own LS pdf suggests a minimum investing period of I think 3 years for the most conservative LS 20% option.

To give yourself a perspective on the relative volatility, try using the HL funds tool to graph the 5 different options over the past few years - you'll see how they responded to the Covid crash last spring, which may be indicative. My recollection is that returns and volatility decrease in direct proportion as you decrease the equity portfolio.

Have you assessed the increase in cost of a larger mortgage with everything staying invested in 100% equities against the opportunity cost of staying in cash?

Thank you, that HL tool is great and does indeed suggest proportionate volatility in line with the equity content. Very helpful. Cheers

[red_slr]

What ever you need to move house, do not invest that money. Keep it in cash. Yes you are losing inflation but thats just the cost of ensuring that cash is still there. Worst case bung it in NS&I and you might get a win here and there. But honestly I would not trust the markets right now with such a big purchase due soon.

The rest well thats fair game, if it were me, VLS100.

[LeoSayer]

Heathwood said:

I agree it is risky to invest money I may need. However, I’ve been holding cash for years thinking we may move and, with hindsight, that was also a mistake.

What has stopped you from moving for so long?

If you don't have a compelling reason to move in the short to medium term then invest in 100% equities.

Ongoing gains or losses on that investment can then help to inform your decision about whether to move or not.

[xeny]

LeoSayer said:

Ongoing gains or losses on that investment can then help to inform your decision about whether to move or not.

Or you're moving regardless, ongoing gains or losses help inform the decision if it is an upsize or a downsize.

[Jawls]

When the covid crash happened, life strategy 40 lost approx 15%. Let’s round that up to 20%.

If that happened the week before you were due to complete on the house, would that screw your move up? If so, that is too risky an option.

If you can’t afford to lose anything, you’ll have to keep it in cash/cash-equivalents like premium bonds. Yes, that’s baking in the near certainty of losing money vs inflation, but it limits your downside risk.

Could stick it in a diversified, good bond fund. There’s still risk there though, and obviously the upside is lower. Personally if you need the money in less than say, 5 years, cash would be my choice.

[Heathwood]

Thanks for the comments so far.

It’s difficult to put things into perspective without talking openly about my finances, so I appreciate the simple truth of not risking money I may need.

So scenario is, if we were to move house and stay below around £650-700k we may be able to do so mortgage free. Around £50k of this is currently invested in equities. If those equities took a hit at the time we wanted the money, we could use money we have put aside for the kids (10 years to replace that then) or, worst case scenario, get a small mortgage.

We’re pretty cautious so, in truth, we would probably want £20k+ in the bank if we did move, so I don’t think we’d be stretching ourselves to such an extent that we’d be reliant on the last few grand.

In saying that, I’m currently overexposed in single company shares (that’s another story), so want something much more balanced if I were to invest a bit more.

[Nano2nd]

Heathwood said:

So scenario is, if we were to move house and stay below around £650-700k we may be able to do so mortgage free.

everyone's risk profile is different, but if I were in this position, I wouldn't be that worried where I invested my 2021-2022 ISA allowance!

[Beyond Rational]

Surely the numbers here warrant some independent financial advice, but I'd be looking at a small, fixed rate mortgage on the basis that the ISA /investments should outperform it over 5 years?