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Introducing the LemonFools Personal Finance Calculators

Vanguard Target Retirement Funds

Including Financial Independence and Retiring Early (FIRE)
GeoffF100
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Vanguard Target Retirement Funds

#135241

Postby GeoffF100 » April 27th, 2018, 8:23 pm

Here is Vanguard's research paper on these funds:

https://www.vanguard.co.uk/documents/ad ... -paper.pdf

Figure 2: "Glide path for Vanguard target retirement funds" is particularly illuminating.

GeoffF100
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Re: Vanguard Target Retirement Funds

#135282

Postby GeoffF100 » April 28th, 2018, 8:49 am

The asset allocation after age 75 is particularly interesting, in view of recent discussion of the "age in bonds" rule:

    70% bonds: 75% global hedged / 25% short dated index linked gilts.

    30% equity: 75% overseas / 25% UK.

(Actually, Vanguard splits global hedged bonds into global ex UK hedged bonds and UK bonds, but the weights are roughly the market weights, in this case.)

I use the Vanguard Global Bond fund and directly held index linked gilts (with some index linked National Savings Certificates). (I also have fixed term bonds guaranteed by the FSCS.)

I use Vanguard Developed World ex UK and VFEM, for overseas equity exposure, and also have a portfolio of directly held UK shares.

My weights differ, but it is interesting to compare them with the Vanguard weights.

There is lots of interesting stuff in the Vanguard report. The chart illustrating a historical 3.5% equity risk premium for the UK market is noteworthy, as is the chart illustrating the percentage of active funds that perform worse than trackers for various types of fund. Active bond funds are the worst.

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Re: Vanguard Target Retirement Funds

#135296

Postby xxd09 » April 28th, 2018, 9:59 am

Hi
This is the Allocation I have been using for the past 18 years
Now at 30%Eq/70%Bonds
Eq split at 26% World ex U.K and 4%Uk
Bonds -Global Bond Index hedged to pound
Now aged 71-will not go below 30%Eq
Using 3 funds only (Thought of 2funds only but Global Eq Fundscurrently more expensive.Thought of 1fund only-but Vanguards Life Strategy Fund has too much U.K. bias)
As I age and with probability of cognitive decline plus a wife being left to manage having one fund only appeals strongly
It might be my final big financial move-then one just sells one type of unit from SIPPs and ISAs as required(remembering to reclaim Tax on SIPP withdrawals with HRMCs R55 form if required-I will have to teach my wife this procedure)
Blanceto be struck between simplification as one ages and keeping up investment performance
xxd09

GeoffF100
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Re: Vanguard Target Retirement Funds

#135328

Postby GeoffF100 » April 28th, 2018, 1:22 pm

Fidelity World Index P has an OCF of 0.13%.

As far as UK bias is concerned, overseas shares nearly all deduct withholding tax on dividends. Furthermore, a UK bias has historically reduced volatility, but the % UK that minimises volatility depends on the time period chosen. 25% is a modest UK bias.

You can get Index Linked Gilts with coupons of 0.125%, so they do not benefit much from a tax shelter.

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Re: Vanguard Target Retirement Funds

#135366

Postby Stanley117 » April 28th, 2018, 5:39 pm

GeoffF100 wrote:I use the Vanguard Global Bond fund and directly held index linked gilts (with some index linked National Savings Certificates). (I also have fixed term bonds guaranteed by the FSCS.)

I use Vanguard Developed World ex UK and VFEM, for overseas equity exposure, and also have a portfolio of directly held UK shares.

My weights differ, but it is interesting to compare them with the Vanguard weights.



Do you mean Building Society Fixed Term Bonds (which are considered as a Bank Deposit and protected to £85K )
or
Fixed Term Bonds from companies Like Castle Trust (considered as an investment and who they are covered to £50K ?)


Also, do though think there is much to be gained from holding a portfolio of UK shares compared with say a FTSE 100 tracker like VUKE (or a UK Dividend etf if you want a higher income) ? I assume you would have a UK bias because of these directly held shares ?

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Re: Vanguard Target Retirement Funds

#135378

Postby GeoffF100 » April 28th, 2018, 6:51 pm

I use fixed term deposits that are guaranteed by the FSCS up to £85K. I would consider the likes of Castle Trust, where your money is clearly at high risk, for very little extra reward.

I started my UK share portfolio back in the days when there were no genuinely low cost trackers. I cannot sell that portfolio because of CGT, but I can gradually thin it within the allowance. My equities are currently about 42% UK, and 58% overseas. The UK allocation is going down, but it is a slow process.

The UK stock market is dominated by a few shares in a few sectors, which is not good if you have a large UK bias. You can add some FTSE 250, which is more broadly based. Unfortunately, the FTSE 250 contains a large number of Investment Trusts, which add heavy costs.

I would not consider high yield ETFs, because the are less diversified than market weighted trackers, and have higher costs.

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Re: Vanguard Target Retirement Funds

#135390

Postby Stanley117 » April 28th, 2018, 9:25 pm

GeoffF100 wrote:You can get Index Linked Gilts with coupons of 0.125%, so they do not benefit much from a tax shelter.


I assume you don't pay capital gain tax on Gilts - just income tax on an individuals total interest in the tax year above £2000.

What is the best way of holding GILTs both the normal type and the index-linked type ?

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Re: Vanguard Target Retirement Funds

#135433

Postby GeoffF100 » April 29th, 2018, 6:52 am

There is no CGT on gilts. You just pay income tax on the coupon (interest), which is 0.125% of the par value for some index linked gilts. That is is not very much, so you do not greatly benefit from a tax shelter. Conventional gilts benefit more from being in a tax shelter.

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Re: Vanguard Target Retirement Funds

#135455

Postby Stanley117 » April 29th, 2018, 9:41 am

GeoffF100 wrote:The asset allocation after age 75 is particularly interesting, in view of recent discussion of the "age in bonds" rule:

    70% bonds: 75% global hedged / 25% short dated index linked gilts.

    30% equity: 75% overseas / 25% UK.

(Actually, Vanguard splits global hedged bonds into global ex UK hedged bonds and UK bonds, but the weights are roughly the market weights, in this case.)

I use the Vanguard Global Bond fund and directly held index linked gilts (with some index linked National Savings Certificates). (I also have fixed term bonds guaranteed by the FSCS.)

I use Vanguard Developed World ex UK and VFEM, for overseas equity exposure, and also have a portfolio of directly held UK shares.


@GeoffF100 - My ISA and SIPP are currently on a platform with a similar charging structure to HL (ie capped for shares, etfs, ITs and uncapped 0.45% for OEIC Funds). Like you I mainly use shares and Vanguard ETFs for my equity allocation. As I am 64 I have been increasing my allocation to Bonds over the years although I am still overweight in equities.

Being limited to shares, etfs and ITs I have always struggled to find diversifiers for my equity allocation. I have iShares Corporate 0-5 yr etf (IS15) and some of John Barons IT choices such as NYCF, IPE, HDIV and SLI (Property) and separate Cash ISAs. However, If I stuck to just ETFs for my diversifier allocation I think my portfolio would become difficult to manage..

Unfortunately I can't find an etf equivalent to Vanguard Global Bond fund or other OEIC bond funds so I think my best way forward is to open a second ISA on IWeb where I can hold some Bond OEIC Funds at reasonable cost, keeping the existing platform for my equity ETF allocation.

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Re: Vanguard Target Retirement Funds

#135786

Postby IAC2016 » April 30th, 2018, 2:59 pm

Stanley117 wrote:@GeoffF100 - My ISA and SIPP are currently on a platform with a similar charging structure to HL (ie capped for shares, etfs, ITs and uncapped 0.45% for OEIC Funds). Like you I mainly use shares and Vanguard ETFs for my equity allocation. As I am 64 I have been increasing my allocation to Bonds over the years although I am still overweight in equities.

Being limited to shares, etfs and ITs I have always struggled to find diversifiers for my equity allocation. I have iShares Corporate 0-5 yr etf (IS15) and some of John Barons IT choices such as NYCF, IPE, HDIV and SLI (Property) and separate Cash ISAs. However, If I stuck to just ETFs for my diversifier allocation I think my portfolio would become difficult to manage..

Unfortunately I can't find an etf equivalent to Vanguard Global Bond fund or other OEIC bond funds so I think my best way forward is to open a second ISA on IWeb where I can hold some Bond OEIC Funds at reasonable cost, keeping the existing platform for my equity ETF allocation.



You could get a reasonable Bond allocation with just two ETFs (Vanguard UK Gilts VGOV and EUR Corporate Bond VECP) as highlighted in a recent Monevator portfolio see article - "An income from ETFs in retirement (Part 2): Example portfolios by The Greybeard on April 20, 2017"

This would avoid the need to open a second more OEIC Fund friendly platform to hold your Bond OEIC Funds ?

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Re: Vanguard Target Retirement Funds

#135854

Postby GeoffF100 » April 30th, 2018, 8:21 pm

VECP is not hedged into GBP. That would be good if the pound falls against the EUR, but bad if it rises. However, nobody knows which way the pound will go, even in the short term. Unhedged bonds give low returns with high volatility, which is the worst of both worlds.


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