Tim Hale’s ‘Smarter Investing’ Portfolios & Vanguard Life Strategy funds

[floyd3592]

I have a query for those who may be familiar with Tim Hale’s Smarter Investing book, which is regularly referenced on the LF.

Is it fair to say that his Smarter Investing Portfolio’s 2 to 5 defined, as they are, as ‘incremental steps in growth oriented assets of 20%”, are reflected in the Vanguard Life Strategy funds? i.e. Tim’s portfolio 2 (growth assets of 20% and defensive assets of 80%) is analogous to the Vanguard ‘LifeStrategy Income Fund’ (20% stocks and 80% bonds)?

If this is the case, is it correct to assume then, for a retiree investing a lump sum in the Vanguard LifeStrategy Income Fund and withdrawing £4,000 per £100,000 of starting capital (based on Tim’s figures in his portfolio details tables), there is a less than 1-in-10 chance of the retiree running out of money over 30 years?

[Hariseldon58]

You are on the right lines but it is very hard for anyone to know or predict what might happen over thirty years.

There is a book review and discussion in the comments on this link which might be of interest

http://monevator.com/beyond-the-4-rule-abraham-okusanya/

I have a portfolio that runs something akin to Vanguard Life Strategy with around 90% equities but with less U.K. and it has served me very well in taking early retirement.

It’s all a bit swings and roundabouts and the 12 months saw me down £50k after living costs but up £400k the prior year.

This rather contradicts the idea of faithfully withdrawing a set % or set income. I keep a few years income in cash/bonds , harvest capital gains up to the free allowance, top up isa’s, reinvest income in isa’s and SIPPs etc but not worry from which pot the income comes from.

You get the odd year when it’s down a bit but have had many more years when there are six figure gains. I was fortunate to go into early retirement in 2007 just before the crash but it provided excellent returns on the upswing and I was lucky or skilful in my investment choices between 2008 and 2012.
( at the time it seemed skilful but with hindsight probably just lucky )

I have bought the book mentioned and it’s interesting. My personal view of drawdown is that a few years of income in reserve allows you to sleep well when the bulk of the portfolio is invested and markets go down for a protracted period, rather than worry about if 4% or 4.5% is sustainable) a good run of luck for the first few years makes your retirement plans look good but a ru of poor markets can hurt your retirement badly ( I was lucky , dumping my HYP in 2008 and changing tack was very successful )

[GeoffF100]

I have a query for those who may be familiar with Tim Hale’s Smarter Investing book, which is regularly referenced on the LF.

Is it fair to say that his Smarter Investing Portfolio’s 2 to 5 defined, as they are, as ‘incremental steps in growth oriented assets of 20%”, are reflected in the Vanguard Life Strategy funds? i.e. Tim’s portfolio 2 (growth assets of 20% and defensive assets of 80%) is analogous to the Vanguard ‘LifeStrategy Income Fund’ (20% stocks and 80% bonds)?

If this is the case, is it correct to assume then, for a retiree investing a lump sum in the Vanguard LifeStrategy Income Fund and withdrawing £4,000 per £100,000 of starting capital (based on Tim’s figures in his portfolio details tables), there is a less than 1-in-10 chance of the retiree running out of money over 30 years?

We cannot comment on Tim's portfolios unless you tell us what they are. We also cannot comment on his analysis unless we have the book.

I am not aware of a Lifestrategy Income Fund. Here are the Lifestrategy funds that are available:

https://www.vanguardinvestor.co.uk/what ... y-products

You appear to be considering drawing 4% of your starting capital from Lifestrategy 20% Equity Fund every year, and want to know how likely it is that you will run out of money. 80% of that fund will be bonds currently returning about 2% p.a., and 20% will be equities returning perhaps 4% p.a. (Vangaurd estimates 3-5% equity returns over the next ten years). Assume the fund returns 2% p.a. We have a diminishing balance here, so the average balance will be about half the starting capital. Your investments will be returning about about 1% of your starting capital, on average, each year. The net withdrawal rate will therefore average about 3% p.a. Your capital is likely to run out after 30 years or so, but the exact date is very uncertain. At age 65, you have a life expectancy of about 20 years:

https://www.ssa.gov/oact/STATS/table4c6.html

You appear to have a good chance of not running out of money. An annuity would make more sense here. A 65 year old will get a higher payout than 4%, with no market risk. However, in both cases, inflation will erode the spending power of the flat income that you are receiving.

[floyd3592]

We cannot comment on Tim's portfolios unless you tell us what they are. We also cannot comment on his analysis unless we have the book.

I am not aware of a Lifestrategy Income Fund. Here are the Lifestrategy funds that are available:

Thanks very much Geoff

1) as I stated my comment was directed at "those who may be familiar with Tim Hale’s Smarter Investing book" which is oft quoted on here and previously on TMF
2) The, even more oft quoted on here, Vanguard Lifestrategy funds should be pretty well known to a regular poster on here like, nest ce pas? https://www.bogleheads.org/wiki/Vanguar ... tegy_Funds ; https://investor.vanguard.com/mutual-fu ... trategy/#/

[GeoffF100]

I was not criticising. I do know the Lifestrategy funds. I have taken a lot of trouble to give you a back of the envelope analysis of a generic 80% bonds / 20% equity fund. I expect that Tim's analysis was based on historic returns, and not the miserable returns that are likely with the current high asset valuations.