LifeStrategy Like Funds?

[Aminatidi]

The LifeStrategy series seem to be the most widely recommended low cost funds that have some kind of component or risk targeting baked in.

Are there any others that are worth looking into please?

I've seen HSBC, L&G and Architas and I believe the primary differences are some are fixed allocation and others are risk based where the fund manager has the flexibility to adjust allocations to meet a risk target.

Probably looking at LS40 maybe LS60.

Looking at where to park some cash at less risk than Fundsmith & Lindsell Train Global.

Thanks as always

[tjh290633]

Life strategy funds and the like are based on a now-discredited theory that, as a person nears retirement and so will buy an annuity, he needs to move from equities into fixed interest stocks, in order to reduce the risk of losing the capital to buy that annuity.

Several factors have turned this argument on its head. First, the low interest rate regime has reduced the income available from annuities to below that which can be obtained from a portfolio of equities.

Second, the enhanced values of FI stocks because of the low interest rates lead to increased risk of capital loss, as interest rates rise to more normal levels.

Third, changes in the law relating to pensions, allowing drawdown of income from a portfolio, rather than buying an annuity.

For short term parking of cash, cash deposits, or a fixed interest security which matures at about the date on which the cash is needed, are the only real ways to eliminate risk.

TJH

[toofast2live]

Actually incorporating bonds into a portfolio reduces volatility with minimal impact on returns. Even Buffet has said he wants his estate invested 90% S&P500, 10% T bonds.

Now should you go 50% 50%, that’s another issue.

[paulnumbers]

Life strategy funds and the like are based on a now-discredited theory that, as a person nears retirement and so will buy an annuity, he needs to move from equities into fixed interest stocks, in order to reduce the risk of losing the capital to buy that annuity.

Several factors have turned this argument on its head. First, the low interest rate regime has reduced the income available from annuities to below that which can be obtained from a portfolio of equities.

Second, the enhanced values of FI stocks because of the low interest rates lead to increased risk of capital loss, as interest rates rise to more normal levels.

Third, changes in the law relating to pensions, allowing drawdown of income from a portfolio, rather than buying an annuity.

For short term parking of cash, cash deposits, or a fixed interest security which matures at about the date on which the cash is needed, are the only real ways to eliminate risk.

TJH

Are you mixing up lifestrategy finds with the vanguard target retirement funds? There's nothing stopping you holding a 100% equity lifestrategy fund until you're put in the box.

[OLTB]

Life strategy funds and the like are based on a now-discredited theory that, as a person nears retirement and so will buy an annuity, he needs to move from equities into fixed interest stocks, in order to reduce the risk of losing the capital to buy that annuity.

Several factors have turned this argument on its head. First, the low interest rate regime has reduced the income available from annuities to below that which can be obtained from a portfolio of equities.

Second, the enhanced values of FI stocks because of the low interest rates lead to increased risk of capital loss, as interest rates rise to more normal levels.

Third, changes in the law relating to pensions, allowing drawdown of income from a portfolio, rather than buying an annuity.

For short term parking of cash, cash deposits, or a fixed interest security which matures at about the date on which the cash is needed, are the only real ways to eliminate risk.

TJH

Are you mixing up lifestrategy finds with the vanguard target retirement funds? There's nothing stopping you holding a 100% equity lifestrategy fund until you're put in the box.

There's a similar phrase of Lifestyling funds that gradually move from mostly equity to bonds/cash over a fixed period towards retirement. Easy to mistake Lifestrategy for Lifestyling if you ask me!

Cheers, OLTB.

[Aminatidi]

I definitely mean LifeStrategy like i.e. something where you can pick your allocation or risk level and leave the rest to them.

[runnygum]

LS100 gets my vote or VWRL which Im guessing is pretty similar.
Globally diversified based on market cap weights.

As mentioned there are a few papers arguing that as you age you want more stocks not the sliding scale of old.

http://www.aaii.com/journal/article/red ... e-it.touch

"Practical Implications for Retirees
From a retirement planning perspective, these results may be somewhat surprising. In a world where the conventional wisdom is that retirees should reduce their equity exposure throughout retirement as their time horizon shortens, this research suggests that in reality the ideal may actually be the exact opposite.

Yet, when viewed from the perspective of sequence risk, this result should not be surprising...."

[Aminatidi]

@FredBloggs it may be that LifeStrategy is absolutely fine, just trying to do some due diligence.

@Runnygum this isn't an age thing, this is simply whether to take a little lower risk with some cash v do nothing at all with it.

[paulnumbers]

I definitely mean LifeStrategy like i.e. something where you can pick your allocation or risk level and leave the rest to them.

Well, I was asking about this comment

Life strategy funds and the like are based on a now-discredited theory that, as a person nears retirement and so will buy an annuity, he needs to move from equities into fixed interest stocks, in order to reduce the risk of losing the capital to buy that annuity.

Which sounded much more like a description of the "Target Retirement funds"

[OLTB]

@FredBloggs it may be that LifeStrategy is absolutely fine, just trying to do some due diligence.

@Runnygum this isn't an age thing, this is simply whether to take a little lower risk with some cash v do nothing at all with it.

Hi Aminatidi

Vanguard is a very popular fund house that auto rebalances back to the asset allocation you choose. Most of the other funds tend to fit into the 'Cautious' or 'Balanced' sectors and these give a fairly wide scope of asset choices for the fund managers to decide how much to allocate to each asset class at any one time. The 'Balanced' sector for example can hold at any time between 40% and 85% in equities - see here https://www.trustnet.com/fund/price-per ... ndOverview

I am aware that a similar solution could be via Canada Life's 'Portfolio' funds as they also rebalance (on a daily basis) but you'll have to check if you can access these funds (if they fit in with what you want) via the platform you choose, or if you have to go direct to them. The link is here
https://www.canadalife.co.uk/investment ... olio-funds . I would think the charges are higher than Vanguard's, but I haven't checked this.

Cheers, OLTB.

[Aminatidi]

Vanguard life strategy funds are a strong investing option which offer easy risk level selection with automatic rebalancing and a strong managing company.

They are though Funds so are subject to platform fund holding charges. This means if you hold them on Hargreaves, they will charge .45% p.a. on top of Vanguard's admin fee. Barclays charge .35% pa I believe. Not outrageous overall but worth bearing this in mind.

Gadge

Yes I have that covered as I'm with II so £10 to buy then only the fund fees.

It's an excellent point though as I found when looking at the likes of Hargreaves Lansdown where I realised that you'd be paying around 0.7% to hold your "low cost" tracker/multi-asset.

[Alaric]

Vanguard life strategy funds are a strong investing option which offer easy risk level selection with automatic rebalancing and a strong managing company.

One risk that you have to beware of with this type of fund of funds is the scope it gives for multiple levels of charging. With Vanguard, the charges are low enough that it doesn't really matter, but you could potentially be hit with three layers of charges. At the bottom you have the charge in the underlying fund that holds the stock market investments. The next layer is the charge made for the rebalancing and at the top, the platform charge. You could hold a global equity and bond ETF directly in whatever proportion you wanted. You then have the legwork of rebalancing them every so often.

There are other organisations out there who will manage assets with a fixed or near fixed allocation, indeed it's become quite popular.

[Hariseldon58]

On the cost front Halifax Share Dealing allow you to hold funds without a % charge. The underlying transaction costs are low and there is an element of foreign withholding taxes.

In addition some of the underlying funds are accumulation units so the running yield is very low.

As regards what level of bonds you hold, if any, these funds allow you to choose and if you want 90% equities 10% bonds then you could mix and match the 100% and the 80% funds.

[Aminatidi]

Coming back to this I was going to open a Vanguard account but I'm still debating whether a risk targeted multi-asset fund is a better option, or whether I'm over-thinking it.

Certainly when you compare funds there isn't a lot in it, but then we've been in a pretty healthy environment for the lifetime of most of these funds.

I just want a "set and forget" option for a small amount each month outside of my main ISA's which are 100% equities and intended for long term.

[poppy101]

LS100 gets my vote or VWRL which Im guessing is pretty similar.

Not that similar
LS100 is very overweight UK - it's 26% invested in UK shares, as opposed to VWRL which is only 5.6% UK

[Julian]

Vanguard life strategy funds are a strong investing option which offer easy risk level selection with automatic rebalancing and a strong managing company.

They are though Funds so are subject to platform fund holding charges. This means if you hold them on Hargreaves, they will charge .45% p.a. on top of Vanguard's admin fee. Barclays charge .35% pa I believe. Not outrageous overall but worth bearing this in mind.

Gadge

There are ways to avoid that though; not all brokers charge such fees. I opened an account with Alliance Trust Savings (ATS) specifically because I wanted to put a reasonably decent chunk of money into Vanguard funds and there was no way that I was going to pay a percentage holding fee on top of the charges I was paying to the trust manager.

ATS is about to be taken over by Interactive Investor (ii) and the first thing I rushed off in a panic to look up when I first heard that news was whether ii levy any extra holding fees on funds. It would appear that they don't so that is one option, Hariseldon58 has already mentioned Halifax as another, and I suspect there are other options too.

- Julian

[Urbandreamer]

I very much hesitate to join this debate because I'm not keen on "funds" and question "simplicity".

However surely, IF you are dedicated to fund investment it's simply a case of spending, shall we say 60% on a equity fund and 40% on a bond fund. To be sure you would have to re-balance now and then. However I suspect that anyone asking the question is investing and can likely re-balance by topping up more the one that's doing less well.

Hence the question is, what's wrong with that idea, if you want an alternative?
Two lots of charges may be no more than one, if they are applied to smaller amounts so the level of charge is the only constraint.
If you are continuing to invest, then again little effort.

Why is it so important to put all your eggs in one basket?

[GeoffF100]

I very much hesitate to join this debate because I'm not keen on "funds" and question "simplicity".

However surely, IF you are dedicated to fund investment it's simply a case of spending, shall we say 60% on a equity fund and 40% on a bond fund. To be sure you would have to re-balance now and then. However I suspect that anyone asking the question is investing and can likely re-balance by topping up more the one that's doing less well.

Hence the question is, what's wrong with that idea, if you want an alternative?
Two lots of charges may be no more than one, if they are applied to smaller amounts so the level of charge is the only constraint.
If you are continuing to invest, then again little effort.

Why is it so important to put all your eggs in one basket?

If your investments are in a tax shelter you can rebalance yourself, but there may be costs in time and dealing charges. Rebalancing by using modest cash inflows and outflows does not do much if the stock market value halves overnight. If you are outside a tax shelter rebalancing may also involve paying Capital Gains Tax.

Rebalancing is not always good. If the stock market falls and keeps falling you keep buying more of the falling asset. That is good if the stock market recovers before you need the money, but bad if it does not.

[Urbandreamer]

If your investments are in a tax shelter you can rebalance yourself, but there may be costs in time and dealing charges. Rebalancing by using modest cash inflows and outflows does not do much if the stock market value halves overnight. If you are outside a tax shelter rebalancing may also involve paying Capital Gains Tax.

Rebalancing is not always good. If the stock market falls and keeps falling you keep buying more of the falling asset. That is good if the stock market recovers before you need the money, but bad if it does not.

I confess that I thought that the appeal of LifeStrategy to many was that it DOES rebalance for you. You seem to be arguing that the OP should reconsider their intentions rather than the merrits of alternatives to LifeStrategy.

If we go down that route then the likes of Ruffer or Capital Gearing spring to mind. They actively chose their investments based upon their opinion of the market. I understand that currently they are mostly in bonds, though in the past they have had a high equity component. I wouldn't describe them as "LifeStrategy Like" though, as in the title of the thread.

Here is a link to a article about defensive trusts, however NON of them are like LifeStrategy.
https://www.moneyobserver.com/trusts-sh ... ear-market
They also have higher charges.

[GeoffF100]

If your investments are in a tax shelter you can rebalance yourself, but there may be costs in time and dealing charges. Rebalancing by using modest cash inflows and outflows does not do much if the stock market value halves overnight. If you are outside a tax shelter rebalancing may also involve paying Capital Gains Tax.

Rebalancing is not always good. If the stock market falls and keeps falling you keep buying more of the falling asset. That is good if the stock market recovers before you need the money, but bad if it does not.

I confess that I thought that the appeal of LifeStrategy to many was that it DOES rebalance for you. You seem to be arguing that the OP should reconsider their intentions rather than the merrits of alternatives to LifeStrategy.

If we go down that route then the likes of Ruffer or Capital Gearing spring to mind. They actively chose their investments based upon their opinion of the market. I understand that currently they are mostly in bonds, though in the past they have had a high equity component. I wouldn't describe them as "LifeStrategy Like" though, as in the title of the thread.

Here is a link to a article about defensive trusts, however NON of them are like LifeStrategy.
https://www.moneyobserver.com/trusts-sh ... ear-market
They also have higher charges.

The OP needs to understand the pros and cons of automatic rebalancing. I would not recommend using active funds though.