Readers of some recent posts will not be surprised to learn that the Vanguard LifeStrategy has now been added to my portfolio. It will be a couple more days before I get the confirmation but I think the price will be around £140.
I have been aware of these funds for some years and placed them on my watch list as a potential purchase in 2013. However, I had not really considered them as suitable for my income portfolio as the yields on the respective funds were all too low ~ 1.5% or so. Fortunately, I was reminded by Passive Investor in a comment to an earlier article, that natural yield was not the only way to take income from an investment - it is always an option to sell off some of the capital - say once per year - to achieve the same result.
The other drawback was the extra 0.2% charges I would incur from my broker AJ Bell Youinvest for holding funds - they do not currently charge for holding investment trusts and ETFs.
A One-Stop Solution
The LS funds offer a balanced portfolio of globally diversified equities combined with some gilts and corporate bonds.
They were introduced in June 2011 and provide investors with a neat solution to match their required asset allocation mix between equities and bonds - from 20 to 100. Therefore the LS40 will have 40% equities and 60% bonds; the LS80 will have 80% equities and 20% bonds.
I had a look at annualised returns over the past 4 years :
LS20 7.4% p.a.
LS40 8.4% p.a.
LS60 9.4% p.a.
LS80 10.3% p.a.
LS100 11.0% p.a.
The fund will hold a blended assortment of the Vanguard stand-alone funds. The bond element (assuming you do not want the 100% equity) will comprise a combination of UK gilts, global bonds, corporate bonds and inflation-linked gilts. The equities element includes their UK all share tracker, global tracker and finally, a small exposure to emerging markets.
As my chosen asset allocation in recent years has been approx. 60% equities and 40% fixed interest, I naturally selected the LS60 for my first purchase.
60% equity comprised of Developed World (ex UK) 19.2%, FTSE UK All Share 14.9%, US Equity 13.8%, Emerging Markets 4.3%, Europe (ex UK) 4.2%, Japan 2.2% and Pacific (ex Japan) 1.2%
40% bonds comprised of Global 19.3%, UK Gilts 5.9%, UK Corp. Bonds 3.7%, UK Inflation-linked Gilts 3.2%, Others 7.9%
The total return for the LS60 for each of the last 3 full years has been
The figures for my own portfolio over the same period were 15.5%, 13.3% and 5.4% - slightly better overall but with quite a lot more work, more volatility and probably a little more risk.
The ongoing costs on the LS range have recently been reduced to just 0.24% plus a one-off dilution levy of 0.10%. With the additional platform charges, this makes the combined ongoing charges 0.44% which is the equivalent of some of my lower charging investment trusts. As an aside, I am wondering why Vanguard cannot offer their own lower cost platform as I am sure it would be very popular.
I have purchased the accumulation units and have made a note in my diary to check the additional units and return this time next year. I will then make a decision on what percentage of capital to sell down as ‘income’. I am hoping for something around 4% which should be roughly the equivalent to replacing the dividend yield on my individual shares.
I really do think that putting together a DIY investment portfolio does not come much simpler than this. You decide on your asset allocation, select your low cost broker, set up your automated monthly direct debit - job done, get on with your life! Maybe I should give up on my blog now!!
The new purchase has been funded through the sale of a few more of my individual shares. Centrica and Sainsbury have both recently announced significant cuts to their dividend, also both have seen quite a rise in their respective share price in recent months. The other share to go was Reckitt & Benckiser which has seen an almost doubling of the share price since I purchased some 4.5 yrs previously which I am happy with however this inevitably corresponds to a drop in the yield to below 3% which makes it a little easier to release. I will update my shares portfolio in the near future as there have now been quite a few sales.
In addition to the LS fund, I also took the opportunity to add to my Vanguard All World High Yield ETF(VHYL).
As ever, slow & steady steps.....