One of the aims of writing my ebooks and also setting up this blog was to help ordinary people to better understand personal finance - especially the world of investments.
I have recently been thinking that, for the vast majority of would-be investors, all they really need is a very simple, no-frills diy strategy which will provide a good chance of a decent outcome.
I was recently helping some good friends work through various investment options. They were very aware they were losing out by keeping all their saving in a cash deposit account, especially with the low interest rates of recent years.
They also knew that some investments could provide potentially better returns over the longer periods but they equally had no experience of the stockmarket and did not really have much of a clue which type of investment would be best for their situation and did not want to use a financial adviser as the up-front fees put them off.
I imagine there must be many people in a similar situation. Since the introduction of RDR in 2013, advisers can no longer receive commission payments from the funds they recommend so they generally charge an agreed up-front fee to cover the initial work and recommendation. They may then charge an annual fee to review the portfolio on a regular basis.
A One-Stop Solution
Although I am not able to give specific advice, with a little ‘help’, my friends were able to come up with a really good solution. They decided the Vanguard LifeStrategy (pdf download) funds were just what they needed.
They offered a balanced portfolio of globally diversified equities combined with some gilts and corporate bonds.
They were not sure which broker to use - I suggested they have a look at the Monevator comparison. In the end they opened an ISA account with Charles Stanley Direct as there would be no charges for their monthly contributions and the annual fees were just 0.25%. They have invested some of their savings as a lump sum in the Vanguard LS60(acc) and then set up a direct debit for their monthly contributions into the LS80(acc).
Although they would not be suitable for those seeking a higher natural yield, these funds seem to offer investors a really good low cost option for a simple but effective investing solution.
They were introduced in 2011 and provide investors with a neat solution to match their required mix of asset allocation 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.
The fund will hold a blend 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.
Just looking under the bonnet of the LifeStrategy 60 -
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 ongoing costs have recently been reduced to just 0.24%.
Seems to me 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!
Do others hold this in their portfolio? Leave a comment and let others know what you think about it.