Vanguard Lifestrategy 60 - Year 3 Update

It is now three years on since my initial purchase of this all-in-one fund in May 2015 so time for another annual update.

I believe the average investor could do well from adopting a very simple, no-frills low cost diy strategy which makes sense, which can be tailored to fit in with a variety of attitudes to risk/market volatility and has every chance of providing a decent outcome.

Investing is all about the long term for the best probability of a good result. Investors therefore need a sound strategy which will provide them with every chance of lasting the course or ‘staying in the game’.

A One-Stop Solution

The Vanguard LifeStrategy funds offer a balanced portfolio of globally diversified equities combined with some gilts and corporate bonds. You are invested in 11 industrial sectors and 12 different types of investment, 17 specialist funds, spread across 25 countries and some 18,000 individual shares and bonds.

They were introduced in June 2011 and provide investors with a neat solution to match their asset allocation between equities and bonds -  from 20 to 100. The number represents the level of equities held in each fund, therefore the LS40 will have 40% equities and 60% bonds; the LS80 will have 80% equities and 20% bonds.

The single funds LS20, 40, 60 & 80 will hold a blend of around 17 or so of the Vanguard stand-alone equity and bond funds. Each of these will hold many hundreds of individual stocks or bonds - for example, just 1 of the 17 constituents is the FTSE Developed World (ex UK) fund which alone holds ~2,000 stocks & shares.

Therefore, by holding just a single LifeStrategy fund, your portfolio is widely diverse with over 18,000 stocks/bonds from all around the world. 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 funds and some exposure to emerging markets.

The big advantage for me is the auto rebalance to ensure the fund always remains at the risk level selected at the start - in my case with VLS60, 60% equities. The fund is frequently rebalanced - possibly daily.

I had a look at annualised returns for each fund from inception to end April (just short of 7 yrs):

LS20   5.86% p.a.

LS40    7.24% p.a.

LS60    8.54% p.a.

LS80    9.76% p.a.

LS100 10.9% p.a.

(click to enlarge)

Vanguard LifeStrategy 60 Mix

The VLS60 is the most popular with UK investors and has £3.8bn of assets. Just looking under the bonnet of the fund -

60% equity comprised of Developed World (ex UK) 19.3%, FTSE UK All Share 15.3%, US Equity 13.5%, Emerging Markets 4.9%, Europe (ex UK) 4.0%, Japan 2.3% and Pacific (ex Japan) 1.1%

40% bonds comprised of Global 19.1%, UK Gilts 5.8%, UK Corp. Bonds 3.6%, UK Inflation-linked Gilts 3.7%, Others 7.5%

The ongoing charges are 0.22% (worth noting its US equivalent has charges 0.13%)

Performance

So, how has the fund performed? I made my initial purchase in my ISA with Halifax Share Dealing in May 2015. My average purchase price was £136.50.

The current price is £178.67 which is a gain of 5.4% over the past year and three years on is up by 30.9%. This is an average annualised increase of 9.4% p.a.

By comparison, the total return for the FTSE All Share over the same period is around 20% so the combination of 40% bonds and a wider exposure to global equities in the VLS fund is working very well so far.

Of course, the bonds provide a much less volatile ride compared to a fund with just equities which makes it easier to remain invested. As I am not the type of person who can handle too much volatility, this fund (and my recent addition of the VLS 40) help me to stay invested and this is why they represent the core of my portfolio.

The total return for the LS60 for each of the last 6 full years has been all positive :

2012   9.29%,

2013 11.13%

2014   9.36%.

2015   2.53%

2016 18.27%

2017   8.67%

Income

The natural yield on the fund is ~1.4% however I really need an income from my investments of around 4%. I have purchased the accumulation version of the fund with the intention of selling off units each year to provide the 'income' I require. In 2016 I actually sold 8% of my holding due to the one-off boost from the fall in sterling post June 23rd and this has provided my income for the past two years. This year I will sell off a further 4% from the 8.6% rise in 2017 - so far I have not needed to dip into the cash buffer.

The appeal of the VLS strategy is its simplicity combined with good performance compared to other strategies. It 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 broker, invest your lump sum and/or set up your automated monthly direct debit - job done, get on with your life!

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Leave a comment below if you hold VLS or have any thoughts generally.