Friday, 24 April 2015

Vanguard LifeStrategy - A One-Stop Solution

As an experienced investor, sometimes I can lose sight of the fact that many people struggle with financial matters in general and investments in particular. What may appear to be a straight forward concept to me, could well be difficult for others to grasp.

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).

Vanguard LifeStrategy

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.

Saturday, 18 April 2015

Shares Portfolio - Sales and New Purchase

Last month I started to put into place my revised strategy in relation to my individual shares portfolio - here’s the concluding part of my post :

New Strategy

I have asked myself a couple of questions -

Does my shares portfolio give me an edge over the other possible strategy options, and

Is all the time and effort I put into researching and running such a portfolio worth it?

If I am honest, the answer to both has to be NO.

Having regard to all of the above, I think it is fairly clear that my individual shares have been the weakest link of my income strategy to-date. I feel therefore the time has probably come to wind down the shares portfolio and redirect investment towards my investment trusts, ETFs and also to embrace the possibility of more low cost tracker funds such as my recent purchase of Vanguard UK Equity Income.

That’s not to say I will be selling all my shares, for the time being, I will maintain a slimmed down portfolio of what I regard as solid long term core holdings - the likes of Unilever, Next, Reckitt etc. I have however started to sell off some of my shares which have seen significant share price appreciation and which, as a result, have become lower yielding holdings.

Portfolio Sales

In the past week there have been a couple more disposals.

Firstly, my 'half' holding in Charles Stanley was sold following a pre close trading update in which the Company announced a final dividend of just 2p making a total of 5p for the full year. This is a significant reduction on the 12.25p paid the previous year. If this were the only holding to reduce its dividend, maybe it could be accommodated - sadly however, it is actually the fourth share holding to announce a cut over the past year.

Fortunately, the share price has seen a gain of 25% in a little over 6 months since acquisition last year. Sale price was 374p and net proceeds £1,841 after broker sale costs.

Secondly, I have decided to offload Diageo. The share price had advanced nearly 10% in a very short timeframe which brought the yield below 2.7%. I have held this share for some years and believe it is a really good company with strong brands so the decision to sell was marginal, however whilst I could afford the luxury of one or two lowish yielders last year, this is no longer the case.

I still have a significant exposure to DGE via my investment trusts - particularly Nick Train’s Finsbury Growth & Income.

The sale price was £19.79 giving net proceeds of £1,613.

New Purchase

I have a substantial holding in the Vanguard UK Equity Income fund so, for the time being, I will let that bed down and see how the income distributions roll in.

As equity markets are historically high and therefore yields on the low side, I have decided, for the time being, to go for some higher yielding fixed income.

I have seen some good reports on City Merchants High Yield trust and have therefore decided to add this to my portfolio.

The combined sale proceeds were £3,454 and I have therefore acquired 1,780 shares @ 193.4p. The trust has a quarterly dividend of 2.5p per share which will deliver £44.50 to be paid in May - the annual amount is currently 10p which gives a starting yield of 5.2%. The trust has recently issued its results for 2014 - here’s a link for anyone interested.

Hopefully, this should help to restore income lost due to dividend cuts from the likes of Tesco, Sainsbury and Centrica.

Take it easy this weekend!

Sunday, 12 April 2015

A Break in Pembrokeshire

Its almost two years since my last Nature post so time for another! One advantage of being retired is having the freedom and time to pursue the things you like doing.

One of the simple pleasures in life for me is walking so I jumped at the offer of joining a friend - also retired - for a few days holiday in Pembrokeshire close to the coastal path and an opportunity to remind myself of some of the things that really matter away from the world of investments and pensions.

The weather forecast was set fair for the whole week which was quite a contrast compared to the wind and rain just before the Easter holiday.

Opened in 1970, the Pembrokeshire Coast Path was the first National Trail in Wales and is one of 15 National Trails in Britain. The path hugs the coastline for 186 miles (300km) of some of the most breathtaking coastal scenery in Britain.

The undulating nature of some parts of the path present physically demanding ascents and descents, however it can be enjoyed in shorter sections accessible to walkers of all ages and abilities. Although I like to walk, I am not quite as fit these days as I would like so a walk of 2 to 3 hours - maybe around 6 - 7 miles would be the max. for any one day.

The coastal path is stunning all year round but I particularly enjoy the Spring renewal. At this time of year, the path is strewn with coconut-scented gorse intermingled with the distinctive white blossom of blackthorn which later in the year will provide the sloe berries. At the side of the narrow path are pockets of wild primroses, red campion, speedwell, celandine, violets and stitchwort to name a few of the more common sightings.

Surprisingly for the time of year, there seemed to be few sea birds nesting on the spectacular cliffs. Maybe it was just our location - some 5 miles north of Fishguard. We saw many red kites on the journey down, which seem to be flourishing after their recent reintroduction. In 1980s this distinctive bird was one of only three globally threatened species in the UK, and so it became a high priority for conservation efforts. Other birds of note were buzzards, song thrush and some oyster catchers with their distinctive call.

So, a great few days away recharging the old batteries, fantastic scenery and wildlife, some good simple food and a good book to pass away the evenings beside the log stove. Simple pleasures indeed.

(Appreciation of the wonderful conversion by John & Jo!)

Be good to return and have a few more days later in the year, but its back to the wind and rain to complete the gestalt!

Now, lets check if those dividends came in whilst I was away……