Ten years on, the Vanguard LifeStrategy range continues to be hugely popular with UK retail investors. Today, I’m looking at the arguments for and against having one of these funds as my entire portfolio.

Let’s quickly recap on how they work.

Vanguard LifeStrategy: one-fund investing

Vanguard’s LifeStrategy range is made up of five funds. Each of these differ in the proportion of equities and bonds they hold. So, the LifeStrategy 100% Equity fund invests 100% in stocks. The majority of these are from developed markets, such as the US and UK. 

However, the LifeStrategy 80% Equity fund — which I personally hold — only invests 80% in stocks. The remaining 20% goes into bonds. The LifeStrategy 60% Equity and LifeStrategy 40% Equity therefore offer an increasingly cautious mix. 

If I were very risk-averse, I could opt for the LifeStrategy 20% Equity fund (20/80 equity/bond split). 

Some advantages…

There’s are many reasons why the Vanguard LifeStrategy range has accrued £29bn of investors’ capital over the last 10 years.

#1. Instant diversification. With a few mouse clicks, these passive funds allow me to spread my cash around a massive number of stocks and bonds. Trying to do this any other way would be pretty impractical and expensive.

#2. Low fees. It costs far less to manage a passive fund compared to one run by a human money manager. This allows Vanguard to set its LifeStrategy fees at just 0.22%. Keeping costs low can have a huge impact on returns over time.

#3. Fuss-free. Checking in to my portfolio sporadically is vital if I’m to reach my financial goals. However, the Vanguard LifeStrategy funds require no maintenance. Rebalancing is done automatically. This ensures the equity/bond weighting is maintained. 

#4. Great performance (so far). Since launching in 2011, the funds have beaten a good proportion of their active counterparts. The LifeStrategy 80%, for example, has climbed 150% in value. 

Some drawbacks…

#1. Can’t beat the market. By its very nature, an investment product designed to track market returns will never beat it. As such, a Vanguard LifeStrategy fund will not radically grow my wealth in double-quick time. There’s also no guarantee the performance to date will be repeated.

#2. Too diversified. As Warren Buffett said, diversification “makes little sense if you know what you’re doing.” Those with a tolerance for risk may do better by being more concentrated in only a few (brilliant) stocks. Passive investing means I’m compelled to own market dogs as well as stars.

#3. No small-cap focus. The LifeStrategy funds only hold stocks from the biggest firms in the world. Therefore, I’d need to find another way of getting exposure to smaller, faster-growing companies. Historically, these have delivered greater gains over the very long term.

#4. Inflation. Bonds tend to be negatively correlated with stocks. Holding them is therefore seen as a way of reducing risk. However, inflation is problematic for fixed assets. This could mean those funds with higher bond weightings could struggle going forward.

What I’m doing

I’m happy to keep a Vanguard LifeStrategy fund as a core holding in my portfolio. Even so, I enjoy trying to generate an even better return through my own stock-picking. Whether this actually happens is another thing entirely!

That said, a single fund portfolio like this would probably be ideal if I didn’t have the time, energy, or inclination to follow the stock market’s inevitable twists and turns.

The post Vanguard LifeStrategy: is a single fund all I need? appeared first on The Motley Fool UK.

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Paul Summers owns shares in Vanguard LifteStrategy 80% Equity. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like the Stocks and Shares ISA, those with a SIPP won’t pay any tax on any profits they make or income they receive. Although money can’t be accessed until the age of 55, anything that goes in this account benefits from tax relief. So, someone paying 20% tax on their income would receive a 25% bonus from the government on whatever they deposited (£100 becomes £125, for example). This relief, combined with the magic of compounding over time, can really pay off. 

Another advantage to the SIPP is that you can deposit up to £40,000 within the account in a single tax year — double the allowance permitted in a Stocks and Shares ISA.

Now, £40,000 is clearly a huge amount of cash and most of us won’t be able to contribute anything like that. That said, it could be that you’ve recently received a lump sum from a relative, perhaps through an inheritance. If this is the case, £40,000 would thus grow to £50,000 as a result of tax relief. Put to work in the stock market, this could then become a great retirement fund in time.

Before investing a penny, however, I’d be asking myself two questions.

What’s my attitude to risk?

Knowing your own risk tolerance is key. Those approaching retirement may want to take a more conservative approach compared to those a few decades younger because they have less time to recover from any economic shocks before needing access to their money. For this reason, a heavier weighting in volatile small-cap or high-growth stocks might be appropriate for younger investors but not the former. 

A better bet for those approaching their golden years is to stick with a diversified bunch of dividend-paying blue-chip stocks that have shown an ability to perform regardless of what’s going on in the economy. Within this, I’d include consumer goods firms and pharmaceutical giants.

But your tolerance to risk isn’t the only consideration when planning for retirement. Deciding what to invest in can also depend on how much effort you’re willing to expend tracking your investments.

How much control do I want?

For those disinterested in the stock market, lacking the confidence to pick individual stocks or wanting to further mitigate risk, buying into funds managed by institutional investors is an option (although be aware that most fail to consistently beat their benchmarks after deducting fees).

For me, the passive approach to investing — buying funds that merely track indices like the FTSE 100 and S&P 500 rather than attempting to outperform them — is the best solution for most people, most of the time. My own SIPP is dominated by this type of investment.

And if you’re looking for a way to do the least possible work, Vanguard’s range of low-cost LifeStrategy funds will give you a portfolio in a matter of minutes. These invest your cash in a range of bond and equity exchange-traded funds in different proportions. The LifeStrategy 60% equity fund, for example, invests that percentage in shares and the remainder in bonds — probably ideal for someone in, say, their 40s.

Assuming a not-unreasonable 7% annual return, that £50,000 I mentioned earlier would become £380,000 after 30 years — an excellent base from which to live a long and comfortable retirement.

The post How I’d invest £50k in a SIPP appeared first on The Motley Fool UK.

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Paul Summers has owns shares in Vanguard Life Strategy 80% Equity Fund. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s what you do with this money that can really make a difference to your retirement fortunes. Saving is just part of the puzzle. You’ve worked hard to earn your money, so your money should be working hard for you.

Save, then invest

The best way to get your money working is to invest. For example, over the past five decades, the FTSE 250 has generated an average annual return of between 7% and 9%. In comparison, today the highest interest rate on offer on cash savings is around 2%.

This performance gap makes a difference when you’re saving for the future. £1,000 invested at 2% will grow into just £2,700 over 50 years. However, if your money is earning 9%, £1,000 will become £88,500 over the same period. In other words, a few percentage points of returns could be the difference between achieving a comfortable retirement and having a nasty shock when it’s time for you to leave the workforce.

With this in mind, I have compiled a list of the five top investment funds that I believe can help you achieve the retirement you want.

There are hundreds of investment funds on the market at the moment, but I have chosen these in particular because I believe they offer the best exposure to vital global investment themes at the lowest cost. As they are mostly equity funds, they are only really suitable for investors with investment horizons of 10 years or more. A short-term bond fund might be more suitable for readers planning to retire in the next few years.

Ready-made portfolio

My first top fund pick is the LifeStrategy 60% Equity Fund. The last time I wrote about this at the beginning of March, I claimed that it was one of the best funds around for investors of all experiences due to its international exposure and ready-made portfolio. I continue to believe this is the case today.

Split 60/40 between equities and bonds, the LifeStrategy fund gives buyers a well-diversified portfolio at the click of a button and with charges amounting to only 0.22% per year, it is significantly cheaper to use this instrument rather than try to build a similar portfolio yourself. The fund invests in markets around the world through other tracker funds, so there’s no risk that the managers will make a bad stock pick.

As the global economy continues to expand, LifeStrategy should produce sturdy returns for investors for many decades to come.

Tech focus 

LifeStrategy should continue to do well as long as the global economy continues to grow. The one downside of the fund is that it lacks a specific focus. The Scottish Mortgage Investment Trust (LSE: SMT) on the other hand, has a heavy tech focus.

Managed by James Anderson since 2000, Scottish Mortgage’s portfolio is dominated by some of the market’s biggest and highest-profile tech stocks including Amazon.com as well as Chinese internet giants Tencent Holdings and Alibaba.

These companies have transformed the world over the past decade, and it is highly likely that they will continue to do so for many years to come. Technology is changing the world in ways few thought possible. It’s making investors extremely wealthy along the way. I believe anyone investing for the future should have some exposure to tech stocks, but in this rapidly changing sector, paying an experienced manager like Anderson to look after your money is probably the best solution.

Growing population 

One of the sectors reaping the benefits from technological advances is the healthcare sector. Medical technology is improving at a faster rate than ever before, helping tens of millions of people around the world. As the world grows, the demand for medical services is only going to expand, and this is why I believe the Worldwide Healthcare Trust (LSE: WWH) is worth adding to your retirement portfolio.

This £1.4bn trust has been managed by Sven H. Borho since 1995, an experienced healthcare investor, who’s investment skill has produced strong returns for investors. Worldwide Healthcare does what it says on the tin. The trust is invested around the world in healthcare stocks. From drugs sector giants such as Merck & Co to medical device manufacturers such as Boston Scientific and niche pharmaceutical companies like Edwards Lifesciences, this trust is a one-stop shop for healthcare investing.

The one downside is that it is a bit on the expensive side with an annual charge of 0.9%. That said, Worldwide’s total return of 148% over the past five years, compared to the biotechnology & healthcare benchmark return of 131%, shows it may be worth paying that little bit extra to access the team’s healthcare experience.

Bricks and mortar 

Property is one of the most stable long-term investments. The TR Property (LSE: TRY) fund is a great way to add exposure to this asset class to your retirement portfolio.

TR Property invests in both listed real estate investment trusts and physical property. What’s more, it isn’t just limited to the UK. Only 43% of assets are invested in UK property. The remainder is invested throughout Europe (including borrowings, total exposure is 113.2%). The largest holding, accounting for around 10% of assets is Vonovia SE, Germany’s leading nationwide residential real estate company managing 355,000 residential properties around the country.

With an annual management charge of 0.8%, TR Property will give you instant exposure to a global real estate portfolio. The dividend yield is 2.9%.

Global champions 

Bankers Investment Trust (LSE: BNKR) is my fifth and final pick. I’ve picked Bankers because it has a record of creating value for investors, with a low fee (0.45%) by investing in some of the world’s largest and most innovative companies. Also, unlike most of the other funds profiled, it supports a modest dividend yield of 2.1%.

Today, the top five holdings are BP, Apple, Microsoft, American Express and British American Tobacco, a broad selection of top performing companies from around the world. There are 191 holdings in the portfolio overall.

Over the past decade, this £1.1bn fund has produced a total return for investors of 180%, smashing its benchmark return (FTSE All-Share) of 94.5% over the same period. As the trust has already been in business since 1888, I’m almost certain this would make a great addition to any long-term investment portfolio.

The post Retirement saving: 5 funds that could give you a comfortable retirement appeared first on The Motley Fool UK.

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Rupert Hargreaves owns shares in British American Tobacco. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.