What does your UK Vanguard portfolio contain?

[Jesse112]

Hello to all,

I was wondering if any of you would be happy to share your chosen investment approach on Vanguard.

I have all of my stocks in the entire USA stock market equivalent to VSTAX called "U.S. Equity Index Fund - Accumulation"

I decided to go crazy with this and go highest risk because I'm still not 100% retired. I decided to invest in the USA as it seems like the track record historically has been stronger than the UK... Some people prefer to put their money in the country of residence but I decided to go with my gut. So far I have a 50%+ return on my account.

On my partners Vanguard she has LifeStrategy 80% and also "U.S. Equity Index Fund - Accumulation" but I felt like I wanted to just go all in on a single index fund to keep things simple on my side.

What has been your approach and how has it worked for you?

Thanks - MW

[daverobev]

First work out what percentage of stocks vs bonds you are comfortable with.

Then take the cheapest global fund or ETF you can find, and then an all duration Gilt fund/ETF for the rest.

That's the simple two item portfolio.

If you have an actual account with Vanguard, you'll want VWRL/VWRP (distributing/accumulating - former in a general trading account is probably simpler? while in a SIPP or ISA the latter makes life simpler), and VGOV/VGVA (ditto).

Global is still quite a lot US, but a nice chunk of not US as well. Nobody outside the US is suggesting 100% home country stocks, and the only country that could really get away with that is the US because so many multinationals are there.

Don't complicate things.

[PhilB]

I'm with daverobev.  VLS sounds nice for the automatic rebalancing, but has too much home country bias.  Cheap global tracker every time for equities. 

Yes US stocks have done well for you.  How much of that is fundamentals though, or just the fact that US PE ratios are currently way above the international average?

[Jade]

We have VLS 60 after taking advice here. We're not up on the details or nuances and this is working fine for us.

[Affable Bear]

We are all in S&P 500 UCITS ETF at the moment, that might change in the medium/long term but for now we are happy with the risk profile and returns. We have been with Vanguard Sp500 since 2020 and we are up around 70% (market weighted returns), just wish our pot was a bit bigger! 

There are a lot of different opinions and preferences out there, ultimately its down to your circumstances and what risk tolerances you are happy with. We are still young and it makes sense to be 100% in stocks, if theres a significant dip it will hurt for a few days but then im buying stocks super cheap so bring it on!

When we do plan to retire we are going to have 2-3 years living expenses in cash and the rest will stay in stocks so if there is a downturn we drawdown the cash not the stocks so it should help insulate us from market fluctuations. I have a DB pension too so when that kicks in it makes it a lot easier to stay invested, personally I dislike bonds especially if you have 10-20+ years of investing left to do but that might change when im 5 years out who knows.

[Jesse112]

I'm with daverobev.  VLS sounds nice for the automatic rebalancing, but has too much home country bias.  Cheap global tracker every time for equities. 

Yes US stocks have done well for you.  How much of that is fundamentals though, or just the fact that US PE ratios are currently way above the international average?

Thanks for your answer @PhilB what do you mean about Fundamentals or US PE ratios?

[Jesse112]

We are all in S&P 500 UCITS ETF at the moment, that might change in the medium/long term but for now we are happy with the risk profile and returns. We have been with Vanguard Sp500 since 2020 and we are up around 70% (market weighted returns), just wish our pot was a bit bigger! 

There are a lot of different opinions and preferences out there, ultimately its down to your circumstances and what risk tolerances you are happy with. We are still young and it makes sense to be 100% in stocks, if theres a significant dip it will hurt for a few days but then im buying stocks super cheap so bring it on!

When we do plan to retire we are going to have 2-3 years living expenses in cash and the rest will stay in stocks so if there is a downturn we drawdown the cash not the stocks so it should help insulate us from market fluctuations. I have a DB pension too so when that kicks in it makes it a lot easier to stay invested, personally I dislike bonds especially if you have 10-20+ years of investing left to do but that might change when im 5 years out who knows.

Hey @Affable Bear, thanks for you answer. It seems like you're the only one that answered in the detailed way I wanted to hear from other so thanks for being open with your strategy.

I'm not in love with VLS. I can understand the whole idea of it rebalancing itself but to be honest I don't even want to rebalance. I wanted to go with the extreme simplicity of Simple Path To Wealth by only going for 1 index and go 100% stocks.

I'm not super young early 40's but as me and my wife's ISA's are not our primary investments (We own property, a business and also have invested through an IFA via our business) I feel like I'm happy to take a bigger risk.

I believe that when I have 0% of my income coming from employment I'll probably create my own portfolio on Vanguard or go for lifestrategy.

I know the S&P is strong and even Warren Buffet said he'd recommend his family to invest in it but I also like the idea of going for the entire USA stock market rather than just the best 500.

What made you go for S&P?

Thanks!

[PhilB]

I'm with daverobev.  VLS sounds nice for the automatic rebalancing, but has too much home country bias.  Cheap global tracker every time for equities. 

Yes US stocks have done well for you.  How much of that is fundamentals though, or just the fact that US PE ratios are currently way above the international average?

Thanks for your answer @PhilB what do you mean about Fundamentals or US PE ratios?

In a totally rational world, the value of a stock would be the net present value of its expected future dividend stream, appropriately discounted for the perceived risks to that dividend stream.  In the real world, people behave irrationally and prices get driven up or down based on far more random things - hence meme stocks, etc.with people just jumping on the bandwagon because they've seen other people make money and so you get a bubble.

By fundamentals I mean the underlying attributes of a company or economy that make it more or less likely that the companies behind those stocks will make good profits and be able to return wealth to shareholders.

The Price Earnings ratio is one of the key tools used by investors in trying to determine if a stock is under or over valued in the market.  How many years' worth of profits does the company's share price represent?  It's a crude measure, of course, because it doesn't allow for situations where future profits are expected to be very different from historical ones, but it's still a useful indicator.  What that indicator is saying is that US stocks are much more expensive, compared to current profitability levels, than international ones.  The question is, is that reasonable because the US is 'special' and profits will grow faster there, or does it indicate a bubble in US stock prices?

[shelivesthedream]

I am a bear of very little brain when it comes to this. I don't know if I am invested optimally, but I feel I am invested adequately.

We had previously bought Vanguard LifeStrategy 100. I panicked a few years ago for some reason and bought a FTSE All Share Tracker. Now that we are a few years further on in our life (in our 30s rather than in our 20s, basically, and we have invested the max into our LISAs and expect to buy a house one day but not soon), I have switched to buying Vanguard LifeStrategy 80, although I am at present keeping both of the previous purchases rather than converting. They'll just become a reduced percentage of our portfolio as we buy more VG LS 80. I don't know if this is the *best* investment for us, but it's good enough and I'm not paralysed by choice or optimisation.

Our LISAs are with Hargreaves Lansdown (but we buy Vanguard funds through them) and our ISAs and my SIPP are with Vanguard.

[PhilB]

I am a bear of very little brain when it comes to this. I don't know if I am invested optimally, but I feel I am invested adequately.

We had previously bought Vanguard LifeStrategy 100. I panicked a few years ago for some reason and bought a FTSE All Share Tracker. Now that we are a few years further on in our life (in our 30s rather than in our 20s, basically, and we have invested the max into our LISAs and expect to buy a house one day but not soon), I have switched to buying Vanguard LifeStrategy 80, although I am at present keeping both of the previous purchases rather than converting. They'll just become a reduced percentage of our portfolio as we buy more VG LS 80. I don't know if this is the *best* investment for us, but it's good enough and I'm not paralysed by choice or optimisation.

Our LISAs are with Hargreaves Lansdown (but we buy Vanguard funds through them) and our ISAs and my SIPP are with Vanguard.

It's lovely to see someone else follow exactly the investment strategy I did - ie change my mind, but not sell any of the old ones, just in case :)  FTSE all share is the one I think you should sell, but who am I kidding?

[bownyboy]

Me and my wife combined are 95% equities (VWRP) and 5% cash.

We're 2.5 years into FIRE and happy with the volatilty.

The 5% cash equals one year of expenses.

When we started investing in 2011 we were in VLS60 as that was the 'safe' option and we didn't know much about investing.

Since then we've learnt more and decided to move to VWRP and away from 40% bonds due to our 40 year retirement and wanting equities.

[Affable Bear]

I know the S&P is strong and even Warren Buffet said he'd recommend his family to invest in it but I also like the idea of going for the entire USA stock market rather than just the best 500.

What made you go for S&P?

Thanks!

Hi MW!

We discovered MMM around 2017 but we were both moving around alot and switching jobs, paying debt off and buying our first house etc.. So for 3 years we werent really able to invest. When we were finally set to go Covid hit and we knew the most about the S&P 500 at the time and had the most confidence in it. MMM had talked alot about it and we figured the largest companies in the strongest economy would be a better bet at the time, since then we havent felt much need to change.

I have looked at the US Total Market Index fund and I think it has performed very closly to the S&P so far but that’s probably not a surprise as its a weighted index that covers the entire US market including the S&P. We would happily own either fund being truthful but we're already in S&P.

I think its probably more important to invest consistently, whatever gets you into it can only be a good thing and the rest is gravy. As you said there’s businesses, property and career development that could have a bigger impact than spending hours and hours researching and optimizing.

SLTD hits the nail on the head pretty well and I think most can relate to this!

I am a bear of very little brain when it comes to this. I don't know if I am invested optimally, but I feel I am invested adequately.

I don't know if this is the *best* investment for us, but it's good enough and I'm not paralysed by choice or optimisation.

[fee-fi-fo-fum]

My simple answer:

When I started, I put everything into VUSA and then switched to VUAG since I would be reinvesting all the dividends anyway. These seem to be the cheapest Vanguard UK S&P ETFs.

Since then, I have switched from investing using Vanguard's platform to using Trading 212. They have no platform fee, which ironically makes them the cheaper option than Vanguard itself to invest in Vanguard funds.

Once again, after some research and consideration, I'm now investing in VHVG. As I don't intend to make any "bets" with the majority of my portfolio, an all-world option seemed more appropriate.

[cerat0n1a]

SIPP has one of the lifestyle funds VLS80 from memory, but it might be VLS60.

ISAs are about 80% VWRL, but for various historic reasons, VFEM, VGOV, VERX, VJPN, VUSA, VAPX and VUKE are in there in smaller quantities.

[MustacheAndaHalf]

Yes US stocks have done well for you.  How much of that is fundamentals though, or just the fact that US PE ratios are currently way above the international average?

Thanks for your answer @PhilB what do you mean about Fundamentals or US PE ratios?

There's a measure called "Cyclically Adjusted P/E" ratio (CAPE), which was co-created by Robert Shiller, and so is also called Shiller P/E ratio.  It divides 10 years of earnings by the current price of each stock.  For the U.S. S&P 500, here is a historical graph of that ratio:
https://www.multpl.com/shiller-pe

There isn't a rule that always predicts stock market returns.  Compared to other measures, CAPE ratio has a better (inverse) correlation (0.4) with future stock market returns.  When P/E ratios and CAPE ratios are higher, returns going forward tend to be lower.  You might say investors are overpaying (the "P" from price) for the same amount of money generated by a company ("E" from earnings).  It is worth noting that U.S. accounting standards have changed, so measures from 30+ years ago might not be comparable to now.

From 2020-2021, CAPE spiked, and then crashed (with the U.S. market) in 2022.  From 1994-1999, CAPE spiked and then fell during the dot-com crash.  Those were the two highest CAPE levels in history, and the third is right now.  That is worth considering for those who invest in U.S. stocks based on historical averages, without considering how much investors are paying for earnings.

[Affable Bear]

From 2020-2021, CAPE spiked, and then crashed (with the U.S. market) in 2022.  From 1994-1999, CAPE spiked and then fell during the dot-com crash.  Those were the two highest CAPE levels in history, and the third is right now.  That is worth considering for those who invest in U.S. stocks based on historical averages, without considering how much investors are paying for earnings.

Very useful, if scary tools.. I think sometimes it can still be worth paying a premium depending on your preferences. You could look at CAPE ratios for Russia or Turkey and think blimey they are incredible value looking at analytical tools and numbers alone but obviously there are reasons why their values are so attractive. Obviously its pretty much impossible to invest into Russia even if you wanted too but Turkey has a lot of political turmoil and high inflation at the moment. 

I liken it to buying a suspiciously cheap used car vs an overpriced new one. You know you are paying over the odds for the high cost one but you know it will probably get you to where you need to go. Suspiciously cheap one might be a bargin and get you there for half the cost or twice the speed but the timing chain could snap and engine explode along on the way.

That said its probably why there are a large number of people that prefer world tracker funds where their exposure to the US is around 65-70% instead or opt for an 80/20 bond split, or invest in property etc..

Ultimately its a personal choice depending on where you sit risk wise and how long you have to recover from a downturn or extended period of poor results. If you are at the start of your journey it probably doesnt matter too much (unless US stocks tank permantly) but certainly worth considering if you are close to retirement or if you want to temper the risk with a world tracker/bonds/other investments.

[TacheTastic]

My exceptionally small amount of VG is in Lifestrategy 80 in my LISA.

I have a similar thought process to SLTD. Good enough is just that.

One piece of advice I have taken from someone I respect was that the best-performing portfolios are those of dead people, as they don't spend loads tinkering. I've tried to take the same approach since, and tend not to move stuff around much. I switched a pension to a service with better fee structure to save some money there, but otherwise my plan is to just keep my head down and not rock the boat.

I'm never going to have a huge portfolio. I just don't have the income. I have to optimise costs instead, and moving from one product to another often introduces charges that I'd rather avoid.

[okonumiyaki]

Because I love complicating things target level is:

40% world equity
10% US
6% UK large cap
6% UK mid cap
20% UK gilts
18% emerging markets.

Overexposed to US at the moment as so much of the world equity is also US... at my next rebalancing might sell and go 50% world