The Vanguard investor's LifeStrategy has many different funds. I am 'putting all my eggs in one basket'?
18 February 2021
Question by Kay
Hi, I am 27 yo and just started my serious financial plan. I got a £130k mortgage with 23 years left and been contributing 30% towards my pension (my employer is matching up with 15%). I am looking to invest £300 into Vanguard investor's LifeStrategy® 100% Equity Fund every month. Given that the fund includes so many different type of funds, will this still be too risky that I am 'putting all the eggs in one basket'? Many thanks!
Answered by Carla Brown
It’s great that you already have a plan for your finances and you are certainly off to a great start with the pension contributions being made by yourself and your employer. I am assuming that the £300pm you are talking about is in addition to your pension contributions? It sounds as though you have already done your homework on the Vanguardinvestor's LifeStrategy® 100% Equity Fund, and so I am sure you are aware that more than 90% of it's assets are invested in Vanguard passive funds that track an index. Investing in passive funds can be a very cost-effective way to invest and can give a good level of diversification, but there are also lots of arguments to say that active investing with a more hands on approach can also deliver good returns as an active manager aims to beat the stockmarket's average returns.
With regards to the equity content of the funds you choose, this really depends upon your own attitude to risk and the timescale of the investment you are looking to make. In theory, the longer you are looking to invest for, the more risk you should be comfortable taking as you have time to ride out the inevitable peaks and troughs of the markets. If you are investing for a shorter time period, or have a set target on a specific date, then you may be more comfortable taking a lower risk, lower equity content fund. So the questions to ask yourself are what am I investing for and how long can I invest for? You also need to consider your capacity for loss, do you have other funds you can access if your investments suddenly fall in value? Are you totally reliant on them? How will you feel if, and when, the markets fall?
You also mention your mortgage, have you considered making additional repayments on your mortgage as an alternative to investing, or even a combination of investing and debt repayment?
I hope this helps clarify your thinking, but if you want to explore this further and refine your plan I would suggest taking professional advice personalized to your own circumstances.