Plug on the TODAY program Radio 4

[548834]

There was quite a lengthy interview with a representative of an American asset management company "Vanguard" explaining how different they were from other 'pacif' fund managers, unfortunately I dozed off (didn't seem that interesting), but I made a mental note to look up Vanguard .

https://www.vanguard.co.uk/uk/portal/home

Seems a bit misleading quote "minimum investment £100k" puts them way out of my league, seemed an excessive plug for such an investment.

Anyone have any opinion, thoughts, comments?

[TedSwippet]

Seems a bit misleading quote "minimum investment £100k" puts them way out of my league, seemed an excessive plug for such an investment.

Explained in this thread.

[mc2fool]

There was quite a lengthy interview with a representative of an American asset management company "Vanguard" explaining how different they were from other 'pacif' fund managers, unfortunately I dozed off (didn't seem that interesting), but I made a mental note to look up Vanguard .

https://www.vanguard.co.uk/uk/portal/home

Seems a bit misleading quote "minimum investment £100k" puts them way out of my league, seemed an excessive plug for such an investment.

Anyone have any opinion, thoughts, comments?

It's passive funds, and if you dig around these boards (and the old TMF ones) you'll find that Vanguard are well respected and their funds much used by folks here. The £100K minimum is (was, until now) only for investments directly with them; you can buy their funds with no minimum through most brokers/platforms in the UK.

[Leither]

I think we spell it "programme" in this country!

Regards,

Leither.

[wydffa]

Vanguard enables UK investors to invest directly in its funds

I guess you have all seen the good news today on Citywire and Monevator. And the drop in HL shareprice!

[JMN2]

I think we spell it "programme" in this country!

Regards,

Leither.

Well spotted, Leither. What they do to promote their funds, man alive!

[Alaric]

The £100K minimum is (was, until now) only for investments directly with them; you can buy their funds with no minimum through most brokers/platforms in the UK.

What's new is that they are now directly entering the retail market by offering access to their funds directly to the public. As well as offering competition to existing fund management groups, they are now challenging, as far as their own funds are concerned, the likes of Hargreaves, TD, Selftrade, Halifax, Barclays etc.

They may well have built up sufficient name awareness and goodwill to make this a successful venture.

[mc2fool]

The £100K minimum is (was, until now) only for investments directly with them; you can buy their funds with no minimum through most brokers/platforms in the UK.

What's new is that they are now directly entering the retail market by offering access to their funds directly to the public.

No, they always offered access to their funds directly to the public. What is new now is that (a) there is no longer a £100K minimum (as I said, was, until now) and (b) they now also offer an ISA.

Oh, and they have a marketing campaign and a new website for it. And, yes, I'm sure they'll be quite successful and take market share from platforms.

[Alaric]

No, they always offered access to their funds directly to the public.

A minimum investment of £ 100,000 isn't exactly accessible.

The Motley Fool drew attention to Vanguard many years ago and regretted that their low cost approach wasn't generally available at a retail level . That was before Vanguard funds were marketed through platforms and the general reconstruction of charges following the near banning of trail commission.

[Bouleversee]

I have just looked at their website for the first time. Can anyone explain the philosophy behind the target retirement funds? Why should this year's performance be higher the further away the target retirement date is?

[DrBunsenHoneydew]

I have just looked at their website for the first time. Can anyone explain the philosophy behind the target retirement funds? Why should this year's performance be higher the further away the target retirement date is?

Because the further away the Target Date, the greater the proportion of Equities in that particular Dated Fund, with less in Bonds,
e.g. the 2020 Fund has 41% bonds while the 2055 Fund has only 18%.
And equities have done better recently than Bonds. So the more equities you had, the better the result.

[TedSwippet]

Can anyone explain the philosophy behind the target retirement funds?

As for their philosophy, Vanguard's detailed rationale is here. The tl;dr is that these funds gradually de-risk by shifting the balance away from equities and towards bonds as the target retirement date approaches.

Personally, I think that these types of funds are a great answer to a problem that mostly no longer exists. Their main selling point would be to avoid suffering a large fall in portfolio value just before purchasing a lifetime annuity. A great idea in the days when most people bought annuities.

But with close-to-zero interest rates pushing annuity rates to rock-bottom levels, and flexi-drawdown, this now seems a lot less useful. Potentially even harmful, if you have no intention of buying an annuity but instead living purely on drawdown for an extended period.

[Bouleversee]

Thanks both. I tend to agree with Ted Swippet, especially as we are in theory living a lot longer and with inflation might end up rather poor. I wonder how many people still employ that strategy.

[DiamondEcho]

Vanguard's approach of reducing risk/locking-in gains in progressive steps in the run-up to retirement was very much the strategy the American bank I worked for used until I left in c2001. It was an industry-wide approach. It wouldn't surprise me if it still has an element of that approach in place to this day. An interesting question might be whether the applicability of this approach varies by country. Is it more valid for Americans but less so for Brits?

I'll be coming up for early retirement soon and it is a subject that I've considered and haven't yet reached a firm conclusion on. FWIW what I have been noticing of late is quite a lot of articles suggesting an investor not de-risk for retirement, but permanently remain 100% in equities. This is striking for me as the concept of de-risking into retirement was ... almost a rule 'written on a tablet of stone'. In a way for the private investor, especially a HYPer, not de-risking/diversifying into bonds is simpler, since bonds have historically not been economically available to the retail investor. Either way, with global interest rates where they are I imagine any value of de-risking into retirement is more than negated by this being perhaps the worse period of time in living memory to be buying bonds.

[swill453]

I'll be coming up for early retirement soon and it is a subject that I've considered and haven't yet reached a firm conclusion on. FWIW what I have been noticing of late is quite a lot of articles suggesting an investor not de-risk for retirement, but permanently remain 100% in equities. This is striking for me as the concept of de-risking into retirement was ... almost a rule 'written on a tablet of stone'.

As has been mentioned, if you're going to spend your whole pension pot on an annuity on the day you retire, it makes sense to de-risk as you approach the date. Otherwise a market dip could affect your income for the rest of your life.

However it wouldn't surprise me if the proportion of DC pensioners taking out an annuity has dropped from the vast majority to a tiny minority in the last decade.

If you're going to use drawdown instead, then "locking in the gains" for a specific date is the last thing you want to do.

Scott.

[DiamondEcho]

As has been mentioned, if you're going to spend your whole pension pot on an annuity on the day you retire, it makes sense to de-risk as you approach the date. Otherwise a market dip could affect your income for the rest of your life.
However it wouldn't surprise me if the proportion of DC pensioners taking out an annuity has dropped from the vast majority to a tiny minority in the last decade. If you're going to use drawdown instead, then "locking in the gains" for a specific date is the last thing you want to do. Scott.

- Hmmm, it depends. The clients we were dealing with were not the demographic who would be buying pre-retirement annuities, actually I rather doubt the likes of annuities existed for many of the international client's markets. It was long-term private client investors, wealthy from the start. And the over-riding rationale was roughly, when you retire you have one overall pot, and if it's damaged you haven't time to make it back, so accept an element of lower income in return for lower risk. Anyway, we're talking about 20yrs ago now and it's quite possibly changed.
- Agree with you re: drawdown v lock-in.
- Here is an example of the kind of article I was referring to earlier re: sticking with equities to the end.
http://www.morningstar.co.uk/uk/news/15 ... .aspx?ut=2 Summary/extract:
'The old methodology worked when you were forced to buy an annuity at 65 or whatever your state pension age was. You wanted to make sure you had capital preservation in those last couple of years before you have to buy that annuity. Now that you no longer have to buy an annuity, the goalposts have been moved and you're saving not at the end date of 65, but 75, 85, 95 or whatever your life expectancy is.'