Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
I'm not understanding the sense behind a static allocation fund that is 80 percent world stocks (Vanguard Life Strategy Growth) versus one that is 100 percent world stocks (Vanguard Total World Index). If you look at the performance of these two funds, you'll see that they basically track one another, except that, of course, the Life Strategy is always held back by the meager bond allocation.
So what's the point of such a Life Strategy fund? What would the scenario be in which the Life Strategy would be preferable to the Vanguard Total World Index? The former does not seem to provide much safety, but it does seem to guarantee underperformance.
So what's the point of such a Life Strategy fund? What would the scenario be in which the Life Strategy would be preferable to the Vanguard Total World Index? The former does not seem to provide much safety, but it does seem to guarantee underperformance.
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Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
VT had a larger drawdown and has been more volatile than VASGX, as expected:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
If we use VTSAX and VGTSX instead of VT, we can look back further, and the result is similar. VASGX is less risky, and has performed accordingly.
https://www.portfoliovisualizer.com/bac ... ion3_2=100
https://www.portfoliovisualizer.com/bac ... ion2_2=100
If we use VTSAX and VGTSX instead of VT, we can look back further, and the result is similar. VASGX is less risky, and has performed accordingly.
https://www.portfoliovisualizer.com/bac ... ion3_2=100
Last edited by Northern Flicker on Sat Oct 16, 2021 1:22 pm, edited 1 time in total.
Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
Thanks. I need to use that tool more often.
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Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
In general, 80/20 portfolios do just as well as 100/0 portfolios. You might want to check out the accuracy of that statement by combining various funds as you play around with Portfolio Visualizer.
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Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
Your question is "why hold bonds?" Lots of threads on it.
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Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
All of the life strategy funds have bonds. You need to compare apples to apples.
When you are drawing down your portfolio you will appreciate the bonds more. Look up sequence of returns risk.
When you are drawing down your portfolio you will appreciate the bonds more. Look up sequence of returns risk.
Rules to investing: |
1. Don't lose money. |
2. Don't forget rule number 1.
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Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
Namajones,
You're starting to discover a well-known fact for those who have taken the time to analyze portfolio behavior; 20% in bonds doesn't sufficiently diversify a portfolio to "move the needle". This is probably why Benjamin Graham gave the timeless advice:
I'd say that 50/50 U.S./international stocks is close enough to 100% world stocks:
Source: PortfolioVisualizer (selecting the "Logarithmic scale" and "Inflation adjusted" options below the chart)
Using 50/50 U.S./international for stocks, here's a chart comparing 100% stocks, 60/40 stocks/bonds, 100% bonds, and 100% cash for the longest available period in Portfolio Visualizer using mutual funds that investors could actually invest into:
Source: PortfolioVisualizer (selecting the "Logarithmic scale" and "Inflation adjusted" options below the chart)
Over this specific 25 years and 5 months period (starting with the availability of VGTSX), the 60/40 stocks/bonds portfolio harvested most of the returns of stocks while experiencing significantly less volatility.
Why (enough) bonds? To diversify a portfolio, as in not putting all of one's eggs into the single "stocks" basket (not in the hope of increasing returns). Unlike cash, bonds are marketable securities; like stocks, their price is set by investors who trade them and, therefore, fluctuates according to supply and demand. A total-market bond holding is much more complex and sophisticated than often portrayed.
Here's the link to a post about the unintuitive and surprising Mathematics of Retirement Investing, justifying the use of a balanced portfolio during accumulation for an investor who wishes to hold a moderately volatile portfolio.
You're starting to discover a well-known fact for those who have taken the time to analyze portfolio behavior; 20% in bonds doesn't sufficiently diversify a portfolio to "move the needle". This is probably why Benjamin Graham gave the timeless advice:
For backtests in PortfolioVisualizer, it's best to use VTSMX for U.S. stocks, VGTSX for international stocks, and VBMFX for U.S. bonds so as to get charts starting as far as May 1996 (based on the availability of VGTSX returns).We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequence inverse range of 75% to 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50, between the two major investment mediums. -- source: The Intelligent Investor, ISBN 978-0060555665
I'd say that 50/50 U.S./international stocks is close enough to 100% world stocks:
Source: PortfolioVisualizer (selecting the "Logarithmic scale" and "Inflation adjusted" options below the chart)
Using 50/50 U.S./international for stocks, here's a chart comparing 100% stocks, 60/40 stocks/bonds, 100% bonds, and 100% cash for the longest available period in Portfolio Visualizer using mutual funds that investors could actually invest into:
Source: PortfolioVisualizer (selecting the "Logarithmic scale" and "Inflation adjusted" options below the chart)
Over this specific 25 years and 5 months period (starting with the availability of VGTSX), the 60/40 stocks/bonds portfolio harvested most of the returns of stocks while experiencing significantly less volatility.
Why (enough) bonds? To diversify a portfolio, as in not putting all of one's eggs into the single "stocks" basket (not in the hope of increasing returns). Unlike cash, bonds are marketable securities; like stocks, their price is set by investors who trade them and, therefore, fluctuates according to supply and demand. A total-market bond holding is much more complex and sophisticated than often portrayed.
Here's the link to a post about the unintuitive and surprising Mathematics of Retirement Investing, justifying the use of a balanced portfolio during accumulation for an investor who wishes to hold a moderately volatile portfolio.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
The life strategy funds have been around since 1994 (long before VT/VTWAX existed).namajones wrote: ↑Sat Oct 16, 2021 3:14 am I'm not understanding the sense behind a static allocation fund that is 80 percent world stocks (Vanguard Life Strategy Growth) versus one that is 100 percent world stocks (Vanguard Total World Index). If you look at the performance of these two funds, you'll see that they basically track one another, except that, of course, the Life Strategy is always held back by the meager bond allocation.
So what's the point of such a Life Strategy fund? What would the scenario be in which the Life Strategy would be preferable to the Vanguard Total World Index? The former does not seem to provide much safety, but it does seem to guarantee underperformance.
Vanguard has a "all in one fund" strategy for Target Retirement funds that adjust allocation over time based on estimated retirement age, and an "all in one" fund strategy for fixed allocations with the LifeStrategy funds. The all-in-one fund products are there if you want to use them; if they aren't the right choice for you it is easy to pick something else. Maybe some day the LifeStrategy funds will get the expense ratio reduction that the Target Retirement funds got a few weeks ago.
Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
Those TR and LS funds are indeed great if their allocations meet your needs. I use them myself.stan1 wrote: ↑Sat Oct 16, 2021 11:14 amThe life strategy funds have been around since 1994 (long before VT/VTWAX existed).namajones wrote: ↑Sat Oct 16, 2021 3:14 am I'm not understanding the sense behind a static allocation fund that is 80 percent world stocks (Vanguard Life Strategy Growth) versus one that is 100 percent world stocks (Vanguard Total World Index). If you look at the performance of these two funds, you'll see that they basically track one another, except that, of course, the Life Strategy is always held back by the meager bond allocation.
So what's the point of such a Life Strategy fund? What would the scenario be in which the Life Strategy would be preferable to the Vanguard Total World Index? The former does not seem to provide much safety, but it does seem to guarantee underperformance.
Vanguard has a "all in one fund" strategy for Target Retirement funds that adjust allocation over time based on estimated retirement age, and an "all in one" fund strategy for fixed allocations with the LifeStrategy funds. The all-in-one fund products are there if you want to use them; if they aren't the right choice for you it is easy to pick something else. Maybe some day the LifeStrategy funds will get the expense ratio reduction that the Target Retirement funds got a few weeks ago.
P.S. nitpick: the lower expense ratio for TR funds may not take effect until early 2022 - see viewtopic.php?p=6255800.
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Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
Depends on how you define "move the needle". Giving up about 35-50 bp/yr in return to have drawdowns during market turmoil be 5-7 percentage points less in the past "moved the needle" by my subjective view of the phrase. How they will play out moving forward is anybody's guess.longinvest wrote: You're starting to discover a well-known fact for those who have taken the time to analyze portfolio behavior; 20% in bonds doesn't sufficiently diversify a portfolio to "move the needle".
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Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
Northern Flicker, while "moving the needle" is difficult to precisely define, I was expressing it in the context of the first post of this thread, where forum member Namajones wrote: "What would the scenario be in which the Life Strategy would be preferable to the Vanguard Total World Index? The former does not seem to provide much safety, but it does seem to guarantee underperformance."Northern Flicker wrote: ↑Sat Oct 16, 2021 1:28 pmDepends on how you define "move the needle". Giving up about 35-50 bp/yr in return to have drawdowns during market turmoil be 5-7 percentage points less in the past "moved the needle" by my subjective view of the phrase. How they will play out moving forward is anybody's guess.longinvest wrote: ↑Sat Oct 16, 2021 10:49 am You're starting to discover a well-known fact for those who have taken the time to analyze portfolio behavior; 20% in bonds doesn't sufficiently diversify a portfolio to "move the needle".
Here's how Vanguard classifies its funds on a Risk Potential scale going from 1 (Less RIsk, Less Reward) to 5 (More RIsk, More Reward):
- 100% stocks (VT) and 80/20 stocks/bonds (VASGX): Risk Potential 4
- 60/40 stocks/bonds (VSMGX): Risk Potential 3
This doesn't mean that 80/20 stocks/bonds doesn't reduce volatility relatively to 100% stocks; it does, but not sufficiently to make a one-point difference on Vanguard's 5-points scale.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
Even a 5% allocation to bonds reduces risk more than it reduces return, enough to have improved the portfolio Sharpe ratio in this backtest:
https://www.portfoliovisualizer.com/bac ... ation2_1=5
Small allocations to bonds also provide an opportunity to capture a rebalancing premium.
If the goal is to reduce risk substantially, a larger bond allocation is needed, of course.
https://www.portfoliovisualizer.com/bac ... ation2_1=5
Small allocations to bonds also provide an opportunity to capture a rebalancing premium.
If the goal is to reduce risk substantially, a larger bond allocation is needed, of course.
Re: Vanguard Life Strategy Growth (VASGX) vs Vanguard Total World Index (VTWAX/VT)
One would still be glad to have 20% or even less in bonds during a catastrophic run for equities.
Now on one hand I lean to the view that intermediate bonds don't have enough volatility to move things bigly during normal times so one might instead use LTT, LT TIPS, or gold; then on the other hand I wonder if the valuations of some or all of those require low interest rates just like stocks.
Now on one hand I lean to the view that intermediate bonds don't have enough volatility to move things bigly during normal times so one might instead use LTT, LT TIPS, or gold; then on the other hand I wonder if the valuations of some or all of those require low interest rates just like stocks.