LifeStrategy = VAGF + ??? (for lower fees)

[TitanT2]

As we, from the EU, all know, we have slightly higher prices on everything; that is so because investing from the EU is a bit more expensive in general (for the companies that invest for us).

There is an additional layer of regulatory rules on top of that which can increase expenses some, at the levels which we have no influence over.

For those two reasons a LifeStrategy fund like V60A has a 0.25 ter.
And it has almost a dozen other funds within it, instead of just four like it has in the US.


I was thinking, since VAGF (their "total bond market" ETF) has a ter of 0.10 - https://www.justetf.com/en/etf-profile. ... 00BG47KH54 - maybe it is possible to find an equities ETF for the stocks part of the 60-40 split, and save on some fees?

If I can save 0.10-0.15 per year, it might be worth it. Over 30 years that can be a healthy 4% of my portfolio, and my Excel tells me it'd be a decent sum.


I have some V60A so far (as graciously recommended by Bogleheads right here), but I wouldn't mind manually adding stocks and bonds in the future instead.

[tre3sori]

The "natural" counterpart for VAGF in a 60/40 portfolio would be 60% Vanguard FTSE All-World UCITS ETF - (USD) Accumulating (VWCE). TER is 0.22%.
Cheaper would be 60% Vanguard FTSE Developed World UCITS ETF - (USD) Accumulating (VGVF). TER is only 0.12%.
Or more complex but with EM: 50% Vanguard FTSE Developed World UCITS ETF - (USD) Accumulating (VGVF) and
10% Vanguard FTSE Emerging Markets UCITS ETF - (USD) Accumulating (VFEA). TER is 0.22%. Combinded TER is about 0.14%.

50% Vanguard FTSE Developed World UCITS ETF - (USD) Accumulating (VGVF)
10% Vanguard FTSE Emerging Markets UCITS ETF - (USD) Accumulating (VFEA)*
40% Vanguard Global Aggregate Bond UCITS ETF - EUR Hedged Accumulating (VAGF)
would have a combined TER of 0.122% and is still not too complex IMHO.

* The market cap weight would only be about 6% as 10% is the weight of EM in Vanguard FTSE All-World.

[TitanT2]

Thank you, Tre3sori!

Would you consider doing such a thing, given the numbers?

[tre3sori]

Would you consider doing such a thing, given the numbers?

A difference of
(0.6*0.9988³⁰+0.4*0.999³⁰)-0.9975³⁰ = 3.9%
(0.6*(1 - TER_VGVF)³⁰ + 0.4*(1 - TER_VAGF)³⁰) - (1 - TER_V60A)³⁰)
over an investment lifetime of 30 years is something to consider.
A more complex asset allocation with rebalancing would have more transaction costs and taxes. Vanguard LifeStrategy manages that for you and probably saves you transaction costs and taxes.
If you leave out EM because of higher TER there will be times when you rather would like to have added EM (vice versa).
If you have a more complex asset allocation you start to ponder about percentages (6% EM, 10% EM or even 30% EM???)
More complex allocations offer more opportunities for investment errors.
I probably would have voted for Vanguard LifeStrategy, had the fund existed when I started investing.
I am just in the process of shifting an expensive asset manager managed portfolio of a relative of mine from single stocks and expensive actively managed funds to Vanguard LifeStrategy 60% UCITS ETF.
I myself have the bulk of my investments in Vanguard FTSE All-World UCITS ETF and Vanguard Global Aggregate Bond UCITS ETF.
Shifting to Vanguard LifeStrategy myself would trigger too many capital gains taxes.

So for differences in TER the question comes down to: is the service of the Vanguard LifeStrategy (compared to say 60% Vanguard Developed + 40% Vanguard Global Agg) worth x €€ (or x $$) per year FOR YOU?
x (differences in TER of 0.138% p.a.) as a function of portfolio value:
portfolio value; absolute differences in TER p.a.
10.000€; 13,88€
100.000€; 138€
1.000.000€; 1.388€
10.000.000€; 13.880€
...

If you come from the good old times where you easily paid 1% AUM fees for the bank and 1.5% AUM fees for the funds that the bank used for you, the sum of the explicit + hidden fees would have looked more like that:
10.000€; 250€
100.000€; 2.500€
1.000.000€; 25.000€
10.000.000€; 250.000€

The percentage cost of portfolios over an investment lifetime:
60% Vanguard Developed + 40% Vanguard Global Agg: 1 - (0.6*(1 - TER_VGVF)³⁰ + 0.4*(1 - TER_VAGF)³⁰) = 3.3%
Vanguard LifeStrategy 60%: 1 - (1 - TER_V60A)³⁰ = 7.2%
Traditional Portfolio: 1 - (1-0.025)³⁰ = 53%

I think these numbers put things into perspective. You can save 4% over an investing lifetime if you put your money in the cheapest ETF combination. But compared to a traditional portfolio, the difference between Vanguard LifeStrategy 60% or 60% Vanguard Developed + 40% Vanguard Global Agg is almost negligible.

[TitanT2]

Thank you very much, Tre3sori.

Your detailed and systematic insight through many aspects is great and very useful!