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Vanguard LifeStrategy funds – this is all you need to know

Vanguard LifeStrategy funds allow you to simply and easily create a globally diversified investment portfolio without the complexity. Simply select the appropriate fund based on your appetite for risk and then let Vanguard take care of everything else.

One of the barriers that stop people getting into investing is that it’s often seen as difficult and complex. With Vanguard LifeStrategy funds, creating a balanced investment portfolio just got made dead simple. It’s like investing on autopilot. Best of all, they carry some of the cheapest costs on the market. Indeed, many passive investors only invest in Vanguard Lifestrategy funds.

All that said, there is a range of options when it comes to Vanguard Lifestragegy funds based on exposure. That can make it harder to select the right one. Are you a risk-taker? Or more cautious? Perhaps in the middle? We take a look at Vanguard’s most popular flagship offering to help you decide on the right one for you.

Before we get started if you are new to investing, it’s worth reading our Beginners Guide to Investing – how to bankroll your financial freedom. It explains the lingo and walks you through the basics. It could even help you save thousands of pounds by learning the mistakes we’ve made over the years, so you don’t have to learn the hard way.

Heads up – We aim to produce honest and accurate content, however, we are not financial advisors. If you need financial advice, Unbiased can connect you with a suitable professional for free. Some of our links may earn us a small commission to help us run the site.

Who is Vanguard?

Vanguard is one of the biggest fund management companies in the world. Established in 1975 with an approach that changed the landscape of investing forever, founder John Bogle is regarded by many as the grandfather of passive investing.

The underlying principle that shook the investment world was and still is, to make money for its investors, not from its investors. Instead of paying dividends to investors, it puts this money back into lowering the costs of its funds.

Crucially, this means there are no outside owners and therefore no conflicting loyalties. The company is owned by its funds, which in turn are owned by their shareholders. This unique client-owned structure allows Vanguard to return profits to fund shareholders in the form of lower expenses. Low costs help clients keep more of their returns, which can help them earn more money over time. Everyone wins.

Vanguard has driven the mass adoption of low-cost index investing, ensuring its clients get maximum value for money with minimal knowledge.

As a result, today Vanguard holds £3.5 trillion in assets under management and has over 20 million investors. Its fees are some of the lowest in the market and it has an enviable reputation for looking after its customers.

You can read our full Vanguard review here.

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What are Vanguard LifeStrategy funds?

Building and managing your own investment portfolio isn’t for everyone. That’s why Vanguard created the LifeStrategy range.

They combine lots of individual index funds and asset classes into just one fund portfolio. Therefore, you get access to thousands of shares and bonds in a single investment. Fundamentally, this helps spread your exposure and reduce risk.

The LifeStrategy funds come in five different flavours, depending on your appetite for risk.

LifeStrategy 20
LifeStrategy 40
LifeStrategy 60
LifeStrategy 80
LifeStrategy 100

The lower the number, ie risk profile, then the less the fund is exposed to stocks and more invested in ‘safer’ bonds. For the highest risk profile then you’re 100% into stocks and no bonds.

LifeStrategy - a fund of funds

The LifeStrategy funds consist of lots of other Vanguard funds. The funds that carry stocks are low-cost index tracker funds, which Vanguard is renowned for. The bond funds comprise of different bonds from both government and businesses throughout the world.

As an example, one of the most popular funds, the Vanguard LifeStrategy 60, is broken down below. This should give you an idea of how your money is being invested. For the breakdown of the other flavours, check out the links.

Equities Percentage
Vanguard FTSE Developed World ex-U.K. Equity Index Fund 19.1%
Vanguard FTSE U.K. All Share Index Unit Trust 15.0%
Vanguard U.S. Equity Index Fund 14.1%
Vanguard Emerging Markets Stock Index Fund 5.4%
Vanguard FTSE Developed Europe ex-U.K. Equity Index Fund 3.3%
Vanguard Japan Stock Index Fund 1.8%
Vanguard Pacific ex-Japan Stock Index Fund 0.9%
Total 59.6%
Vanguard Global Bond Index Fund 19.5%
Vanguard U.K. Government Bond Index Fund 5.7%
Vanguard U.K. Inflation-Linked Gilt Index Fund 3.7%
Vanguard U.K. Investment Grade Bond Index Fund 3.5%
Vanguard U.S. Investment Grade Credit Index Fund 1.7%
Vanguard Global Aggregate Bond UCITS ETF 1.7%
Vanguard Euro Government Bond Index Fund 1.6%
Vanguard U.S. Government Bond Index Fund 1.4%
Vanguard Euro Investment Grade Bond Index Fund 0.8%
Vanguard Japan Government Bond Index Fund 0.8%
Vanguard U.S. Investment Grade Credit Index Fund 0.0%
Total 40.4%

The funds that make up the LifeStrategy funds are extensive and include stocks and bonds from across the world.

Check out the links below for the data sheets on the other flavours.

Vanguard LifeStrategy 20

Vanguard LifeStrategy 40

Vanguard LifeStrategy 60

Vanguard LifeStrategy 80

Vanguard LifeStrategy 100

Vanguard LifeStrategy funds - what you need to know

  • Multi-asset fund – you invest in both equities (ie, stocks and shares) and bonds in a single fund (this excludes LifeStrategy 100 which is 100% equities).
  • Global diversity – your money is spread across global markets to minimise impact from a single country or market that performs poorly.
  • Low fees – market-beating fees for the type of product.
  • Automatic rebalancing – Vanguard’s computers rebalance your portfolio daily so you don’t have to manually do this tricky task.
  • Risk – select the appropriate fund based on your appetite for risk. LifeStrategy 20 is the lowest risk profile, with LifeStrategy 100 being the highest.
  • Simplicity – you can ‘set and forget’ your investments into any of the LifeStrategy funds knowing Vanguard is handling the complicated stuff.

Balancing risk vs reward

Historically, investing in stocks (or equities) has provided a greater return than bonds. However, stocks have more exposure to market fluctuations and therefore a portfolio heavily focused on stocks is riskier.

For example, the COVID-19 related market crash saw some stock prices tank 30% or more. No matter what you’ve heard, stocks DO NOT always go up!

Bonds, by contrast, usually provide more stable returns as they are typically backed by governments or large companies. The trade-off is that these returns are usually much lower, though can provide stability to a portfolio in choppy market conditions.

The balance is to determine what risk suits you. If you don’t take any risk, your investments may be slow to grow. In fact, your money may actually lose value as inflation eats away at it’s buying power.

Many people feel that having a mix of both stocks and bonds helps them balance that risk and reward conundrum.

Vanguard LifeStrategy funds - the differences

Vanguard LifeStrategy Funds compared

The number after the LifeStrategy fund name determines the percentage of your money that’s going to be invested in stocks.

For example, the LifeStrategy 60 contains a mix of 60% stocks and 40% bonds. In contrast, the LifeStrategy 20 contains a mix of 20% stocks and 80% bonds.

The stocks element is made up of a number of other Vanguard funds. These include emerging markets, globally developed markets and UK stocks.

Like the stocks element, the bonds portion is also made up of other Vanguard bond funds. The bonds portion of the fund includes global bonds, UK investment bonds and UK Government bonds.

The exception to the rule is the LifeStrategy 100, which does not contain any bonds.

Accumulation vs Income

Vanguard offers both accumulation and income variants of each LifeStrategy fund. But which one should you choose?

Accumulation funds reinvest any profits or dividends that the fund accumulates. This means any money you make is automatically reinvested back into the fund.

Income funds pay those dividends out to you in the form of cash. This can be useful if you want to invest in something else, pay your platform fees or withdraw the income.

Most people growing their wealth will hold accumulation funds, whereas those needing an income, perhaps in retirement, may opt for an income fund.

Remember, if you go for an income fund outside an ISA wrapper you may be liable for tax, so seek professional advice.

If you want to learn more about the benefits of ISAs our ISA Guide will help.

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Vanguard LifeStrategy fees

The LifeStrategy funds only cost 0.22% per annum.

For example, if you have £10,000 invested in a LifeStrategy fund, you’ll pay just £22 per year. Remember, you must also factor in your investment platforms fees.

Impressively, you pay the same fee regardless of which fund you choose.

This extremely low fee is exactly what Vanguard is known for. By comparison, most funds with a globally diversified mix of shares and bonds will typically set you back between 0.5% and 1.5% and sometimes even higher.

LifeStrategy funds - what's not to like?

Vanguard LifeStrategy funds have been criticised for having a heavy weighting towards US stocks. That said, as Vanguard tracks the global stock market, the US dominance is arguably natural as it holds a comparatively large number of high-value companies.

The LifeStrategy 100 and 80 variants hold around 40% of their value in US stocks. This has been great over the last ten years when the US market has been performing well. However, past success doesn’t guarantee future performance.

Knowing this is important as it prepares you for the future. If you feel the US market is due a correction or you wanted to reduce your exposure to US markets, you may wish to scale back your LifeStrategy funds and instead invest in something that you think will perform better.

Why buy Vanguard LifeStrategy funds?

  • Ease – investors looking for a hands-off approach or who have little interest in investing can create a diverse portfolio with a single fund.
  • Simplicity – no stock picking, rebalancing or stress. LifeStrategy funds make investing easy.
  • Diverse – investors looking to spread their money out across different markets and asset classes can let Vanguard do all the heavy lifting.
  • Low-cost – if you are a cost-focused investor, you’re going to struggle to find something cheaper and comparable.

Which Vanguard LifeStrategy fund should I buy?

The choice of fund you choose will depend on your attitude to risk. Having more of your money tied up in equities (stocks and shares) is seen as a higher risk than investing in bonds, but may yield greater returns.

A generally accepted rule of thumb for equity allocation is to deduct your age from 100. This will give you your equity allocation.

For example, a 40-year-old investor would end up with a score of 60 (100–40=60). For them, this suggests a 60% equity allocation. So the Vanguard LifeStrategy 60 could be seen as a suitable investment.

As you get closer to retirement, you would typically adjust your fund type towards lower risk, to protect against big downward swings. At this stage, LifeStrategy40 or 20 may be more appropriate.

Not sure of your attitude to risk? Take this short Vanguard Survey to see your ideal allocation of equities.

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Vanguard Investor - the cheapest way to buy Vanguard funds

Vanguard has its own UK investment platform called Vanguard Investor. The platform only carries a 0.15% per annum fee. This makes it the cheapest percentage fee broker in the UK.

There are some limitations and some situations where other providers can be even cheaper. If you’d like to find out more check out our Vanguard Investor Review – The cheapest way to invest.

Vanguard LifeStrategy funds - what we think

With the LifeStrategy funds, Vanguard has proven yet again why so many investors are loyal fans. Vanguard has made creating a complex, diverse and risk-based portfolio easy and simple.

Because of this, the LifeStrategy funds are popular amongst both new and experienced investors alike. And to top it off, LifeStrategy funds are cheap. Vanguard could have easily commanded a higher price tag for this type of fund, but it doesn’t. It sticks to its core values and that’s why we’re big Vanguard fans.

Performance-wise, these funds are not going to shoot the lights out. They’re not intended to. They’ll track the market performance and provide you with appropriate returns based on your appetite for risk.

If you’re looking for a sexy investment that you can tell your friends about, then Vanguard LifeStrategy is probably not the fund for you. However, if like us you like your investing to be simple, hassle-free and not keep you up at night, then these funds are certainly worth considering.

If you still have questions, please come join our supportive UK Personal Finance club on Facebook. You will find other like-minded individuals. It’s a safe, private community where you can ask questions and learn more about making the most of your money. Best of all, it’s free! I’d love to see you there.

Here’s to your Financial Fitness does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. If you need financial advice Unbiased can connect you with a suitable professional for free. Investments may go up as well as down and you may get back less than you put in.