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LifeStrategy 100 vs FTSE Global All Cap – FIGHT!

A comparison of two similar Vanguard Funds – the LifeStrategy 100 Equity Fund vs the FTSE Global All Cap Index Fund.


Image by Lorenzo Cafaro from Pixabay

 

The LifeStrategy 100 and FTSE Global All Cap (shortened to LS100 and GAC going forward) are two commonly recommended funds for beginners who may have recently decided to start investing in a passive global index tracker.

When deciding which of the two to invest in a few years ago, I did some research and made some notes to weigh up my decision. I’ve recently gone back to these notes to double check my thinking. I thought I could tidy them up and post them on the blog. Same rationale as the recent Intelligent Investor book notes – doing so forces me to make my notes intelligible to read (useful for me if a friend or family member asks about them – which has been happening more and more lately), and may well help some readers as well.

The usual warnings apply, but especially here where I’m talking about actual investments – I am not a financial adviser! I am not qualified or licensed to give financial advice. This is all just the result of me reading and collating info from various sources. I cannot be held liable for any loss of money that you may incur after reading this post (and indeed this blog). This is just provided for general info. As always, do your own research.

 

LifeStrategy 100 vs FTSE Global All Cap

The LS100 and GAC are two funds offered by Vanguard that broadly appear to do the same thing; provide a one-stop shop where an investor can set and forget their investment.

At first I wasn’t sure which to invest in, so I decided to pit them against each other and see which appeared to be better.

 

Vanguard LifeStrategy 100

The LifeStrategy 100 is a ‘fund of funds.’ In other words, it places its assets into a variety of Vanguard passive funds, each of which will track a different index. The exact composition of the portfolio can be found on Vanguard’s website. It has an ongoing charge (OCF) of 0.22%

The fund is actively managed; an investment adviser has discretion in which funds the LifeStrategy 100 invests in and the relative allocations.

 

Global FTSE Global All Cap Index Fund

A passive fund that aims to track the performance of the FTSE Global All Cap Index. The index is comprised of large, mid and small company shares in developed and emerging markets. The exact composition of the fund is available on Vanguard’s website. It has an OCF of 0.23%.

 

Key differences

  • Asset allocation – The LS100 consists of ~25% UK, whereas the GAC has only 4.4%. The LS100 will then have comparatively less of every other index.
  • Cost – 0.22% vs 0.23%. This difference of 0.01% means that the GAC will cost an extra £10 per year for every £100,000 invested in the fund.
  • The GAC passively tracks an index, the LS100 is an actively managed collection of passive funds.

 

Why does the LifeStrategy 100 favour the UK?

The GAC is a more ‘true’ representation of the global market. In books like Investing Demystified, it is recommend that you should own shares in all of the market’s stocks, weighted according to their fraction of the overall value of the market (the author of the book, Lars Kroijer, explained his reasoning in an excellent post over at Monevator).

The UK has a market cap of roughly 4-5%, whereas the US has a market cap of roughly 50%. The GAC seeks to accurately reflect this, whereas the LS100 does not.

LS100 favours the UK due to ‘home bias.’ According to Investopedia, home bias is the tendency for investors to invest the majority of their portfolio in domestic equities, ignoring the benefits of diversifying into foreign equities. . Essentially, most investors will feel an affinity for their home market and will want to invest in what they know.

In Vanguard’s own words:

Why do the portfolios have more allocated to the UK market?

“We think investors prefer to hold more in their home market but we believe it’s of benefit in terms of diversification for investors to more closely reflect the global market weightings.”

In other words, Vanguard think it is better to hold a hold a diversified portfolio that accurately reflects the global market cap. However, they choose to have a greater weighting towards the UK in the LifeStrategy funds as they think that is what investors will prefer.

 

Consider the other LifeStrategy offerings if you also want bonds in your portfolio

The LifeStrategy series truly shines when you start to factor in bonds as well.

You might decide to invest 80% of your portfolio in the GAC and the remaining 20% in a bond index (for example, Vanguard’s Global Bond Index Fund. However, you would have to manage the two funds yourself as the prices of both rise and fall. Unless you step in every few months, your asset allocation could become increasingly out of line with your original intentions as prices fluctuate.

Meanwhile, if you were to invest in the LS80 fund, it would do all the tinkering for you and maintain that constant ratio of 80% equities and 20% bonds.

 

Conclusion

Ultimately, if choosing solely between these two, then I think the GAC makes the most sense. It most accurately reflects global market capitalisation.

However, if you want to add some exposure to bonds, then you could do worse than simply deciding how much equity vs bonds you want, and then choosing the corresponding Lifestrategy fund (be it LS20, LS40, LS60 or LS80).

Overall, the two funds aren’t that different, so you can’t go too far wrong with either one. If you’re at the beginning of your investing career, just choose one and go for it. You can always change your mind later!

 

Over to you

If you’re new to investing, hopefully you found this comparison of the LifeStrategy 100 vs the FTSE Global All Cap funds useful.

If you’re not new, hopefully you think I did a good job explaining it!

I may well have made a mistake somewhere. Feel free to correct me if you spot anything.

What funds have you chosen to invest in?

Thanks for reading.

 

21 replies on “LifeStrategy 100 vs FTSE Global All Cap – FIGHT!”

I knew I would make a mistake somewhere! In my defence, I wrote £100, not £1,000. So I wasn’t quite so far out! Nonetheless, good catch, thanks for pointing it out. I’ve updated the post.

Hi Dr Fire, long time no speak/comment. Interesting post. Either of those can’t go wrong, but I’m keen on the lifestrategy 60, as I like to have bonds in my portfolio, and it’s a good one to have when markets get choppy. In the recent crash LS60 was one of the better performers, and less of a rollercoaster ride. The best was GSK, the worst end of 2019 ftse 100 tracker which was a tragic buy! Take care

Hi Adam, good to hear from you again. I agree, and as I said in the post, if you want to include bonds then the LifStrategy80 or LS60 are excellent choices due to how easy and stress free they are. I’m all in on equities at the moment, but I am thinking about switching to maybe 20% bonds in the future. I imagine it’s much easier to sleep at night when your portfolio isn’t quite so volatile!

Interesting to hear. I read an article by Banker on FIRE saying the same thing. However, I’m sure I read an article or a comment on Monevator saying that, although the US has beaten the rest of the world (ROW) for the last 10 years, there are plenty of periods of time where the ROW has outperformed the US as well. Past returns are not an indicator of future success and all that.

Of course, I wouldn’t want to bet against the US in the short term either. This tweet in particular made me laugh – https://twitter.com/benjaminluk/status/1263606245774131200

Definitely good reading for those new to the investing game – a succinct summary-comparison of the two! We prefer the GAC. True, the LS funds provide an equity/bond mix that you won’t have to rebalance to achieve. However if you wanted a split other than those offered by LS funds then you end up buying more than one fund anyway; GAC +/- a bond fund seems a more robust and flexible way forward for us.

Thanks for the kind words. Agreed – when/if I do add some bonds to my portfolio, I won’t be selling all of my GAC and moving to LS80. Instead, I’ll just buy a separate bond index. I like the idea of tinkering with the ratio and manually selling off some bonds to reallocate during the next crash.

£10 per £100k is such a tiny amount, even over multiple compounded years. It’s more the weighting towards UK- I’m still not sure where I sit on it. On one side- its good to invest more in the region that you live, both because it should maintain your lifestyle + it also encourages business where you live. So, a long by-product should be a better quality of life for you (though, you could say that globalisation has reduced this somewhat.

What’s even better is that we have this choice- and can choose as we see fit, rather than just have to pick without the choice.

I’ve read arguments for and against investing extra in your home country. I think the two things that convinced me against it were 1) you’re saying that you know better than the market. Supposedly everything is priced in already. 2) Most people are already over exposed to the country that they live in – the job they work in is dependent on the country doing well, their house price is dependent on the local economy, etc. So I decided to go with the GAC.

Agreed that it’s good to have the option to choose!

Great read, I’m looking to take the plunge into the investing world very soon, 29 years old so the clock is ticking!
Would it be wise to invest in both of these funds? I like the idea of “set and forget” investing and want a balance of stocks and bonds but on the other hand I don’t want a large proportion of my fund being UK weighted (LS fund).
Would it be worth investing 60% of my money into the LS60 and the remaining 40% into the global all cap? That way I get stocks and bonds and it’s globally weighted. Thanks.

Glad you found it useful. I just replied to your comment on Reddit, but I’ll copy and paste here for completeness:

Personally, I think the strength of the LifeStrategy series of funds is their simplicity. One fund, with everything you need, and no need to worry about selling bonds or equities to reallocate.

By going for a mix of LS60 and GAC, you’re taking away that advantage of simplicity. You’ll have to vaguely pay attention, to make sure the asset allocation doesn’t stray too far off course.

Personally, if you’re tempted to do that, I’d just go with the GAC and a global bond fund, in the ratio that suits your risk appetite.

So, for example, the allocation you specified would give you 24% bonds and 76% equities. So you could round up/down slightly and either just stick with the LS80 for simplicity, or go 75% GAC and 25% bond fund. Still two funds, but you now have greater control.

When I say bonds, I specifically have this in mind, from Vanguard – https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F000003VEC

However, there are obviously plenty of other choices.

Don’t forget, I’m not a financial adviser or a professional. As always, do you own research!

Thanks for this explanation. Considering that the funds are managed in GBP, investing 25% in UK companies would possibly hedge against a future strengthening of the sterling ? Foreign companies may do well but, as I understand it, if the gbp only gains 10% in the future that is a 10% loss in currency conversion.

Hi Fab, thanks for commenting. You’re right, investing more in your home country should help avoid currency risk, but then you may be overexposed to one country. Monevator have several good articles exploring this, including https://monevator.com/currency-risk/ and https://monevator.com/how-hedging-your-shares-against-currency-risk-can-boost-returns/ . You have to take a guess either way, but I would tend to fall on the side of preferring global diversification. I suspect, however, that in the long run both funds would perform fairly equally.

Hi, Im currently investing in both LS80 and FSTE GAC (75% budget to LS80, 25% to GAC). Is this pointless? Should I just pick one??

Hi Tom.

It’s not necessarily pointless.. It really depends, why did you choose these two funds? If you have a different goal for each pot of money, then that would make sense, for example.

The strength of the LS series is that you get bond and equities exposure in the ratio that suits you in just one fund. You can easily set and forget and don’t have to worry about reallocating every 6 months. Arguably, by adding some of the FTSE GAC, you no longer have that ease, and your allocation ratio may change over time.

Your current overall allocation is 85% equites and 15% bonds. Is this what you wanted, or did you want more/less? If you wanted some bond exposure, but thought that 20% was too much, then it may have been better to put 85% to the GAC and 15% into a dedicated bond fund. Then it would be easier to see at a glance what your exposure to equities vs bonds is.

Overall, it probably is easier/more logical to just choose one. But in practise, people are irrational (including myself!). I have to confess, I did contribute to both the LS100 and the FTSE GAC for a short time, before deciding to contribute solely to the GAC.

Ultimately, I can’t tell you what to do, but I hope I gave you some food for thought

Thank you for a wonderful piece. Relative newbie to investing. Like Tom, I have both the LS80 and the GAC. However in my mind they serve 2 different functions – The LS80 is my only ISA fund and I take fully advantage of my yearly ISA allowance. However I like the idea of the even spread of the GAC and I have that in my general account drip feeding it with £250/month. Is this sensible or am I overcomplicating matters?
I know this is not financial advice … but I will appreciate some insight.
Many thanks

Hi Euan, thanks for the kind words.

As you said, not financial advice, but I can give my own opinion:

I guess you have to ask yourself a few questions – why did you choose the LS80, and not LS100 or LS60? Are you happy that, as I described to Tom above, your asset allocation of equities vs bonds will fluctuate as one fund outperforms the other? Likewise, your allocation of UK to US to EU, etc, will fluctuate.

One thing that springs to mind – can I ask why did you choose to put the LS80 in the ISA, whereas the GAC is in a general investment account (GIA)? I would imagine that the GAC will outperform the LS80 (not because it’s “better,” but because it doesn’t have any bond allocation). By having the GAC in a GIA, you might be setting yourself up to pay more capital gains tax if you sell in the future, compared to if the LS80 was in the general account instead. (Obviously don’t take what I’ve just said in this paragraph too far and decide to sell all your GAC, as that may incur an even bigger CGT!)

One possible reason (of many) to have two different funds is that they may have different objectives. Maybe the ISA is for a shorter-term purchase, or a more defined, important objective, whereas the GIA is for something much longer term, or a more hazy objective. For example, maybe the ISA is to pay some school fees in 10 years, so you’ve chosen more bonds to make for a less risky portfolio and hopefully reduce the volatility. Meanwhile, the GIA is just for general wealth accumulation, so you’ve gone all-in on equities, because you don’t foresee a need to touch it for 20-odd years. (Again, if something like this were the case, it might make sense to have the long-long-term objective in the ISA. You can’t get that tax-wrapper back once you withdraw from it!)

The “sensible” thing, if it’s all allocated towards the same objective, is probably to just pick one equities fund and one bond fund (or just one LifeStrategy fund, to save the hassle of fixing the allocation every 6-12 months). But, ultimately, I’m just nit-picking. I suspect the long term performance of the two funds will be similar. The important thing is that you’ve started investing!

Hopefully that has helped. Let me know if you have any questions.

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