Abbey Habicht
Advanced Investments
12/19/14

Vanguard LifeStrategy Moderate Growth Fund

I took a few risk tolerance questionnaires and they all concluded that I have a moderate/average tolerance for risk. One of the questionnaire suggested that people with my risk tolerance should invest in convertible bonds, high-yield junk bonds, large-cap stocks and funds, S&P 500 and Wilshire 5000 stock index funds, and variable annuities invested in large-cap stock sub-accounts ("Investment Risk Tolerance Quiz."). Vanguard’s risk tolerance questionnaire suggested that I should look at funds with a 30/70 bond/stock allocation and after looking at some of the funds they offer I found the Vanguard LifeStrategy Moderate Growth Fund ("Investor Questionnaire”) . I picked this fund because it has non-US stock, making it a world portfolio, and it comes close to my suggested allocation. The fund is composed of 2.38% cash assets, 42.15% US stock, 17.06 Non US stock (59.21% total stock), 37.63% bonds, and .77% other. In order to see how my fund is doing compared to a benchmark (I chose the Category: Moderate Allocation as my benchmark) we divide the standard deviation of the category by the standard deviation of the managed portfolio and use this percentage to eventually come up with the M2 of .11% which means that the fund is doing better than the Moderate Allocation category overall. We can also look at the risk of VSMGX on Morningstar and it shows that the risk of the fund has been classified as “below average” for the past five years. From this we can see that, in the past years, this fund has had lower risk and somewhat higher returns than other funds in its category ("Vanguard LifeStrategy Moderate Gr Inv."). The acquired fund fees and expenses are .16% as of February 27, 2014 which is “83% lower than the average expense ratio of funds with similar holdings” ("Vanguard LifeStrategy Moderate Growth Fund”). The performance of the fund has consistently edged out the Moderate Allocation category over the last 10 years as well as in the most recent year. The same cannot be said for the S&P 500 which has been well outperforming the VSMGX fund in the past couple years. 10 years ago the fund was competitive with the S&P and even outperformed it 5 years ago but more recently it has had markedly lower growth than the index. The same trend can be seen in the price and rolling returns of the fund and index. This is somewhat expected as a tradeoff for the low risk related to the VSMGX fund ("Vanguard LifeStrategy Moderate Gr Inv." VSMGX Fund VSMGX Chart).

Sources

"Investment Risk Tolerance Quiz." : Personal Finance. N.p., n.d. Web. 14 Dec. 2014.
"Investor Questionnaire—Introduction ." Vanguard. N.p., n.d. Web. 14 Dec. 2014.
"Vanguard LifeStrategy Moderate Gr Inv." (VSMGX) Fund Risk and Morningstar Rating. N.p., n.d. Web. 14 Dec. 2014.
"Vanguard LifeStrategy Moderate Growth Fund (VSMGX)." Vanguard. N.p., n.d. Web. 14 Dec. 2014.
"Vanguard LifeStrategy Moderate Gr Inv." VSMGX Fund VSMGX Chart. N.p., n.d. Web. 14 Dec. 2014.