How do self investors decide on asset/fund allocation?
Comments
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Itsallagame wrote: »Most people who self invest should have a view on markets and be looking to take profits at the appropriate time and then sit out until they feel the market is right for them to invest/gamble again.
All the evidence suggests that this doesn't work as a strategy.0 -
Itsallagame wrote: »It may have escaped your attention but being invested is also gambling.
Most people who self invest should have a view on markets and be looking to take profits at the appropriate time and then sit out until they feel the market is right for them to invest/gamble again.
I simply take positions on my SIPP that I hope to make me money based on where I think the market is e.g FTSE100 at 7550 is too high so I buy an exchange traded fund e.g. SUK2.
In my employers pension I have £50k sitting in a cash fund because I sold out near the top of the market at 7500 on FTSE and the investment options are so limited as I can only buy a handful of funds that are not attractive at this time. It's annoying as I don't want that fund sitting doing nothing for a long spell.
I am gradually moving into short dated bonds yielding over 5% but at the moment they are as scarce as hen's teeth.
Attempting to time the market is a strategy that is usually ultimately frustrating.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
They seem to even more greatly misunderstand Guyton-Klinger, wrongly asserting that it first takes income out of the highest returning part of the portfolio, equities. It really takes it first from cash, then bonds, and equities after that. Though there is a bull market rule that sets aside some cash for later use. I don't know whether they drew income first from equities in their attempts to see how the rules worked. For safe withdrawal rate calculations in cfiresim you can also specify a minimum income target and the initial safe withdrawal rate will be adjusted to allow for it. Guyton subsequently presented sequence of return risk reduction rules that change equity holdings based on CAPE but they don't seem to have used those, instead picking an inappropriately high equity percentage.
I've not seen anything I've read over the last few years that suggests that anything other than 100pc equity is optimum for long term drawdown (I'm planning on 50yrs - if not for me then for Mrs .5C)
with the important caveat that you are not allowed to panic and flog the lot at the first sign of trouble.0 -
Itsallagame wrote: »It may have escaped your attention but being invested is also gambling.
Most people who self invest should have a view on markets and be looking to take profits at the appropriate time and then sit out until they feel the market is right for them to invest/gamble again.
I simply take positions on my SIPP that I hope to make me money based on where I think the market is e.g FTSE100 at 7550 is too high so I buy an exchange traded fund e.g. SUK2.
In my employers pension I have £50k sitting in a cash fund because I sold out near the top of the market at 7500 on FTSE and the investment options are so limited as I can only buy a handful of funds that are not attractive at this time. It's annoying as I don't want that fund sitting doing nothing for a long spell.
I am gradually moving into short dated bonds yielding over 5% but at the moment they are as scarce as hen's teeth.
Which shiort dated bonds are paying 5%, sounds fairly risky.0 -
point5clue wrote: »I've not seen anything I've read over the last few years that suggests that anything other than 100pc equity is optimum for long term drawdown (I'm planning on 50yrs - if not for me then for Mrs .5C)
with the important caveat that you are not allowed to panic and flog the lot at the first sign of trouble.
Aside from that, 100% equity is likely to be best but up to about 30% bonds doesn't make much difference in safe withdrawal rate.
Bengen seems to have endorsed both Guyton-Klinger and PE10 based variation on the second page of his September 2016 small-cap paper.0 -
Hi jamesd
The link to "Jonathan Guyton Tames a Gorilla" is broken
google suggested this link: https://www.mcleanam.com/jonathan-guyton-tames-a-gorilla/0 -
point5clue wrote: »I've not seen anything I've read over the last few years that suggests that anything other than 100pc equity is optimum for long term drawdown (I'm planning on 50yrs - if not for me then for Mrs .5C)
with the important caveat that you are not allowed to panic and flog the lot at the first sign of trouble.
There are many papers that develop an efficient frontier for asset allocation in drawdown using historical data. Having 100% equities will definitely maximize your potential income......but it will also have a higher probability of failure that other asset allocations if you run into a bad sequence of market losses. The highest probability of retirement income success is usually found with a 60/40 stock to bond allocation. Of course this uses historical data and that might not be appropriate, particularly in the bond market.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
point5clue wrote: »Hi jamesd
The link to "Jonathan Guyton Tames a Gorilla" is broken
google suggested this link: https://www.mcleanam.com/jonathan-guyton-tames-a-gorilla/0 -
bostonerimus wrote: »Having 100% equities will definitely maximize your potential income......but it will also have a higher probability of failure that other asset allocations if you run into a bad sequence of market losses. The highest probability of retirement income success is usually found with a 60/40 stock to bond allocation.
As Bengen observed in the small-cap paper, though:
'1. The safe withdrawal rates for each year using the "all-in asset allocations" in Figure 1 are always higher than the safe withdrawal rates generated by a conventional asset mix of 35% large-cap stocks, 20% small-cap stocks and 45% intermediate-term government bonds.
2. In most cases, they are dramatically higher. In some years, the all-in allocation's safe withdrawal rate reaches 25%, while the conventional safe withdrawal rate never gets much above 10%. The average annual safe withdrawal rate using the all-in allocation is about 11.7%; with the conventional asset allocation, it is about 7.75%. Thus, on average, the all-in allocation!!!8217;s annual safe withdrawal rate is about 50% higher than the rate from the conventional asset allocation.'
Also interesting is that it's possible to predict the times when low equity mixtures can be expected to do better using PE10. And, of course, to know when stocks and money market (bills) beats stocks and bonds, like now.
You can also tell if you seem to be living through a bad sequence and adjust, as suggested by Kitces.0 -
I'm thinking of investing the lot in Vanguard LifeStrategy 80 or 100.
Anyone got any thoughts around this?
Seems a lot less hassle as these funds are managed or is it not a good idea to put everything in to one fund?0
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