Concentration of risk in Wealth Preservation

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  • Audaxer
    Audaxer Posts: 3,505
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    You're just talking about asset allocation. Wealth Preservation sounds like a marketing term just to describe a conservative multi-asset fund.....although at almost 60% equities RICA would take a hit if equities crashed particularly in the UK and Japan with it's weighting.
    The funds I would consider in this category would be funds with a long history of low volatility that had a very low drop in value during the crash in 2008. So it's making a conscious decision to put part of your wealth in a lower risk category than your main investments, but a bit higher risk than cash. Then if markets do crash in the next few years you could make another conscious decision to sell all or some of these investments and buy some higher risk funds that have fallen more in value.
  • ColdIron
    ColdIron Posts: 8,791
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    although at almost 60% equities RICA would take a hit if equities crashed particularly in the UK and Japan with it's weighting.
    Odd that it didn't do this during the 2008/09 GFC which most would agree was a testing time. In contrast it performed spectacularly well and I can think of few equals. You've chosen the wrong example
  • bostonerimus
    bostonerimus Posts: 5,617
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    edited 14 January 2018 at 8:09PM
    ColdIron wrote: »
    Odd that it didn't do this during the 2008/09 GFC which most would agree was a testing time. In contrast it performed spectacularly well and I can think of few equals. You've chosen the wrong example

    Who knows what it's allocation was back in 2008. I'm just advising that people look under the bonnet a bit. I imagine that as an IT the managers have a lot of latitude to change the allocation, let's hope they do as well in the next down turn.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • bostonerimus
    bostonerimus Posts: 5,617
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    edited 14 January 2018 at 8:07PM
    Audaxer wrote: »
    The funds I would consider in this category would be funds with a long history of low volatility that had a very low drop in value during the crash in 2008. So it's making a conscious decision to put part of your wealth in a lower risk category than your main investments, but a bit higher risk than cash. Then if markets do crash in the next few years you could make another conscious decision to sell all or some of these investments and buy some higher risk funds that have fallen more in value.

    As long as the asset allocation is right for your goals across your entire portfolio then you are managing things well. You can use a multi-asset fund described as Wealth Preservation like RICA or you can do it by simply adjusting the asset allocation in your existing portfolio. In ether case make sure you know the asset allocation.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • With regard to the Ruffer IT (RICA), I have occasionally looked at this over the last few years.
    They seem to hold a large % of index-linked bonds (UK & US), typically 30-50%.
    Index-linked bonds have done very well over the past few years. For example my own holding of the 0.625% UK IL 2042 bond (T42A) has gone from 104p in Sep 2010 to 218p now but this has resulted in it having a real yield of ~minus 1.6% now. US TIPS when priced in pounds have showed similar gains. They still have a real positive yield but at only ~0.5% (10 year TIPS).
    These price increases must have helped the performance of RICA but IMO I cannot see this rate of increase being maintained over the next 8+ years given such low real yields that you would be starting with now.
    In any case, if one agrees with the strategy used, you could simply hold index-linked bond ETFs or individual index-linked bonds themselves, which could probably be done at lower cost alongside an equity portfolio.
  • jamei305
    jamei305 Posts: 635
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    As long as the asset allocation is right for your goals across your entire portfolio then you are managing things well. You can use a multi-asset fund described as Wealth Preservation like RICA or you can do it by simply adjusting the asset allocation in your existing portfolio. In ether case make sure you know the asset allocation.

    As you are someone who is very fond of passive investing, I would appreciate your view on how you'd find funds that would avoid big losses in a downturn but still have growth potential if you thought bonds were too risky/overpriced? A lot of these 'wealth preservation' funds hold certain defensive stocks. I suppose you might find go for a consumer staples or infrastructure index tracker fund?
  • bostonerimus
    bostonerimus Posts: 5,617
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    edited 15 January 2018 at 5:29PM
    jamei305 wrote: »
    As you are someone who is very fond of passive investing, I would appreciate your view on how you'd find funds that would avoid big losses in a downturn but still have growth potential if you thought bonds were too risky/overpriced? A lot of these 'wealth preservation' funds hold certain defensive stocks. I suppose you might find go for a consumer staples or infrastructure index tracker fund?

    I'm invested for the long haul and I don't worry about down turns....... much. I stick with broad equity and bond indexes and have rebalanced through the ups and downs of the last 30 years. If you wanted to be a bit defensive you could emphasize dividend stocks/funds, shorten the duration of your bond funds or add some index linked gilts, but I don't bother.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
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