Drawdown portfolio - views

eyeonretirement wrote: »

My thinking in moving to all income producing ones is to avoid my natural aversion to selling funds that are growing well ( top slicing) but I do fully understand the point you are making in that I am reducing the size of the pool I can pick from.

With relatively low fuss and effort you can reduce emotional involvement and natural aversions by simply setting up a little spreadsheet showing your target percentage allocations to each fund.

As one fund "has a good run" and another fund or funds have a less good run or go down, your portfolio will be relatively higher weighted to fund A than your target percentage suggests you want, and under-allocated to fund B and C. Especially if B has been paying you out some income a few times a year and A has not. So, your spreadsheet tells you that you have more A than you need in the context of your overall portfolio size, and not enough B and C. So, when it's time to top up your cash pot to make sure you can accommodate the coming months' cash withdrawals, you know which fund to sell and which (if any) to perhaps even buy a bit more of.

You might like to overlay a couple of rules, for example you are not going to bother selling anything that's no more than x% away from its target, and you're not going to action any sales for less than £4000 because the ten pound transaction fee would be a high percentage of say, a £500 sale.

With a simple "rebalance" strategy like that a couple of times a year you can get away from the mindset, the voice in the back of your head, that says "I must 'run my winners' or 'don't want to sell that, it's doing well'."

The key is just to determine the sensible allocation in the first place and review periodically whether it still makes sense.

The spreadsheet allows you to keep your marbles by selling very mechanistically, rather than emotionally. You don't need to 'top slice' based on gut feel. You could even give your grandkids the spreadsheet as a homework problem every six months and say ok kids you can do basic maths problems, so if Mr Smith has £700k split 30% in A and 20% in B and 10% C and 25% D and 15% E, but wants only £690k of investments remaining because he needs £10k to top up his income for the next few months, and he wants the split to be 25%, 25%, 5%, 30% 15% - how much value does he want left in each fund and how much should he now sell or buy of each fund to get him there? You could of course divide all figures by ten to avoid telling the kiddies exactly how much wealth you have.

The spreadsheet would do it automatically in two seconds after keying in or uploading the valuations and the amount you want to take, it only becomes a "tricky maths puzzle" if you want a mental arithmetic challenge for somebody. It certainly isn't an emotive top slicing problem, as it's just a bunch of numbers. You could even anonymise the funds to A B C etc if you don't want to keep thinking "ooh, but I don't want to sell any Aberdeen Asian, it's been good to me over the years".

It's a dilemma for me, I have grown my portfolio quite well over the last few years but I dont enjoy it and as I get older and retire I just want to enjoy life and not be stressing over my income.

.
Well, one way to stress less is to not restrict yourself to purely income stocks, so that you have more sources of potential growth, and not to be scared of viewing the whole portfolio as something you can spend even if it hasn't "produced an income" that month.

I do envy people with company pensions that just pay a monthly income with no fuss or effort.

You could of course buy guaranteed income in the form of an annuity but you'd find it incredibly expensive because by removing risk you remove rewards and so you need to spend more.

I do commiserate with the "not wanting to top slice" problem. Every time I look at my dad's portfolio and say ok we are going to sell some of this or that because we have more of it than we need, he will say something like, "are you mad, I'd really rather not sell any of that because can't you see, its been doing very well! Why aren't you selling that property fund that only went up 5% last year when the equities fund you want to sell has just gone up 40%... I thought you were supposed to be the one who was good at maths! More is better than less, isn't it?!"

And then I show him the allocation spreadsheet and he understands, sort of. So, a spreadsheet or even a piece of paper if you are old school, will help you stay organised as well as focused on a plan. Once you have a plan, of course