Defined Contribution Pension - Target Date Fund Investments
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Perhaps I should pose the question as "Is my current Investment mix good for building a large
pot in 4 years-time, which is ready to transfer away from my current pension provider to a
drawdown provider?"
UK Equities, 4.4%
Global Developed Market Equities, 17.5%
Global Multi-Factor Equities, 3.9%
Global Small-Cap Equities, 2.3%
Emerging Market Equities, 3.7%
Global Property, 3.4%
Commodities, 1.4%
Global Corporate Bonds, 7.1%
UK Corporate Bonds, 8.4%
Gilts, 12.2%
Index-Linked Gilts, 35.6%
Cash, 0.0%
I think you are looking at things the wrong way. If you plan to draw down, from a financial point of view, nothing much special will happen in 4 years time. There is no reason to have your portfolio investment allocation very different in 3 years time to what it will be in 5 or was 10 years ago. You dont need to maximise your pot size with retirement as a deadline. Retirement is just a point on a multi-decade journey.
The only way you are certain to have a large pot in 4 years time is to have a large pot now. 4 years is too short a time for a change in investment strategy to make a major change in your wealth wthout running a significant risk that you will have less at retirement than you have now.
Whether your current strategy is appropriate for the needs really depends on how much income you need in retirement. If you are invested mainly and sensibly in equities it is reasonable to plan to drawdown annually on average somewhere between perhaps 3.5% and 5.5% of your initial pot, inflation adjusted, without running out of money before you die. The % would depending on your flexibility to take lower income when economic conditions are bad and your money management skills.
But you are invested mainly in bonds rather than equities, so your safe drawdown will be very much less. If say 2% is sufficent to meet your needs then there is perhaps no need to be less cautious. However most of us arent that wealthy, or perhaps that frugal, so would want a higher % in equities.0 -
If you can promise better than market returns then I agree
There are no promises with investments. I cannot promise that higher charges will result in higher returns and you cannot promise that lower charges will result in higher returns. They will be what they will be.Would you advise a client to start drawdown at 5% with 1.5% in fees? That sounds scary to me.
If the risk profile was appropriate and circumstances required it then yes. That is not scary though. I prefer to use 3.5% and will add increased emphasis on risk warnings and loss potential when it goes above that.
The biggest risk for someone new to drawdown is not whether they take 3.5%, 4% or even 5%. It is whether they have the discipline to not take adhoc withdrawals at a level greater than is sustainable. e..g deciding that their fund has gone up 10k so they can draw that 10k out and it will have no impact on the draw rate over the long term. Forgetting that ups and downs need to average out and you cant just draw when its up without consequence.
It isnt that I disagree. Despite what it appears, I do agree with a lot of what you say. It is just on certain things or the degree of conviction you have. That fund of 1.7% charges I use with gritted teeth. I really dont like using it but it does the job in the right scenario. I also tend to use it with multi-asset passives on part of the money as well to give some balance of both worlds.Simply put I feel that the guaranteed savings of keeping fees low is better than the advertised benefits of higher fees. I do not expect you to agree.
Additionally, you include adviser charges as something to avoid. If someone can DIY well then they can save money there. If they DIY badly then it can be far more costly. I have had countless people come to me after trying DIY investing that went wrong. Also, I have significant numbers of clients who could DIY well if they wanted but they value their time more than the cost. I pay a decorator and a gardener because they can both do it better than me and I don't have the time.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
All I'm trying to do is use my existing pension fund (which is fairly cautious as far as risk is concerned - Investments detailed at the end) as a vehicle to build as big of a pot as possible by the time I'm 55.
As said, far too simplistic. Why arent you already 100% in equities? - because of your attitude to risk !
As my pension provider does not offer drawdown, the investment mix in my current DC will have nothing to do with my drawdown (except hopefully build a decent sized pot). At 55 I want to do is transfer the money out of my DC pot and put it into a drawdown that is provided by someone else.
Then you should answer the question as to how long this draw down pot is expected to last.
If you expect to draw down the whole amount for 5 years before other pensions kick in, thats one thing.
If its meant to last until you are in your dotage, that's another.
If its meant to provide top up funds to provide for holidays and discretionary spending whilst your day to day expenses are covered, that's another.
If its your sole or main source of income for 5 years - 12 years - ?? years thats another.
If you will panic every time it drops 5% that's another.
If it will be a catastrophe if the market crashes 6 months before you plan to retire thats another,
If it will be an annoyance but you could work on a few years until you've built up a buffer, another.
Etc etc.
Thats why i advised working with an IFA to provide some context to your overall financial position to guide your decisions.0 -
I do have the option to switch to this portfolio of investments in my current DC Plan. Any thoughts?
UK Equities, 7.7%
Global Developed Market Equities, 30.4%
Global Multi-Factor Equities, 6.7%
Global Small-Cap Equities, 4.2%
Emerging Market Equities, 6.8%
Global Property, 7.1%
Commodities, 3.0%
Global Corporate Bonds, 14.9%
UK Corporate Bonds, 2.9%
Gilts, 3.2%
Index-Linked Gilts, 13.2%
Cash, 0.0%0 -
I do have the option to switch to this portfolio of investments in my current DC Plan. Any thoughts?
UK Equities, 7.7%
Global Developed Market Equities, 30.4%
Global Multi-Factor Equities, 6.7%
Global Small-Cap Equities, 4.2%
Emerging Market Equities, 6.8%
Global Property, 7.1%
Commodities, 3.0%
Global Corporate Bonds, 14.9%
UK Corporate Bonds, 2.9%
Gilts, 3.2%
Index-Linked Gilts, 13.2%
Cash, 0.0%
This is a more growth oriented allocation. From the discussion I think you should be able to figure out if that's appropriate for you. Doing this sort of planning needs to be holistic, it can't be done in isolation from the rest of your finances or requirements.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
bostonerimus wrote: »This is a more growth oriented allocation. From the discussion I think you should be able to figure out if that's appropriate for you. Doing this sort of planning needs to be holistic, it can't be done in isolation from the rest of your finances or requirements.
^^^^^^^^^^^ this0 -
Additionally, you include adviser charges as something to avoid. If someone can DIY well then they can save money there. If they DIY badly then it can be far more costly. I have had countless people come to me after trying DIY investing that went wrong. Also, I have significant numbers of clients who could DIY well if they wanted but they value their time more than the cost. I pay a decorator and a gardener because they can both do it better than me and I don't have the time.
There are certainly times when advice is necessary and some people will always want to use an adviser. But I think most people can easily DIY and they don't need to do anything very complicated to succeed; in fact getting too complicated is why people often fail. Investing does not need to be complicated or take much effort, even rebalancing is taken care of in multi-asset funds. Take Mr Mcawber's spending advice, and then save in a bank account and invest in a low cost multi-asset fund. Job done.......most of the time.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
bostonerimus wrote: »There are certainly times when advice is necessary and some people will always want to use an adviser. But I think most people can easily DIY and they don't need to do anything very complicated to succeed; in fact getting too complicated is why people often fail. Investing does not need to be complicated or take much effort, even rebalancing is taken care of in multi-asset funds. Take Mr Mcawber's spending advice, and then save in a bank account and invest in a low cost multi-asset fund. Job done.......most of the time.
I would agree that for inexperienced small investors with an accumulating portfolio sensible formulaic self investing is fine. If they get in wrong it wont destroy their lives. And hopefully by the time their pot has increased to a life changing size they will have the experience to manage it safely.
This isnt true for inexperienced people acquiring amounts of money in quantities that really matter especially if their future well-being depends on prudent withdrawal of funds. For such people I think it is dangerous to imply that all investing problems can be solved by buying a VLSxxx fund.
Somewhere, dependent on the individual, between the two extremes there is a balance.0 -
This isnt true for inexperienced people acquiring amounts of money in quantities that really matter especially if their future well-being depends on prudent withdrawal of funds. For such people I think it is dangerous to imply that all investing problems can be solved by buying a VLSxxx fund.
Somewhere, dependent on the individual, between the two extremes there is a balance.
That 's why I wrote "Job done......most of the time". People should definitely educate themselves before they start investing, unfortunately too many people are intimidated by the UK's investing environment and culture. If they start with a VLSxx type fund they won't go far wrong and they can tweak the portfolio as required. Drawdown does need some particular knowledge/skills/courage to do it correctly, but that isn't rocket science either.
My investing approach is simple and uses index funds and has carried me from $0 in 1987 into the mid 7 figures....but as I have considerable taxable assets tax planning is now a big deal.....This isn't as important in the UK where money can be wrapped in an ISA. My taxable assets are all in tax efficient index funds that don't pay a lot out in dividends.“So we beat on, boats against the current, borne back ceaselessly into the past.”0
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