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  • FIRST POST
    • eyeonretirement
    • By eyeonretirement 29th May 17, 10:10 AM
    • 22Posts
    • 3Thanks
    eyeonretirement
    Drawdown portfolio - views
    • #1
    • 29th May 17, 10:10 AM
    Drawdown portfolio - views 29th May 17 at 10:10 AM
    I am trying to build a portfolio to use in drawdown for my wife and myself. We have no other pensions other than our self invested SIPP's and ISA's other than the state pension in a few years time. My aim is only draw down the natural yield using UFPLS and keep under the taxable levels ( £11500?). I would keep 2 or 3 years income in cash and the rest invested with annual rebalancing. I would value peoples opinion on the portfolio I am playing around with.

    SIPP 1 – Funds
    Woodford Equity Income UK 3.00%
    Artemis Income UK 2.00%
    JOHCM UK Equity Income UK 3.00%
    Artemis Global Income GLOBAL 5.00%
    SPDR Global Divi aristrocrats GLOBAL 5.00%
    F&C Commercial property IT PROP 3.00%
    First state Global listed infra OTHER 2.00%
    SUB TOTAL 23.00%

    SIPP 2 – Funds
    Trojan Income UK 3.00%
    Fidelity Moneybuilder divi UK 3.00%
    Rathbone Income UK 2.00%
    Scottish American IT GLOBAL 4.00%
    UK Commercial property IT PROP 3.00%
    3i Infrastructure OTHER 3.00%
    SUB TOTAL 18.00

    ISA 1 - IT's and ETF's and Bonds
    City of London IT UK 3.00%
    Temple Bar IT UK 3.00%
    Newton Global Income GLOBAL 5.00%
    Aberdeen Asian Income IT GLOBAL 4.00%
    Artemis Strategic Bond FIXED 4.00%
    TwentyFour Dynamic Bond FIXED 4.00%
    Rathbone Ethical Bond FIXED 4.00%
    SUB TOTAL 27.00

    ISA 2 - IT's and ETF's and Bonds
    Edinburgh IT UK 4.00%
    Marlborough Multicap Income UK 3.00%
    Murray International IT GLOBAL 5.00%
    Schroder Asia Income GLOBAL 4.00%
    Jupiter Strategic Bond FIXED 4.00%
    New City High Yield IT FIXED 4.00%
    Henderson Strategic Bond FIXED 4.00%
    LXI REIT PROP 3.00%
    SUB TOTAL 31.00%
    Last edited by eyeonretirement; 29-05-2017 at 10:12 AM. Reason: punctuation
Page 2
    • dunstonh
    • By dunstonh 30th May 17, 1:21 PM
    • 89,436 Posts
    • 54,898 Thanks
    dunstonh
    I never said a tracker would mimic those holdings. Just that the returns from such a huge number of holdings will be distinctly average and the return could be compared (IMO) to a tracker.
    That is not correct. The returns could be higher or lower. The underlying assets will depend on that and you cannot infer from the quantity of holdings that they will be lower or higher.

    but I suspect, very strongly, if bench marked, such a huge portfolio with thousands of underlying investments, the total return from it over the last 10 years would be very similar if not inferior to a world index tracker fund.
    it is unlikely a drawdown investor would be 100% equity. So, it shouldnt be similar.

    but neither am I fan of holding dozens of funds for the sake of it either.
    I get what you are saying. There does come a point where adding funds doesnt have a noticeable impact. I wouldn't want to put a finger on it but would think somewhere between 10-15 is typical. If you used a global equity fund to capture the individual global sectors than 6-8 would be typical.

    If someone had 30 funds, I would be more concerned as to whether they are a victim of fashion investing and lacking structure. However, if they had a structure then there is no reason why 30 would not work. Even if it is unlikely to bring much to the party other than creating extra work.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • eyeonretirement
    • By eyeonretirement 30th May 17, 6:58 PM
    • 22 Posts
    • 3 Thanks
    eyeonretirement
    So do you agree 14 for each for my wife and myself is fine or should that be 7 each =14? What is your view on holding bonds if I shouldnt be 100% in equities in drawdown if not what are the alternatives?
    • bostonerimus
    • By bostonerimus 30th May 17, 7:52 PM
    • 840 Posts
    • 421 Thanks
    bostonerimus
    it is unlikely a drawdown investor would be 100% equity. So, it shouldnt be similar.
    Originally posted by dunstonh
    Agreed, the sweet spot for a 30 year retirement is around a 60/40 asset allocation

    Of course if you have a DB pension or something like rental income you should probably have more than 60% equities in the rest of your portfolio.......as the DB should be included in your overall fixed income allocation and a rental would be an allocation to property and provide regular income.
    Last edited by bostonerimus; 31-05-2017 at 12:58 PM.
    Misanthrope in search of similar for mutual loathing
  • jamesd
    My pot is approx £750K combined. I intend to run as one portfolio as best I can, all four are on the one platform. ... I understand the problem with bonds, but what else can people do other than property and other bond proxies.
    Originally posted by eyeonretirement
    Please read the recent discussion My plan at 55. Is my thinking correct? that covers most of the issues relevant for your own planning. Peer to peer lending is what I'm using as a bond alternative, with secured lending (property, land, cars, equipment and such as security) at a weighted mean interest rate of 12.7% before about 1% estimated bad debt after realising the value of security.

    Others have commented on how many funds. While I have quite a few most of the fund money is in just three: a global tracker with pound currency hedge, a managed European smaller companies fund and a managed UK smaller companies fund. The global one is there to cover much of the world and the two smaller companies ones are in smaller companies because those do better than big ones long term, but with bigger ups and downs, and I've held them for a while in two areas where such funds have done well and appear to have decent prospects for a while longer. Maybe fifteen total but the amounts in the rest just aren't material. Those three are putting most of the money where I want it to be without a lot of work.

    So far as equity/bond mix in retirement goes the theoretical best is 100% equities if you believe Bill Bengen, the founder of modern safe withdrawal theory. But there are two catches with that:

    1. There are some times when bonds do better. Not often, but sometimes. There's a solution for that. Another well respected person, Guyton, has used the cyclically adjusted price/earnings ratio to come up with a rule for when to cut equity holdings into bonds, as part of his work on reducing something called sequence of returns risk. That involves checking a few numbers once a year and doing what the rule says, not a lot of work at all.

    2. Most people don't have the stomach for it. A 100% equity portfolio will see drops of 40-50% once or twice in a fairly typical decade. That's a really big drop to accept even when you know that a recovery is likely to be along soon. And giving up and selling at the bottom is really bad. So you need to keep the equity portion at a level where the overall drop is one you can stand while not panic selling and not losing sleep.

    Beyond that, the difference in safe withdrawal rate up to around 30% fixed interest isn't large, so it's not terribly painful to do that. 50% and up is more seriously troublesome. Though that's bonds and at the moment P2P lending has apparent returns better than long term equity returns, so in the UK today it's actually a painless swap.

    Historically I've been close to 100% equities but due to valuations I'm now far below 100%, with P2P lending being most of where I've gone. The free lunch it offers today may not last but I'll take it while it's around.
    Last edited by jamesd; 30-05-2017 at 9:32 PM.
    • bigadaj
    • By bigadaj 31st May 17, 5:41 AM
    • 9,907 Posts
    • 6,325 Thanks
    bigadaj
    Jamesd, you talk about moving into bonds but I can't see how they are any better than equities currently, I'm avoiding.
  • jamesd
    I also have low exposure to bonds because of the interest rate risk to capital but even with that they are a far better place to be than equities at high equity market valuations. I mostly use P2P as my fixed interest component.
    • TBC15
    • By TBC15 31st May 17, 3:04 PM
    • 180 Posts
    • 47 Thanks
    TBC15
    So what’s wrong with putting the whole 9yds into Fundsmith and just getting on with life?
    • Linton
    • By Linton 31st May 17, 4:03 PM
    • 8,174 Posts
    • 8,027 Thanks
    Linton
    So what’s wrong with putting the whole 9yds into Fundsmith and just getting on with life?
    Originally posted by TBC15
    Assuming that's a serious question...

    Fundsmith is invested in just 29 companies mainly US based. 80% of these companies are in just 3 sectors. Putting the whole of your £750K life savings in such a limited range of investments would be frighteningly risky, well to me any way. In 6 not particularly special weeks from October 2016 the fund dropped 10% (£75K). In 3 weeks from August 2015 it dropped 15% (£113K). The fund has yet to experience a real crash.

    Maths wrong! Ignore!

    Fancy a ride?
    Last edited by Linton; 31-05-2017 at 4:21 PM.
    • bostonerimus
    • By bostonerimus 31st May 17, 4:14 PM
    • 840 Posts
    • 421 Thanks
    bostonerimus
    Assuming that's a serious question...

    Fundsmith is invested in just 29 companies mainly US based. 80% of these companies are in just 3 sectors. Putting the whole of your £750K life savings in such a limited range of investments would be frighteningly risky, well to me any way. In 6 not particularly special weeks from October 2016 the fund dropped 10% (£75K). In 3 weeks from August 2015 it dropped 15% (£113K). The fund has yet to experience a real crash.

    Fancy a ride?
    Originally posted by Linton
    I have a high percentage of equities in my retirement portfolio, but the are in very broad indexes.....so thousands of companies. Admittedly they are market cap weighted but if you are an index investor then that's what you do. In the US retirement nerds are pretty sanguine about market corrections of up to 20% as they are going to happen and have strategies that include a dividend, fixed income and cash allocations and reducing withdrawals to cope. I imagine that's the same in the UK.
    Misanthrope in search of similar for mutual loathing
    • TBC15
    • By TBC15 31st May 17, 4:27 PM
    • 180 Posts
    • 47 Thanks
    TBC15
    Assuming that's a serious question...

    Fundsmith is invested in just 29 companies mainly US based. 80% of these companies are in just 3 sectors. Putting the whole of your £750K life savings in such a limited range of investments would be frighteningly risky, well to me any way. In 6 not particularly special weeks from October 2016 the fund dropped 10% (£75K). In 3 weeks from August 2015 it dropped 15% (£113K). The fund has yet to experience a real crash.

    Fancy a ride?
    Originally posted by Linton
    In the last 5ys it returned 175%.

    Did you fail to buy a ticket?

    In all seriousness Terry seems to be doing what I should be doing if I could be bothered to spend the time. Warren Buffet lite.
    • dunstonh
    • By dunstonh 31st May 17, 4:48 PM
    • 89,436 Posts
    • 54,898 Thanks
    dunstonh
    In the last 5ys it returned 175%.
    It has had a good run in a growth period. However, it's risk level is high. So, expect 40-50% losses in a negative period. So, do you fancy seeing your pension fund value fall by nearly half between statements?

    And as this is a drawdown thread, just imagine what that fall in value would do to your income and capital erosion.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • TBC15
    • By TBC15 31st May 17, 5:05 PM
    • 180 Posts
    • 47 Thanks
    TBC15
    It has had a good run in a growth period. However, it's risk level is high. So, expect 40-50% losses in a negative period. So, do you fancy seeing your pension fund value fall by nearly half between statements?

    And as this is a drawdown thread, just imagine what that fall in value would do to your income and capital erosion.
    Originally posted by dunstonh
    Been there not quite 50% I’ll admit. If you have a couple of years of cash behind you whats the problem?

    The trend will always be up.

    Stick with the program and don’t fear out. If you don’t like paper losses put it on deposit would appear to be the way to go.
    • dunstonh
    • By dunstonh 31st May 17, 6:46 PM
    • 89,436 Posts
    • 54,898 Thanks
    dunstonh
    Been there not quite 50% I’ll admit. If you have a couple of years of cash behind you whats the problem?
    A drop of 50% requires 100% growth to recover.

    If the person in drawdown continues to draw the same amount, the growth may get eaten and it may never recover.

    If they can afford to be flexible with their income, then that wont be an issue. If they cannot afford to be flexible then they would be investing too high above their capacity for loss.


    Stick with the program and don’t fear out. If you don’t like paper losses put it on deposit would appear to be the way to go.
    Risk is not on/off. it is a sliding scale. You shoudlnt look at either end and decide they are the only two options. Lots of things in the middle and that is where most people in retirement are.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • TBC15
    • By TBC15 1st Jun 17, 2:29 PM
    • 180 Posts
    • 47 Thanks
    TBC15
    A drop of 50% requires 100% growth to recover.

    If the person in drawdown continues to draw the same amount, the growth may get eaten and it may never recover.

    If they can afford to be flexible with their income, then that wont be an issue. If they cannot afford to be flexible then they would be investing too high above their capacity for loss.




    Risk is not on/off. it is a sliding scale. You shoudlnt look at either end and decide they are the only two options. Lots of things in the middle and that is where most people in retirement are.
    Originally posted by dunstonh
    All good points.

    However would the not risk adverse potential retiree with a couple of years of cash behind him be a fool to put all his eggs in the Fundsmith basket to simplify the process in the future?

    Apologies to the OP for the diversion, I should probably start my own thread. It’s hard to resist asking questions when one’s own retirement clock is ticking rather loudly.
  • jamesd
    Not a fool, but unwise. Too much exposure to the risk of one individual getting things wrong. 10% in it? No problem. You can probably find some others you like and add in some trackers as well.

    If you really want simplicity, that's the territory of global tracker funds. That eliminates the risk of manager change leading to performance change.
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