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  • FIRST POST
    • Jimbo911
    • By Jimbo911 13th Jun 17, 3:15 PM
    • 21Posts
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    Jimbo911
    Defined Contribution Pension - Target Date Fund Investments
    • #1
    • 13th Jun 17, 3:15 PM
    Defined Contribution Pension - Target Date Fund Investments 13th Jun 17 at 3:15 PM
    I am aged 51 and contribute to a Defined Contribution pension. My monthly contributions are invested into a Target Date Fund. The aim is to get the most from my money and create a smoother journey for my investments as I head towards my planned retirement aged of 55.

    The Target Date fund invests in a range of different investment types that all have different levels of risk that are appropriate to my age. My fund is at a stage where as I approach my planned retirement age of 55, the mix of investments become more balanced and move towards a more cautious approach.

    I have attached a breakdown of my Target Date fund at the end of this post which shows my mix of investments.

    Considering the current economic climate and also the direction we think our economy is heading, I would be interested to hear your views on how you think each of these investments will perform over the next 4 years.

    The intention of this post is for me to make an informed decision to see if I wish to change my investment types or keep them as they are.


    MY INVESTMENTS


    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%
    Last edited by Jimbo911; 13-06-2017 at 4:56 PM.
Page 1
    • bostonerimus
    • By bostonerimus 13th Jun 17, 4:04 PM
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    bostonerimus
    • #2
    • 13th Jun 17, 4:04 PM
    • #2
    • 13th Jun 17, 4:04 PM
    It's difficult to answer your question without knowing about all your other investments, pensions, debts, housing situation etc.

    Generally I'd say 60% bonds is pretty conservative at age 51 and that in drawdown fees and expenses will directly affect your level of income so make sure you minimize those!
    Misanthrope in search of similar for mutual loathing
    • coyrls
    • By coyrls 13th Jun 17, 5:56 PM
    • 848 Posts
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    coyrls
    • #3
    • 13th Jun 17, 5:56 PM
    • #3
    • 13th Jun 17, 5:56 PM
    The fact that you have 35% in index linked gilts suggests that your Target Date fund has been designed with the assumption that you will be purchasing an annuity. Is that your intention? If so, have you considered the alternatives? If you are not purchasing an annuity you should review your investment strategy to align with how you plan to fund your retirement.
    • Linton
    • By Linton 13th Jun 17, 6:10 PM
    • 8,174 Posts
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    Linton
    • #4
    • 13th Jun 17, 6:10 PM
    • #4
    • 13th Jun 17, 6:10 PM
    Target date funds work on the assumption that you need less risk as you approach retirement. If you are planning to take drawdown at 55 this is arguable since you may not be touching half the the money for 20 years, planty of time to justify a 100% equity portfolio.

    No-one knows which way our economy is going in the next 4 years and none knows how your funds are going to perform. That is why one holds a broad range of investments and hopefully most of the equity is invested overseas. A major fall in sterling may actually be to your benefit.

    I agree with bostonorius that your equity seems very low which will significantly reduce your potential return but as we dont know your circumstances we can only assume that your retirement plans have taken this into account .
    • dunstonh
    • By dunstonh 13th Jun 17, 6:18 PM
    • 89,436 Posts
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    dunstonh
    • #5
    • 13th Jun 17, 6:18 PM
    • #5
    • 13th Jun 17, 6:18 PM
    My monthly contributions are invested into a Target Date Fund.
    These funds are aimed at people who intend to buy an annuity or fully encash the pension as a lump sum at retirement. So, does that description fit you?
    They are not suitable for those that intend to use drawdown.


    Considering the current economic climate and also the direction we think our economy is heading, I would be interested to hear your views on how you think each of these investments will perform over the next 4 years.
    Nobody knows. Impossible to answer. You should invest appropriate for your risk level, your capacity for loss and your behaviour and knowledge. Not anyone elses.
    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.
    • Jimbo911
    • By Jimbo911 14th Jun 17, 9:43 AM
    • 21 Posts
    • 3 Thanks
    Jimbo911
    • #6
    • 14th Jun 17, 9:43 AM
    • #6
    • 14th Jun 17, 9:43 AM
    The fact that you have 35% in index linked gilts suggests that your Target Date fund has been designed with the assumption that you will be purchasing an annuity. Is that your intention? If so, have you considered the alternatives? If you are not purchasing an annuity you should review your investment strategy to align with how you plan to fund your retirement.
    Originally posted by coyrls

    You are correct in the fact that my DC fund is designed to purchase an Annuity. The scheme does not offer a Drawdown option. I intend moving my pot to a drawdown scheme in 4 years time. Are you able to advise on what my mix of Investments should be for me to take drawdown?


    Thank you.
    • Jimbo911
    • By Jimbo911 14th Jun 17, 9:45 AM
    • 21 Posts
    • 3 Thanks
    Jimbo911
    • #7
    • 14th Jun 17, 9:45 AM
    • #7
    • 14th Jun 17, 9:45 AM
    Generally I'd say 60% bonds is pretty conservative at age 51 and that in drawdown fees and expenses will directly affect your level of income so make sure you minimize those!
    Originally posted by bostonerimus

    I intend moving my pot to a drawdown scheme in 4 years time. Are you able to advise on what my mix of Investments should be for me to take drawdown?


    Thank you.
    • Jimbo911
    • By Jimbo911 14th Jun 17, 9:47 AM
    • 21 Posts
    • 3 Thanks
    Jimbo911
    • #8
    • 14th Jun 17, 9:47 AM
    • #8
    • 14th Jun 17, 9:47 AM
    I agree with bostonorius that your equity seems very low which will significantly reduce your potential return but as we dont know your circumstances we can only assume that your retirement plans have taken this into account .
    Originally posted by Linton

    I intend moving my pot to a drawdown scheme in 4 years time. Are you able to advise on what my mix of Investments should be for me to take drawdown?


    Thank you.
    • Jimbo911
    • By Jimbo911 14th Jun 17, 9:50 AM
    • 21 Posts
    • 3 Thanks
    Jimbo911
    • #9
    • 14th Jun 17, 9:50 AM
    • #9
    • 14th Jun 17, 9:50 AM
    These funds are aimed at people who intend to buy an annuity or fully encash the pension as a lump sum at retirement. So, does that description fit you?
    They are not suitable for those that intend to use drawdown.
    Originally posted by dunstonh

    I intend moving my pot to a drawdown scheme in 4 years time. Are you able to advise on what my mix of Investments should be for me to take drawdown?


    Thank you.
    • Jimbo911
    • By Jimbo911 14th Jun 17, 9:53 AM
    • 21 Posts
    • 3 Thanks
    Jimbo911
    I intend moving my DC pot to a drawdown scheme in 4 years time. Is anyone able to advise on what my mix of Investments should be for me to take drawdown?


    Thank you.


    MY CURRENT TARGET DATE FUND INVESTMENTS

    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%
    Last edited by Jimbo911; 14-06-2017 at 9:57 AM.
    • dunstonh
    • By dunstonh 14th Jun 17, 9:59 AM
    • 89,436 Posts
    • 54,898 Thanks
    dunstonh
    I intend moving my pot to a drawdown scheme in 4 years time. Are you able to advise on what my mix of Investments should be for me to take drawdown?


    Thank you.
    Originally posted by Jimbo911
    Yes. In real life I can. However, the board is not regulated to allow such things and you havent given us enough information to do that even if it was possible.

    What happens if someone recommends funds that are quite a few notches above your risk profile or recommends funds that are outside of your knowledge and understanding and need rebalancing and adjusting periodically.
    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.
    • Jimbo911
    • By Jimbo911 14th Jun 17, 10:43 AM
    • 21 Posts
    • 3 Thanks
    Jimbo911
    Generally I'd say 60% bonds is pretty conservative at age 51 and that in drawdown fees and expenses will directly affect your level of income so make sure you minimize those!
    Originally posted by bostonerimus

    Are you suggesting my current investment bonds should more or less then 60% at age 51? Thank you.
    • AnotherJoe
    • By AnotherJoe 14th Jun 17, 11:00 AM
    • 7,221 Posts
    • 7,725 Thanks
    AnotherJoe
    Are you suggesting my current investment bonds should more or less then 60% at age 51? Thank you.
    Originally posted by Jimbo911
    I think everyone is suggesting that (a) you probably shouldn't be in a target date system, because it probably doesn't fit your plans, and that 60% is very conservative for someone with 30+ investing years ahead of them, but not knowing your overall financial situation* and your approach to risk, no can can conclusively state that 60% is too high.

    It certainly would be too high for most, but then again there was a poster here recently who had a hugely conservative approach and who was essentially 100% in bonds, so there is no right answer.

    You have plenty of time to get educated, or you could take financial advice now.

    *so, you plan to start draw down at age 55 in 4 years time but that doesnt really mean anything by itself. Will you draw down 3% a year indefintely or 20% for 4-5 years as you bridge to other pensions? Do you need all that money to live on or is it a top up or or or ???
    • coyrls
    • By coyrls 14th Jun 17, 11:02 AM
    • 848 Posts
    • 856 Thanks
    coyrls
    I intend moving my pot to a drawdown scheme in 4 years time. Are you able to advise on what my mix of Investments should be for me to take drawdown?


    Thank you.
    Originally posted by Jimbo911
    I think in principle you should decide what asset mix you want to have to support drawdown and attempt to get your allocation as close to that mix as possible with your current provider prior to moving to drawdown. The only complication is that it is likely that you will need to transfer to your new provider in cash and so you may want to gradually move to a cash equivalent fund in the last year or so to avoid a situation where your funds are sold during a sudden crash that recovers before you’re able to reinvest with your new provider.
    • Linton
    • By Linton 14th Jun 17, 11:14 AM
    • 8,174 Posts
    • 8,027 Thanks
    Linton
    Are you suggesting my current investment bonds should more or less then 60% at age 51? Thank you.
    Originally posted by Jimbo911
    Less than 60% bonds if you plan to drawdown. Bonds generally are less volatile and provide lower returns than equity. They are suitable if you need the money in the relatively short term but in your case you could still be drawing down in 40 years time. No-one knows what could happen to inflation between now and then so you need to ensure a good return on your investments until nearer the time.

    For the past few years conditions have been unusual for bonds. Interest rates have fallen which has the effect that very safe bonds like gilts are not great investments as their price has risen close to the maximum.

    What you should do depends on your circumstances and attitude to risk. Your pension pot or other investments may be so large that you can afford to meet all your conceivable expenses for the rest of your life without any worry about inflation. If you invest more in equities you will need to accept that in some years there will be crashes during which you pension pot drops in value. You may find this difficult.

    So we cant tell you what is right for you. To get that advice you would need to consult a professional.
    • Jimbo911
    • By Jimbo911 14th Jun 17, 11:43 AM
    • 21 Posts
    • 3 Thanks
    Jimbo911
    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 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.


    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%
    Last edited by Jimbo911; 14-06-2017 at 12:32 PM.
    • bostonerimus
    • By bostonerimus 14th Jun 17, 12:12 PM
    • 840 Posts
    • 421 Thanks
    bostonerimus
    I intend moving my pot to a drawdown scheme in 4 years time. Are you able to advise on what my mix of Investments should be for me to take drawdown?


    Thank you.
    Originally posted by Jimbo911
    For drawdown you should probably start with 60% equities as for historical stock and bond markets that's been a good compromise between risk and return. That asset mix has given a 95% change of being able to withdraw a 3.5% inflation adjusted income for 30 years. Of course the asset mix also depends on your other investments and pensions. For example if you had a final salary pension that covered your basic expenses you might want to go 100% equities because you could "afford" to take the extra risk.

    Bear in mind that any investing fees will directly reduce the income you can take......so 1% fees and your income does down to 2.5%. For that reason you might want to look at the various low cost multi-asset funds with a n equity mix that you like as a starting point for your drawdown fund allocation.
    Misanthrope in search of similar for mutual loathing
    • dunstonh
    • By dunstonh 14th Jun 17, 12:14 PM
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    • 54,898 Thanks
    dunstonh
    Bear in mind that any investing fees will directly reduce the income you can take......so 1% fees and your income does down to 2.5%.
    That is not correct.

    Fees will certainly reduce the net return of the fund. However, not to a scale that will require you to reduce the income draw.
    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.
    • bostonerimus
    • By bostonerimus 14th Jun 17, 12:17 PM
    • 840 Posts
    • 421 Thanks
    bostonerimus
    All I'm trying to do is use my existing pension fund as a vehicle to build as big of a pot as possible by the time I'm 55.
    Originally posted by Jimbo911
    I'd stop thinking like that. You want to balance risk with potential return......the biggest pot possible would require you to go 100% equities, but you'd also have a high chance of losing money. So you should be looking to grow your pension fund consistently, balancing risk and return to maximize the probability that you'll have enough to fund your retirement. You need to do a budget, work out how big a pension pot you need and design an asset mix that gives you the highest probability of getting there.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 14th Jun 17, 12:18 PM
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    • 421 Thanks
    bostonerimus
    That is not correct.

    Fees will certainly reduce the net return of the fund. However, not to a scale that will require you to reduce the income draw.
    Originally posted by dunstonh
    The safe withdrawal rate models do not include fees. It's true that they will reduce when the value of a portfolio goes down so that it might not be 1:1......but minimizing them is still good practice. If the actual reduction for 1% fees is something like 0.5% that's still 15% of your income lost. However, to be careful, many people in the US adjust their safe withdrawal rate by the amount of fees they pay....of course that could be as low as 0.1%.

    Here is a nice article on the subject

    https://www.kitces.com/blog/the-impact-of-investment-costs-on-safe-withdrawal-rates/
    Last edited by bostonerimus; 14-06-2017 at 12:45 PM.
    Misanthrope in search of similar for mutual loathing
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