Want 5% on £300k

darkpool

uk1 wrote: »

I'm currently achieving 4.95% - down from 6.1% average 6 months ago. My cash portfolio will not be below 4.5% over the next 24 month if I do nothing at all. When the last high interest account matures, I'm happy to have a return lower than inflation until rates go up again.

ehhhmmmm ok, i hope that works out well for you. you let me know when interest rates are over inflation.

The Bank of England hasn't raised interest rates even though inflation has been persistently over target rate. Does that indicate anything to you?

uk1

darkpool wrote: »

ehhhmmmm ok, i hope that works out well for you. you let me know when interest rates are over inflation.

The Bank of England hasn't raised interest rates even though inflation has been persistently over target rate. Does that indicate anything to you?

Please don't be patronising. The problem is that you are still not grasping it.

An option that all people who have retired should at least consider - is to see their pot as a sinking fund that they plan to be zero given reasonable assumptions about how long the fund has to last for.

This philosphy replaces the universal presumption that all funds must have the capital preserved so that something is left after the fund has lost it's owner. This presumption is great business for the finance industry but more people should consider that approach as a pre-cursor for deciding whether to risk their fund which may not even be necessary. If they basically have enough cash to last their lifetime then perhaps being greedy and taking unnecessary risks isn't the sensible thing to do.

There is nothing wrong for an account to be less at the end of a year than at the begining so long as the fund lasts for as long as you plan it to.

darkpool

uk1 wrote: »

The problem is that you are still not grasping it.

i think i do grasp it. it just doesn't seem a very sensible course of action to me. if you're happy with it though that's all that matters.

jimjames

darkpool wrote: »

Most academic studies of active management versus passive show the average active manager underperforms, and there is no persistency among the top performers over the longer term.

That is my understanding too - emphasis on long term. Over a year or two a fund manager may beat the index. Chances are that the next year it will be a different manager so over 10 years a fund has a very low chance of beating the index return.

This only really applies in mature markets where all information is supposedly known; for emerging markets analysis by managers is suggested to give outperformance.

confusedsteve

Many thanks to all that have contributed to this post. I appear to have provoked some controversy amongst the regular posters. Special thanks to UK1 who seemed to grasp exactly what my issues and concerns are. FYI although I have not called it a sinking fund, I have done exactly as you suggest and compiled a spreadsheet showing savings income at various percentages of interest or growth, pension income or drawdown, and then a range of levels of expenditure which I have inflation proofed. This then showed me various forecasts for when the funds would run out. The bit that was missing was knowing how long we would live!

I also learned by reading the posts that I had no idea what I previously meant when stating I was a low to medium risk investor, I think I would now consider myself low risk.

So for me its back to the IFA and discuss fee only work, in particular for the pension drawdown advice, illustration and possible transfer. Then a discussion for my investments to include trackers, bonds, gilts, and corporate bonds. And then finally decide how much of my hard earned I want to put into savings rather than investments.

uk1

confusedsteve wrote: »

Many thanks to all that have contributed to this post. I appear to have provoked some controversy amongst the regular posters. Special thanks to UK1 who seemed to grasp exactly what my issues and concerns are. FYI although I have not called it a sinking fund, I have done exactly as you suggest and compiled a spreadsheet showing savings income at various percentages of interest or growth, pension income or drawdown, and then a range of levels of expenditure which I have inflation proofed. This then showed me various forecasts for when the funds would run out. The bit that was missing was knowing how long we would live!

I also learned by reading the posts that I had no idea what I previously meant when stating I was a low to medium risk investor, I think I would now consider myself low risk.

So for me its back to the IFA and discuss fee only work, in particular for the pension drawdown advice, illustration and possible transfer. Then a discussion for my investments to include trackers, bonds, gilts, and corporate bonds. And then finally decide how much of my hard earned I want to put into savings rather than investments.

That's great to hear ...... thanks for the feedback re your plans.

What I learned from my process was that it isn't a precise science or art - but it does give you the option to trade off choices. For example, it can tell you when you need to expire in order not run out of money! Or if you were to spend x amount less then how much longer would your pot last. It gives you the opportunity to know exactly what you are trading ...... for example if I spend just £1k less per year then I need not risk my whole pot on the market. In the end you need to build in a level of safety ... at it's simplest the presumption you'll live to 90 or something. Your lesson about what you meant by risk - was as you have seen - exactly my concern. Some feel that having say £100k in a single bank is a medium risk - others see it as risk free.

I know I'm fortunate, but others are as well. This approach has liberated me from the chains of believing I had to invest in something speculative when in fact it's clear I proably have enough. I now basically do not have the worries I had younger when I was constantly tracking my fund. There is no other way that arriving at that position without the analysis I proposed and you now seem to subscribe to.

Good luck with your retirement.

psychic_teabag

darkpool wrote: »

but that's similar to saying "you can make an absolute fortune gambling as long as you don't put money on horses that don't win". I think if all the fund managers like IP could prove that they could outperform the bank UTs they would do it? It would be such a strong selling point. The fact that fund managers don't advetise such fact suggests they don't actually do that much for the consumer. They only advertise the odd fund that does well.

A think a better analogy might be that you improve your chances of getting a decent return if you avoid betting on 3-legged horses.

Aren't there rules against adverts which denigrate specific competitors ?

EDIT: sorry, replied before noticing there was another page on this thread.

dunstonh

Most academic studies of active management versus passive show the average active manager underperforms, and there is no persistency among the top performers over the longer term.

When you select single sector managed funds, you will find that many are focused more on certain areas. Special Sits/Recovery/Equity income etc. At different points of the economic cycle, these will be a good place to be in and a bad place to be in. if you are going to select funds like this then you need to move in and out of them or adjust your holdings with your periodic reviews. If you are going to be a lazy investor then you shouldnt use them.

jamesd

confusedsteve wrote: »

FYI although I have not called it a sinking fund, I have done exactly as you suggest and compiled a spreadsheet showing savings income at various percentages of interest or growth, pension income or drawdown, and then a range of levels of expenditure which I have inflation proofed. This then showed me various forecasts for when the funds would run out.

Same here, though for redundancy then retirement rather than only retirement at the moment.

confusedsteve wrote: »

The bit that was missing was knowing how long we would live!

Hard to know that one unless you commit yourself to no later than a specific age. I use 120 for contingency planning and using the cohort life expectancy half of all 5 year old men today are expected to live to 89 or older. About a quarter of all 65 year olds today are expected to reach 100. Watch out for press life expectancy reports which are usually life expectancy at birth - a lot lower than life expectancy when you've already survived the trials of relative youth.

confusedsteve wrote: »

I also learned by reading the posts that I had no idea what I previously meant when stating I was a low to medium risk investor, I think I would now consider myself low risk.

That's likely to be taken to mean something like a 10% drop, ignoring inflation. Can't really go much lower without eliminating investments that have capital value variation. Even gilts start to become hard to use if you go lower, because they have variable value unless they are held to the end of their term and the UK government isn't risk free, just very low risk.

confusedsteve wrote: »

So for me its back to the IFA and discuss fee only work, in particular for the pension drawdown advice, illustration and possible transfer. Then a discussion for my investments to include trackers, bonds, gilts, and corporate bonds. And then finally decide how much of my hard earned I want to put into savings rather than investments.

You should find that your IFA now starts to mention options like the NS&I index-linked certificates which are expected to return around May. If you go with a 10% target you can expect that 30-50% or even more will be in cash or near cash (those certificates, term deposit accounts, ordinary savings accounts, money market funds).

For low risk the IFA should also be talking with you much more seriously about using one or more annuities, possibly purchased from different companies at different times over the years. Those are a normal low risk approach that may well pay out more than low risk alternatives. They have the big advantage for at least part of the money that they don't run out if you do happen to live a long time. Depending on your age you should be able to get something like 3% income with inflation protection up to 5% a year or a few percent more without inflation protection.

Your main threat at those risk levels will be late 1970s and early 80s inflation levels, which could make you a pauper in a few years. The years from 1974 through 1981 cut the value of fixed income levels to just 31% of where they started. No way to tell whether you'll see a period like that, they have happened quite often but whether there will be another one before you die is just unknowable.

jamesd

darkpool wrote: »

FT: Most academic studies of active management versus passive show the average active manager underperforms, and there is no persistency among the top performers over the longer term.

You shouldn't expect long term consistency of top performance. Same with trackers: you don't expect an emerging markets tracker to consistently be top or bottom of the charts because it swings greatly.

I don't know of even one study that has done a proper comparison of active and passive management without major systematic flaws in the active side of the comparison. The sort of systematic flaws that are nearly universal in studies are:

1. Sticking with the fund when the manager (human) changes.
2. Sticking with the fund when the management company changes.
3. Sticking with the fund at a time when it's inappropriate for the stage of the economic cycle.
4. Buying without normal discounts.
5. Holding without normal discounts.
6. Taxation treatment not applicable to the place where the study results are being used (typically US study results used in other parts of the world).
7. Markets used that are not applicable to markets elsewhere (commonly picking the markets that are most likely to be efficient and ignoring the ones that aren't).
8. Ignoring the distribution of money between funds - active investors ignore the consistent poor performers but studies don't.

It's not a surprise that these things are usually ignored, they are hard to model and many of them are irrelevant or less significant for trackers. It's a great shame though because it makes the studies useless for many serious purposes, like comparing the use of active with passive funds by active investors. They are more useful for passive investors using active funds, who may well stick with a fund long after it was sensible to do so.

However, there are some more useful studies around, like "About 80% of the total assets in active equity funds are held in funds that have beaten the market over the past 15 years." which rather tends to highlight the problem of averages; those using active funds don't buy the average funds but studies do.

New Evidence in Support of of Active Fund Management is also worth a read.