Asset allocation for a portfolio with a final salary pension

Acromion

I am familiar with the concept that an investment portfolio should contain a greater proportion of fixed income assets as you get older. I'm just looking at the Money Section from the Times of 21st April this year. 2 sages from Yellowtail and AWD Chase De Vere suggest that sixtysomethings should tailor their retirement portfolio to contain Equities/Bonds/Property in proportion 40/50/10 and 30/60/10 respectively.

However, if you have a company or final salary pension is it reasonable then to reduce the proportion of bonds to reflect that (reasonably secure) income?

CLAPTON

a bit unclear

if you have a final salary pension then what it's invested in is no concern of yours as your pension is guarenteed.

jem16

Acromion wrote: »

However, if you have a company or final salary pension is it reasonable then to reduce the proportion of bonds to reflect that (reasonably secure) income?

Is your retirement portfolio in addition to the final salary pension?

Linton

Acromion wrote: »

I am familiar with the concept that an investment portfolio should contain a greater proportion of fixed income assets as you get older. I'm just looking at the Money Section from the Times of 21st April this year. 2 sages from Yellowtail and AWD Chase De Vere suggest that sixtysomethings should tailor their retirement portfolio to contain Equities/Bonds/Property in proportion 40/50/10 and 30/60/10 respectively.

However, if you have a company or final salary pension is it reasonable then to reduce the proportion of bonds to reflect that (reasonably secure) income?

I guess it all depends on what you want to do with the investment - for example
1) Provide a steady supplementary income
2) Ensure high quality care in your very old age
3) Provide maximum inheritance for your children as you have no need of the money
4) Move in the near future to new luxury bungalow in a highly desirable location.
etc etc

Each objective could well imply a totally different asset allocation.

Acromion

Yes, I'm sorry if I failed to make that clear. I'm fortunate to have a final salary pension which is just about adequate but not generous and I have some other savings in a stocks and shares ISA which I am expecting to generate extra income. I'm sure this is not a unique situation. I suppose what I am suggesting is that perhaps the income from the pension might take the role of the bond part of the investment portfolio and that therefore it is not unreasonable to eschew bonds and leave the rest in shares.

Acromion

Thanks Linton, I take your point.
It's really just a (reasonably!) steady supplementary income. Inheritance, moving, old age care - perhaps in the future these will assume a greater importance but right now they are really not considerations.

Linton

I suggest you divide your portfolio into separate pots to achieve the different objectives.

What I do is:

1) To provide a steady income set up a portfolio of dividend paying shares and income funds
2) To provide guaranteed lump sums each year have a "ladder" of 3 year fixed rate deposits , one maturing each year.
3) To provide growth for the very long term - set up a portfolio of higher risk growth funds, eg Emerging markets, technology, Far East. Dont forget that if you retire at say 60, a significant part of your future expenditure is 20 years away.
4) For security of intermediate funds I dont but could have a cautious portfolio of bonds, defensive shares etc

Then its a matter of annual balancing to ensure that the overall money continues to be allocated appropriately.

So the first task is to determine the objectives you want for your separate pots and how you are going to achieve each objective. This should give you the proportions of your total moneys to put in each pot and the basic information to determine the most appropriate assets in which to invest.

It does not make sense IMHO to pre-decide on some high level allocation, the high level allocation emerges from the bottom-up design driven from the requirements.