SIPP Mix

mania112

dunstonh wrote: »

moderate is closer to 20-25%. UK equity is closer to 40-50%

Perhaps. I think i'm right in saying that these figures are our determination rather than actual facts? (it's not a fact that 20-25% is correct for moderate, it's your opinion, whereas mine is 5+%)

The FSA guidelines on this aren't clear, our firm has removed percentages from that line of questioning and inste listed headings and a descriptions for each.

You must also consider length of investment in CFL to see if there is time to allow any losses to be recouped.

jamesd

Gatser wrote: »

Plan to utilise Drawdown and have around 70% Bond funds, 30% Cash. Perhaps I should have a wider mix?
Any suggestions please?

Until I read your next post, significant equity use, via things like Invesco Perpetual Distribution and Invesco Perpetual Income, also some switch from bonds to commercial property.

Gatser wrote: »

Capacity for loss: maybe up to 10% downturn in any one year

That reads more like a risk (volatility) tolerance than a capacity for loss.

Capacity for loss is roughly the total loss you could sustain without recovery while still meeting our objectives. It's not volatility. Someone still working would normally have a higher capacity for loss than someone not working because the person not working wouldn't have a way to replace the lost money.

A risk tolerance of 10% is low enough to seriously hurt your available income. Are you really sure you can't stand volatility of 30% or 20%?

Part of the problem you have today is that gilts and high quality bonds with long maturities seem to be in a bubble that could produce a 30% capital loss at some point. So you can't use the normal lowest volatility investments to reduce overall volatility with either 10% capacity for loss or 10% volatility because they could exceed it. In more normal times they would be OK. Some use can be OK as diversification, of course.

So today for you I wonder how much is in long-dated gilt funds and long-dated high quality corporate bonds and how you plan to reduce that and get into something that won't see a one way drop rather than just volatility that'll recover later.

There's still ongoing rotation into income shares so still some potential gain there from the funds I've mentioned and others. Getting a bit late in that game now but it's still happening.

You've hopefully done quite well in bonds over the last few years, with some nice capital value increases available in some markets.

Given what's happening now, if your risk tolerance or capacity for loss is really 10% then I'd personally be wanting to see more than 50% in cash. In spite of what that does longer term due to inflation. Because I think that none of high quality gilts, high quality corporate bonds (both with long maturities) or equities can be trusted to have drops below 30% in one year.

I strongly dislike that view but it's where I think we are today. So I think that you should be accepting higher volatility to use strategic bond funds, commercial property and equity income to get some diversification and avoid the bubble territory. But with a 10% volatility or capacity for loss you can't have as much of a spread into these as I'd like to see.

Another approach to addressing a capacity for loss or volatility of 10% is to consider some annuity buying, since that is non-volatile income. But I don't like buying annuities at the moment either.

gadgetmind

jamesd wrote: »

Another approach to addressing a capacity for loss or volatility of 10% is to consider some annuity buying

Yup, sounds like the OP isn't really a candidate for drawdown.

dunstonh

mania112 wrote: »

Perhaps. I think i'm right in saying that these figures are our determination rather than actual facts? (it's not a fact that 20-25% is correct for moderate, it's your opinion, whereas mine is 5+%)

The FSA guidelines on this aren't clear, our firm has removed percentages from that line of questioning and inste listed headings and a descriptions for each.

You must also consider length of investment in CFL to see if there is time to allow any losses to be recouped.

The FSA leaves risk analysis and reporting to individual firms. You will have differing opinions and different risk scales and they may not be in the same context. However, the FOS has a fairly steady opinion and many risk scales are based on their views.

Your opinion of risk is not in any context. It may be that 5% is moderate in your eyes but in context of a typical risk scale, that would be highly defensive. It would have to sit on just about the first risk profile above cash, second one at a push depending on the risk profile weightings (our 1-10 scale has more "cautious" levels than higher risk on the basis that someone willing to accept a 10% loss would not be happy with a 15% loss. Whereas someone accepting of a 40% loss wouldn't really be concerned about a 5% difference).

One of the reasons balanced managed funds were renamed was because most had equity levels that were considered higher than their typical historical medium risk position. However, many balanced managed funds would have around 25% loss potential. Just to put our scale in some context, the Vanguard lifestrategy funds have 80% in risk 8, 60% in risk 6, 40% in risk 4 and 20% in risk 3. cash is 1. 10 would be single sector equity or a very high equity spread. It does not include experienced investor options as they dont really fit in a conventional risk scale.

jamesd

gadgetmind wrote: »

Yup, sounds like the OP isn't really a candidate for drawdown.

I don't agree with that but I do think that more thinking about the difference between capital value variation and income variation is appropriate, as well as how to smooth income variation using cash savings preferably at least partially held outside the pension pot so they can smooth legislative risk on drawdown caps.

While some annuity buying could be useful, that can also be done gradually with fairly small amounts of the pot to cover more of core income needs.

Another highly secure approach could be deferring the state pensions, to get the higher income available after deferring. That would spend some money now to buy more certainty in the future, similar to an annuity, but with better likely returns at younger ages.

But annuity or other guaranteed income isn't required provided there is sufficient safety margin in cash to protect the desired income level even with variations in capital and income payments from investments. Several years worth of desired income in cash is one way to do that, with the cash amount increasing as the degree and duration of any drops to be provided for increases.

gadgetmind

I also intend to hold cash outside of my pension/ISA pots, but you can reduce the need for this by using Investment Trusts that have an income mandate as they have their own reserves.

I'm seriously considering leaving my wife instructions for if I lose an argument with a bus. I'm sure that using a handful of investment trust to bring in a regular income from the large amount of capital that would land in her lap (pensions, insurance, etc.) will form a key part of this.