How risk averse are you?

jimjames

EdGasket wrote: »

I think it is rather simplistic to refer to equities as a 'safe haven'; you can loose an awful lot on equities. I agree with your sentiment on bonds though they can still be useful if you pick short-dated ones.

You can lose money with individual shares over short term (and long term)

With balanced funds over the long term I don't agree you can lose an awful lot. If that happens long term then we have reach an Armageddon situation and having any money would be pretty irrelevant compared to just surviving and having some shelter and food.

enthusiasticsaver

N1AK wrote: »

Unfortunately that rather depends on both your priorities and your perspective. Someone who is high risk (unless you take that to mean gamble it all on a single hand of poker types) is probably risking a tiny chance of being considerably worse off (perhaps as little as 2% chance of being 10%+ worse off) vs a risk averse investor.

If you know you are going to be ok in retirement then what might be relatively 'risky' investments to other people might seem safe to you if the potential loss is small enough that it won't matter.

Yes, I get that and one of the questions asked on profile was are you willing to sacrifice higher returns for little or no risk to capital to which we both answered yes. Maintaining our capital as a buffer and having sufficient income to provide at least the same standard of living as we enjoy now are our priorities even if we end up settling for 3% growth rather than 7 or 8%. Our pensions cover our needs but not our wants without investing or saving the lump sum or using our current savings. If we risk it, yes the returns maybe great in 5-10 years time but we need income when we will be most active, enjoying holidays etc. To us the risk of not having sufficient liquid assets to be able to splash out on a long haul holiday for example is not worth taking. I realise everyone's view will be different according to priorities, circumstances etc.

Of course once we have had the IFA's report once we has all the info from my OHs pension administrators we may take a different view. So far we only know what the company pension scheme will offer so the IFA obviously has knowledge of many other products and companies.

Pincher

Linton wrote: »

Real life is a little more complex than this. Each person will have different requirements. For example ongoing income from investments may be a major consideration. A range of investments of varying risk may be highly desirable - as for example in the OPs sensible desire to have several years income availablein cash. Other people may set aside a fixed amount long term for care. The requirements may well change over time. People with fixed rate annuities will have an increasing need to supplement their income becaiuse of inflation. etc etc.

There are so many Ryanair type cheapo solutions, where personal service takes a backseat to one size fits all, using minimum wage call centre staff that are clueless about what they are managing, that I just wonder how it hasn't happened already.


To match an aging client profile, you can put a vintage on a fund. you assume the age is in the range 65 to 67, say, on fund creation in 2016, lets call it Prosperity Fund 2016. As the years go by, you adjust the portfolio to suit an older client. Presumably lower risk, higher income.


You can start a Prosperity Fund 2017, and put the next batch of retirees on that.


If a 70 year old comes along, with a pension pot, you could put him/her on an earlier vintage fund.


It's a generic one size fit all solution, but even if it only fits 30% of pensioners, what's wrong with that? Nobody says we should all fly Ryanair, but a lot of them do, despite the one size fits all approach.

masonic

Pincher wrote: »

It's a generic one size fit all solution, but even if it only fits 30% of pensioners, what's wrong with that? Nobody says we should all fly Ryanair, but a lot of them do, despite the one size fits all approach.

If it is only suitable for 30% of pensioners, and the pensioners who take it out do so because they don't really know what to do for themselves, then it would seem to follow that the product will be unsuitable for the majority of pensioners who take it out. It's not as though those 70% for whom it is unsuitable can be expected to know that. So, what do you suppose will be the fate of the company who offers such a scheme when those customers for whom it was unsuitable start to complain?

Pincher

masonic wrote: »

If it is only suitable for 30% of pensioners, and the pensioners who take it out do so because they don't really know what to do for themselves, then it would seem to follow that the product will be unsuitable for the majority of pensioners who take it out. It's not as though those 70% for whom it is unsuitable can be expected to know that. So, what do you suppose will be the fate of the company who offers such a scheme when those customers for whom it was unsuitable start to complain?

People who are auto-enrolled will be able to sue the government for forcing them onto an unsuitable product, by that logic.


If there were large generic funds meant for the "standard" customer, they can afford to actively manage it, but still spread the cost of managers. In fact, stakeholder pensions don't have to be passive trackers, they are only using passive trackers to keep it cheap.

racing_blue

Think I like risk more than the average cat. 80% stocks and commodities. Only reason I keep 20% in cash is so I could buy more equities in the event of a big crash.

grey_gym_sock

Pincher wrote: »

There are so many Ryanair type cheapo solutions, where personal service takes a backseat to one size fits all, using minimum wage call centre staff that are clueless about what they are managing, that I just wonder how it hasn't happened already.


To match an aging client profile, you can put a vintage on a fund. you assume the age is in the range 65 to 67, say, on fund creation in 2016, lets call it Prosperity Fund 2016. As the years go by, you adjust the portfolio to suit an older client. Presumably lower risk, higher income.


You can start a Prosperity Fund 2017, and put the next batch of retirees on that.


If a 70 year old comes along, with a pension pot, you could put him/her on an earlier vintage fund.


It's a generic one size fit all solution, but even if it only fits 30% of pensioners, what's wrong with that? Nobody says we should all fly Ryanair, but a lot of them do, despite the one size fits all approach.

that sounds like vanguard target retirement funds, which i was about to say they have in the USA but not in the UK, but it appears they've recently launched a series of these funds for the UK: see https://www.vanguard.co.uk/uk/portal/investments/all-products?assetType=BALANCED ... they have "Target Retirement 2015 Fund", "Target Retirement 2020 Fund", and so on, in 5-year steps, to "Target Retirement 2055 Fund" ... basically, it's like the lifestrategy funds, but instead of picking a % in equities (in the fund name), the % in equities is gradually reduced as it approaches your selected retirement date.

of course, offering funds like this doesn't imply that they are advising anybody that 1 of these funds is suitable for them. you either have to take responsibility for that decision yourself, or pay an adviser anyway. but funds like this may make it a little easier for some people to take the decision themselves.

there are already pensions which offer a similar "lifestyling" feature - though perhaps that is more intended for people planning to buy an annuity?

masonic

Pincher wrote: »

People who are auto-enrolled will be able to sue the government for forcing them onto an unsuitable product, by that logic.

Auto-enrolment involves employers placing staff into a pension scheme. It is the responsibility of the staff member to opt out if a pension is unsuitable for them. The choice of investment within the pension scheme is also the responsibility of the individual. There will be a default option, but again, it is the responsibility of the individual to confirm this is suitable for their needs and get financial advice if they are unsure.

So I don't think auto-enrolment pension schemes differ from normal pension schemes in those respects. They are just opt-out rather than opt-in. The individual is still responsible for making the choices.

If they allow apathy to carry them into an unsuitable choice, then that is quite different than buying a product that is supposed to choose for them.

If there were large generic funds meant for the "standard" customer, they can afford to actively manage it, but still spread the cost of managers. In fact, stakeholder pensions don't have to be passive trackers, they are only using passive trackers to keep it cheap.

There are already such choices, both inside and outside of pensions. Plenty of fund of funds targeting particular objectives, both active and passive. None of them claim to forego the need for the investor to DIY or get advice. GGS mentions some Vanguard products above, but most major pension providers have their own products based on their own active funds.

AnotherJoe

Pincher wrote: »

The risk profile must be so similar, they might as well do a 65 Generic Special Fund, and put everybody on it. Obviously, the investments would have 10% high risk, 30% medium risk, and 60% low risk, or some such proportion. Buying just one fund should save on dealing charges.

Such a streamlined operation could be the Ryanair of the retirement business.

This is exactly what companies like Nutmeg and now I think Hargreaves Lansdown with their managed portfolios do. Instead of running with the fiction that everyone is completely different and needs a personally tailored portfolio, they recognise that actually there aren't that many different approaches needed so they just slot you into one of the pre-defined packages they have already constructed.

AnotherJoe

enthusiasticsaver wrote: »

Yes, I get that and one of the questions asked on profile was are you willing to sacrifice higher returns for little or no risk to capital to which we both answered yes. Maintaining our capital as a buffer and having sufficient income to provide at least the same standard of living as we enjoy now are our priorities even if we end up settling for 3% growth rather than 7 or 8%. Our pensions cover our needs but not our wants without investing or saving the lump sum or using our current savings.

I'd say there's an interesting mismatch here on what low risk means, because I'd say that to achieve 3% growth / income is actually middle of the road and will require general real stock market investment which would certainly carry risk of significant falls (and rises) and thus is not cautious but average.

This is why I said that an annuity, which will pay somewhere between 3-5% probably fits you as it removes all chance of falls in income . It does however wipe out your lump sum, you are trading that for certainty. Of course it's always possible to do something part way, let's say you take your lump sum, put half in an annuity and invest the other half in somewhat conservative funds (which still carry an element of risk).

To a certain extent it also depends exactly how much you have covered with other (more certain) pensions, and how much gap you need making up. The smaller the gap the more adventurous you can be with the rest.