Setting up Retiree Portfolio

aldershot

Linton wrote: »

The Pru funds have a long history of very steady returns - they are deliberately managed to achieve this. If you a buy a set of equity trackers you must be prepared for a drop of 40% every decade or so and a drop of 20% every few years. Could Mum's nerves stand it?

I stand to be educated but a quick look at their marketing material for their cautious pension fund shows returns only since the crash in 2008. These have been steadily falling year on year but have been relying on the boom in bond markets that has taken yields to negative territory. Long dated gilts have fallen 17% in price in the past 2 months so not really very safe or lacking volatility. It will be interesting to see what their next set of Expected Growth Rates will be because they seem to be magicing yields out of nowhere.

Global equities are volatile but I contend bond markets are too and this has been covered up by a 30 year bull market which has probably run its course (IMHO). Looking at 30 year equity price and return charts, it's actually sometimes hard to spot the big falls. Yes they happen, but one has also to remember the big rises too.

Linton

aldershot wrote: »

I stand to be educated but a quick look at their marketing material for their cautious pension fund shows returns only since the crash in 2008. These have been steadily falling year on year but have been relying on the boom in bond markets that has taken yields to negative territory. Long dated gilts have fallen 17% in price in the past 2 months so not really very safe or lacking volatility. It will be interesting to see what their next set of Expected Growth Rates will be because they seem to be magicing yields out of nowhere.

Global equities are volatile but I contend bond markets are too and this has been covered up by a 30 year bull market which has probably run its course (IMHO). Looking at 30 year equity price and return charts, it's actually sometimes hard to spot the big falls. Yes they happen, but one has also to remember the big rises too.

The growth fund has been running since 2002. And in principle they are similar to the very long standing With Profits funds - Pru being one of the few companies to provide ones that really did what they were supposed to.

You may not understand how these funds work. They arent simple multi-asset funds but rather are similar to what you would do if you had a requirement for a steady return - ie you would have reserves that are built up in the good times to pay the returns during the bad times. You could pay your High Street IFA for the next 20 years to set up a cash and low risk assets fund and various higher risk investments and manage them all to even out the booms and busts, and to deal with the tax implications all specifically for you.

Or you could pay Pru who have decades of experience running funds like this worth £Billions and as a very large pension/insurance company have access to investments not available to private individuals.

Which supplier do you think would be cheaper and would be more likely to do a good job for the long term?

KT19

Thanks, Linton and Aldershot. The funds mentioned were the pru fund cautious and pru find growth. I think the logic behind the recommendation was to reduce the level of volatility and accept the costs would be a bit higher.
They also said that they would use a fair chunk of the remaining funds for more general investments.

Linton

KT19 wrote: »

Thanks, Linton and Aldershot. The funds mentioned were the pru fund cautious and pru find growth. I think the logic behind the recommendation was to reduce the level of volatility and accept the costs would be a bit higher.
They also said that they would use a fair chunk of the remaining funds for more general investments.

The split makes sense to me. One of the risks is serious inflation. The cautious fund may not satisfy that need and the simple annual drawdown of 5% of initial sum with no extra tax certainly wouldnt. One would expect a general global equity portfolio would exceed inflation at least over the longer term. Another concern could be major changes in expenditiure in later life, again having an equity fund growing in the background would be very sensible.

aldershot

I will accept that these funds can have a part in a mixed portfolio (conceded to Linton ) Although I still worry about fees dragging performance, it may be that they are worth the peace of mind. I do think that returns will fall in the future. They have to, given the generally low level of returns available.

I still have a concern that an IFA is giving market timing advice. The market may be 25% higher in the spring (or lower). If any of us knew that we would be very rich and not commenting here

Thrugelmir

aldershot wrote: »

This troubled me:

"They also said that the market was particularly high at the moment and that they would hold off investing until early spring next year?"

Was this an IFA or Mystic Meg? How can they possibly know? What if the market is higher in the spring, then what?

That's the general consensus view. Spring is when the vast majority of the larger companies report their annual earnings for 2016. This will provide a bell weather for the market more generally. Been plenty of profit warnings and cut dividends over the past 2 years. Corporate profitability is under pressure in many sectors. Bound to be more disappointing news to come.

aldershot

Thrugelmir wrote: »

That's the general consensus view. Spring is when the vast majority of the larger companies report their annual earnings for 2016. This will provide a bell weather for the market more generally. Been plenty of profit warnings and cut dividends over the past 2 years. Corporate profitability is under pressure in many sectors. Bound to be more disappointing news to come.

I'm sorry but that is just plain wrong. The market is not "particularly high" it is exactly where there is an equal weight of buyers and sellers. If the consensus view (consensus of whom?) was that equity prices should be lower, then they would be lower because sellers would outnumber buyers. You can have a view that valuations by whatever measure you choose are away from whatever mean you choose but the market has determined to value shares where they do today. Tomorrow that valuation may be different. If anyone knew that prices would be lower in the spring, they would be there today.

I have no idea if prices in the spring will be higher or lower. I believe equity markets will deliver long term returns and I invest accordingly and do not pretend to know what will happen the short term (ie the next 5 years).

There are lots of articles out there about missing the best days or weeks but here is just one from a quick search:

"In the 2,400-plus weeks since 1970, missing the best weeks would have had a devastating impact on returns (I am using only the price of the S&P 500). Missing just the best one week took a 13% bite out of the total return from this 46-year period. Missing the best five weeks out of 2,411 (0.2% of all weeks) took the returns from 2151% down to 1223% — a 43% decline!"

Don't even think of trying to time investments. Just invest for the long term and stay invested.

Thrugelmir

aldershot wrote: »

"In the 2,400-plus weeks since 1970, missing the best weeks would have had a devastating impact on returns (I am using only the price of the S&P 500). Missing just the best one week took a 13% bite out of the total return from this 46-year period. Missing the best five weeks out of 2,411 (0.2% of all weeks) took the returns from 2151% down to 1223% — a 43% decline!"

Do you realise that 20% of the buying transactions in 2015 related to Companies buying their own shares. In many cases funded by Companies borrowing money because it is so cheap to do so. Best to keep informed. Smoke and mirrors as they say.

The market is not "particularly high" it is exactly where there is an equal weight of buyers and sellers.

Not strictly true. As major stockholders cannot offload sizeable shareholdings straight into the market. Often the shares are placed by a number of different brokerages. When 28% of Sainsburys was offloaded some years back a Middle East investor. Took 186 broking houses to transact the deal. To maintain a steady market.

KT19

Thanks for the thoughts. I will try and get some more information from the IFA and nail down the detail.

I felt that the person was pretty genuine (fees, general tone etc.) and most importantly my mum felt pretty comfortable with them as well. I had a look around the rest of the forum regarding the PruFund and saw Dunstonh, who i assume is an IFA, said "So, whilst modern options may be more fancy and fashionable, this old thing has consistently done what most of its investors want it to do"

As i said they stressed that this would form part of the portfolio and that other investments would be most likely used over time. They also stated that the bond was best being used as an onshore bond to save any complication regarding the tax situation.

KT19

Hello again,

Finally received investment recommendation report from my mum's IFA. They have suggested putting around half of the £580k in the prudential investment plan bond (Prufund growth, Prufund 10 - 40%, Managed Distribution) & then around £200k in investments using S&S ISAs etc. which would be left over the long term. The rest would be kept in cash. The investments would be phased in over the next 9 months.

The general investments would be a mix of:
Fundsmith equity, M&G Global select, Schroder Global Equity Income, Blackrock ftse 100 tracker, Investec cautious managed, Artemis Monthly distribution, M&G optimal income & Jupiter distribution (Nothing would be above 15% of the protfolio)

Does this seem like a reasonable set of funds for a cautious portfolio? Does it seem like a sensible strategy overall? I appreciate these are pretty broad questions, but I thought i would try to get some feedback before making any decisions. Thanks.