My new risk portfolio/strategy...

Snakey

I'm 45, single/no kids, hoping to partly retire at 50, and am about to re-jig my investments.

1. £920k pension, no further contributions possible as I have taken FP16, currently 100% in equities (medium to high risk funds) which by dumb luck has worked very well for me over the last few years.

I now want a lower risk portfolio (40% stocks, 40% bonds, 20% property/other). I'm going to hit the LTA even with a low return, so if I increase the risk I suffer 100% of any downside but only get 75% of any upside. In addition, I understand that one element of making a higher-risk strategy work over the longer-term is that you buy more when the price falls, and I can't do that here.

2. £110k ISA - was in cash for personal reasons and I finally stuffed it into VLS60 this time last year after a lot of dithering - also turned out to be a great move, at least compared to leaving it in cash.

I've decided that I should take a higher risk with this (70% stocks, 10% bonds, 20% other). This is because if I'm de-risking my pension I can stand a higher risk with this which is only 10% of my total investments. Also, I plan to add £20k a year so I'll benefit from buying low during drops.

(3. Just to complete the picture, I am also putting £20k a year into EIS investments. The idea is that if I do that each year for the next five years, I can start cashing them in one at a time to help me through the gap from 50-55 without needing to lean on the ISA. I hope to also do some part-time freelancing and earn maybe £10-15k a year during that period. I should also have a few thousand in cash for emergencies throughout.)

I'm still thinking my way around whether my investment risk strategy logic makes sense, and would appreciate any feedback/comments/suggestions. What am I missing?

masonic

Seems reasonable enough. You probably want to have some defensive assets within the S&S ISA (which you do) in case you do see an income shortfall between 50-55, otherwise I might have questioned whether holding all of your defensives in the pension would make more sense.

TheTracker

With busting the LTA a likelihood, it might make sense to displace any equities within the pension with bonds held outside it. E.g. Holding VLS100 rather than VLS60 inside the ISA and adjusting pension holdings to balance.

Let the countdown begin

bowlhead99

Just an observation on the EIS investments.

From a tax point of view, if you hold each of them for the sort of term you're talking about, you will be beyond the point of having to pay back the income tax relief if you sell them to get back your £20k or whatever it has grown or shrunk to. But EIS investments don't have a ready secondary market to allow you to just dump the stock when you feel like it.

So, if the ability to release £20k in a specific year is an important part of your planning you'lll need to do lots of research into the prospective investments to allow you to determine whether or not that's realistic given the nature of the investment as a newly created company.

It might be more likely with investments structured with a high loan component, or if sourced through a fund manager with an up front defined exit plan. But there has to be some sort of genuine investment risk, as investments which attempt to guarantee the capital or are not really engaging with the spirit of the tax relief regulations, have more potential to be challenged by HMRC in due course which is of course a risk in itself.

If your main purpose of EIS is the tax relief (you mention having mostly been a cash hoarder rather than high risk investor until recently), there are other investment types with slightly less lucrative tax relief - such as VCT - which still have a chunk of risk but have more of an open market for a five-year old holding (albeit at a discount to NAV). And you'd get pretty diversified risk and exposure to the UK unlisted (or recently listed) microcap/ nanocap arena by using three or four funds a year for the next five years.

Really both VCT and EIS benefit from being able to commit longer than five years so it still wouldn't be a low risk plan. But with a large pension pot and significant cash and equities you can always find some solution to muddle through if the returns aren't what you hope for. But generally it might not be wise to be putting all your savings into EIS/VCT or your "high risk equities funds ISA" if you want to get liquidity from ages 50-55 and presumably don't want to risk having to cash things out at bottom of a downturn.

Snakey

Thanks all.

I wouldn't be surprised if there isn't some further tightening up on the EIS rules, perhaps as early as this Autumn. Also it seems you have to be more careful in picking your EIS company - there's so much more spare money sloshing around since they restricted pension contributions for higher earners, and (as with P2P, not that I go near that) generally speaking higher demand = rapid expansion of the market (hence likely tightening of rules - they don't need to encourage people as much as they did before they removed the main alternative) = lower quality investments on average.

All in all it may be one of the things I need to revisit sooner than I might hope.

Agreed about perhaps not having everything non-pension in high risk. I'm literally saying to myself "well, if it crashes just before I quit my job then I won't quit my job"... not sure how I'd feel about that if it happened though. I should probably put some sort of "pre-retirement" plan in place to move part of it towards cash a year or two beforehand (assuming no crash at that point).