Retirement portfolio for someone in their 60's

chucknorris

I'm approaching 60, my health is good, diet very good, I keep myself very fit, wine is my weakness, I am expecting to live until my late 80's (give or take a few years). My share portfolio isn't particularly diversified, but I have just started to sell my investment property, it will happen slowly over about 5 years, so now is the time to think about where to invest the equity. I was thinking of simply investing it in Vanguard LifeStrategy. Also over time switching my current portfolio into that too. Although I must admit that I am not particularly attracted to bonds, so my question is, at 65 years old is LifeStrategy 100 or 80 considered too risky for a 65 year old? Should I be thinking about 40 or 60, rather than 80 or 100?

What I don't like about bond funds is that if interest rates rise bond funds will probably fall, if bonds are necessary, rather than going for say LifeStrategy 60 would I be better off investing say 60% in LifeStrategy 100 and 40% (4 x 10%) in individual corporate bonds and hold them until maturity. I would rather take on the risk of a 'considered safe' company not going under, than the risk of the bond market falling.

I'll probably also keep 1.5 properties (for portfolio diversity), which will provide me with about £20k of taxable income per annum, and my DB and state pension will be about £22k per annum.

masonic

LOL, I just replied to this in the other thread only to see you deleted and moved to a new thread. So, I suppose I should move my post too...

I can see a couple of advantages of holding bonds/defensive assets separately. The first is avoiding capital fluctuations, which have been in investors' favour for the last few years, but are likely to swing the other way in the future.

The second is being able to control your decumulation - buy VLS60 and every time you sell some, you are selling 60% equities and 40% bonds. Separate out the asset classes and you can draw exclusively from the equities during the good times and avoid being a forced seller of equities during the worst times. You would also be able to rebalance into lower risk assets over time without having to sell everything and buy into a different fund.

Holding individual corporate bonds could be a good option, as could using P2P investments for a proportion of your defensive assets. As to how much risk to take, you don't strike me as particularly risk averse, so it would depend mainly on how much of your investments you would need to draw down within the next 5-10 years to fund your living costs and how much risk you are inclined to take given that you are in a fairly healthy financial position already.

chucknorris

masonic wrote: »

LOL, I just replied to this in the other thread only to see you deleted and moved to a new thread. So, I suppose I should move my post too...

I can see a couple of advantages of holding bonds/defensive assets separately. The first is avoiding capital fluctuations, which have been in investors' favour for the last few years, but are likely to swing the other way in the future.

The second is being able to control your decumulation - buy VLS60 and every time you sell some, you are selling 60% equities and 40% bonds. Separate out the asset classes and you can draw exclusively from the equities during the good times and avoid being a forced seller of equities during the worst times. You would also be able to rebalance into lower risk assets over time without having to sell everything and buy into a different fund.

Holding individual corporate bonds could be a good option, as could using P2P investments for a proportion of your defensive assets. As to how much risk to take, you don't strike me as particularly risk averse, so it would depend mainly on how much of your investments you would need to draw down within the next 5-10 years to fund your living costs and how much risk you are inclined to take given that you are in a fairly healthy financial position already.

Sorry, I suddenly realised that I didn't want to hijack someone else's thread.

Thanks, I never thought about 'decumulation' that is a good point! I don't mind holding individual corporate bonds, but I don't like the idea of a bond fund. So that may be the way to go, but I'm also trying to keep an open mind, so I will be interested to see what others have to say.

I haven't been risk averse to date, but I consider myself to be entering a different stage of my life now. So I am a leopard trying to change it's spots, and begining to act my age, lol. I feel the time for protecting (and spending) my wealth, rather than growing it has arrived.

Linton

Mid-late 80's is about the male life expectancy for someone aged 60. So you have a 50% chance of living longer. It would therefore make sense to actually plan on your mid 90's. That's another 35 years. Plenty of time for a 100% equity portfolio to make a decent return despite the occasional crash.

I agree with masonic that one should split one's portfolio into tranches, each with a distinct objective. Using my strategy as an example, 50%-60% could be in higher risk equity. It could be reasonable to hold say 5 years drawdown requirement in cash or close to cash so you could withstand a crash without selling investments. The rest could be in lower risk funds and income generating investments. the latter being justified by the need to diversify sources of income as much as possible. Then once a year you can look at rebalancing. Apart from "selling high and buying low" it gives you the opportunity to slowly reduce the % high risk equity over time.

As regards bonds perhaps you could look at "Strategic Bond" funds where the fund manager adjusts the bond asset allocation depending on market conditions. Another option one could consider for safety is a wealth preservation fund such as the RCP and RICA IT's or the Trojan fund.

chucknorris

Linton wrote: »

Mid-late 80's is about the male life expectancy for someone aged 60. So you have a 50% chance of living longer. It would therefore make sense to actually plan on your mid 90's. That's another 35 years. Plenty of time for a 100% equity portfolio to make a decent return despite the occasional crash.

I agree with masonic that one should split one's portfolio into tranches, each with a distinct objective. Using my strategy as an example, 50%-60% could be in higher risk equity. It could be reasonable to hold say 5 years drawdown requirement in cash or close to cash so you could withstand a crash without selling investments. The rest could be in lower risk funds and income generating investments. the latter being justified by the need to diversify sources of income as much as possible. Then once a year you can look at rebalancing. Apart from "selling high and buying low" it gives you the opportunity to slowly reduce the % high risk equity over time.

As regards bonds perhaps you could look at "Strategic Bond" funds where the fund manager adjusts the bond asset allocation depending on market conditions. Another option one could consider for safety is a wealth preservation fund such as the RCP and RICA IT's or the Trojan fund.

I am in reality working to my early 90's but I just wanted to make it clear that I don't have any health problems, without making it an essay (but I have now edited my OP).

Thanks for your other comments, I'll read about 'strategic bond funds' although I suspect that I would still prefer holding individual bonds until maturity, I am trying to keep an open mind (otherwise it wouldn't be worth asking for other opinions).

I like the idea about investing in LifeStrategy 100 as it is more passive (OK, perhaps lazy). Do you consider that to be a bit too tame (I did note that the dividend yield is quite low at 1.8%), hence the mention of higher risk funds?

mollycat

Linton wrote: »

As regards bonds perhaps you could look at "Strategic Bond" funds where the fund manager adjusts the bond asset allocation depending on market conditions.

I was going to pitch in with the "Strategic Bond Fund" suggestion which is where around 25% of my wealth will be this time next year. Rest will be 20% cash mostly earning ok interest and 55% equities. (Mid 50's, good health).

Linton has put it much better than I could, of course.

ColdIron

chucknorris wrote: »

Do you consider that to be a bit too tame (I did note that the dividend yield is quite low at 1.8%), hence the mention of higher risk funds?

You don't have to increase risk to increase income. The components of VLS are self selecting by market capitalisation and have no income focus

Thrugelmir

chucknorris wrote: »

but I just wanted to make it clear that I don't have any health problems,

For the majority of people they arise unexpectedly. Age catches up with us all. Enjoy each day and make the most of it. Little point in worrying about events over which you've no control.

economic

chucknorris wrote: »

I am in reality working to my early 90's but I just wanted to make it clear that I don't have any health problems, without making it an essay (but I have now edited my OP).

Thanks for your other comments, I'll read about 'strategic bond funds' although I suspect that I would still prefer holding individual bonds until maturity, I am trying to keep an open mind (otherwise it wouldn't be worth asking for other opinions).

I like the idea about investing in LifeStrategy 100 as it is more passive (OK, perhaps lazy). Do you consider that to be a bit too tame (I did note that the dividend yield is quite low at 1.8%), hence the mention of higher risk funds?

1.8% seems low but what you are getting is a very well diversified global equity porfolio that includes both value and growth stocks. my target stock portfolio will look something like this:

1) [30]% in VLS100
2) [30]% in good managed funds
3) rest in single stocks and "exotic" like biotech or em (value and growth)

1 is the core of the portfolio to provide relative stability. 2 is try to beat the market using something like fundsmith (although it may fail in which case 1 helps a lot). 3 is to add some spice in terms of growth and dividends.

Linton

chucknorris wrote: »

........
I like the idea about investing in LifeStrategy 100 as it is more passive (OK, perhaps lazy). Do you consider that to be a bit too tame (I did note that the dividend yield is quite low at 1.8%), hence the mention of higher risk funds?

VLS100 is just one of several global investment options for a 100% equity investor. A passive investment tracking the FTSE World Index would have beaten VLS100 in every year for the 4 years since the VLS funds started. The Fidelity World Index fund which tracks the MSCI World index beat VLS100 in 3 out of the past 4 years.

If a global fund formed the core of my investments I would add extra Small Companies and Emerging Markets to spice things up a bit. It depends on the size of the pot. If it's £25K or perhaps £50K then in my view 100% VLS100 or a global index fund could be reasonable. For £500K putting all the money in a single fund is very lazy. For that sort of money one can justify individual investments for each sector or geography.

As regards dividends, they tend to be generated by lower risk companies. High risk companies generally prefer to re-invest what profits they make into expansion and development which may or may not generate high rewards. Low risk companies by definition should have a good secure cash income and steady profits which they can afford to pay back to the shareholders.

chucknorris

Thrugelmir wrote: »

For the majority of people they arise unexpectedly. Age catches up with us all. Enjoy each day and make the most of it. Little point in worrying about events over which you've no control.

I'm not worried, dying is easy, nowt much to worry about, but living requires management of my portfolio, but if I didn't include that health information in my OP posters wouldn't have the full information, for example if I had (I know that I might eventually, or even later this year get it) cancer, it would change everything.