Should I bank this years huge increase in pension

Malthusian

farmhillb wrote: »

One other thing when people talk about diversifying what is the normal / average way people diversify. Is it as simple as 25% low risk, 50% medium risk and 25% high risk or is there some other method of leveling out the risk associated with trying to grow a pension.

Diversification is by asset class, sector (geography, industry and issuer size) and then individual securities. "25% low risk, 50% medium risk and 25% high risk" means nothing in itself. It could be a diversified portfolio or it could be the same thing as "100% medium risk".

As it stands now I have my pot split between 2 equity funds, one uk based the other US based. Both are in a medium risk 5 out of 8 rating. Thoughts please

No Europe, Japan, Pacific or emerging markets? No commercial property or fixed interest? Could be worse but it's definitely not very diversified and as you would expect very close correlation between the UK and the US, you are likely to see bigger and longer crashes than you would if you were better diversified.

If both are as you say 100% equity funds it is certainly not "5 out of 8" risk. Risk ratings are meaningless. All they do is take the standard deviation of returns (which is already largely meaningless, being past performance) and turn it into an even more vague and less informative number.

farmhillb

Malt appreciate the advice. Beginning to understand how little I know therefore how little prepared I am to be making decisions I know nothing about. I was hoping to retire around 60 in 10 years time. Pot now is at 150k split even between both funds which like you say is meaningless as they both tend to follow one another anyway UK & US equity funds.

Not saying I will follow peoples advice but if they were me what would others do. I dont mind were you start the advice from ie nursery school level or graduate level. Just point me in a direction. thanks

atush

AnotherJoe wrote: »

I'm retiring tomorrow. Are you suggesting i should sell up and buy, I dunno, say VLS20 even though i will likely be invested another 20 years?

Not your whole portfolio, but at least enough of it to cover the TFLS, and first year or 2 income.

So locking in gains on 25-30% of your pot could be something to look at.

atush

Putting dome of your pot into a global tracker would be a cheap way to diversify geographically. But you have no other asset classes so that needs addressing as well.

One way to do this, is via a global mixed asset fund like one of the Vanguard or Blackrock series. The equities are globally diversified and they also hold bonds, gilts and property.

bostonerimus

Unless you have a defined benefit pension or other guaranteed income sources for retirement you are taking on a lot of risk being 100% equities at age 50. Also being invested in just US and UK equities is ignoring the rest of the world's equities.

Having a balance between equities and fixed income allows you to rebalance as markets rise and fall and would achieve your desire to safeguard some of your current run up in value.

bostonerimus

Keep_pedalling wrote: »

We are both in early retirement, with 3/5ths of out income coming from FS and state pensions and the rest from drawing down from our savings, which are currently 60/40 equities/bonds, but we have decided, after consulting our IFA, to go the opposite way to to the OPs suggestion and switch to 100% equities.

We will also keep a 2 year emergency cash fund that can be called on to replace the draw down on equities, if, or more likely when, the market takes a dive so we are not having to sell at the bottom of the market to maintain our lifestyle. Seems like a good plan for the next couple of decades.

I must admit having rock solid pensions providing a good chunk of our income makes this a lot easier decision, especially for my far more cautious better half.

If you retired with a pension and investment net worth equivalent to 25x annual income then you might analyze your asset allocation as 60% fixed income from pensions; 32% equities and 8% cash. That looks quite conservative.