Non Equity Allocation

pip895

We have now entered the living off, rather than accumulation phase of our investment career.

We have additional income from state pension and a rental property but that currently covers only half our outgoings. At the moment the shortfall is coming from cash accounts (maturing fixed term investments etc. and I estimate these will last us about another 4 years, although I may switch to taking income from our investments (SIPP’s, ISA’s etc) before that.

I was just wondering what allocation others in a similar situation were running with for the non equity portion of their portfolio? Mine is just under 40% but only 25% of that i.e. ~10% is actually in guilts/bonds (mainly because I don’t feel they represent good value at the moment).

Cash 9%
Property 3%
Bonds 10%
Absolute 8%
Flexible 6%
VCT 2%
Gold 3%

NB. The Absolute, Flexible and VCT’s do contain an equity component but all the funds included, are low volatility and “bond like” in their behaviour. The property is only the proportion in funds and does not include the rental property.

Linton

My split with about 50% of our needs coming from annuities and a small DB pension is:

59% equity
14% bonds
17% cash
10% Other

"Other" is mainly derivatives and miscellaneous stuff held by Wealth Preservation funds. Cash is a bit high at the moment because of large expenditures in the next few months.

6% of the 14% bonds is high interest bonds held for income rather than price stability.

So not very different to yours.

pip895

Its good to know at least one other person is working on the same sort of ratios. My cash is a bit high to and not pulling its weight at the moment -I have other cash funds outside my "Investment portfolio" to. I am now considering putting some into P2P which I have avoided so far - I'm still not convinced the risks have been fully factored in..

bigadaj

pip895 wrote: »

Its good to know at least one other person is working on the same sort of ratios. My cash is a bit high to and not pulling its weight at the moment -I have other cash funds outside my "Investment portfolio" to. I am now considering putting some into P2P which I have avoided so far - I'm still not convinced the risks have been fully factored in..

You have an admittedly low allocation to vct, but this is outside the other end of the risk spectrum from bonds, they are, or at least should be, high risk small company investments.

I'd say p2p is lower risk than vct, though as with everything the devil is in the detail. Albion have suspended fund raising for their main fund this year as they appear to be worried that their investment model isn't sufficiently risky to meet Hmrc guidelines for vct investments.

There are plenty of secured p2p platforms paying reasonable rates, typically 8-12% or maybe higher, and the expectation that even after defaults the vast majority of investors money will be returned after asset sale.

It's not an easy time as the risk reward graph has been skewed by zero interest rates, as you seem to acknowledge then diversification is key. Things may get yet more interesting as we seem to be approaching a period of not only rising interest rates, admittedly likely to be slow and gradual, but also the potential for the unwinding of qe.

What's included in the 'flexible' allocation?

ams25

I am a little over 40% non equity (54:46) currently but intend to be at 60:40 in the short term and probably 70:30 when DB kicks in. I have reduced the equity component over the past 12 months in line with stopping work, but it is a challenge on how to invest the non equity part of the portfolio, so interesting to see what others are doing.

My current mix is:.

13% cash
4% P2P
16% Bonds
9% Absolute
3% Property

Equity holdings include some flexible/wealth preservation funds.

heavy in cash/bonds etc as no longer working and have another 7 years until DB pension kicks in at 60, so want to have multiple years expenses in cash and less volatile funds

pip895

bigadaj wrote: »

You have an admittedly low allocation to vct, but this is outside the other end of the risk spectrum from bonds, they are, or at least should be, high risk small company investments.

The VCT I have included here is a "second hand" old one - Baronsmead VCT which wouldn't meet current rules and is a rather sedate thing churning out tax free income at regular intervals. I haven't included things like Unicorn Aim VCT which I also hold but is more volatile.

bigadaj wrote: »

What's included in the 'flexible' allocation?

CF Miton Worldwide Opportunities & Troy Trojan which wouldn't look terribly out of place in the Targeted Absolute return grouping as far as I can see.

I will be looking again at P2P and will take the plunge I think, but I do worry a bit about the unknown unknowns.

Thrugelmir

What purpose does your gold holding now serve? I assume no income is generated. As the holding isn't held in a miner.

pip895

Thrugelmir wrote: »

What purpose does your gold holding now serve? I assume no income is generated. As the holding isn't held in a miner.

Diversification - If everything else tanks it will probably go up - not really enough to do much but maybe it will make me feel a little better.:o

ams25

OP - how do you feel about your Absolute funds. We have a very similar allocation - probably for similar reasons.

I have very mixed feelings and will probably reduce (but where to go..). I have 2 funds... Invesco Perp Global targeted returns and Old Mutual UK Specialist Equity. The former is not hitting its target (5% pa gross over LIBOR over a rolling 3 yr period) but has low volatility and the latter is doing so well (17% over 1 yr) that I am sure it would be pretty volatile in a downturn, which is not the point.

pip895

ams25 wrote: »

OP - how do you feel about your Absolute funds. We have a very similar allocation - probably for similar reasons.

I have very mixed feelings and will probably reduce (but where to go..). I have 2 funds... Invesco Perp Global targeted returns and Old Mutual UK Specialist Equity. The former is not hitting its target (5% pa gross over LIBOR over a rolling 3 yr period) but has low volatility and the latter is doing so well (17% over 1 yr) that I am sure it would be pretty volatile in a downturn, which is not the point.

Targeted Absolute returns are a real mixed bag some of them seem to be very risky indeed. Many do at least have low correlation with equities, which is why I keep them.

The ones I have are:-
Henderson European Absolute Return
Scroders UK Absolute Dynamic
Threadneedle Dynamic Real Return