Why doesn't everyone just buy Vanguard LifeStrategy?

ams25

Audaxer wrote: »

Thanks, to give you a SWR of 3% I would have thought you would need maybe a medium risk portfolio for the pot to grow by roughly inflation plus 3% in retirement, so that you don't run out of money?

I am looking at an swr of about 3% overall...and currently I view my portfolio as having three sections (some describe as buckets)... One with cash or near cash for 2-3 years of expenses, one with mainly bonds, property and abs rtn to generate some income to replenish the cash and also as a source of less volatile drawdown capital and the final and largest chunk in equities to generate longer term returns hopefully to keep pace or beat inflation across the portfolio. If I had to, I should be able to leave the equity chunk alone for 10 years if there is a sustained bear market and just drawdown from the rest of the pot.

Anybody retired been doing something similar?

I know there are arguments for a higher % in equity, but I think the approach I am using will make it easier (not easy) to live through a market drop and a longer period of poor returns without reducing drawdown income.

username12345678

Audaxer wrote: »

Thanks, to give you a SWR of 3% I would have thought you would need maybe a medium risk portfolio for the pot to grow by roughly inflation plus 3% in retirement, so that you don't run out of money?

My DFM portfolio was built on the basis of medium risk and it has just over 70% equities plus 10% between infrastructure and property with the rest a mix of AR and bonds.

Looking at historical asset mix returns going back to year dot that feels like an overly aggressive allocation to equities with its attendant volatility and draw downs.

The asset mix i've put together myself is more like 50% equities, 30% bonds, 10% AR, 10% cash. It is far more diversified globally and back-testing shows a significant improvement on returns over an extended period with far less volatility.

Once I get to the point of draw down then I will need to make a decision on whether to move more towards IT's to provide income but that decision is way in the future.

As for SWR's my understanding (and others more knowledgeable will correct i'm sure) it is based on the monte carlo simulations which you can run yourself. It would seem that sequence of returns risk sets the tone for your retirement, so depending on how those first few years go could determine whether you're spending your last pound with your last breath, or alternatively, popping off with many multiples of your starting pot.

As an aside, there is an argument that even 3% in the UK may be pushing it as a withdrawal rate although there are, as i'm sure you're aware, more sophisticated ways of cutting the pie depending on prevailing conditions which will increase your headroom slightly.

Audaxer

ams25 wrote: »

I am looking at an swr of about 3% overall...and currently I view my portfolio as having three sections (some describe as buckets)... One with cash or near cash for 2-3 years of expenses, one with mainly bonds, property and abs rtn to generate some income to replenish the cash and also as a source of less volatile drawdown capital and the final and largest chunk in equities to generate longer term returns hopefully to keep pace or beat inflation across the portfolio. If I had to, I should be able to leave the equity chunk alone for 10 years if there is a sustained bear market and just drawdown from the rest of the pot.

Anybody retired been doing something similar?

I know there are arguments for a higher % in equity, but I think the approach I am using will make it easier (not easy) to live through a market drop and a longer period of poor returns without reducing drawdown income.

Seems a good plan to me. I'd probably be a bit more conservative with the growth bucket as I wouldn't be totally comfortable with 100% equities in it, as I wouldn't like to see that bucket drop 50% in a crash, although I appreciate that if you are using the bucket system it is probably the right thing to do.

ColdIron

ams25 wrote: »

Anybody retired been doing something similar?

I know there are arguments for a higher % in equity, but I think the approach I am using will make it easier (not easy) to live through a market drop and a longer period of poor returns without reducing drawdown income.

This is the approach I have taken. My top 2 tiers have more than one portfolio each (SIPP, ISAs, GIAs), partly by necessity but partly by design and it will allow me to re-profile one or more of them as time and circumstance dictate. My middle/income tier is the most diverse with a fair chunk of dividend producing equities though no absolute return as I don't really buy into it. My cash layer is bigger than two or three years. Splitting it up like this necessarily introduces and maintains structure and allows you to focus on the job of each part. I find it a resilient and low maintenance model with a lot of flexibility

Audaxer

username12345678 wrote: »

Once I get to the point of draw down then I will need to make a decision on whether to move more towards IT's to provide income but that decision is way in the future.

I've initially put most of my income portfolio in funds. I'm just a bit wary of investing too much in ITs as they are shares, and there is risk, albeit slight, that an IT could go bust and you could lose your whole investment in it. I think good income funds will produce the same level of income similar ITs over time.

OldMusicGuy

Audaxer wrote: »

I understand your need to protect capital, but when you get to drawdown would you not need a better return than 'inflation plus a little bit' if you want to drawdown an income as well as keeping up with inflation?

I think it depends on your situation. As all my pensions are DC, I have a very large pot of pension and savings. I plan to spend it before we die, I do not want to go out if this world having preserved a massive pension pot! So for me, just getting a return close to inflation will give us 30 years of good income, ignoring our state pensions, my wife's small DB pensions completely and the equity in our property.

Also, I do not believe in inflation as a reasonable measure of anything, especially when it is so low (would be different if it was 10 to 15%). Any "inflationary increases" can be easily adjusted by changes in lifestyle and spending patterns. So my goal in the decumulation phase is to avoid major losses rather than seek growth.

If inflation does shoot up to silly levels like I have seen earlier in my life, my strategy would need to change.

cloud_dog

Audaxer wrote: »

I've initially put most of my income portfolio in funds. I'm just a bit wary of investing too much in ITs as they are shares, and there is risk, albeit slight, that an IT could go bust and you could lose your whole investment in it. I think good income funds will produce the same level of income similar ITs over time.

Why isn't this true for OIECs?

(I'm going to ignore gearing atm as I do appreciate that that does add to the risk profile for ITs, and also ignore some of the more 'flavoured' share types ITs can issue).

ITs / OIECs / UTs value is as a sum of the parts (holdings) they have in many other investments/assets. So, if the statement can be true for an IT why isn't it also applicable for OIECs?

IanSt

cloud_dog wrote: »

Why isn't this true for OIECs?

I think Audaxer may be talking about the £50k fscs protection that covers OIECs but does not cover ITs. This won't cover loss of money caused by investment performance, but will cover losses if they were caused by e.g. fraud at their end.

That is a very low risk, but you may think why take the risk if you can find an OIEC fund similar to an IT.

cloud_dog

IanSt wrote: »

I think Audaxer may be talking about the £50k fscs protection that covers OIECs but does not cover ITs. This won't cover loss of money caused by investment performance, but will cover losses if they were caused by e.g. fraud at their end.

That is a very low risk, but you may think why take the risk if you can find an OIEC fund similar to an IT.

Yes, agree, in relation to a possible fraud situation.

bostonerimus

cloud_dog wrote: »

Why isn't this true for OIECs?

(I'm going to ignore gearing atm as I do appreciate that that does add to the risk profile for ITs, and also ignore some of the more 'flavoured' share types ITs can issue).

ITs / OIECs / UTs value is as a sum of the parts (holdings) they have in many other investments/assets. So, if the statement can be true for an IT why isn't it also applicable for OIECs?

IT's are investment companies and employ a variety of financial techniques such as borrowing (gearing) and derivatives. This can lead to both big gains and big losses. As a passive investor I avoid ITs as I don't believe the ideas of a board of directors or a manager provide added value and I think they are more prone to failure and fraud than open ended funds.