Defensive investing!!

Alan5

Hi Folks,
I'm looking for your thoughts! I am 60 and recently retired. My Wife and I will be funding our time until State Pension using lump sums to beef up my final salary pension. In addition, we have S&S ISAs with Bestinvest, totalling around £100k Around 80% in their most defensive fund and 20% in the 'growth' fund. We will have additional £20k or so to add to this. Would it be good practice to spread additional funds over a period of time, or just invest in one hit? Should we consider using an additional platform for any further investments? Now, these will be our future life savings and hence our caution. However, I would hate to think we are being stupidly over cautious ..And would really value any comments!

Alan5

kidmugsy

Before you try to solve the problem of what to invest the money in, consider the best tax shelters to use. If you retired this tax year you might care to invest some of the money into a personal pension of some sort. Even if your wife has no earnings this tax year you could invest £3600 gross (£2880 net) into a personal pension for her.

Do you want the extra £20k to be invested in cautious/defensive or in growth/risky?

If the former I might ignore ISAs and and bung the £20k into Premium Bonds. Perhaps I'd first exhaust my ability to use high-interest current accounts. If additionally I wanted to contribute to personal pensions I'd use money withdrawn from the ISAs.

Also I might decide to hold, say, £10k of the ISA or pension money as gold, in the form know as "ETC" or "ETF". Or, if I had somewhere safe to store it, I might hold my £10k of gold as sovereigns.

Audaxer

I am similar age to you and have lump sums to invest. I am not doing it all at once, but some people will argue that you should get it fully invested now, as you don't know when the next equity crash will come, and they are probably right. If you invest it all now and are invested in very defensive funds you should not be too badly affected by an equity crash, but you probably won't make much gains when times are good. So you just need to establish what level of volatility you can stand without panicking and selling when a crash comes.

The FSCS limit is £50k per platform and per fund house to cover risk from the likes of a major fraud. Although the risk is minimal I am wary about having all my funds in the one fund house or platform.

OldMusicGuy

Alan5 wrote: »

Now, these will be our future life savings and hence our caution. However, I would hate to think we are being stupidly over cautious ..And would really value any comments!

In reality, only you can answer this. You really must decide on what your investment strategy is and how you want to balance risk. Do you favour a "probability" approach, whereby you invest in the market for maximum growth and ride out the ups and downs by changing your drawdown rate (so the probability of you running out of funds is kept low), or do you favor or more safety first approach whereby you have bands of investments with increasing levels of risk so that short term needs are provided for and you are less exposed to dramatic swings (but will see less growth).

I am 60, retiring next year and have no DB pension, just a large DC pot. I am very cautious so am adopting a very safety-first approach, but that suits me and my long term goals. I will be missing out on growth opportunities, but I don't need them as I plan to spend most of this DC pot before we both die. I wish I had been less cautious in my younger days but I am happy to be cautious now.

dunstonh

Around 80% in their most defensive fund and 20% in the 'growth' fund.

Defensive funds can be a complete waste of time. They are often the worst of both worlds. Limited growth potential but still with the possibility of loss. You usually end up being disappointed regardless of outcome as it never makes much and still suffers small losses.

In-house funds offered by platforms are typically either poor value for money or give poor returns. The Best invest ones are both. Why did you choose those? At those charges, you are paying more than a typical IFA arranged investment without the benefit and below average performance.

If you DIY well, you can save money. If you DIY badly it can cost you money. At the moment, you are going DIY and not doing it well.

. Would it be good practice to spread additional funds over a period of time, or just invest in one hit?

Pound cost averaging/phased investment is statistically more likely to result in lower returns. It doesnt really reduce risk as the money is going to end up there in the end. You are just delaying the risk. You are mitigating events that happen usually quite quickly once every 3-7 years. So, phasing over say 3 months doesn't really help anything.

Should we consider using an additional platform for any further investments?

The whole point of a platform is to be a single administration point. Having multiple platforms is typically pointless. (caveats apply).

OldMusicGuy

dunstonh wrote: »

Defensive funds can be a complete waste of time. They are often the worst of both worlds. Limited growth potential but still with the possibility of loss.

Or they can be the best of both, it all depends on your perspective. Growth above inflation with lower risk of significant loss during a downturn. If you have less time for the funds to recover from a crash and don't need significant growth, they can work well. That's why I have a defensive fund in my portfolio, and I've been very happy with its performance so far. Haven't held it through a major downturn though, so we'll have to wait and see on that one......;)

dunstonh

Or they can be the best of both, it all depends on your perspective. Growth above inflation with lower risk of significant loss during a downturn.

Over the long term, the growth is often not much above cash savings. Forget the short term bubble that occurred after the credit crunch. That was not normal. That created better than usual returns on factsheets and that sort of return should not be expected going forward. It has given a false impression.

You have to measure risk vs reward. Defensive does reduce your losses but gives you barely any real upside over cash. You are facing more downside, albeit limited without facing much upside. Going just one notch up the risk scale doesnt add much more risk but does give a significant boost in the "expected" level of return. It should be more about taking sensible risk.

Alan5

Dunstonh and OldMusicGuy, thank you both! Your debate has pretty much summed up my thinking but I needed some discussion. I chose Bestinvest defensive for what it said on the tin ie returns a little in advance of cash and thus far, that's what it's done, albeit with the post crash bubble. Now thinking of saving for a period (say) between 5-10 years hence. Looking at 'Ready made Portfolios' of around 60% equities to invest some lump sum which should shortly be available. Dunstonh, I can almost hear you sigh! But I really have little investing skill and this seems a practical solution.
Alan5

Audaxer

Alan5 wrote: »

Looking at 'Ready made Portfolios' of around 60% equities to invest some lump sum which should shortly be available. Dunstonh, I can almost hear you sigh! But I really have little investing skill and this seems a practical solution.
Alan5

Alan, if you are looking for a 'Ready Made Portfolio' with around 60% equities, have you considered one of the passive global diversified multi asset funds, like Vanguard LifeStrategy 60 or HSBC Global Strategy Balanced? They have very low costs and if you buy and hold on a fixed fee platform like for example Halifax Share Dealing, the overall costs are very low.

Alexland

Or L&G Multi Index 5 (if its on your platforms) which is 54% equities, 34% bonds and the remainder invested in other assets and cash. 0.09% higher fee than VLS but might be worth it as it has a risk management approach.

bostonerimus

It's rare that a retired investor that can afford to be totally "defensive", if by that you mean completely protecting capital. If you have a lump sum that when invested in savings bonds, gilts and maybe the highest quality corporate bonds produces sufficient index linked income then you are lucky. But for most people a little bit of attack is the best defense. A 60/40 broad equity to fixed income portfolio has been a good compromise between risk and reward in the past and would have supported an index linked starting 4% withdrawal rate with a 95% chance of not running out in 30 years.