The Permanent Portfolio

Pork&Beans

bowlhead99 wrote: »

You can get most Harleys for £20k which is only a year's ISA allowance. If your protected wealth is also good enough to know that you can easily afford that, great. But if that's going to be a lot in the context of your total long term living or retirement pot, you might need to grow that pot, to meet the objectives you have (of being able, e.g., to find £20k for a bike) in which case putting three quarters of your non-pension investment into things that aren't equities is probably too conservative. The old "shortfall risk" issue, of not taking enough investment risk to get you where you need to be...

Mate........it was just a joke......all I was saying is that's all i will probably want from life at that stage........and maybe some nice sunshine and an open road :laugh:

Ray_Singh-Blue

AlanP wrote: »

How are people calculating a value for their DB pensions?

Personally: Annual benefit x 20

I believe this is how HMRC value my pension for lifetime allowance purposes.

kidmugsy

AlanP wrote: »

How are people calculating a value for their DB pensions?.

I use annuity rates for RPI-linked annuities. Our pensions are CPI-linked which means they are worth a bit less because of that but on the other hand my widow will get a much bigger widow's pension than the 50% quoted in the annuities tables which makes the pensions a bit more valuable. I just assume that the two effects will cancel.

grey_gym_sock

kidmugsy wrote: »

I also know that negative inflation - such as might occur in a mighty deflation - drags down the return on ILGs whereas ILSCs and our pensions would go up in real terms if inflation turned negative. So would cash.

yes, ILSCs are interesting, too, in the context of the PP. they have some of the properties of gold (inflation protection) and some of the properties of cash (good in deflation, because the nominal value can't fall).

so that's a bit different from ILGs, which are (perhaps) similar to either gold or long-term bonds.

DairyQueen

kidmugsy wrote: »

I use annuity rates for RPI-linked annuities. Our pensions are CPI-linked which means they are worth a bit less because of that but on the other hand my widow will get a much bigger widow's pension than the 50% quoted in the annuities tables which makes the pensions a bit more valuable. I just assume that the two effects will cancel.

I use the x20 factor to value OH's DB pension, plus single-life annuity rates to value our SPs (nSP so index-linked but no widow's benefit).

As we are now nearing full retirement our investment in property, and accrual of SP, is almost max-ed.

Does anyone else include DB/SP as an 'asset' in their portfolio allocation? It may not amount to diddly squat when you are, say, 30, but, by the time you are 60, accrual of SP, plus investment in your home, is likely to have a significant impact on your finances in retirement.

If these kinds of 'assets' are included it can dramatically change the allocation of an S&S portfolio. I'm therefore not convinced that a 'lazy portfolio' - of any shape - can be applied regardless of age and individual circumstance. My S&S portfolio would look very different if we were not mortgage-free and had no entitlement to index-linked retirement income.

Our S&S allocation (DC/ISAs/SIPPs) is almost 90% equities but our total asset allocation (inc valuation of DB and SP) is:

DB and SP (equivalent of IL bonds) = 48%
Equities = 25%
Property =21%
Other Fixed Interest = 3%
Cash = 3%

Hard hat on.

kidmugsy

DairyQueen wrote: »

DB and SP (equivalent of IL bonds) = 48%
Equities = 25%
Property =21%
Other Fixed Interest = 3%
Cash = 3%

Yes: if I'm feeling pernickety I view State Retirement Pension as equivalent to Index-Linked Gilts and our DBs as equivalent to Index-Linked corporate bonds. That distinction is secondary: the main thing is that both are like bonds in that they pay a known amount (in "real" terms), at known dates, for a defined span (defined in the sense of 'till death do us part'). If I may say so, for someone young enough to get the new-style SRP to multiply the value of a DB pension by only 20 is a woeful underestimation of their value. Just you try getting 5% on an index-linked annuity unless your health is poor!

They have two huge advantages over bonds: they include longevity insurance - they don't mature after twenty or thirty years or whatever - and they need no management. As Wade Pfau says you can look upon that latter feature as dementia insurance.

Their main disadvantage is that they are indivisible and illiquid and (in our case) rather undiversified. The fact that we can't leave them to the younger generations is no disadvantage in my eyes: my priority here is to look after my old age and, especially, my widow's, since she is likely to long outlive me. The young can have the house eventually unless Social Services have snaffled it.

That your house is equity-like falls into the category of the bleedin' obvious, with the advantages that (i) the dividend happens to be untaxed and precisely pays your rent, and (ii) there's no CGT to pay if you sell it. There's also a potential IHT advantage. It can be costly equity to manage, I'll admit, and is again disadvantaged by being indivisible, illiquid, and undiversified.

No doubt you have excellent reasons to have only 3% in cash, such as being ginormously rich.

DairyQueen

Not ginormously rich (unfortunately) but OH's DB pension is generous (even valued at x20). Using the previously-stated algorithms for valuation we are worth in the region of 2.5 million but it sure don't feel like that. That 3% cash = £75000 (around 18 months net income) and will increase when OH fully retires, non-discretionary expenses drop, and we begin drawdown from the S&S portfolio.

We own two modest homes (total value slightly north of £500k so nothing special in our part of the UK) and will invest the same amount in one property on full retirement. The property will be insurance against care home fees but we won't have any issue downsizing or using equity release if necessary. Like you, we feel no need to leave anything to the next generation. My stepdaughters have received every possible financial advantage at the beginning of their lives (courtesy of OH's hard work) and my nephews are primarily the responsibility of their parents.

OH works 3 days per week so he is semi-retired, and I don't work but receive a modest income from investments (not even close to hitting tax-free allowance).

Our circumstances possibly illustrate how much DB pensions, mortgage-free property and/or 2 x SPs contribute towards the average person's retirement finances. Collectively my (rather subjective and conservative) valuations indicate that they total almost 70% of our current 'wealth'. To omit such a large chunk of financial resources from our asset allocation seems crazy to me.

planteria

philng wrote: »

So if you had a £1m portfolio you would have £250k in Cash & only £250k in Equities???? Seems a very poor option to me.

me too. i'd rather have 100% equities.

kidmugsy

DairyQueen wrote: »

Our circumstances possibly illustrate how much ... mortgage-free property ... contribute towards the average person's retirement finances.

Agreed: in fact I go further. The value of our house depends partly on the general housing market in the south-east and partly on the influx of people either to work in growing local industries (e.g. IT and bio-med) or to commute to London (financial and legal people and so on). So in our portfolio I methodically avoid banks, IT firms and pharma companies: I don't want our shares plummeting at the same time as the value of our house.

bowlhead99

kidmugsy wrote: »

Agreed: in fact I go further.

So in our portfolio I methodically avoid banks, IT firms and pharma companies: I don't want our shares plummeting at the same time as the value of our house.

I go even further. I really like a bit of Marmite on toast or a crumpet for a breakfast/ snack in the winter. And in the summer I like a Wall's Solero or a bowl of Ben & Jerry's ice cream.

So in my self-selected individual company shares portfolio I no longer hold Unilever, as I don't want my shares plummeting at the same time as a downturn in the company causes them to stop producing some of my favourite feelgood snacks.

Shame really as I have made money from it over the years and it has a quality selection of global brands with exposure to both developed and emerging markets. But now I just let fund managers decide whether they want it within the funds part of my portfolio and don't have a separate holding of it myself.