Using Vanguard LS60 et al in drawdown

_pete_

I will be entering some kind of SIPP drawdown phase within the next 5 years. I'm in the process of tidying up my 13 or so funds and putting them into Vanguard LS60 and HSBC Global Strategy Balanced, as I've decided that I want to simplify things and rely on a 'passive' approach.

I will keep 1 years worth of my SIPP in cash, which will be separate from my emergency fund held outside of the SIPP

I'm aware of the need to vary my drawdown rate according to inflation/performance etc.

However I'm wondering whether the reliance on multi-asset funds might not be the best idea during a major market downturn. Specifically would it be a good idea to invest in one global equity tracker and one global bond tracker (as well as the multi-asset funds) so that I could just draw down from the bond fund if equities took a nosedive. Or does the automatic rebalancing of the multi-asset funds address my concerns without the need for a separate bond fund?

I appreciate that bonds may well do down in value at the same time as equities, but I'm just trying to minimise the hit from a situation where I need to sell funds when they are falling to pay my living expenses.

dunstonh

However I'm wondering whether the reliance on multi-asset funds might not be the best idea during a major market downturn.

What strategy for drawdown as you using. Yield? Cash account holding x months of draw? combination? etc

VLS obviously wont fit with a number of drawdown methods.

Specifically would it be a good idea to invest in one global equity tracker and one global bond tracker (as well as the multi-asset funds) so that I could just draw down from the bond fund if equities took a nosedive.

That is a pretty awful way to invest. You havent been reading US websites have you?

_pete_

dunstonh wrote: »

What strategy for drawdown as you using. Yield? Cash account holding x months of draw? combination? etc

VLS obviously wont fit with a number of drawdown methods.



That is a pretty awful way to invest. You havent been reading US websites have you?

Thanks for the feedback.

1. I haven't decided yet what drawdown strategy I will be using, though I suspect that I will probably opt for transfer to a cash amount to meet 'x' months expenditure.

2. I can't remember where I got the idea of a global equity tracker and a global bond tracker, though it is possible that I picked it up from the JLCollins site which has a predominantly US focus . I obviously hadn't realised that it was an awful idea.

Thanks again for the feedback.

TARDIS

dunstonh wrote: »

That is a pretty awful way to invest. You havent been reading US websites have you?

I recognised this from the JL Collins stuff too - would you be kind enough to explain why it's so awful though for us "Newbies" swayed by fancy looking US blogs please?
Many thanks.

dunstonh

2. I can't remember where I got the idea of a global equity tracker and a global bond tracker, though it is possible that I picked it up from the JLCollins site which has a predominantly US focus . I obviously hadn't realised that it was an awful idea.

In the US, tracker funds make perfect sense. The taxation system penalises managed funds. That doesnt happen in the UK. Plus, the UK is better at managed funds. In some countries, As many as 95% of managed funds underperform. That is not the case here. So, you have to be wary of using data that originated in other countries.

US investors are typically inward looking compared to European. The tracker and bond fund approach came about as Buffett said that is what his wife should do when he is gone. He was referring to an S&P500 tracker and a US treasury tracker (not sure which one). His audience was the US market. Various websites and people have taken to convert that to their local equivalent but fail to take into account differences. It was also said pre-credit crunch and before the notion of negative interest rates.

The fixed interest sector in the UK is highly developed and you have categorisations covering a range of fixed interest securities. Trackers are available in most. The notable exception is Global High Yield Bonds (in terms of UT/OEICs). Picking a UK gilt fund to solely fit your fixed interest allocation would not translate well (and would it be gilts, inded linked gilts, short dated, long dated etc). You should have a spread of fixed interest securities.

IanSt

A lot of commentators I've come across do say that one of the major reasons that a drawdown strategy can fail is the continuous selling of equities during market downs. If they're right (and it seems a persuasive argument to me) then if you're holding bonds and equities then you'd want at least one of them to be a pure bond fund that you could satisfy drawdowns from whilst equities were down. The bond fund could of course run completely out of money during very lengthy dips, but at least you've postponed any equity selling.

TARDIS

Many thanks Dunstonh for the clear explanation (as always)

OldMusicGuy

_pete_ wrote: »

However I'm wondering whether the reliance on multi-asset funds might not be the best idea during a major market downturn.

Don't forget there are different types of multi-asset funds. If you are wary of market drops, you could go for HSBC Cautious or VLS 20 or 40 which are supposed to have lower downside risk. There is plenty of choice.

BLB53

However I'm wondering whether the reliance on multi-asset funds might not be the best idea during a major market downturn.

I have been in drawdown for many years and use VLS 60 and a few investment trusts. I draw 4% each year. I would suggest the multi-index funds will be fine but it is prudent to have a cash buffer, maybe 10% from which to take income during the years when returns are negative.

Joey_Soap

I believe if you keep a cash buffer of between two to three years desired draw down, then you can pretty much avoid having to sell investments at or near a market bottom. Indeed, though there are markets that have continued downward for decades (recently Japan for example) if you look at the UK market from say 1973/74 onwards, even sharp slumps (October 1987) have typically been recouped in a matter of months. Another exception of course is the FTSE 100 index which is, even now, not that much higher than at its peak in 1999. Having said that, I feel only a nut case would invest solely in the FTSE 100, so it is unlikely that would have caught you out either. HTH.

dunstonh

Multi-asset or asset allocated portfolios are fine with the cash account option. The cash account holding makes things so much easier. hold say 24 months income and if a crash comes, you sell no investments but during growth periods, keep the cash account topped up.

I have a couple of asset allocated portfolios with no cash account but are yield focused. Without a cash account, its not ideal unless you build in yield.