Ideal asset allocation

bostonerimus

ams25 wrote: »

I
As I get get closer to my DB pension I envisage a rising equity allocation, given the DB is effectively a material fixed income allocation.

I understand I could take more risk, but feel I don't need to (and shouldn't) at this point.

There have been studies that show a rising equity percentage in retirement gives a higher probability of success than a constant allocation.

I'm in a similar situation to you and basically 100% of my income needs are covered by rent and DB pension as I took it early at age 55. For that reason I only carry a year's spending in cash. Some of my bond/fixed income allocation is in a "stable value" fund that is almost cash and is currently paying 2.2%.

If you have reliable income from sources other than drawdown you can take one of two approaches; either lower your risk as you don't need the capital gains or high levels of natural yield, buying an annuity would be the extreme example of this; or increase your risk as you can easily ride out the ups and downs and you'll still have enough income if things go pear shaped.

Audaxer

bostonerimus wrote: »

I'm in a similar situation to you and basically 100% of my income needs are covered by rent and DB pension as I took it early at age 55. For that reason I only carry a year's spending in cash. Some of my bond/fixed income allocation is in a "stable value" fund that is almost cash and is currently paying 2.2%.

If you have reliable income from sources other than drawdown you can take one of two approaches; either lower your risk as you don't need the capital gains or high levels of natural yield, buying an annuity would be the extreme example of this; or increase your risk as you can easily ride out the ups and downs and you'll still have enough income if things go pear shaped.

But ams25 has only 45% of his income covered by his DB pension so a more risky situation than yours with 100% of your income covered from other sources.

bostonerimus

Audaxer wrote: »

But ams25 has only 45% of his income covered by his DB pension so a more risky situation than yours with 100% of your income covered from other sources.

Yes, AMS25 is in a similar situation to me... .not quite the same....and similar thinking can be applied to decide where they'll be comfortable on the drawdown risk spectrum. With a lower percentage of income from secure sources they might keep a bigger cash buffer or go with a rising equity glide path starting at 50% equities rather than my 60%.

redpete

I was wondering what is your personal ideal asset allocation you are aiming for and what types of assets? Feel free to drill down to detail the assets classes, include your home if that's what you do.

Context: 6-10 years from retirement. Final Salary pension plus state pensions will provide approx. 65% of expected income.
Small interest-only mortgage getting paid off from company share investment scheme each time it has £1000 available; mixture of cash, individual privatisation shares & multi-asset funds cover the mortgage several times over and funds for emergency. Medium-high acceptance of risk.

So main investments are for pensions:
25% US equity funds
25% UK equity funds
15% Dev Euro equity funds
10% Far East equity funds
(75% in equities would be significantly lower if I didn't have the FS pension due)
15% in bonds
10% in property funds

Equity funds are approx. 30% in trackers with all new contributions going into trackers/bonds/property fund in the above proportions. Managed funds are a hangover from previous employer pensions but they have acceptable cost/risk/return profile. Equities are approx. 70% large cap, I am considering increasing the balance in small cap & emerging markets to give more diversification.

sixpence.

I wish there were still 6-10% ISA savings accounts like in the 90s. That would be soooo easy and sweet.

I'm 28 so wasn't investing then, but I've heard tales of this euphoria.

firestone

But not so much fun paying the mortgage rate:(

bostonerimus

sixpence. wrote: »

I wish there were still 6-10% ISA savings accounts like in the 90s. That would be soooo easy and sweet.

I'm 28 so wasn't investing then, but I've heard tales of this euphoria.

Back in the late 1980s a deferred annuity I bought was crediting at 8.75%, but things go up and things go down. Today it's ticking along at 4.75% because some of those old rates are baked into today's rate, but your point about interest rates being so too low is a good one, the conservative investor who wants to emphasize fixed income can't do it very successfully today.

MallyGirl

firestone wrote: »

But not so much fun paying the mortgage rate:(

Indeed - my first mortgage in 1991 was at 14%. Around £400 pcm interest on a £42k mortgage.

Ray_Singh-Blue

stphnstevey wrote: »

What is your personal ideal asset allocation you are aiming for and what types of assets?

I love that question. What do you want to have, at point B in the future? It begs two more questions: what do you have at point A now? and ; how to get from A to B?

Trying to join the dots from A to B is really difficult. All sorts of things could change. But I do believe that much success in life comes from having a long range goal and plan. And then ensuring that more steps are taken towards the destination, than away from it.

My outline plan involves a slow curve away from peak capital assets in late middle age, towards pension and annuity in later life.

To illustrate, I'll peg point B to year 2080, when I will die peacefully aged 107. At this point I will have little interest in material things, however for several years I will have enjoyed the tenure of a warm, light, serviced apartment in Florida, Spain, or Queensland. This will have been secured at some point in the previous few decades, perhaps by payment of a lump sum in lieu of rent. I may also require the services of a personal assistant in my last decade - and perhaps in the last few years they will live in my apartment and provide assistance around the clock. Since I do not know whether I may live to 109 or even 111, I will need to have some reserves in order to pay them. I'll need to have healthcare covered. I will also need a modest income to provide for my daily needs- oats, pinot grigio, salmon, and occasional gifts for my great grandchildren and great-great grandchildren.

These things require a secure, index-linked income. Generous too - I wouldn't want to undershoot.

It's quite a leap from point A, year 2018.

DiggerUK

sixpence. wrote: »

I wish there were still 6-10% ISA savings accounts like in the 90s...........

I remember ISA rates at 6%, but never any higher.

So called, *asset allocation* is a much hyped nonsense, peddled furiously by those whose living depends on convincing people it serves their best interest. Far better to learn how to judge the economic period you are in, and see which way it could go. Timing the markets is a game for slick traders with other peoples money. Reading the economics is how you best serve yourself.

The 90s were boom times, so Digger Mansions invested in all kinds of funds, and did very well. Towards the end of that boom, the signs began to change. So investing in cash was how we went, building societies, NSI Index Linked, and PBs, all the way to the crash in 2007. This current period is once again boom time, born out of QE in the main, and easily available credit. Witness the worlds bourses to prove that.

But the cracks here and there, need to be taken on board when deciding how to allocate your savings now. Nobody here seems to be giving any thought to stress proofing your hard earned for a downturn. Elaborate *asset allocation* and *portfolio diversification* is no defence against another crash.

As most here know, Digger Mansions moved our retirement savings in to gold. Much ridiculed at the time, now clearly revealed as a highly successful consolidation.
Gold may not be how anyone here wants to consolidate and defend. In fact I see no thoughts here how to defend what you have accumulated, beyond a duck and cover hope for the best mentality..._