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Please critique my proposed investment portfolio
Comments
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You won't get 7% growth (relative to inflation or otherwise) if you hold 40% in cash/bonds. I think you're too risk averse. That's the sort of allocation I'd have at 65+ if I was relying on drawdown (I'd have enough in cash/bonds for 7 years).
If you pay any tax at 40%, I'd also see how much you can divert from ISAs into SIPP every March. I wouldn't do it at basic-rate as the risk you'll actually pay more tax on it in the future is too high.
The plus side is I think you're retirement at 60 is feasible.
Assuming 2.5% growth above inflation;
(1) 160,000 * 1.025^15 = £232K
(2) (20,000 * 1.025^14.5) + (20,000 * 1.025^13.5) ........ = £363K
Would make £595K.
At 3% drawdown, you've £17,850. Plus employer and state pension later on. A bit of tax planning could make it better still."Real knowledge is to know the extent of one's ignorance" - Confucius0 -
I agree the OP should use a pension for the tax advantage but it's not a guaranteed 25% because they may find they are a taxpayer in retirement. Still there should be some benefit for them.
I also agree with others that over the next 10 years a conservative portfolio is unlikely to do better than inflation. I don't see the need for the fiddly asset allocation when a low cost multi asset fund should deliver a similar or better result.
Alex.
I thought they meant paying 15% income tax (i.e out @ BR plus 25% tax-free) rather than 40%. It's better than that, as £60 in becomes £85 (assuming no major changes in tax). That's 41.6%!"Real knowledge is to know the extent of one's ignorance" - Confucius0 -
Substantiate!
I read a FTSE tracker has done that over decades.
Not many people are around that were fortunate enough to invest over 100 years ago, and have reinvested the income. If you take the FTSE. Historically you've a 34% probability of losing money in any single year. There's a huge swell of investor complancency on the back of accomodating Central Bank monetary policy.
At the G10 summit in May 2010 held in Toronto. There was a general agreement that resolving issues was going potentially to take decades as opposed to years. As the challenges were simply too great to be tackled at once. This unusual period hasn't ended. There's still the unwinding phase to go.
To make significant returns you may well need to plough your own furrow. Rather than expect markets generally to do the heavy lifting.0 -
I am 45 years old. No mortgage or debts. No pension other than my state one. I have written for a forecast.
Currently, employed (employer started a pension in 2018).
I would like to retire by 60 and would need an income of £20k from my investments.
Until then I want to target average annual growth of 7%.
I plan to maintain 6-months of costs in a current account and have allocated 10%.
Currently have ISAs to the value of £160k in various trackers which I accumulated over 15 years in ad hoc fashion, which I want to max out every year.
I now want to rebalance my holding with an eye on the future.
My planned portfolio would be allocated similar to the following:
Equities
US 17.5%
UK 10%
European 7.5%
Japan 5%
Asia (non Japan) 5%
Emerging 5%
Bonds
UK Govt 10%
Corporate Bonds 10%
Global Bonds 10%
Other
Cash 10%
Gold 5%
Infrastructure Funds 5%
I would most likely hold managed funds and trackers
Your asset allocation is ok as far as it goes, 50% equities, 30% bonds and 20% cash and other stuff is very "middle of the road" but are you going to use large caps, small cap etc. active or passive etc, you really have given us nothing to critique.
I'll join with other folks in saying that a target of 7% from your portfolio is very optimistic and that if you want to generate 20k from investments at age 60 you'll probably need something close to 400k.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
Thanks for the feedback. There is no substitute for objective scrutiny.
To respond in no particular order to the points raised.
1) 7% includes inflation. I was factoring inflation at 3% and the real return 4%.
2) I will lower the return to a more cautious 6% before inflation.
3) Annually, I intend to transfer £20k (or the maximum allowed) from savings that I have built up over the years and earning 1% at present). As such, I could add £300k over the next 15 years.
4) The idea was to keep it tax free, but it seems I could be losing out on investment returns as I wait to add to my ISA; so should I think about a Pension? The idea of locking these funds away until 55 at the earliest is psychologically a difficult one to wrestle with. Am I being irrational?
5) My current salary (I am a basic rate taxpayer) just covers my expenses with little left over to save now.
6) My employers pension scheme was implemented in 2018. I have totally discounted any value as there is very little worth there currently.
7) Yes an income of approx £20k in today's prices excluding state pension.
8) After 2021, I should have an extra £10k income available, which I was then planning to put into a pension.
9) I envisage retiring by 60 (14.5 years from now) though 55 would be even better as my family tends to seldom pass 65.
10) The general consensus is I could afford to be more aggressive over the next 10-years with more in equities and less in bonds. Would that also take into account more into emerging equities? What kind of % mix would be reasonable?
11) No previous employer or private pensions schemes.
12) I should consider adding a (commercial) property fund.
13) In my first draft I had considered peer-to-peer, absolute funds, biotech and private equity - but I omitted them as too "exotic" and unknown to me.
14) Is there a role for Crypto beyond a little punt. In fact, a wider question is it ok to put 5% aside to play with around with in unconventional investments such as Crypto, art, peer-to-peer, business angel, trainsets etc?
15) I should maybe consider Multi asset funds as an alternative to fiddly asset allocation. I guess these are the likes of Pimco and Artemis
16) I was considering low cost US and UK equity trackers plus the likes of Slater Growth Fund, Fundsmith, Jupiter Strategic Bond, M&G Global Macro Bond, Baillie Gifford Developed Asia Pacific.
17) Is income from ISAs excluded from taxable income or the personal allowance available and as such excluded for income purposes when I draw down from a SIPP, say in future when I am retired?
Apologies if my questions seem basic but its the first time I have really been motivated to sort it out and I wanted to build from the bottom up."enough is a feast"...old Buddist proverb0 -
17) - yes
.....The word "dilemma" comes from Greek where "di" means two and "lemma" means premise. Refers usually to difficult choice between two undesirable options.
Often people seem to use this word mistakenly where "quandary" would fit better.0 -
The return you can reasonably hope to get from equities depends on whether they are good or poor value when you begin your calculation. If they are pricey - as they certainly seem to be in the US at least - then you should trim back your hopes.
Mind you, the times have been so unusual - interest rates were recently lower than at any time in the last five thousand years, apparently - that who knows what any prediction is worth?Free the dunston one next time too.0 -
I plan to maintain 6-months of costs in a current account and have allocated 10%.
I hope it's an interest-paying current account. If it's your emergency fund then I recommend you don't double-count it as part of your portfolio.Currently have ISAs ... which I want to max out every year.
I suggest that filling your S&S ISA take third place after (i) accumulating some portfolio cash in regular savers that pay 5% p.a., and (ii) contributing enough to a pension that you should be able to take tax-efficient income in retirement - in other words, to draw pension to fill the 0% tax gap between your Personal Allowance against income tax and your State Retirement Pension.
Mind you, you have so much capital to dispose of that you are still going to max out your S&S ISAs and presumably your pension too.I now want to rebalance my holding with an eye on the future.
My planned portfolio would be allocated similar to the following: ...
I would most likely hold managed funds and trackers
You can do nothing about the future performance of stocks, bonds, cash, gold, etc, but you can aim to minimise taxes and charges. For example with managed funds you might be paying for active management that does a poorer job than trackers. I might stick largely to trackers.
I might hold more in (portfolio) cash or near-cash, less in bonds. I'd be looking to maximise my use of the £1k p.a. interest on savings allowance, and the £2k p.a. dividend allowance, and any other source of tax-free interest or its equivalent. For the latter I'd be looking at Premium Bonds. If you hold the maximum - £50k - you'll get a roughly steady flow of small prizes worth somewhere about 1.25% p.a., plus you have some tiny chance of winning one of the big prizes that constitute the remaining 0.15% p.a. of the prize fund.
That frees part of your savings interest allowance to make it available for tax-free interest from, say, current accounts, regular savings accounts and maybe corporate bond funds. If your gold takes the form of sovereigns they would be held outside your tax shelters because they are anyway free of CGT. Your dividend allowance can be used against the dividends from low-yielding equity investments, while your high yielders could be tucked away predominantly in your S&S ISAs and your pensions.
Allocation is partly, even largely, a matter of guesswork. Avoiding charges and taxes isn't.Free the dunston one next time too.0 -
1) 7% includes inflation. I was factoring inflation at 3% and the real return 4%.
2) I will lower the return to a more cautious 6% before inflation.
I still think you are being unrealistic expecting any growth above inflation and fees. The proposed portfolio is conservative and stock markets are not cheap at the moment which will supress future returns. Can I suggest the below Vanguard research?
https://www.vanguardinvestor.co.uk/articles/latest-thoughts/markets-economy/why-investors-prepare-for-lower-returns4) The idea was to keep it tax free, but it seems I could be losing out on investment returns as I wait to add to my ISA; so should I think about a Pension? The idea of locking these funds away until 55 at the earliest is psychologically a difficult one to wrestle with. Am I being irrational?
Were you really thinking of spending all the money in the next 10 years? Although pension wrapping the money is a bit of a gamble on future taxation policy it seems unlikely a government would be able to tinker with pensions to the extent that you would have been better keeping all your money in ISAs.6) My employers pension scheme was implemented in 2018. I have totally discounted any value as there is very little worth there currently.
Its still money and hopefully you are making enough contribution to get maximum employer matching contributions. If they operate salary sacrifice it can be an effective way of pension wrapping. Just because it is a currently small pot doesn't mean that it might not have opportunity as part of your financial toolkit.9) I envisage retiring by 60 (14.5 years from now) though 55 would be even better as my family tends to seldom pass 65.
Is there anything you could do to change your lifestyle now to improve your odds of survival?10) The general consensus is I could afford to be more aggressive over the next 10-years with more in equities and less in bonds. Would that also take into account more into emerging equities? What kind of % mix would be reasonable?
It really depends on your volatility tollerance. It would be a disaster if you took greater risk, saw a big downturn and crystalised a loss by selling out for fear of losing everything. Still your current allocation isn't going to get you real growth.12) I should consider adding a (commercial) property fund.
13) In my first draft I had considered peer-to-peer, absolute funds, biotech and private equity - but I omitted them as too "exotic" and unknown to me.
14) Is there a role for Crypto beyond a little punt. In fact, a wider question is it ok to put 5% aside to play with around with in unconventional investments such as Crypto, art, peer-to-peer, business angel, trainsets etc?
I don't think you particularly need these for your long term plans and am not convinced cryptos have any value.15) I should maybe consider Multi asset funds as an alternative to fiddly asset allocation. I guess these are the likes of Pimco and Artemis
Suggest you look at Vanguard LifeStrategy, HSBC Global Strategy, Blackrock Consensus and L&G MI series of low cost global multi asset funds. For someone with less volatility tollerance it might be better if you don't get visibility of the movement 'under the hood' as you will worry less. Most individuals are unlikely to do better mixing trackers than using these products over the long term.17) Is income from ISAs excluded from taxable income or the personal allowance available and as such excluded for income purposes when I draw down from a SIPP, say in future when I am retired?
ISAs are not treated as taxable income so you would still have your full personal allowance to draw down your state and private pensions in retirement. Pensions also have attractive death benefits as the money is passed to your beneficiaries based on your expression of wish outside your estate.
Alex.0
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