Retirement Portfolio?

bostonerimus

Rather than concentrating on funds I'd concentrate on asset allocation. ie how much growth do you need, how much income producing investments and how much of a cash buffer. That should allow you to come up with a mix of equities, bonds, cash etc that will meet you needs. Then think about what funds will give you that allocation. I would keep the number of funds as low as possible to simplify management. In retirement you might choose to overweight dividend stocks and shy away from the more volatile sectors like small cap.....these are all decisions you can make as you go along.

Also be aware that "capital preservation ITs" are not magic, they are just a managed multi-asset fund with a stated goal. You can probably do something similar yourself if you choose your funds sensibly.

nrsql

>> Diversification can and does reduce risk when done properly. However, poor diversification can negative that.

Ummm.
The idea of a CDO is that adding an item reduces the risk no matter what it is.
Hence once a mortgage CDO has enough mortgages it gets triple A rated. That was verified by many managers and rating agencies.

Or are you suggesting there was something wrong with that assessment. .

Cat333999

Thanks for very much for the continued feedback, with your own ideas and angles - appreciated.

I suppose my main concern is traditionally you move into bonds as you retire and greatly reduce equities, but the experts are saying that the Bond market is vastly inflated (value wise) and will now have a similar shock to equities come the downturn that the market is talking itself into, while not having such a good upside as equities come any upturn.... we all know the market is going to find some reason to dump in 2019/20..... it is coming....

So where do you put your money! Trackers are great but they will follow any downturn, the Vanguard all in one target retirement 2020 offers a mix of 60% equity 40% bonds moving to 50/50 and then 40/60 over time, which is useful and easy. But with warnings about the bond market is it still right in 2018?

City Of London and other trusts seem to offer good long term track records and decent yields but they are trading well above NAV. Bonds alone seem to offer low returns aside from a few in Orb and the Equity funds I have chosen have been great but I fear for them in a downturn....hence the decision wobbles!!

So do keep the ideas coming...thanks

dunstonh

nrsql wrote: »

>> Diversification can and does reduce risk when done properly. However, poor diversification can negative that.

Ummm.
The idea of a CDO is that adding an item reduces the risk no matter what it is.
Hence once a mortgage CDO has enough mortgages it gets triple A rated. That was verified by many managers and rating agencies.

Or are you suggesting there was something wrong with that assessment. .

If you have 10 UK equity funds are you more diversified than 1 UK equity fund? Yes - but barely and not efficient. And arguably, if you think 1 or 2 are the best, then the other 8 are not going to be. So, you are making it inefficient.

If you have 10 funds and each of the 10 is in different areas, then that is efficient.

Linton

Cat333999 wrote: »

Thanks for very much for the continued feedback, with your own ideas and angles - appreciated.

I suppose my main concern is traditionally you move into bonds as you retire and greatly reduce equities

This is only sensible if you plan to spend your pension pot on an annuity when you need to ensure the money is still there when you need it. If you are planning to draw down the pot needs to continue paying its way for another 30 years or more, so a major bond holding is not what you want.

but the experts are saying that the Bond market is vastly inflated (value wise) and will now have a similar shock to equities come the downturn that the market is talking itself into, while not having such a good upside as equities come any upturn.... we all know the market is going to find some reason to dump in 2019/20..... it is coming....

I dont think the experts are saying all of that. Yes, safe bonds are expensive now and so do not generate a significant return. When or whether bond prices will collapse catastrophically is another matter. If you know what the markets are going to do in 2019/2020 you dont need advice from here. Most of us arent blessed with the powers of Mystic Meg and Russell Grant. We have to make do with setting up portfolios that are reasonably resilient in the long term to whatever happens to the markets.

So where do you put your money! Trackers are great but they will follow any downturn, the Vanguard all in one target retirement 2020 offers a mix of 60% equity 40% bonds moving to 50/50 and then 40/60 over time, which is useful and easy. But with warnings about the bond market is it still right in 2018?

Where do you put your money? The same places you should have been putting your money since you started investing. A widely diversified largely equity portfolio covering a broad range of geographies, industrial; sectors, and company sizes. Why would you want a target retirement fund if you are planning to drawdown?

City Of London and other trusts seem to offer good long term track records and decent yields but they are trading well above NAV. Bonds alone seem to offer low returns aside from a few in Orb and the Equity funds I have chosen have been great but I fear for them in a downturn....hence the decision wobbles!!

So do keep the ideas coming...thanks

You need some diversification away from equity. Deciding to hold equity in COL rather than some other equity fund isnt necessarily diversification. Other options include direct property, Wealth Preservation funds such as Troy Trojan and to a lesser extent RIT, and of course cash.


Cash or close to cash holdings are essential for someone in drawdown. You need to be able to withstand several years of market down turn when taking money from your portfolio should be avoided.


In your case you say you are retiring in a years time. You should have done something about this a few years ago. Assuming you are intending to drawdown you should by now have perhaps 3-4 years income requirements in cash and perhaps another 3-4 years in less volatile assets. This should give plenty of time for the next major crash and the subsequent recovery.


Anything beyond your medium term needs can be held in equities.

tacpot12

If you have 10 UK equity funds are you more diversified than 1 UK equity fund? Yes - but barely and not efficient.

I would agree with this if the funds are all Large cap. The 10 fund managers are likely to pick the all the "usual suspects", and you end up with an under-diversified portfolio. But if we are talking Small caps, my experience is that there is a much wider variation in manager sentiments about different companies, so you could end up with quite diversified holdings.

Corporate Bonds are another area where active management should outperform passive, and where more than one fund manager should bring some new insight to the table.

That said, in my portfolio, I have a maximum of three funds per sector/geography, and usually I have just two. Really I should split these holdings across two platforms, but it suits me to have the portfolio on one platform at the moment. Given the OP's portfolio value, I would think that splitting it across two platforms would be a good idea.

kidmugsy

tacpot12 wrote: »

Corporate Bonds are another area where active management should outperform passive

Why so? Surely the active managers are playing a zero-sum game against each other? When you subtract their costs it's a negative-sum game.

dunstonh

I would agree with this if the funds are all Large cap. The 10 fund managers are likely to pick the all the "usual suspects", and you end up with an under-diversified portfolio. But if we are talking Small caps, my experience is that there is a much wider variation in manager sentiments about different companies, so you could end up with quite diversified holdings.

If you have researched that and made a decision based on that research then excellent. You are putting a structure in place. i.e. you can say you hold this one because blah blah and that one because it invests in areas not captured by the other.

Whereas if you picked the first 10 funds listed by performance on trustnet (in the same sector) then chances are that the overlap is likely to be significant.

Corporate Bonds are another area where active management should outperform passive, and where more than one fund manager should bring some new insight to the table.

Currently, our portfolio has all but one fixed interest sector covered by passive funds (gilts, index-linked gilts, global bonds an corporate bonds). Only the High Yield Bonds is active on our spread. We could be right on that, we could be wrong. Investing is all about opinion as I have often said. There were several managed funds that did pass our criteria but felt they didn't add sufficient potential to justify the increased cost at this time.

Active vs passive doesnt need to hijack this thread but whenever you look at a sector you want to invest in, the passive biased people will only look at passives. The active-only people will only look at actives. Ideally, you should look at both and make a decision. If an active fund offers sufficient potential to beat a passive through a differing investment style to the passive then go active. If not, then go passive.

We used to have an active spread (all active funds), a passive spread (all passive funds) and a hybrid spread (mixture). The hybrid has been consistently better than the other two and now we dont use the active any more.

That said, in my portfolio, I have a maximum of three funds per sector/geography, and usually I have just two. Really I should split these holdings across two platforms, but it suits me to have the portfolio on one platform at the moment. Given the OP's portfolio value, I would think that splitting it across two platforms would be a good idea.

Platform splitting isnt an issue if you use mainstream. 2-3 funds per sector could be overkill. If you have 12 main sectors, that could be 36 funds. However, the larger the value, the more you can spread.

Its all about opinions..... 100 different people will have 100 different methods, styles and choices.

Cat333999

I can see now (from your collective feedback) that I'm too equity based with this suggested portfolio, which is around 25% Bonds and 75% equity (split about 58% Global and 42% UK)...

Linton - you asked about why I'm looking at a 2020 target retirement fund when I am going into drawdown, because this has a 40/60 split (bonds to equity) which is actively managed down over retirement to 50/50 then 60/40, low cost and self managing via very experienced Vanguard. Seems an easy option, but I don't want to put all my eggs into one basket.

To put forward the full picture we are lucky enough (between the good lady & myself) to have build up (in round figures) £1.3m pension, 500k ISA, and 100k shares plus enough cash savings to last any likely downturn period.

The pensions and ISA's are to generate an income, and can be drawn down to zero over 30 years, but I don't want to over risk the capital!!

So beyond the good advice kindly imparted so far (thanks to all and also Dunstonh for his multiple contributions) how about some suggestions for allocating a £1m pot into actual funds that achieve a suitable split of asset classes.

simonfitba

Vanguard Lifestrategy 60 (60% equities 40% bonds). That is widely diversified. And as you say, your cash savings should outlast a downturn (three years' worth as a buffer).

Yes it's simple, and yes, it will track global prices, but fund managers have no God-given right to over-performance. (Their crystal balls don't work any better than mine)