Reduce Risk VLS60

degs88

As I'm retiring (Age 61) I would like to reduce the risk associated with my ISA with Vanguard which is currently 100% invested in VLS60. I'm not averse to risk but obviously the ability to recover from a financial crash is reduced at my age and given the current scare stories I'm considering moving from the VLS60 fund to a VLS20 fund which still has an element of risk.

Appreciate its a bit like asking how long is a piece of string, but I'm not sure about to what extent that will protect my money or whether I should be taking another course? I really could not afford to lose 50% of my ISA,

Be grateful for a bit of advice please.


Degs

dunstonh

I'm not averse to risk but obviously the ability to recover from a financial crash is reduced at my age

Age is not an issue for you. You are 61. It is length of time left to be invested that matters. Most crashes recover in under 2 years. So, are you suggesting that you are not going to be invested for much more than 2 years?

and given the current scare stories

What current scare stories?
What makes you think the the potential risks are any different now to what existed last month, year, decade?

I'm considering moving from the VLS60 fund to a VLS20 fund which still has an element of risk.

VLS20 is a theoretically lower risk if you stick to a conventional risk scale. However, when you consider that the bulk of the holdings are bonds and they are falling in value at the moment and expected to continue, you are reducing the volatility but reducing the upside potential significantly.

The risk targetted multi-asset funds are likely to be more suitable if you are going that low down the risk scale.

I really could not afford to lose 50% of my ISA,

VLS60 doesnt have expected loss potential of 50%. You would need to be 100% equity based to expect that sort of loss.

Be grateful for a bit of advice please.

No advice. This is discussion and comment only. You will not get advice on this board.

degs88

Thanks Dunstonh, you read very accurately and pick me up correctly which is helpful.
Regarding the scare stories, I've read on MSE I'm sure, that the crash is inevitable and expected to be worse than 2008. I do appreciate that timescale is unstated, its a bit like saying that Earth will be hit by a comet, but aren't various commentators starting to say (I can't tell you where or who) that its looking more imminent like late 2018 or 2019 rather than years away.

Thanks for your comments.

Iain_For

I'm in a not dissimilar position with retirement next April. My approach has been to shift a proportion of my portfolio into cash, sufficient to cover what I'm intending to withdraw from it over the next 2/3 years since my ISA (also in VLS 60) has to support around 25% of my retirement income. In total it will amount to holding about 13% of my portfolio as cash and accepting it will depreciate in real terms due to inflation but hopefully provide a cushion to market volatility. As the ISA is flexible, there's always the option to put some cash back in before the end of each tax year should I be able to do so. Realise this is an approach best suited if you intend to access your ISA on that timescale.

dunstonh

Regarding the scare stories, I've read on MSE I'm sure, that the crash is inevitable and expected to be worse than 2008.

Crashes are inevitable. They are always coming. You know that the day you start investing. A crash could occur today, next week, next month, next year. Nothing has changed.

The last crash/decline in excess of 20% was 2015/16. What did you do in advance of that one?

Nobody knows the size of the next crash. Most are in the 20-25% range with generational ones being around 40% (both the dot.com slow decline and the double dipping credit crunch were around 43%). There is no reason to think that a 50% crash is coming as that would suggest that the global economy is in a worse shape than the tech bubble and credit crunch.

but aren't various commentators starting to say (I can't tell you where or who) that its looking more imminent like late 2018 or 2019 rather than years away.

There have been commentators saying there will be a crash coming every year since 2011. Had you listened, you would have missed out on the period where significant growth occurred. A stopped clock is right twice a day. Commentators who keep calling crash will be right sooner or later. Their hope is that they will be hailed as the person that predicted the crash and then spend the rest of their life making money off the back of it. There are publications built on the back of that model.

We are almost certainly closer to a crash than further away from one. However, you are in VLS60. A typical crash would see you lose around 10-15%. A dot.com/credit crunch repeat would see you lose around 25%. A 50% loss on your VLS 60 would require around 3/4s of the market value of companies to be wiped out. That scenario would need a bubble similar to the great depression of the 30s. There is nothing to suggest we are in a bubble of that scale.

There are always "stories" that can put you off investing. We often see inexperienced investors quote Brexit as a reason (despite it actually boosting investment values due to the fall in Sterling - something that was predicted in advance of the referendum vote). When Brexit is gone, there will be something else, and then something else, and then something else......... There are always things coming.

If you do decide to move down the risk scale, then moving away from VLS to L&GMI, HSBC or Architas may be better as they are risk targetted (unlike VLS). They are less rigid and more flexible on bonds. But its big jump from 60% equity to 20% equity. If you are truly nervous, then consider if 2-3 notches drop on the risk scale is too much when maybe only 1 or 2 is needed. And do not forget capacity for loss. if the money isn't needed, then leaving it through the bad period and coming out the other side usually results in a better return than trying to guess when a downturn is going to occur.

You just need to balance your head and your heart now and decide what is best.

degs88

Thanks Dunstonh for a comprehensive reply. I don't expect more comment that this but just to answer a couple of points/questions.
I am in the LGPS and will be receiving a pension and a small rental income. The latter likely to end in a year or two. We will be ok but might struggle if the rental ends before I start to get my state pension which is likely. I will bridge the gap by using a small SIPP that I have with HL. I only wanted to address my ISA here I might post on the pensions forum about the SIPP. Its currently in Portfolio+ Balanced Fund and I need to understand my options there too.
Thanks again.
Degs

Linton

degs88 wrote: »

Thanks Dunstonh for a comprehensive reply. I don't expect more comment that this but just to answer a couple of points/questions.
I am in the LGPS and will be receiving a pension and a small rental income. The latter likely to end in a year or two. We will be ok but might struggle if the rental ends before I start to get my state pension which is likely. I will bridge the gap by using a small SIPP that I have with HL. I only wanted to address my ISA here I might post on the pensions forum about the SIPP. Its currently in Portfolio+ Balanced Fund and I need to understand my options there too.
Thanks again.
Degs

So it appears the ISA is not vital to your future well being. Why do you want to substantially cut the returns when you can afford to wait for the inevitable upturn, should a major crash occur? And if you dont believe an upturn is inevitable perhaps you should not be investing in equities at all.


From the info you have provided I suggest you leave the ISA alone and focus on ensuring that your SIPP can provide the income you need in the short to medium term future. If drawdown from the SIPP is going to be essential for the next 5-7 years perhaps a significant part of it should be in cash now.

Alexland

Agree with Linton if the SIPP is needed to bridge a short term gap then that's where you want to reduce the risk as it doesn't sound like it has an investment timeframe of 5+ years before withdrawal. As per Dunstonh's comments a crash is always coming and VLS60 should ride it out without too much volatility. Being too heavy in bonds carries its own risks.

Alex

bostonerimus

Most retirees need investment growth to keep up with inflation and given the strong possibility of a 60 year old living to 90 there is plenty of time to recover from the crashes that will occur. So you have to have an asset allocation that gives you the potential for growth and a way to avoid selling at a loss during a significant down turn. That's why you need equities, fixed income/gilts/bonds, state pension, maybe an annuity in some circumstances and cash. A simple approach would be to keep your VLS60 and add a cash buffer of a couple of year's spending that you can use in down turns. I'd also recommend you do a detailed budget and identify where you can cut expenses in bad times and look at the various variable withdrawal strategies by the likes of Klinger and Guyton

Alexland

Also worth remembering that even if you do need to dip into your VLS60 while equities are obviously down there's always the option of increasing the proportion of equities in the remaining value up to VLS80 (as there is less downside risk) to take advantage of any upturn that may later occur.

BLB53

I think its worth noting that if you had invested the day before the Lehmans collapse 10 years ago this month, your investments would fall by 46% over the coming months. However the markets always bounce back and if you continued to hold the same investments you would be up by 185% today...
http://awealthofcommonsense.com/2018/09/revisiting-the-fall-of-2008/