SIPP: equities v cash/bond split

JoeEngland

I've got several DCs and personal pensions that I want to move into a SIPP which will allow drawdown. The amount is ~260k and I'm 52. What split between equities and cash/bonds would you recommend? I was thinking about 80/20 initially and move to 60/40 or so as I get to my 60s, but don't know if this is the best approach. Additionally I have cash savings and a unit trust ISA, and we'll get more cash when we eventually move house to somewhere cheaper.

Linton

Rather than thinking in terms of bonds versus equities I set my asset allocations based on drawdown requirements over time.

For example 3-5 years in cash, perhaps another 5 years in bonds and other wealth preserving investments and the rest in equities. So ones allocation will change as income requirements change over time. For example before and after state and DB pensions become payable and as the value of any fixed rate income reduces because of inflation.

Simply choosing a % equity level seems arbitrary and difficult to justify. Basing it on a rational analysis should give one more confidence that it is appropriate.

Alexland

80/20 is adventurous at 52 but it really depends on when in your 60s you plan to retire? It might be ok if you have 15 years to go. Across all your retirement assets I would try and aim for 60% equities, 30% bonds and 10% cash by the time you start retirement assuming you intend to go into drawdown. Maybe a bit more cautious if you are planning to buy an annuity.

shinytop

It also depends on whether your DC fund is all you have and over how long a period you'll be drawing down. My DC fund will be heavily used early on between retirement next year and DB pensions starting at 60 and also to top up before SP. I therefore have a lot of cash/bonds now. The rest I'll draw down if/when I have in 10+ yrears time to so happy for that to be in equities for now.

JoeEngland

Alexland wrote: »

80/20 is adventurous at 52 but it really depends on when in your 60s you plan to retire? It might be ok if you have 15 years to go. Across all your retirement assets I would try and aim for 60% equities, 30% bonds and 10% cash by the time you start retirement assuming you intend to go into drawdown. Maybe a bit more cautious if you are planning to buy an annuity.

I'm planning to give up FT work soon after I turn 53 but may work PT for a year or so depending on health and whether I can find any PT work, while DW is likely to carry on FT longer than me. I get a small DB pension of ~2.2k pa when I turn 60 and SP when I'm 67. I'm planning to live on a modest amount of ~17.5k pa.

squirrelpie

I expect interest rates to go up and correspondingly bond prices to go down. Am I mistaken or why would anybody consider buying bonds?

Alexland

JoeEngland wrote: »

I'm planning to give up FT work soon after I turn 53 but may work PT for a year or so depending on health and whether I can find any PT work, while DW is likely to carry on FT longer than me. I get a small DB pension of ~2.2k pa when I turn 60 and SP when I'm 67. I'm planning to live on a modest amount of ~17.5k pa.

So does DW earn enough that you wouldn't need to start drawing on this allocation even if you are unable to find PT work? If not then drawing down on an 80/20 pot might put you at serious risk of depleting the money too quickly in adverse market conditions.

Alex

kidmugsy

squirrelpie wrote: »

I expect interest rates to go up and correspondingly bond prices to go down. Am I mistaken?

I expect the attempt to be made by the BOE to raise interest rates, then I expect cold feet leading to a reduction again. If that in turn led to high inflation (far from guaranteed - a recession/depression seems all too possible) then rates would presumably be increased again.

I ignore all the excitable rubbish about Brexit, Donald Trump, and so on. Everything, in my guess, will be dominated by the policies adopted after the problems of 2007/08, and the attempt to unwind them. An unprecedented experiment with low, zero, and negative interest rates, and Quantitative Easing, is ending. (Unprecedented, according to some, in the 5,000 years for which we know the history of interest rates.)

The world is awash with debt - government debt, corporate debt, personal debt. Stock markets, especially in the US, got very highly valued. Pension funds around the world are grossly underfunded - some of the states, counties, and cities in the US are in deepest pension doo-doo. Rates of unemployment, especially for the young, are pretty horrifying in much of the Eurozone. Banks on the continent look vulnerable - Deutsche Bank for starters. Italy may become the new Greece. France may become the new France. Nobody has the faintest idea whether economic statistics from China bear any resemblance to the facts. Economic growth doesn't continue for ever - cycles seem to be the natural order, and China will not be exempt.

What might trigger a great crash (and a great depression?) is quite unknowable. Even after the event nobody is likely to know, though people will lay the blame according to their own ignorance, misconceptions, and selfish interests.

Ask yourself: after over eighty years of research onto it, does anybody know what triggered the Great Crash of 1929? Of course not. It is assumed that the property boom in Florida mattered: but what triggered its collapse? Unknown. Did the Great Crash cause the Great Depression? Maybe. Maybe not.

Must there be disaster? Nobody knows. Nobody can know.

With which cheering thoughts I shall go and see what's for pudding. Eat, drink, and be merry for tomorrow ......

Alexland

Kidmugsy, do you consider what might also be dark and horribly wrong with your pudding too?

kidmugsy

Alexland wrote: »

Kidmugsy, do you consider what might also be dark and horribly wrong with your pudding too?

Wrong? With ice cream?

Thrugelmir

squirrelpie wrote: »

I expect interest rates to go up and correspondingly bond prices to go down. Am I mistaken or why would anybody consider buying bonds?

Bonds as is corporate bonds or gilts?

Majority of bonds are dated. Therefore at some point will be redeemed. Therefore not just the running yield that's important , but the yield to maturity. As you'll pay £x per £y nominal value of stock.