Managed or Tracker fund, which is best?

bostonerimus

Deleted_User wrote: »

Zombies taking over UK does not seem out of question right now. They already did that with one of the major parties.

A bunch of plausible scenarios on how annuities might fail with governments failing to provide a back stop is provided in Bernstein’s “Rational expectations for investing adults”. William Bernstein described it way better than I ever could.

Let me guess: “this could only ever happen in America but we are different, U.k is perfect and risk free”. Got it.

Let's be sensible and avoid letting the zombie apocalypse influence our financial decisions.

For retirement I rely on a US state pension...OMG those are not fully funded, so then I have to fall back on the UK state pension.....OMG that will lose the ring fence and be means tested....then I have US social security,...OMG that will disappear soon as the trust fund is bankrupt...then I have my US insurance company annuity...OMG those fail too (FYI my insurer formed in 1918 and has survived all the ensuing "crashes") I'll have to rely on the state insurance guarantee fund....OMG that could fail too so I now have to use my investments...OMG markets fail....so now I move into the one bedroom apartment I own and rent out the 3 bedroom home I live in now. Finally I go back to work.

Layers of defence work and a sensible assessment of risk is required when we plan.

[Deleted User]

Layers of defence work and a sensible assessment of risk is required when we plan.

Yep. That’s the point. Major Insurance companies never ever failed. Until 2008.

bostonerimus

So we are back to common sense. Large insurers seldom fail and there is a fund to compensate policy holders if they do. Anyone with the old 3 legs of annuity/dB, state pension and some savings will be just fine. Rather than discussing improbable failures or active vs passive we should concentrate ways to reduce debt and spending. Those seem like far greater dangers to retirement success.

Thrugelmir

Deleted_User wrote: »

Yep. That’s the point. Major Insurance companies never ever failed. Until 2008.

AIG was selling credit default swaps without maintaining collateral. Not providing annuities. Not regulated in the UK either.

bostonerimus

US investors do tend to be myopic, but their home bias has seen them do pretty well. Vanguard is always encouraging its US investors to be more internationally minded and is increasing its international bond and equity focus.

[Deleted User]

bostonerimus wrote: »

So we are back to common sense. Large insurers seldom fail and there is a fund to compensate policy holders if they do. Anyone with the old 3 legs of annuity/dB, state pension and some savings will be just fine. Rather than discussing improbable failures or active vs passive we should concentrate ways to reduce debt and spending. Those seem like far greater dangers to retirement success.

If all is well then all common sense retirees will be just fine. No question about controlling one’s spending, saving, being sensible about borrowing etc. Yes, I am talking about rare events.

The issue I have is that rare events can and do happen. And people retiring at 50 with a 50 year time horizon are likely to experience rare events. Insurers can fail and in a rare event with huge companies failing, relying on state backstop is 50/50. The consequences of this can be catastrophic for people who are retired and are relying on an annuity or a DB pension.

Someone who has an annuity, some bonds, and 5 million in stock and can do a bit of work if push came to shove will be ok. Someone relying entirely on a single source of income in retirement carries more risk than he thinks.

Linton

Rare events can and (paradoxically?) do happen quite often. My point is that you cannot protect yourself in advance against all the worlds possible problems by suitable adjustments to your investments. At some point you have to accept that many things will just have to be dealt with at the time as best as one can. The most one can hope and plan for is to be in a much better position than most other people.

Whether someone with £5m in liquid assets would be OK is pretty irrelevant to perhaps 99% of the UK population. £500K plus State Pension plus perhaps a small DB pension or annuity would put one pretty high up the queue for the lifeboats.

Another way of looking at things is that it makes sense to ensure that the level of risk you plan for is comparable with the risks you face in everyday life. Why worry excessively about very unlikely events when there is say a greater than 10% chance of dying within 10 years of retirement?

AnotherJoe

Deleted_User wrote: »

If all is well then all common sense retirees will be just fine. No question about controlling one’s spending, saving, being sensible about borrowing etc. Yes, I am talking about rare events.

The issue I have is that rare events can and do happen. And people retiring at 50 with a 50 time horizon are likely to experience rare events. Insurers can fail and in a rare event with huge companies failing, relying on state backstop is 50/50. The consequences of this can be catastrophic for people who are retired and are relying on an annuity or a DB pension.


And the alternative woudl be what? Totally dedicate the whole of their life to this very extreme event and make a mess of it as a result? All of your extremely unlikely catastrophic events mean that millions would be in the same predicament and almost anything you did as a preventative wouldnt work. If theres totally economic collapse to the level that government guarantees and SP fails, all bets are off.


Someone who has an annuity, some bonds, and 5 million in stock and can do a bit of work if push came to shove will be ok. Someone relying entirely on a single source of income in retirement carries more risk than he thinks.

So? We all carry risk. Many are too small to be worth prioritising over the much more likely ones, there's a limit as to how much risk you can usefully plan for without totally screwing up the rest of your life



I think you've become overly focussed on the edge of the edge events and missed the bigger picture. You also haven't said what your solution to coping with these is other than the completely useless and unattainable " an annuity, some bonds, and 5 million in stock and can do a bit of work" (since if annuity companies failed then so did bonds and the stock will be worthless and the person might be 80 and unable to work in the fields)

Thrugelmir

Deleted_User wrote: »

Insurers can fail.

Name them. In particulr those that were regulated to manage investments in the UK.

[Deleted User]

Thrugelmir wrote: »

Name them. In particulr those that were regulated to manage investments in the UK.

None. Also, no major UK regulated bank failed. Until Barings and then a bunch of others like Northern Rock. No major US insurance company failed. Until AIG. Something that never happened in the past totally guarantees that it won’t happen in the future.

Also, check out the Equitable Life story.