Managed or Tracker fund, which is best?

[Deleted User]

“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)”

That’s not true. Annuities failing does not equate to government bonds failing. The other way around, they become more valuable. I only buy government bonds. Nor can I see a scenario where a portfolio of world stocks becomes “worthless” short of nuclear war. And then we have other problems.

My solution is not to retire ar 50 unless one is wealthy and genuinely diversified. By the time you are 80, your time horizon is no longer 50 years and the risk of experiencing a major event is smaller.

Also, I do plan to convert a large chunk into an annuity once and if I get to 85 or so. By then other risks kick in big time, like going senile.

Linton

Deleted_User wrote: »

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.

None of those events happened under the curent regulatory system.



Barings was not a regulated bank - it was a merchant bank (not a High Street bank) and fund manager. It did not deal with the general public as banking customers and the asset management arm and its funds carried on regardless. It is still around, at least in name.



No customer lost from Northern Rocks demise. The banking customer base was taken over by Virgin and the mortgages by a government body.


I am not familiar with the Equitable Life story, but believe that the problems were due to unwise guarantees made mainly in the 1980's when many other companies were doing the same thing. I believe it was the guarantees that could not be honoured rather than invested money disappearing. To give you some idea of what was happening I had a pension from a different company that guaranteed 8.5% annual capital growth up to retirement with an annuity rate of about 11%. The pension company concerned, once a household name, no longer exists. I still get my annuity,


Now no pension company makes guarantees on future growth or annuity rates.

[Deleted User]

You are predicting the future based on what happened in the past. Then you discount bad things from the past because “Not under current regulatory system”. Fair enough. The future is rosy.

bostonerimus

Deleted_User wrote: »

You are predicting the future based on what happened in the past. Then you discount bad things from the past because “Not under current regulatory system”. Fair enough. The future is rosy.

"Don't worry, be happy"

Complicating things is bad. People do it all the time trying to squeeze alpha out of a sliced and diced portfolio or using dubious metrics on active managers. But concentrating on low probability risk also paralyses many people. So be sensible and don't fetishise pessimism. I think this theme all started when I said that my deferred annuity with a large US insurance company had "practically zero risk". I think that's pretty accurate. The risk is not zero, but it's pretty close to it because even if my insurer was to fail I have the "Life and Health Insurance Guaranty Association" to fall back on. So it's one thing that I just don't worry about.....like I said "be happy".

Thrugelmir

Deleted_User wrote: »

Also, no major UK regulated bank failed.

Also, check out the Equitable Life story.

RBS failed. Still primarily taxpayer owned.

HBOS likewise. As was lent £25 billion on a short term basis until the takeover by Lloyds was completed.

I know EL intimately being a policyholder myself. Had to restructure and close to new business. Didn't fail though in the sense of being insolvent just couldn't meet future guarantees. As others have said different regulatory enviroment now.

[Deleted User]

Those were warnings. Relatively small, contained events. If scenario is closer to Greece, Iceland, Detroit or Cyprus and there is no Merkel to bail you out, if multiple companies are failing and the government is strapped for cash and has to choose who to save, it may work out very differently. Today indebtedness is much higher than in 2008, likely less room to manoeuvre. For internal debt governments outside Euro could devalue currency, but that has the same effect of expropriating the amount they owe.

bostonerimus

Deleted_User wrote: »

Those were warnings. Relatively small, contained events. If scenario is closer to Greece, Iceland, Detroit or Cyprus and there is no Merkel to bail you out, if multiple companies are failing and the government is strapped for cash and has to choose who to save, it may work out very differently. Today indebtedness is much higher than in 2008, likely less room to manoeuvre. For internal debt governments outside Euro could devalue currency, but that has the same effect of expropriating the amount they owe.

Have a beer and chill dude, you're going to worry yourself into an early grave. Of course that might be part of your safe withdrawal strategy.

[Deleted User]

I am not worried. I am fully invested, have 7 figures in world stocks, some DB pension (although in a funny currency), enough in fixed income to last 5 years, a decent job and several small but growing business incomes. Not counting social security and state pension. My wife has an income too. Risk is good. Risk brings profits and in any case cant be avoided. It’s good to be aware and manage it, that is all.

One issue on the horizon is that everyone wants to stop working at 50; some people talk about retiring at 30. I blame Bismarck. And we live longer and longer. As the number of retirees per worker goes down, assets held by retirees will devalue and state pensions/annuities will have to be devalued too. Relying purely on assets for decades and decades is a very risky game.

[Deleted User]

And I do find it fascinating how Brits have 100% trust in their government and regulations. Watching the news and shaking my head. That’s probably the main difference between the two continents.

dunstonh

I am not familiar with the Equitable Life story, but believe that the problems were due to unwise guarantees made mainly in the 1980's when many other companies were doing the same thing. I believe it was the guarantees that could not be honoured rather than invested money disappearing. To give you some idea of what was happening I had a pension from a different company that guaranteed 8.5% annual capital growth up to retirement with an annuity rate of about 11%. The pension company concerned, once a household name, no longer exists. I still get my annuity,

That is correct. And following the Eq Life issue with Profits funds had to be sufficiently funded to meet their liabilities using assumptions that are lower than most would consider realistic. Liability before returns. Whereas in the past, it was not the actuaries that were setting the bonus rate. It was the marketing team. This saw many significantly reduce the equity content and decide to play it safe.

EQ life had high bonus rates and high GARs and the money was not in the pot to pay the liabilities. It was too good to be true.

The regulator also upped the solvency requirements of insurers. This is why they didnt suffer as much as the banks during the credit crunch.