It's time to start digging up those Squirrelled Nuts!!!!

Sea_Shell

Anyone else feel that their current investments are looking a bit too good to be true??

I_want_to_break_free

Yes, I was just looking at my DC pension this morning.  I've retired last year and started to drawdown from it April this year.  My DC pot needs to last 6 years until DB pension kicks in.  However, the DC pot is valued more than when I retired and when I started to drawdown.  OK this is over a short period of time so could be just part of the ebb and flow so not getting excited or moving off plan.

westv

Sea_Shell said:

Anyone else feel that their current investments are looking a bit too good to be true??

Why not just cut the current value by 40% and use that instead? 

ex-pat_scot

Sea_Shell said:

Anyone else feel that their current investments are looking a bit too good to be true??

Indeed. 'Tis ever the balance between greed and fear, optimism and caution.
It's fuelled by great lakes of Quantitative Easing cash chasing any assets, which in normal times would drive inflation.
Global equities are at dizzying heights and valuations.
Bonds are priced at equity levels (but without the equity level returns).
Traditional defensive assets are also hugely priced.

Great for those who have assets - everything from investments, houses, cars, 2nd hand stuff (bicycles etc) have been shooting up.
I rather suspect commercial property might be relatively cheap at the moment, but that's not something I ever want on my radar.

So what's the solution?

Certainly modelling a decent crash in the value of assets (per Westv above) would be sensible. How would you cope? What would be the impact on your income, expenditure and remedial actions (eg part time work etc)
Hedge where you can and derisk where you can. That means owning your home, ideally with low / no mortgage. Hold your investments in denominations matching your future expenditure. 

Sea_Shell

westv said:

Sea_Shell said:

Anyone else feel that their current investments are looking a bit too good to be true??

Why not just cut the current value by 40% and use that instead? 

TBH that's sort of what mental maths I'm doing in the back of my mind.    We started off with feeling a pot of £500k would be sufficient, and now we're nearer £615k, so a drop of 20% would take us almost back to where we started.

A 40% drop would take us down to about £370k,  which if we then still drew 4%, would still give us our £15k, we'd initially targeted.

Saying that, we are only about 60% equities, so the drop wouldn't be as dramatic as that.  40% drop in our equities portion would equate to about £150k in £££

Bravepants

ex-pat_scot said:

Sea_Shell said:

Anyone else feel that their current investments are looking a bit too good to be true??

Indeed. 'Tis ever the balance between greed and fear, optimism and caution.
It's fuelled by great lakes of Quantitative Easing cash chasing any assets, which in normal times would drive inflation.
Global equities are at dizzying heights and valuations.
Bonds are priced at equity levels (but without the equity level returns).
Traditional defensive assets are also hugely priced.

Great for those who have assets - everything from investments, houses, cars, 2nd hand stuff (bicycles etc) have been shooting up.
I rather suspect commercial property might be relatively cheap at the moment, but that's not something I ever want on my radar.

So what's the solution?

Certainly modelling a decent crash in the value of assets (per Westv above) would be sensible. How would you cope? What would be the impact on your income, expenditure and remedial actions (eg part time work etc)
Hedge where you can and derisk where you can. That means owning your home, ideally with low / no mortgage. Hold your investments in denominations matching your future expenditure. 

Surely, one should just stick to the inflation adjusted Safe Withdrawal Rate, and have 2 or 3 years' worth of drawdown in cash?

Crashes and volatility are what that strategy is designed for.

Bravepants

Sea_Shell said:

westv said:

Sea_Shell said:

Anyone else feel that their current investments are looking a bit too good to be true??

Why not just cut the current value by 40% and use that instead? 

TBH that's sort of what mental maths I'm doing in the back of my mind.    We started off with feeling a pot of £500k would be sufficient, and now we're nearer £615k, so a drop of 20% would take us almost back to where we started.

A 40% drop would take us down to about £370k,  which if we then still drew 4%, would still give us our £15k, we'd initially targeted.

Saying that, we are only about 60% equities, so the drop wouldn't be as dramatic as that.  40% drop in our equities portion would equate to about £150k in £££

Why would you drop to £15k? The aim of the SWR is that you start to draw down at that rate from the amount you have once retired, and adjust by inflation each year. The SWR and having two to three years of cash is the strategy. If the value of your investments fall you use the cash that has been put aside rather than draw down from investments.

Sea_Shell

Bravepants said:

Sea_Shell said:

westv said:

Sea_Shell said:

Anyone else feel that their current investments are looking a bit too good to be true??

Why not just cut the current value by 40% and use that instead? 

TBH that's sort of what mental maths I'm doing in the back of my mind.    We started off with feeling a pot of £500k would be sufficient, and now we're nearer £615k, so a drop of 20% would take us almost back to where we started.

A 40% drop would take us down to about £370k,  which if we then still drew 4%, would still give us our £15k, we'd initially targeted.

Saying that, we are only about 60% equities, so the drop wouldn't be as dramatic as that.  40% drop in our equities portion would equate to about £150k in £££

Why would you drop to £15k? The aim of the SWR is that you start to draw down at that rate once retired and adjust by inflation each year. The SWR and having two to three years of cash is the strategy.

Ha!!!!

It's not a DROP to £15,000.   We've not even managed to GET to a £15,000 spend yet.   We might this year, including our new boiler, but the last few years have been an average spend of £12,000.


SWR is a great concept, but you still have the ability to treat each day as your new "day one" figure and go from there!!!!!

Bravepants

Sea_Shell said:

Bravepants said:

Sea_Shell said:

westv said:

Sea_Shell said:

Anyone else feel that their current investments are looking a bit too good to be true??

Why not just cut the current value by 40% and use that instead? 

TBH that's sort of what mental maths I'm doing in the back of my mind.    We started off with feeling a pot of £500k would be sufficient, and now we're nearer £615k, so a drop of 20% would take us almost back to where we started.

A 40% drop would take us down to about £370k,  which if we then still drew 4%, would still give us our £15k, we'd initially targeted.

Saying that, we are only about 60% equities, so the drop wouldn't be as dramatic as that.  40% drop in our equities portion would equate to about £150k in £££

Why would you drop to £15k? The aim of the SWR is that you start to draw down at that rate once retired and adjust by inflation each year. The SWR and having two to three years of cash is the strategy.

Ha!!!!

It's not a DROP to £15,000.   We've not even managed to GET to a £15,000 spend yet.   We might this year, including our new boiler, but the last few years have been an average spend of £12,000.


SWR is a great concept, but you still have the ability to treat each day as your new "day one" figure and go from there!!!!!

Yes I agree about the option to reset to day 1. But people might only do that when they, like you, spend much less than the SWR in the first place from a previously larger pot.

Stubod

I based our long term planning on the assumption that the value of our "pot" is 40% less than its real value when we started...