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I've peaked too soon (as it were)...

Hi all,

I've not posted this in the pensions board, as it's just about general investing really...

Anyway, this is obviously a nice problem to have, but stock market highs and GBP lows have combined to mean that yesterday, about 13 years too early, my DC pension pot reached the level I was targeting for retirement (ignoring inflation). I'm not contributing anything towards this pot and I don't get access to it until 2032. The pot is about 75% global equities, 15% bonds and 10% cash.

Obviously the sensible thing to do is to ignore the current value and the inevitable ups and downs in markets and exchange rates between now and pension access age, and just hope/expect that my pension will continue (on average) to beat inflation.

But there's a school of thought too, that says "take no more risk than you need to", so I could look to move more to cash (but then that'll just get eroded by inflation) or bonds (doesn't feel sensible right now).

Are there any prudent/sensible moves here to take advantage of the weak pound and high index valuations? Overweight the UK a little?

I wondered what others were doing currently?

The real lesson here is probably that I need to learn to check my pension less and just sit on my hands. :o

Thanks in advance,
Temrael

Don't use a long word when a diminutive one will suffice.
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Comments

  • TCA
    TCA Posts: 1,621 Forumite
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    Temrael wrote: »
    The real lesson here is probably that I need to learn to check my pension less and just sit on my hands. :o

    I think you've probably answered your own question.

    It's all a question of your risk tolerance. A stock market crash could knock a hefty percentage off your valuation but when is that going to happen? Nobody knows, so when exactly do you move into "safer" assets? How much will you lose if you do so too early? Arguably you have enough time to weather the storm and recover if the worst happens, but that's not advice, it's really down to how risk averse you are.

    What others are currently doing isn't really relevant.
  • SonOf
    SonOf Posts: 2,631 Forumite
    1,000 Posts Fourth Anniversary
    But there's a school of thought too, that says "take no more risk than you need to", so I could look to move more to cash (but then that'll just get eroded by inflation) or bonds (doesn't feel sensible right now).
    Why jump from one end to the other and ignore all the options in between?

    It does make sense to derisk somewhat but it doesnt mean you should close up shop.
  • Temrael
    Temrael Posts: 402 Forumite
    Part of the Furniture 100 Posts Combo Breaker Mortgage-free Glee!
    Thanks both, being in a personal pension my fund options are a little limited, but as you say dialling back the risk a little might make me more comfortable.

    Sonof - What specifically were you thinking of as being an option between Global Equities and Bonds/Cash? We already have some Corporate Bonds in our Bond allocation (I'd see them as somewhere in between Equities and government debt). Anything else?
    Temrael

    Don't use a long word when a diminutive one will suffice.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    Temrael wrote: »
    Thanks both, being in a personal pension my fund options are a little limited, but as you say dialling back the risk a little might make me more comfortable.

    Sonof - What specifically were you thinking of as being an option between Global Equities and Bonds/Cash? We already have some Corporate Bonds in our Bond allocation (I'd see them as somewhere in between Equities and government debt). Anything else?

    All personal pensions have options which include mixed asset funds - containing perhaps equities and bonds and property all in one holding, so that you are not in an extreme position of all in equities or all in fixed income.
  • Temrael
    Temrael Posts: 402 Forumite
    Part of the Furniture 100 Posts Combo Breaker Mortgage-free Glee!
    bowlhead99 wrote: »
    All personal pensions have options which include mixed asset funds - containing perhaps equities and bonds and property all in one holding, so that you are not in an extreme position of all in equities or all in fixed income.

    Hi Bowlhead, oh sorry, I see what you mean. Apologies, I should have been clearer. This pot isn't in a single fund, it's self assembled from 5 funds...

    Aviva Intl Index Trk 70%
    Aviva UK Index Tracking 5%
    Aviva Corporate Bond 10%
    Aviva Global Bond 5%
    Aviva Deposit 10%

    ...so I can certainly look to change those percentages on my own, it's not an all or nothing thing I'm looking to do.

    I guess my quandary is that moving a bit more to Bonds doesn't feel entirely like de-risking. And moving a bit more to cash just builds in a bit more inflation risk.

    I think I read somewhere that, like energy, risk isn't created or destroyed only changed. And so you can mitigate one sort of risk only to invariably increase another. :o

    My head says leave it alone but I'm just having a bit of a wobble seeing it hit 100% having tracked it for a few years.
    Temrael

    Don't use a long word when a diminutive one will suffice.
  • What are you planning to do with the pot when you get to retirement? If you intend to drawdown then wouldn't you want to keep a proportion invested at a slightly higher risk level for the long term anyway?
  • seacaitch
    seacaitch Posts: 288 Forumite
    Tenth Anniversary 100 Posts Combo Breaker
    Temrael wrote: »
    Anyway, this is obviously a nice problem to have, but stock market highs and GBP lows have combined to mean that yesterday, about 13 years too early, my DC pension pot reached the level I was targeting for retirement (ignoring inflation). I'm not contributing anything towards this pot and I don't get access to it until 2032. The pot is about 75% global equities, 15% bonds and 10% cash.


    If you are ~mid-40s, planning to access this pot in 13 years time, and draw it down over some period or other, then you've an investment time horizon of perhaps somewhere between 13-20-odd years on this money, with perhaps a median investment horizon of >=17 years, or even substantially longer depending on pot size and drawdown mechanics.

    This is pretty long time period over which a great deal can and will happen in markets and to asset prices, and few people have the skills or the luck to make ongoing value-adding tactical portfolio shifts along the way. You probably won't, so why start?

    Bearing in mind the investment horizon, why do you have 10% of this pot in cash?
  • Temrael
    Temrael Posts: 402 Forumite
    Part of the Furniture 100 Posts Combo Breaker Mortgage-free Glee!
    What are you planning to do with the pot when you get to retirement? If you intend to drawdown then wouldn't you want to keep a proportion invested at a slightly higher risk level for the long term anyway?

    Hi Novice - Yep slow/conservative drawdown is the plan so we'll need to retain an element of equities, as you say.
    seacaitch wrote:
    Bearing in mind the investment horizon, why do you have 10% of this pot in cash?

    Hi seacaitch - I'd been nervy about bonds and it helped me sleep a little better. I shouldn't leave it there long term.

    To be clear, I'm not trying to outwit/time the market or hit upon some clever optimal portfolio that will outperform market analysts. It would just be nice to reduce the worry/excitement a little over the coming years (now it looks like I should comfortably reach my goal).

    Does that make sense?
    Temrael

    Don't use a long word when a diminutive one will suffice.
  • seacaitch
    seacaitch Posts: 288 Forumite
    Tenth Anniversary 100 Posts Combo Breaker
    Temrael wrote: »
    Hi To be clear, I'm not trying to outwit/time the market or hit upon some clever optimal portfolio that will outperform market analysts. It would just be nice to reduce the worry/excitement a little over the coming years (now it looks like I should comfortably reach my goal).


    Useful ways to reduce worry are to:

    - have a long investment time horizon (which you have)

    - distance yourself from the market (which you haven't entirely)


    Re the latter, you're making active investment asset and asset allocation calls which necessarily requires you to be engaged with your investments and with markets. This automatically exposes you to more market-induced emotional stress than someone who keeps the market more at arms-length.

    Following on from bowlhead's post , what multi-asset funds are available to you in this Aviva pension? Can you list them?

    Considering the investment time horizon, I'd simply choose either a sensible low-cost multi-asset fund selected to match your risk/volatility tolerance, OR considering the decent investment time horizon and assuming a very limited spectrum of multi-asset funds from which to choose (it being a personal pension, not a SIPP), I'd perhaps combine a multi-asset fund with an additional slice of global equities on top, in order to increase the equity weighting somewhat from that provided by the (likely 'balanced') multi-asset fund.

    Obviously, this latter option depends on your personal risk-tolerance, but I'm of the view that distancing yourself from the market and reducing your ongoing decision making generally improves scope for volatility tolerance.

    I realise your original post focused on your pot hitting your target 13 years ahead of schedule. My suggestion would not be to alter asset allocation dramatically per se but to change how that allocation is arrived at by taking you more out of the loop.
  • intowhere
    intowhere Posts: 77 Forumite
    out of interest, what do you do that has allowed you to get a £1m so early?
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