90-100% equities for those already retired

quirkydeptless

bostonerimus wrote: »

There will definitely be another crash - 100% certainty. The difficult bit is predicting when. We are definitely due one.

This forum has predicted twelve of the last three crashes

green_man

To be honest I think the OP is mostly correct. The ‘best’ strategy for achieving the average highest pot size is to be in 100% equities. The big proviso being your start withdrawal rate not being too high. A high initial withdrawal rate followed by a poor initial sequence of returns could prove calamitous.

You can show the above to be true by playing with cFiresum. Of course you could always invent a future return profile that might cause you to fail.

But what has been mentioned a number of times and is crucial is the psychology of being in drawdown and the fact that most people’s aim is not to maximise their pot value on death, most people want a relatively stress free life. That’s why few follow the 100% equity path in drawdown.

DairyQueen

Prism wrote: »

I generally agree with the article and plan to follow a similar allocation. Also, at times (like now) holding cash isn't a bad thing and can be used in combination with or instead of bonds. Gov bond yields are lower than savings accounts at the moment. Saying that, its still possible gov bonds will price even higher if there was an equity crash.

And that's my strategy.

Investment grade bonds now produce little-to-zero-to-negative returns. Corporate bonds are behaving more like equities. I would love to make my life easier by allocating a higher percentage to bonds and following one of the recommended drawdown strategies but QE seems to have scuppered drawdown strategies that rely on pre-QE data.

We are 18 months from retirement and our portfolios have a much higher cash allocation than I had planned. They also have a higher equity allocation at 62% (me) and 67% (OH). My bond allocation is only 15% and OH is 8%. OH also has a few percent in wealth preservation funds. The rest is in cash.

We are lucky that DBs and SPs will meet our income needs once in payment. We will bridge in the interim using cash. Inflation is less of a concern over the next six years than is sequence of return risk. We have the luxury of suspending drawdown if the markets go against us after 2025.

IMHO it will be difficult managing a DC drawdown pot to meet essential spends over the next decade. The unorthodox demand for and pricing of bonds having thrown a spanner in the works of drawdown strategies.

Edited to add.
By 2025 we will be 80/85% equites and unless the impact of QE on bonds unravels soon that's the allocation I am planning to maintain.

Thrugelmir

bostonerimus wrote: »

There will definitely be another crash - 100% certainty. The difficult bit is predicting when. We are definitely due one.

Are we through the aftershocks of the last one? Something which I wonder from time to time. As further light is shed on the events of the GFC itself. Are Central Banks hanging out retail investors to dry.

bostonerimus

In the good ol’ days of relying on annuities and DB pensions for retirement income there was no need to worry about having to live on reduced income or even running out of income. Now that DC pensions and other savings are the default retirement funding for many people it must be emphasized that minimizing the risk of running out of money must come before any attempt to maximize potential ending balances.

bostonerimus

Thrugelmir wrote: »

Are we through the aftershocks of the last one? Something which I wonder from time to time. As further light is shed on the events of the GFC itself. Are Central Banks hanging out retail investors to dry.

Historically low interest rates make me pessimistic about the underlying strength of economies.

chucknorris

David_66 wrote: »

Yes I'm presuming there will be multiple crashes during that 30 year period as there have been in the past.

Does the linked article show that even with those multiple large and small crashes historically even if you went into drawdown retirement just before a major crash you would have been better off over the 30 years with 100% equity compared to 60%?

But why does it have to either 100% equities or a fixed mix of equities with bonds and cash? I see the problem of 100% equities is that you can't invest after a correction and take advantage of investing further at the lower (post correction) prices. So my retirement strategy is going to be a portfolio of approx:

45% equities
30% individual corporate bonds
15% fixed pension (mainly DB)
10% investment property

The individual corporate bonds will mature at different staggered periods, and I would have to be very lucky to not be able to invest a maturing corporate bond during an equities correction at some point in the future. The difficulty is availability of the individual bonds at an acceptable risk.

Linton

chucknorris wrote: »

But why does it have to either 100% equities or a fixed mix of equities with bonds and cash? I see the problem of 100% equities is that you can't invest after a correction and take advantage of investing further at the lower (post correction) prices. So my retirement strategy is going to be a portfolio of approx:

45% equities
30% individual corporate bonds
15% fixed pension (mainly DB)
10% investment property

The individual corporate bonds will mature at different staggered periods, and I would have to be very lucky to not be able to invest a maturing corporate bond during an equities correction at some point in the future. The difficulty is availability of the individual bonds at an acceptable risk.

I agree that corporate bonds are still a valuable investment. They may be somewhat closer to equity than gilts, but they do have major differences. Bond interest does provide a steady income higher than savings interest unless the company concerned goes bust. Unlike dividends they cannot be suspended should the company run into temporary difficulties and in the event of a failure corporate bonds are higher in the list than shares for repayment from any money left.



Unlike Chucknorris I use high yield corporate bond funds rather than individual investments in my income portfolio as this avoids the need for ongoing research and also enables investment in corporate bonds from across the world. I am happy for them to provide a zero capital return as the holdings can be increased using the gains from the 100% equity portfolio.

chucknorris

Linton wrote: »

I agree that corporate bonds are still a valuable investment. They may be somewhat closer to equity than gilts, but they do have major differences. Bond interest does provide a steady income higher than savings interest unless the company concerned goes bust. Unlike dividends they cannot be suspended should the company run into temporary difficulties and in the event of a failure corporate bonds are higher in the list than shares for repayment from any money left.



Unlike Chucknorris I use high yield corporate bond funds rather than individual investments in my income portfolio as this avoids the need for ongoing research and also enables investment in corporate bonds from across the world. I am happy for them to provide a zero capital return as the holdings can be increased using the gains from the 100% equity portfolio.

I am experiencing more difficulty than I envisaged investing in individual corporate bonds, this morning I could not even invest just £20k (after initially trying for £50k) in the Burford 2022 (6.875%) bond, as there were not enough sellers for that value. So I am probably going to have to consider investing also in some bond funds. Would you mind giving me some examples of the funds that you are invested in (by PM if you want to retain some privacy).

I did manage to invest £50k in the EI group (the 2025 bond) and also £25k in Provident financial (2023) bond. But as I completed on a property sale this week, I still have approx £300k to invest, and it isn't looking likely that I can do this with individual corporate bonds.

I'm also trying to sell another property, but now I am beginning to think that it wouldn't be that bad, if I end up re-letting it.

EDIT: The Burford bond isn't such a bad thing though as I just read about the reasons why HL have exited there funds position with Burford's shares following the Muddy Waters shorting of their share price.

Linton

chucknorris wrote: »

I am experiencing more difficulty than I envisaged investing in individual corporate bonds, this morning I could not even invest just £20k (after initially trying for £50k) in the Burford 2022 (6.875%) bond, as there were not enough sellers for that value. So I am probably going to have to consider investing also in some bond funds. Would you mind giving me some examples of the funds that you are invested in (by PM if you want to retain some privacy).

......

The bond component of my Income portfolio (30% of total investments) is:
- Schroder High Yield Opportunities: 92% corporate bonds
- L&G High Income: 92|% corporate bonds
- Threadneedle EM Bond: 73% Government bonds, 17% Corporate bonds

Together these funds represent about 35% of the portfolio.