90-100% equities for those already retired

SonOf

Linton wrote: »

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.

And just to point out how opinion has so much to do with investing....

We removed Schroder High Yield Opportunities from use in our portfolios in 2018 when Michael Scott announced he was leaving Schroders. It coincided with a period that saw our weightings cease allocating anything to high yield bonds as they were not considered to be adding value for the higher risk they are. Corp bonds went underweight but Govt bonds saw an increase.

Thrugelmir

Originally Posted by chucknorris
I am experiencing more difficulty than I envisaged investing in individual corporate bonds,

The BOE hoovered up £9.9 bn of Blue Chip bonds as part of the QE exercise. As with Gilts upon maturity holdings are topped up to maintain the same level of holding. With a forced buyer in the market stock soon gets snapped up.

Linton

SonOf wrote: »

And just to point out how opinion has so much to do with investing....

We removed Schroder High Yield Opportunities from use in our portfolios in 2018 when Michael Scott announced he was leaving Schroders. It coincided with a period that saw our weightings cease allocating anything to high yield bonds as they were not considered to be adding value for the higher risk they are. Corp bonds went underweight but Govt bonds saw an increase.

It’s not just opinion. In this case there also seems to be a difference in objective. I assume you are looking at optimising risk/total return in a highly diversified portfolio. My objective is a high steady income, with little concern for capital growth. Capital growth is generated elsewhere. So a gilt or low interest foreign government fund would not be appropriate.

SonOf

Linton wrote: »

It’s not just opinion. In this case there also seems to be a difference in objective. I assume you are looking at optimising risk/total return in a highly diversified portfolio. My objective is a high steady income, with little concern for capital growth. Capital growth is generated elsewhere. So a gilt or low interest foreign government fund would not be appropriate.

Very true and perfectly fine. This again highlights that justifications and reasons will differ as well as opinion.

[Deleted User]

100% equities portfolio is fine for people with a cushion worth a few million. Less wealthy retirees will have difficulty handling volatility. 60/40 portfolio has been declared dead a long time ago but the rumour has been exaggerated

bostonerimus

Some people will see bonds in the name of a fund and think they are safe. If we are talking about corporate bonds with low credit ratings these could be very risky. So if the investor is looking at the long term an intermediate term bond index will probably serve it's purpose in a basic 60/40 portfolio. I'd advise that they tread lightly with anything that has "high yield" in the title.

bostonerimus

Deleted_User wrote: »

100% equities portfolio is fine for people with a cushion worth a few million. Less wealthy retirees will have difficulty handling volatility. 60/40 portfolio has been declared dead a long time ago but the rumour has been exaggerated

I totally agree. The only people who should really be 100% equity are those that can easily survive the volatility that will result and that will be the people with large pots in comparison to their income requirements.

David_66

To protect against crashes could an alternative be for someone already retired to have around two thirds of their portfolio in for example HSBC Global Strategy Adventurous (which has 93% equities) and around a third in HSBC Global Strategy Balanced (58% equities) held specifically as a market crash buffer.

Using the same example of the person with a £300,000 pot taking out 3.5% (£10,500) from its growth each year if they kept £195,000 in Adventurous and £105,000 in Balanced, in the event of a major crash the Adventurous portion drops by 50% and the Balanced portion drops by 25%. However during a major market drop you only withdraw from the Balanced pot, and even with the 25% drop in value this will still last 7.5 years before you would have to take from the Adventurous portion at a 50% loss.

When the market recovers you re-balance your portfolio selling Adventurous and buying Balanced to give you the original £105,000 buffer ready for the next crash.

As two thirds of the portfolio is generally kept in the better performing but riskier Adventurous fund performance over the next 30 years (possibly 40 years for early retirees) should be a lot better than having everything in a 58% equities fund, (as by combining the two funds you've created a 81% equity portfolio) but unless you have a crash lasting longer than 7.5 years you still have the same crash protection as having everything in the 58% equity Balanced.

If you were worried about a crash lasting longer, you could up the portion of Balanced to take you up to for example a 10 year buffer.

bostonerimus

David_66 wrote: »

To protect against crashes could an alternative be for someone already retired to have around two thirds of their portfolio in for example HSBC Global Strategy Adventurous (which has 93% equities) and around a third in HSBC Global Strategy Balanced (58% equities) held specifically as a market crash buffer.

Using the same example of the person with a £300,000 pot taking out 3.5% (£10,500) from its growth each year if they kept £195,000 in Adventurous and £105,000 in Balanced, in the event of a major crash the Adventurous portion drops by 50% and the Balanced portion drops by 25%. However during a major market drop you only withdraw from the Balanced pot, and even with the 25% drop in value this will still last 7.5 years before you would have to take from the Adventurous portion at a 50% loss.

When the market recovers you re-balance your portfolio selling Adventurous and buying Balanced to give you the original £105,000 buffer ready for the next crash.

As two thirds of the portfolio is generally kept in the better performing but riskier Adventurous fund performance over the next 30 years (possibly 40 years for early retirees) should be a lot better than having everything in a 58% equities fund, (as by combining the two funds you've created a 81% equity portfolio) but unless you have a crash lasting longer than 7.5 years you still have the same crash protection as having everything in the 58% equity Balanced.

If you were worried about a crash lasting longer, you could up the portion of Balanced to take you up to for example a 10 year buffer.

This is just another way of looking at asset allocation, but you have not mentioned cash. If you are in drawdown cash and very short term bonds are you buffer against having to sell equities into a down market. Or you might have diversified into a BTL well before retirement; mortgage free rental income is great.

IanSt

David_66 wrote: »

To protect against crashes could an alternative be for someone already retired to have around two thirds of their portfolio in for example HSBC Global Strategy Adventurous (which has 93% equities) and around a third in HSBC Global Strategy Balanced (58% equities) held specifically as a market crash buffer.

Doesn't that make the portfolio 80% equities? That's even higher than me and I'm quite high on equities compared to a lot of people.

Personally I'm keeping my buffer in cash so I'll only need to start selling off my equities if there is a long-term multi-year downturn. Though I am quite happy to seek out the best places to keep cash and cash might not be the best for others who would just keep it in low interest accounts.