90-100% equities for those already retired

David_66

IanSt wrote: »

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.

Yes it does.

A lot of people want the simplicity of a ready made global fund like VLS or HSBC Global Strategy. If they have everything in VLS80 or HSBC Global Strategy Dynamic then with a downturn happens they are stuck selling 80% equities. With a split over the two funds they are still getting 80% equities performance but can just sell the 60% equities part in a downturn.

This is still a very simple portfolio with little balancing needing to be done for people who don't want to try and make their own diverse portfolio from scratch.

There is nothing to stop one also incorporating a cash buffer, though the following links seem to imply that they dont work.

https://finalytiq.co.uk/cash-reserve-buffers-withdrawal-rates-old-wives-fables-retirement-portfolio/

https://www.onefpa.org/journal/Pages/Sustainable%20Withdrawal%20Rates%20The%20Historical%20Evidence%20on%20Buffer%20Zone%20Strategies.aspx

IanSt

David_66 wrote: »

There is nothing to stop one also incorporating a cash buffer, though the following links seem to imply that they dont work.

https://finalytiq.co.uk/cash-reserve-buffers-withdrawal-rates-old-wives-fables-retirement-portfolio/

https://www.onefpa.org/journal/Pages/Sustainable%20Withdrawal%20Rates%20The%20Historical%20Evidence%20on%20Buffer%20Zone%20Strategies.aspx

My reading is that it doesn't work if you replace equities with cash, however I'm taking it from bonds (in fact I currently have zero bonds as I really don't like them at this moment in time). As the finalytiq page says 'if you’re going to implement a cash reserve buffer, take it from your bond allocation. Equities aren’t the enemy!'

masonic

It's replacement of bonds with cash that's most commonly advocated and the first article seems to back this up as a viable option. Cash savings look quite attractive compared with the returns of gilts and it is one of the few occasions where the consumer investor has an edge over the institutional money managers.

shinytop

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 sort of what I'm about to do; I'm going to be in HSBC Balanced (or similar), a 100% equities tracker and cash so that overall proportions are roughly 60% equities, 20% bonds and 20% cash. Cash will be about 2 years worth. I decided to do this rather than use a separate bond fund. I'm in the fortunate position of having about 2/3 of my income from DB pensions. If anyone thinks this a really bad idea please shout!

bostonerimus

shinytop wrote: »

This is sort of what I'm about to do; I'm going to be in HSBC Balanced (or similar), a 100% equities tracker and cash so that overall proportions are roughly 60% equities, 20% bonds and 20% cash. Cash will be about 2 years worth. I decided to do this rather than use a separate bond fund. I'm in the fortunate position of having about 2/3 of my income from DB pensions. If anyone thinks this a really bad idea please shout!

Sounds fine to me, but do a stress test where you retire into a crash that reduces your pot and see how it does producing that third of your income. In those circumstances it’s also good to have a plan to cut spending so your pot can recover faster.

shinytop

bostonerimus wrote: »

Sounds fine to me, but do a stress test where you retire into a crash that reduces your pot and see how it does producing that third of your income. In those circumstances it’s also good to have a plan to cut spending so your pot can recover faster.

What I said wasn't quite right; it's about third of my assets (excluding my house) rather then my income. It's going to be more like 20% ongoing after an initial blip (which is in cash already). Any big downturn should just mean a bit less left for my son. I will check the numbers though.