Bonds or WP Funds?

MarkCarnage

There is sometimes a tendency to overcomplicate these things, as well as creating a false sense of portfolio 'diversification' which isn't....

....in many indeed most adverse scenarios, risk asset correlations tend towards 1. Therefore having a 'diversified' portfolio will be of limited value, in particular, real estate and private equity give illusions of diversification which are usually just a delay in price discovery due to illiquidity.

Secure income can provide a buffer, and high quality sovereign bonds will in many circumstances but not all. Inflation linked sovereign debt is probably an underrated diversifier right now, though UK ILG remain less attractive than US TIPS in my view.

If you can stomach the insidious decline in its real value, cash isn't the worst asset to hold right now either.

bostonerimus

MarkCarnage wrote: »

There is sometimes a tendency to overcomplicate these things, as well as creating a false sense of portfolio 'diversification' which isn't....

....in many indeed most adverse scenarios, risk asset correlations tend towards 1. Therefore having a 'diversified' portfolio will be of limited value, in particular, real estate and private equity give illusions of diversification which are usually just a delay in price discovery due to illiquidity.

Secure income can provide a buffer, and high quality sovereign bonds will in many circumstances but not all. Inflation linked sovereign debt is probably an underrated diversifier right now, though UK ILG remain less attractive than US TIPS in my view.

If you can stomach the insidious decline in its real value, cash isn't the worst asset to hold right now either.

With DB pensions and annuities out of the picture in many retirement portfolios I fear that many regular retirees could find themselves in a panic the next time we really go into a bear market even if they have WP funds. The important thing is to have a plan, some guts, a budget and the ability to control spending when times get tough.

MarkCarnage

With DB pensions and annuities out of the picture in many retirement portfolios I fear that many regular retirees could find themselves in a panic the next time we really go into a bear market even if they have WP funds. The important thing is to have a plan, some guts, a budget and the ability to control spending when times get tough.

Not disagreeing with any of that, and I'm sceptical that many will take all four boxes in your final sentence. Some will tick none I fear...

C_Mababejive

I know people who have transferred out DB pensions and are currently basking in the glory of increasing wealth. I wonder what percentage such a sum could drop even if it were invested in a structured pension product portfolios as offered by the likes of Royal London and others? How long did it take to return to business as usual after the 2008 crash and similar? people need to have sufficient money to weather those storms for what ? 2 years? turn of the pension tap and turn on the other savings tap so that they dont incur long term erosion ? Also be brave and shovel more cash into investments if you have it,when the market drops significantly ?

StellaN

MarkCarnage wrote: »

If you can stomach the insidious decline in its real value, cash isn't the worst asset to hold right now either.

I tend to agree that cash isn't the worst asset to hold at this time. Not totally convinced that Strategic Bonds or Wealth Preservation IT's would hold up in the next big market downturn, so at the moment I'm happy to hold a big cash buffer in the usual bond ladders, regular savers etc.

MarkCarnage

I tend to agree that cash isn't the worst asset to hold at this time. Not totally convinced that Strategic Bonds or Wealth Preservation IT's would hold up in the next big market downturn, so at the moment I'm happy to hold a big cash buffer in the usual bond ladders, regular savers etc.

Depends what you mean by 'hold up'. I doubt very much if they would provide absolute performance - i.e. an increase in value, but I think that they would perform a lot better in relative terms than vanilla equity or corporate bond funds, including trackers clearly, which will be anything but low risk in a major bear market.

Good hedge funds may well provide positive absolute return in that environment (a couple of big macro funds did very well in 2008-09) but clearly not the space for the retail investor.