Squeaky bum time!

Kendall80

I have been slowly selling down my equity proportion (rebalancing) as the markets have been soaring - keen to lock in some of the recovery. Starting to think that i've gone a little too far at 40% equity allocation, 40% bonds, 20% cash.

The difficulty is knowing where to go at the moment. Bonds (prices) doing well, equities and gold soaring, cash interest plummeting. Risk of another large drop.

As stated a few posts above - when faced with imperfect choices its often best to do nothing.

Personally, increasing pension contributions and mortgage overpayments is a consideration.

DairyQueen

michaels said:

What about Guyton Klinger type rules where you rebalance towards different asset classes based on 'relative historic value/returns'?

But QE (and more QE... and a pandemic.... and more QE) have screwed the pricing of Gilts (capital loss guaranteed on many if held to maturity; mega-buying by the big institutions forcing up the price such that yields turn negative; blah de blah). 'Historic values/returns' no longer apply.

Meanwhile, corporate bonds are behaving more like equities and many former investment-grade are now being downgraded to junk. Money market funds return zilch. In January, I reduced bonds and increased cash to support the next 5 years drawdown because of doubts concerning the role that bonds played in our portfolio. I won't increase bonds until/unless they can do more for my portfolio than reduce volatility. Cash reduces volatility and without any risk (other than inflation).  If inflation takes-off then we are all up-the-swanee-without-a-paddle regardless but medium-to-long-term bonds in issue will drop in value. Short-term bonds pay diddly squat already.

I am no expert so am open to seeing the error of my ways. Very happy for forum gurus to explain the function of bonds in the current climate.

michaels

DairyQueen said:

michaels said:

What about Guyton Klinger type rules where you rebalance towards different asset classes based on 'relative historic value/returns'?

But QE (and more QE... and a pandemic.... and more QE) have screwed the pricing of Gilts (capital loss guaranteed on many if held to maturity; mega-buying by the big institutions forcing up the price such that yields turn negative; blah de blah). 'Historic values/returns' no longer apply.

Meanwhile, corporate bonds are behaving more like equities and many former investment-grade are now being downgraded to junk. Money market funds return zilch. In January, I reduced bonds and increased cash to support the next 5 years drawdown because of doubts concerning the role that bonds played in our portfolio. I won't increase bonds until/unless they can do more for my portfolio than reduce volatility. Cash reduces volatility and without any risk (other than inflation).  If inflation takes-off then we are all up-the-swanee-without-a-paddle regardless but medium-to-long-term bonds in issue will drop in value. Short-term bonds pay diddly squat already.

I am no expert so am open to seeing the error of my ways. Very happy for forum gurus to explain the function of bonds in the current climate.

Your thinking and my thinking are the same on this re bonds and equities and QE.  If equities remain high by historic standards will you keep the same cash:equities ratio or only draw from the equities to keep the same cash buffer?

DairyQueen

michaels said:

Your thinking and my thinking are the same on this re bonds and equities and QE.  If equities remain high by historic standards will you keep the same cash:equities ratio or only draw from the equities to keep the same cash buffer?

Drawdown is front-loaded so the cash will reduce over the next 5 years. No plans to maintain the same high cash allocation. We are very fortunate that we could suspend drawdown indefinitely once SPs kick-in so are happy to maintain a high equity component. Withdrawal rate will then be under 2% - just sufficient to use up my personal allowance and to keep Mr DQ within BRT.

Having said that, our plans keep changing and who knows what the economic landscape will look like in 2025. Current allocation is 75/8/18. I will review annually but unlikely to reduce the equity allocation below 75% and will probably increase it. Whether I sell bonds or equities to source withdrawals from 2025 onward is a moot point. I guess it will depend on the prevailing market conditions, the performance of each asset type and the function of bonds in our portfolio at that time. I am likely to continue to keep a few years drawdown in cash (around 5 or 6% of the allocation from 2025). 

I would prefer to have followed one of the neatly packaged drawdown strategies (McClung struck a chord until I suspected that bonds were no longer behaving in the way his strategy assumed) but they don't fit our circumstances very well.

Alas, there is no one-size-fits-all allocation, ditto strategy for drawdown. The one constant for DIY investors being that the better informed you are the more able you are to understand your risk profile and to adjust your portfolio to meet your goals. Notwithstanding that the goals also change over time.

vulcanrtb

Seems odd that the average person's pension pot is roughly the same or better today than it was pre-covid.
I have no insight, other than to state that.

Prism

vulcanrtb said:

Seems odd that the average person's pension pot is roughly the same or better today than it was pre-covid.
I have no insight, other than to state that.

I won't matter. The average person likely won't be accessing their pension pot for another 15-20 years and by that time 2020 will be a distant memory

vulcanrtb

Prism said:

vulcanrtb said:

Seems odd that the average person's pension pot is roughly the same or better today than it was pre-covid.
I have no insight, other than to state that.

I won't matter. The average person likely won't be accessing their pension pot for another 15-20 years and by that time 2020 will be a distant memory

No argument from me on that.

Paul_Herring

vulcanrtb said:

Seems odd that the average person's pension pot is roughly the same or better today than it was pre-covid.

Seems I'm not average. I'm still down about 9% (even after 4 months of contributions) on Feb's high.

That said it did drop about 30%.

Not that I'm worried about it. Was waiting for a drop; the recovery was a tad quicker than I imagined however...

vacheron

My pension fund is back to within 5% of where it was pre COVID. My Sons VLS fund is actually 7.5% up! 

My only explanation is that funds pricing is now mostly based on demand for shares which is due not to the analysis of the future fundamentals but the fact that everybody is investing in the stock market because in the current environment there is literally nowhere better to put any spare medium-long term money! 

TBC15

Bravepants said:

Doing pretty much nothing is what passive investing is all about! If I had messed about with my AVC/SIPP back in 2008 during the GFC I would likely not have been able to retire in a couple of years.

I’m an active investor always have been for the last 30yrs, retired and happy with my choices. Each unto their own.