Royal London governed portfolio 3

chiefie

hi all hello all - I have been recommended this to invest in from next year and pass into drawdown for ten years only until other pensions kick in. I’m risk averse over this period. Any thoughts are very welcome 

Brynsam

Have you read the factsheet: https://www.royallondon.com/strategyfactsheets/strategyfactsheet.asp?InvestmentType=G&strategyid=SC1

Do the fund's stated objectives tally with what you regard as 'risk averse' ?

dunstonh

Royal London operates a simple plan at relatively low cost.   They are one of the largest drawdown providers in the country.  It is generally aimed at lower knowledge consumers (in respect of investing) because of its simplicity.

I’m risk averse over this period.

Using drawdown and saying you are risk-averse are things that normally do not go hand in hand with each other.

[Deleted User]

I find RL portfolios very misleading when they designate risk levels. Also, weird fondness for illiquid investments. Curious how they are fairing right about now... But thats just my opinion

chiefie

Thanks for the replies. I have a sum of pension money I want to use (Drawdown) for ten years until other secure pensions kick in. My capacity for loss over this time is small therefore I am saying I am risk averse over this period. I know I will likely lose money to inflation but not sure it’s worth having this portfolio having seen it’s performance vs staying in cash for at least half of it. These are volatile times and anything can happen - negative interest rates, government wealth tax (probably middle England not the ultra rich). Was just looking for a sounding board for ideas that I haven’t considered. 

AnotherJoe

dunstonh said:

Royal London operates a simple plan at relatively low cost.   They are one of the largest drawdown providers in the country.  It is generally aimed at lower knowledge consumers (in respect of investing) because of its simplicity.

I’m risk averse over this period.

Using drawdown and saying you are risk-averse are things that normally do not go hand in hand with each other.

Any thoughts are very welcome 

Surely that depends what level you are drawing down at, and what your portfolio is?

I am 95% equity invested in my SIPPs, with a 1.5% drawdown rate. And a cash buffer. And shares in ISAs and unwrapped.

Suppose i was 40% equity, no cash buffer,  and drew down 5%.

Which is the more risky? (genuine question)

And also factor in life expectancy.

eg if you are 90 and drawing down 10% a year , that's far less risky than drawing down 10% aged 65.

dunstonh

Surely that depends what level you are drawing down at, and what your portfolio is?

Someone calling themselves risk averse means that they are averse to risks.  So, drawdown is method that has investment risk, shortfall risk and inflation risk.  If you take too little investment risk, you leave yourself open to shortfall risk and inflation risk.  However, they are all risks that a risk averse person would not consider.     Perhaps the problem is that some people claim to be risk averse but are not really.   They are just very cautious instead.

When funding the gap, you are using drawdown in a limited fashion.  The risk is really whether what you are drawing is sustainable over the gap period.   If you are drawing value divided by gap remaining then you dont need to take any investment risk.  So, the risk itself is limited.  If you need 8% a year to fund the gap then you are looking at a risk level that a risk averse person could not handle.

I am 95% equity invested in my SIPPs, with a 1.5% drawdown rate. And a cash buffer. And shares in ISAs and unwrapped.

(it wouldnt let me quote, so used code instead).

That is a good question.   Me with my personal hat on would have a different opinion to the FOS and FCA with their nanny state hat on.   Scenario 1 doesn't need to be 95% equity-based and can easily afford a significant market drop and still have a sustainable income.  Its a choice to be 95% equity based rather than need.

Scenario 2 is more risky.   Yes, it has lower investment risk but it has a draw rate leaves nothing for inflation increases or the inevitable ad-hoc withdrawals that the person will make (they may say they wont at the start but they will as they have no cash and sooner or later the boiler will need replacing or they will want a new car etc).    So, its lower at investment risk but higher with shortfall and inflation risk. And statistically, those risks are likely to be more damaging.

Albermarle

Perhaps the problem is that some people claim to be risk averse but are not really.   They are just very cautious instead

It's an interesting philosophical question - what is the difference between risk averse and cautious . In the publics eyes they mean pretty much the same thing, but I guess in terms of investing there is a difference. I suppose in this world, risk averse means everything in cash and/or buying annuities, whilst cautious means a mix of cash and lower risk ( but not no risk ) investments. Then the next step up is 'conservative ' ( with a small c ) .

[Deleted User]

For someone without a DB pension and a smallish fund, being in cash represents an extremely high risk of running out of money.  People tend to equate risk and volatility and its wrong

zagfles

The only way to avoid investment, inflation and shortfall risk is to buy an index linked annuity. When people see the rates for those, £100,000 buying you not much over £2000 a year income, they usually decide they aren't as risk averse as they thought.

[Deleted User]

...and even that has risk. Eg risk of a provider going bust. Anything’s possible