IFA or DIY - any thoughts appreciated

Audaxer

enthusiasticsaver said:

BritishInvestor said:

Audaxer said:

enthusiasticsaver said:

He cash flowed our portfolio showing how much can be taken out every year up until the age of 99. 

I would have thought that the amount that can be withdrawn from any portfolio over a long retirement depends on the Sequence of Returns. If for example there is a poor Sequence of Returns, especially in the first decade of retirement, I would have thought that would mean that a 'safe withdrawal rate' would be a good bit lower than if there is a good first decade of returns? 

Agreed, assuming that enthusasticsaver is at, or in retirement. Something like Timeline will also help determine how much risk they need to take.

We have been retired since 2016 for my DH and 2018 for me.  The report from memory was worked out at a conservative 3% and yes of course if returns are unusually low for a decade or more that might make a difference but since our DB pensions cover our expenditure with a surplus the investments are not needed unless we are doing a lot of travel, house improvements or maybe to replace a car or gift money to family. These are nice to have but not essential.  We told the IFA we may need an additional £10k per annum in addition to our DB pension and the report worked out we would be able to withdraw £20k per annum.  So far we have withdrawn nothing due to market instability and this is the end of year 1 and the portfolio has returned 6% after fees. This is low risk.  He moved it down to the lowest risk when he saw how little we needed out each year. Not sure what timeline is but maybe he used that to work out the report. To be honest we were inundated with numerous reports, some of which I am ashamed to say I have not read in detail.  

Thanks, I think that explains why the IFA was so confident that it would easily last until you were 99 in view of the amounts you had planned to withdraw.  

I'm finding choosing low risk funds are really difficult to find, as it seems bonds are no longer the steady safe haven that they once were.

BritishInvestor

enthusiasticsaver said:

BritishInvestor said:

Audaxer said:

enthusiasticsaver said:

He cash flowed our portfolio showing how much can be taken out every year up until the age of 99. 

I would have thought that the amount that can be withdrawn from any portfolio over a long retirement depends on the Sequence of Returns. If for example there is a poor Sequence of Returns, especially in the first decade of retirement, I would have thought that would mean that a 'safe withdrawal rate' would be a good bit lower than if there is a good first decade of returns? 

Agreed, assuming that enthusasticsaver is at, or in retirement. Something like Timeline will also help determine how much risk they need to take.

We have been retired since 2016 for my DH and 2018 for me.  The report from memory was worked out at a conservative 3% and yes of course if returns are unusually low for a decade or more that might make a difference but since our DB pensions cover our expenditure with a surplus the investments are not needed unless we are doing a lot of travel, house improvements or maybe to replace a car or gift money to family. These are nice to have but not essential.  We told the IFA we may need an additional £10k per annum in addition to our DB pension and the report worked out we would be able to withdraw £20k per annum.  So far we have withdrawn nothing due to market instability and this is the end of year 1 and the portfolio has returned 6% after fees. This is low risk.  He moved it down to the lowest risk when he saw how little we needed out each year. Not sure what timeline is but maybe he used that to work out the report. To be honest we were inundated with numerous reports, some of which I am ashamed to say I have not read in detail.  

Sounds like a great position to be in
Yep, appreciate it's easy to become overwhelmed by paperwork.
Timeline is a useful retirement planning tool - the founder has strong views on the fund management industry!
https://finalytiq.co.uk/woodford/

BritishInvestor

Audaxer said:

enthusiasticsaver said:

BritishInvestor said:

Audaxer said:

enthusiasticsaver said:

He cash flowed our portfolio showing how much can be taken out every year up until the age of 99. 

I would have thought that the amount that can be withdrawn from any portfolio over a long retirement depends on the Sequence of Returns. If for example there is a poor Sequence of Returns, especially in the first decade of retirement, I would have thought that would mean that a 'safe withdrawal rate' would be a good bit lower than if there is a good first decade of returns? 

Agreed, assuming that enthusasticsaver is at, or in retirement. Something like Timeline will also help determine how much risk they need to take.

We have been retired since 2016 for my DH and 2018 for me.  The report from memory was worked out at a conservative 3% and yes of course if returns are unusually low for a decade or more that might make a difference but since our DB pensions cover our expenditure with a surplus the investments are not needed unless we are doing a lot of travel, house improvements or maybe to replace a car or gift money to family. These are nice to have but not essential.  We told the IFA we may need an additional £10k per annum in addition to our DB pension and the report worked out we would be able to withdraw £20k per annum.  So far we have withdrawn nothing due to market instability and this is the end of year 1 and the portfolio has returned 6% after fees. This is low risk.  He moved it down to the lowest risk when he saw how little we needed out each year. Not sure what timeline is but maybe he used that to work out the report. To be honest we were inundated with numerous reports, some of which I am ashamed to say I have not read in detail.  

Thanks, I think that explains why the IFA was so confident that it would easily last until you were 99 in view of the amounts you had planned to withdraw.  

I'm finding choosing low risk funds are really difficult to find, as it seems bonds are no longer the steady safe haven that they once were.

I think it's clear to understand what you mean by low risk
For some, high risk might mean
1. Losing all/most of your money on a permanent basis (betting on black)
2. Your portfolio falling a long way when markets fall.
whereas high risk for others might be not taking enough exposure to "growth assets" meaning they run out of money in retirement.
Regarding bonds - of course we don't know what the future holds, but over the last few months when markets (at times) were taking a beating, why do you feel that bonds didn't do their job (dampen portfolio volatility and reduce overall falls)?

Albermarle

Regarding bonds - of course we don't know what the future holds, but over the last few months when markets (at times) were taking a beating, why do you feel that bonds didn't do their job (dampen portfolio volatility and reduce overall falls)?

In general they did their job pretty well , although I think some high yield/junk bonds suffered.

The worry is that they seem to have reached a peak of value in the current almost zero interest environment . If interest rates were to increase ( or even the prospect of that happening ) many bond types could take a bath . That's the theory anyway and for the time being little prospect of interest rate rises anyway . 

BritishInvestor

Albermarle said:

Regarding bonds - of course we don't know what the future holds, but over the last few months when markets (at times) were taking a beating, why do you feel that bonds didn't do their job (dampen portfolio volatility and reduce overall falls)?

In general they did their job pretty well , although I think some high yield/junk bonds suffered.

The worry is that they seem to have reached a peak of value in the current almost zero interest environment . If interest rates were to increase ( or even the prospect of that happening ) many bond types could take a bath . That's the theory anyway and for the time being little prospect of interest rate rises anyway . 

Yep, agreed on HY/junk, but if you have bonds in the portfolio for the reasons I mentioned above it's unlikely you'd hold HY or long-duration bonds, so you'd lean more towards the top left of the style and let the growth part of the portfolio generate the long term returns.
https://www.gobankingrates.com/investing/funds/how-read-understand-morningstar-mutual-fund-style-box/
With all that said, even holdings like gilts can take a hammering - see 1916 for example. 
https://www.allocationblog.com/content/uploads/sites/3/2016/07/Equity-Gilt-Study-2016.compressed.pdf

[Deleted User]

Deleted_User said:

bigadaj said:

Your wording was very poor then as that is what you implied.

Which line in that included the words 'investment risk'? If you dont bother to read it carefully, dont bother replying.

Hmmm. This is what you said:

”  How are these risks unique to investing in active funds? These risks remain whether you choose the stocks or passive funds or IFA - difference is in who assumes these risks.
DIY stocks / funds - you assume all these risks.
IFA - IFA assumes responsibility for these risks which is why you pay a fee“

What are “these risks” that IFA assumes responsibility for?  

In reality, you take all the risk associated with the choices. IFA advises, but you make the choice of stocks snd other assets. IFA carries liability for things like willful negligence in providing the advice but you are not transferring any risk to IFA when you are hiring him.  

83705628

Deleted_User said:

IvanOpinion said:

Buffetology is the only fund I have that is currently showing a negative and Lindsell Train UK is showing a positive but nowhere near its previous highs (in fact my Vanguard LS 80, which has done well, is still lower than I hoped, but I am working on the assumption that is down to a UK bias).  At the minute my line of thinking is that UK has not yet started to show the level of recovery seen elsewhere in the world. Hopefully the UK will recover and these will push back up.

Its a widespread misconception that UK listed stocks represent UK economy. Its not. In fact, the large UK listed companies derive a majority of their revenue outside UK. Which is why FTSE goes up when GBP falls.
The large listed stocks in other countries too exhibit similar attributes, to a varying degree. For example the large listed Swiss companies are actually multi national companies.
The main differentiators between countries (when it comes to choosing indexes) are the managements of these companies and the sectors. UK indexes are heavy on oil & gas, retail banks, mining etc - mostly mature industries that have limited growth opportunities. Stable dividends probably, but might have to be revisited after Covid.

1. UK equity returns have very closely matched GDP growth as far back as records go (Barclays Equity Gilts Study, Credit Suisse Global Returns Yearbook, compare with ONS nominal GDP data). 1990-2020 GDP, FTSE All Share and the dividend paid all grew almost exactly 4%.

2. There is no evidence that the FTSE has an inverse relation with £ exchange rates. PensionCraft has a video about this (can't find the link sorry). While 3/4 of FTSE 100 earnings and 1/2 of FTSE 250 earnings come from overseas, the UK is also a slight net importer so it makes very little difference.

3. Aside from small, extreme examples like Greece and Denmark, for most sufficiently large and diverse stocks markets - US, UK, JPN, most of the larger European countries - the sector weighting doesn't make a huge difference. Aside from the 1972-1974 crash, and post-Brexit, there is no significant difference in the long-term returns of UK and global equity. https://www.starcapital.de/fileadmin/user_upload/files/publikationen/2018_04_Market_Valuation_Determined_by_Sectors.pdf. I just don't buy this nonsense that you HAVE to diversify globally or that the UK is "done" and is being overtaken by the rest of the world.
Take 2000-2020, the only reason the FTSE 100 did so much worse than the S&P 500 was because the FTSE 100's PE fell 3% a year, the S&P 500s by only 1% (30.5-16.5 vs 29-23.5). FTSE 100 earnings growth was about 3.6%, just -0.3% behind GDP, with an average 3.6% dividend yield whereas S&P 500 earnings growth was 5.3%, somehow ahead of GDP with an average 2% dividend yield, and the US had about 0.1% higher inflation. So to suggest the US or global equity is outperforming the UK or is somehow magically going to given the maths (US 1.95 div yield, bubble valuation, UK 4.7% div yield, below average valuation) is unfounded nonsense.

Diplodicus

Correct, Mordko.
Most people are more comfortable deferring to an “expert” - then whatever happens “isn’t their fault.”  The cost of that security, which is a bogus security, is massive in time.  

bigadaj

Deleted_User said:

bigadaj said:

Your wording was very poor then as that is what you implied.

Which line in that included the words 'investment risk'? If you dont bother to read it carefully, dont bother replying.

I don't believe you can determine whether i respond or don't, and what you wrote was very poor. 

bigadaj

tcallaghan93 said:

Deleted_User said:

IvanOpinion said:

Buffetology is the only fund I have that is currently showing a negative and Lindsell Train UK is showing a positive but nowhere near its previous highs (in fact my Vanguard LS 80, which has done well, is still lower than I hoped, but I am working on the assumption that is down to a UK bias).  At the minute my line of thinking is that UK has not yet started to show the level of recovery seen elsewhere in the world. Hopefully the UK will recover and these will push back up.

Its a widespread misconception that UK listed stocks represent UK economy. Its not. In fact, the large UK listed companies derive a majority of their revenue outside UK. Which is why FTSE goes up when GBP falls.
The large listed stocks in other countries too exhibit similar attributes, to a varying degree. For example the large listed Swiss companies are actually multi national companies.
The main differentiators between countries (when it comes to choosing indexes) are the managements of these companies and the sectors. UK indexes are heavy on oil & gas, retail banks, mining etc - mostly mature industries that have limited growth opportunities. Stable dividends probably, but might have to be revisited after Covid.

1. UK equity returns have very closely matched GDP growth as far back as records go (Barclays Equity Gilts Study, Credit Suisse Global Returns Yearbook, compare with ONS nominal GDP data). 1990-2020 GDP, FTSE All Share and the dividend paid all grew almost exactly 4%.

2. There is no evidence that the FTSE has an inverse relation with £ exchange rates. PensionCraft has a video about this (can't find the link sorry). While 3/4 of FTSE 100 earnings and 1/2 of FTSE 250 earnings come from overseas, the UK is also a slight net importer so it makes very little difference.

3. Aside from small, extreme examples like Greece and Denmark, for most sufficiently large and diverse stocks markets - US, UK, JPN, most of the larger European countries - the sector weighting doesn't make a huge difference. Aside from the 1972-1974 crash, and post-Brexit, there is no significant difference in the long-term returns of UK and global equity. https://www.starcapital.de/fileadmin/user_upload/files/publikationen/2018_04_Market_Valuation_Determined_by_Sectors.pdf. I just don't buy this nonsense that you HAVE to diversify globally or that the UK is "done" and is being overtaken by the rest of the world.
Take 2000-2020, the only reason the FTSE 100 did so much worse than the S&P 500 was because the FTSE 100's PE fell 3% a year, the S&P 500s by only 1% (30.5-16.5 vs 29-23.5). FTSE 100 earnings growth was about 3.6%, just -0.3% behind GDP, with an average 3.6% dividend yield whereas S&P 500 earnings growth was 5.3%, somehow ahead of GDP with an average 2% dividend yield, and the US had about 0.1% higher inflation. So to suggest the US or global equity is outperforming the UK or is somehow magically going to given the maths (US 1.95 div yield, bubble valuation, UK 4.7% div yield, below average valuation) is unfounded nonsense.

So you are presumably fully invested in the UK, and so wold have suffered relatively poor returns compared to a global view, particularly the US over the last few decades. For a UK investor the continual weakening of sterling has formed no small part of those returns but total return in gdp is what counts to someone in the UK.