Investing for Decumulation - Recommended Reading

westv

Thrugelmir said:

westv said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

Historical data shows that when real interest rates are low. Returns on both equities and bonds tend to be lower rather than higher. 

But don't forget we aren't necessarily interested in whether returns are lower rather than higher, just not that they are outside the boundaries we have made our assumptions on, the lower boundary which has contained some pretty challenging times.  

There's no historical precedent for the unchartered waters we find ourselves in today. 

You could say that about any period of uncertainly as no two are the same.

I wouldn't regard now as a period of uncertainty. As they are certainies. Given the high levels of indebtedness that exist now not pleasant ones. 

There is uncertainly as to how bad things will/could get and how quickly they will recover - which I guess is similar to previous uncertain times..

BritishInvestor

Audaxer said:

BritishInvestor said:

Audaxer said:

TBC15 said:

I’ve been retired for just over a year and didn’t change my investment strategy ( 100% market no bonds) coming up to retirement apart from building up a cash buffer of about 4 yrs of cash.

The remarks of BritishInvestor gave me cause to revisit the 4yr cash buffer comfort blanket part of my plan. I’m now reasonably convinced my supper king size is a bit over the top and a double (1-2ys expenditure) would be more appropriate.

TBC15, are you currently in receipt of any other retirement income like DB pensions, or State Pension yet?  If not, 100% equities and only 1-2 years cash does sound like high risk to me, but I think it maybe depends on what percentage you need to drawdown each year. If for example you need to drawdown over 3.5% of your pot each year, do you not think a bad sequence of returns over the next decade could be particularly risky?

I think it's important to clarify what "high risk" is. For some, it's not taking enough equity exposure and running out of money. For others, they see high risk as their portfolio falling too far during periods of turbulence.
Regarding a poor series of returns, we already have historical returns and can perform this analysis, unless you are suggesting modelling something worse than we have seen previously/have data for?

Yes, you could run out of money if you don't have enough equity exposure to fund your retirement, but I think you could also run out of money with too much equity exposure and a bad sequence of returns when you are having to sell capital for income. Historically I'm not sure if 100% equities has done any better throughout a long retirement than having a more balanced portfolio including a percentage of bonds and other defensive assets.

If someone has enough other forms of secure income and/or built up a larger portfolio than they will need to fund their retirement, they might decide to go 100% equities, which is fine and not necessarily "high risk" in that they will still not run out of money. However in these circumstances some might take the view that going 100% equities is just not necessary for them, and they would rather have more available cash for spending when young enough to enjoy it.   

The major issue for me with someone with 100% equity exposure is investor, not investment behaviour. If you look at historical drawdowns I'm sure that there will have been people that couldn't stomach multi-year equity drawdowns.


If someone has a larger portfolio than required, surely they will take less equity exposure - I don't understand why you would want unnecessary volatility (as you point out in your last sentence)?

Thrugelmir

westv said:

Thrugelmir said:

westv said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

Historical data shows that when real interest rates are low. Returns on both equities and bonds tend to be lower rather than higher. 

But don't forget we aren't necessarily interested in whether returns are lower rather than higher, just not that they are outside the boundaries we have made our assumptions on, the lower boundary which has contained some pretty challenging times.  

There's no historical precedent for the unchartered waters we find ourselves in today. 

You could say that about any period of uncertainly as no two are the same.

I wouldn't regard now as a period of uncertainty. As they are certainies. Given the high levels of indebtedness that exist now not pleasant ones. 

There is uncertainly as to how bad things will/could get and how quickly they will recover - which I guess is similar to previous uncertain times..

Which uncertain time are you making direct comparison too? 

westv

Thrugelmir said:

westv said:

Thrugelmir said:

westv said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

Historical data shows that when real interest rates are low. Returns on both equities and bonds tend to be lower rather than higher. 

But don't forget we aren't necessarily interested in whether returns are lower rather than higher, just not that they are outside the boundaries we have made our assumptions on, the lower boundary which has contained some pretty challenging times.  

There's no historical precedent for the unchartered waters we find ourselves in today. 

You could say that about any period of uncertainly as no two are the same.

I wouldn't regard now as a period of uncertainty. As they are certainies. Given the high levels of indebtedness that exist now not pleasant ones. 

There is uncertainly as to how bad things will/could get and how quickly they will recover - which I guess is similar to previous uncertain times..

Which uncertain time are you making direct comparison too? 

Any, unless you know of one where we knew beforehand exactly how things would be and the precise recovery.

TBC15

BritishInvestor said:

Audaxer said:

BritishInvestor said:

Audaxer said:

TBC15 said:

I’ve been retired for just over a year and didn’t change my investment strategy ( 100% market no bonds) coming up to retirement apart from building up a cash buffer of about 4 yrs of cash.

The remarks of BritishInvestor gave me cause to revisit the 4yr cash buffer comfort blanket part of my plan. I’m now reasonably convinced my supper king size is a bit over the top and a double (1-2ys expenditure) would be more appropriate.

TBC15, are you currently in receipt of any other retirement income like DB pensions, or State Pension yet?  If not, 100% equities and only 1-2 years cash does sound like high risk to me, but I think it maybe depends on what percentage you need to drawdown each year. If for example you need to drawdown over 3.5% of your pot each year, do you not think a bad sequence of returns over the next decade could be particularly risky?

I think it's important to clarify what "high risk" is. For some, it's not taking enough equity exposure and running out of money. For others, they see high risk as their portfolio falling too far during periods of turbulence.
Regarding a poor series of returns, we already have historical returns and can perform this analysis, unless you are suggesting modelling something worse than we have seen previously/have data for?

Yes, you could run out of money if you don't have enough equity exposure to fund your retirement, but I think you could also run out of money with too much equity exposure and a bad sequence of returns when you are having to sell capital for income. Historically I'm not sure if 100% equities has done any better throughout a long retirement than having a more balanced portfolio including a percentage of bonds and other defensive assets.

If someone has enough other forms of secure income and/or built up a larger portfolio than they will need to fund their retirement, they might decide to go 100% equities, which is fine and not necessarily "high risk" in that they will still not run out of money. However in these circumstances some might take the view that going 100% equities is just not necessary for them, and they would rather have more available cash for spending when young enough to enjoy it.   

The major issue for me with someone with 100% equity exposure is investor, not investment behaviour. If you look at historical drawdowns I'm sure that there will have been people that couldn't stomach multi-year equity drawdowns.


If someone has a larger portfolio than required, surely they will take less equity exposure - I don't understand why you would want unnecessary volatility (as you point out in your last sentence)?

If you have got enjoyment out of the thrill of the chase over a considerable no of years and find yourself comfortable at retirement why not carry on?

Thrugelmir

westv said:

Thrugelmir said:

westv said:

Thrugelmir said:

westv said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

Historical data shows that when real interest rates are low. Returns on both equities and bonds tend to be lower rather than higher. 

But don't forget we aren't necessarily interested in whether returns are lower rather than higher, just not that they are outside the boundaries we have made our assumptions on, the lower boundary which has contained some pretty challenging times.  

There's no historical precedent for the unchartered waters we find ourselves in today. 

You could say that about any period of uncertainly as no two are the same.

I wouldn't regard now as a period of uncertainty. As they are certainies. Given the high levels of indebtedness that exist now not pleasant ones. 

There is uncertainly as to how bad things will/could get and how quickly they will recover - which I guess is similar to previous uncertain times..

Which uncertain time are you making direct comparison too? 

Any, unless you know of one where we knew beforehand exactly how things would be and the precise recovery.

Any? Then your lifetime experiences must be limited to date. You haven't lived yet. You'll be somewhat wiser as a result. 

westv

Thrugelmir said:

westv said:

Thrugelmir said:

westv said:

Thrugelmir said:

westv said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

Historical data shows that when real interest rates are low. Returns on both equities and bonds tend to be lower rather than higher. 

But don't forget we aren't necessarily interested in whether returns are lower rather than higher, just not that they are outside the boundaries we have made our assumptions on, the lower boundary which has contained some pretty challenging times.  

There's no historical precedent for the unchartered waters we find ourselves in today. 

You could say that about any period of uncertainly as no two are the same.

I wouldn't regard now as a period of uncertainty. As they are certainies. Given the high levels of indebtedness that exist now not pleasant ones. 

There is uncertainly as to how bad things will/could get and how quickly they will recover - which I guess is similar to previous uncertain times..

Which uncertain time are you making direct comparison too? 

Any, unless you know of one where we knew beforehand exactly how things would be and the precise recovery.

Any? Then your lifetime experiences must be limited to date. You haven't lived yet. You'll be somewhat wiser as a result. 

That's not really an answer is it though.
 I'll ask again, name me one period of uncertainly in the past where we knew beforehand exactly how things would be and the exact recovery path. 

coyrls

TBC15 said:

BritishInvestor said:

Audaxer said:

BritishInvestor said:

Audaxer said:

TBC15 said:

I’ve been retired for just over a year and didn’t change my investment strategy ( 100% market no bonds) coming up to retirement apart from building up a cash buffer of about 4 yrs of cash.

The remarks of BritishInvestor gave me cause to revisit the 4yr cash buffer comfort blanket part of my plan. I’m now reasonably convinced my supper king size is a bit over the top and a double (1-2ys expenditure) would be more appropriate.

TBC15, are you currently in receipt of any other retirement income like DB pensions, or State Pension yet?  If not, 100% equities and only 1-2 years cash does sound like high risk to me, but I think it maybe depends on what percentage you need to drawdown each year. If for example you need to drawdown over 3.5% of your pot each year, do you not think a bad sequence of returns over the next decade could be particularly risky?

I think it's important to clarify what "high risk" is. For some, it's not taking enough equity exposure and running out of money. For others, they see high risk as their portfolio falling too far during periods of turbulence.
Regarding a poor series of returns, we already have historical returns and can perform this analysis, unless you are suggesting modelling something worse than we have seen previously/have data for?

Yes, you could run out of money if you don't have enough equity exposure to fund your retirement, but I think you could also run out of money with too much equity exposure and a bad sequence of returns when you are having to sell capital for income. Historically I'm not sure if 100% equities has done any better throughout a long retirement than having a more balanced portfolio including a percentage of bonds and other defensive assets.

If someone has enough other forms of secure income and/or built up a larger portfolio than they will need to fund their retirement, they might decide to go 100% equities, which is fine and not necessarily "high risk" in that they will still not run out of money. However in these circumstances some might take the view that going 100% equities is just not necessary for them, and they would rather have more available cash for spending when young enough to enjoy it.   

The major issue for me with someone with 100% equity exposure is investor, not investment behaviour. If you look at historical drawdowns I'm sure that there will have been people that couldn't stomach multi-year equity drawdowns.


If someone has a larger portfolio than required, surely they will take less equity exposure - I don't understand why you would want unnecessary volatility (as you point out in your last sentence)?

If you have got enjoyment out of the thrill of the chase over a considerable no of years and find yourself comfortable at retirement why not carry on?

Because the chase is over?

TBC15

coyrls said:

TBC15 said:

BritishInvestor said:

Audaxer said:

BritishInvestor said:

Audaxer said:

TBC15 said:

I’ve been retired for just over a year and didn’t change my investment strategy ( 100% market no bonds) coming up to retirement apart from building up a cash buffer of about 4 yrs of cash.

The remarks of BritishInvestor gave me cause to revisit the 4yr cash buffer comfort blanket part of my plan. I’m now reasonably convinced my supper king size is a bit over the top and a double (1-2ys expenditure) would be more appropriate.

TBC15, are you currently in receipt of any other retirement income like DB pensions, or State Pension yet?  If not, 100% equities and only 1-2 years cash does sound like high risk to me, but I think it maybe depends on what percentage you need to drawdown each year. If for example you need to drawdown over 3.5% of your pot each year, do you not think a bad sequence of returns over the next decade could be particularly risky?

I think it's important to clarify what "high risk" is. For some, it's not taking enough equity exposure and running out of money. For others, they see high risk as their portfolio falling too far during periods of turbulence.
Regarding a poor series of returns, we already have historical returns and can perform this analysis, unless you are suggesting modelling something worse than we have seen previously/have data for?

Yes, you could run out of money if you don't have enough equity exposure to fund your retirement, but I think you could also run out of money with too much equity exposure and a bad sequence of returns when you are having to sell capital for income. Historically I'm not sure if 100% equities has done any better throughout a long retirement than having a more balanced portfolio including a percentage of bonds and other defensive assets.

If someone has enough other forms of secure income and/or built up a larger portfolio than they will need to fund their retirement, they might decide to go 100% equities, which is fine and not necessarily "high risk" in that they will still not run out of money. However in these circumstances some might take the view that going 100% equities is just not necessary for them, and they would rather have more available cash for spending when young enough to enjoy it.   

The major issue for me with someone with 100% equity exposure is investor, not investment behaviour. If you look at historical drawdowns I'm sure that there will have been people that couldn't stomach multi-year equity drawdowns.


If someone has a larger portfolio than required, surely they will take less equity exposure - I don't understand why you would want unnecessary volatility (as you point out in your last sentence)?

If you have got enjoyment out of the thrill of the chase over a considerable no of years and find yourself comfortable at retirement why not carry on?

Because the chase is over?

Buy your annuity pick your plot and wait for nature to take it’s course.Well that was fun.

Thrugelmir

westv said:

Thrugelmir said:

westv said:

Thrugelmir said:

westv said:

Thrugelmir said:

westv said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

Historical data shows that when real interest rates are low. Returns on both equities and bonds tend to be lower rather than higher. 

But don't forget we aren't necessarily interested in whether returns are lower rather than higher, just not that they are outside the boundaries we have made our assumptions on, the lower boundary which has contained some pretty challenging times.  

There's no historical precedent for the unchartered waters we find ourselves in today. 

You could say that about any period of uncertainly as no two are the same.

I wouldn't regard now as a period of uncertainty. As they are certainies. Given the high levels of indebtedness that exist now not pleasant ones. 

There is uncertainly as to how bad things will/could get and how quickly they will recover - which I guess is similar to previous uncertain times..

Which uncertain time are you making direct comparison too? 

Any, unless you know of one where we knew beforehand exactly how things would be and the precise recovery.

Any? Then your lifetime experiences must be limited to date. You haven't lived yet. You'll be somewhat wiser as a result. 

That's not really an answer is it though.
 I'll ask again, name me one period of uncertainly in the past where we knew beforehand exactly how things would be and the exact recovery path. 

I was questioning you when i said Any? 

My current thoughts are more focussed on the breath and depth of the current downturn.