One for the experts( you know who you are!)

BritishInvestor

Tassie_Devil said:

Mistermeaner said:

Audaxer said:

HarryGray said:

BritishInvestor said:

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. 

I'm not sure it's as clear cut as that.

Nothing is clear cut, simply stating that statistically the best retirement drawdown ignoring a clients Attitude to Risk is 100% equity at a constant withdrawal rate. There is no evidence anywhere to suggest that 'lifestyling' works 

I would have thought that if you have a portfolio of 100% equity and there is a poor sequence of returns, especially in the first decade of retirement, there would be more risk of running out of money than with a balanced portfolio?

There was a great thread somewhere recently (that I can't find) that covered this in some detail referencing various studies 

The somewhat surprising conclusion was that you are generally better off 100% in equities - or at least no worse off 

There has only been something like 2 or 3 starting years of retirement in the last 100+ years when this would have depleted your pot in 30years

I think it was a post that linked to this article:

https://edrempel.com/reliably-maximize-retirement-income-4-rule-safe/

Worth bearing in mind that'sUS data, not global or UK.

kinger101

AnotherJoe said:

kinger101 said:

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. That has the highest success rate out of any asset allocation throughout retirement. Obviously sequencing risk is a big risk, so long as take no large withdrawals you would be pretty much set. 

You do NOT want to be in a cautious asset allocation throughout retirement. 

Presumably you also think there are no black swans.

DoNt see why you'd think that since he did point out there were 3 years when it underperformed. But all you can do is go with the odds. 

Black swans aren't period of poor performance that have happened historically.  They are events that have not previously been observed outside previous range. Historic moving-window doesn't factor this in.  And undersamples much of the available data anyway.

The are different ways of using historic data, and many of these show increased SOR risk with 100% equities

BritishInvestor

kinger101 said:

AnotherJoe said:

kinger101 said:

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. That has the highest success rate out of any asset allocation throughout retirement. Obviously sequencing risk is a big risk, so long as take no large withdrawals you would be pretty much set. 

You do NOT want to be in a cautious asset allocation throughout retirement. 

Presumably you also think there are no black swans.

DoNt see why you'd think that since he did point out there were 3 years when it underperformed. But all you can do is go with the odds. 

Black swans aren't period of poor performance that have happened historically.  They are events that have not previously been observed outside previous range. Historic moving-window doesn't factor this in.  And undersamples much of the available data anyway.

The are different ways of using historic data, and many of these show increased SOR risk with 100% equities

I still don't understand the undersampling. If you have circa 1200 samples (100 years with 12 monthly samples) you may miss out on some of the impact of WW1, but given sequencing risks makes itself felt most in the early years of retirement, 1929 should be covered as would WW2 and the 1970s shocker.
I'm also not sure how you could use historical data in a superior way (given the limitation of MC as previously discussed).
Agreed on future events being outside historical ranges, and that must be taken into account along with the impact of fees and investor behaviour.

MarkCarnage

COVID is perhaps a black swan event, of as yet unknown impact. If you went back far enough, the Black Death would be one too.....there are times when you have to take a view as to what you could do in very extreme circumstances anyway. Two long haul holidays a year would be rather far down any priority list I suspect. 
 I think that there will be an inflationary impact arising from this, or the subsequent consequences of it. After all, there is a lot of debt needing to be devalued....hence my reservations about high exposures to cash and nominal bonds.

BritishInvestor

MarkCarnage said:

COVID is perhaps a black swan event, of as yet unknown impact. If you went back far enough, the Black Death would be one too.....there are times when you have to take a view as to what you could do in very extreme circumstances anyway. Two long haul holidays a year would be rather far down any priority list I suspect. 
 I think that there will be an inflationary impact arising from this, or the subsequent consequences of it. After all, there is a lot of debt needing to be devalued....hence my reservations about high exposures to cash and nominal bonds.

I don't see COVID as a black swan event because we have had similar events happening previously, as you mentioned the Black Death being one.

MaxiRobriguez

Amateurretiree said:

Thanks everyone for your replies, I just really wanted general advice nothing specific so that’s been great( I’m not looking for free advice from the IFA ‘s on here, just wondered what other people do approaching or in early retirement.)
We feel quite comfortable with our financial position, we don’t care about increasing our money, just don’t want to lose a lot of it!

DH s SIPP consists of 35% cash( so that equates to about 6 yrs potential expenditure if we ever get to travel again)
20% global bonds
7% uk credit bonds
5 % global inflation linked bonds
10% US Stocks 
5% uk government bonds
 and then a mixture of some emerging market bonds,global high yield bonds,Pacific stocks.
Thanks again for those who have responded, appreciate the expertise .

50% bonds, 35% cash, 15% equity then.

Personally I think the 50% bonds is your biggest risk out of the lot there. What is it doing for you? It's not generating returns for later life years comparable to equities and arguably the bond allocation is just as risky in terms of capital loss  because the biggest risk that will take equities down - interest rate rises, something that could feasibly happen in the next decade or two - will also take your bonds down in tandem.

Personally if you're looking for steady, low risk income I'd look towards equity income in the form of companies with really strong balance sheets and moats. You'll get a bigger consistent payout, and you may find any capital loss which does happen is less than is seen in bonds.

Whatever you do, don't make the mistake of thinking bonds are lower risk bets. The volatility may be lower than equities but the chances of capital loss are now just as great.

kinger101

BritishInvestor said:

kinger101 said:

AnotherJoe said:

kinger101 said:

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. That has the highest success rate out of any asset allocation throughout retirement. Obviously sequencing risk is a big risk, so long as take no large withdrawals you would be pretty much set. 

You do NOT want to be in a cautious asset allocation throughout retirement. 

Presumably you also think there are no black swans.

DoNt see why you'd think that since he did point out there were 3 years when it underperformed. But all you can do is go with the odds. 

Black swans aren't period of poor performance that have happened historically.  They are events that have not previously been observed outside previous range. Historic moving-window doesn't factor this in.  And undersamples much of the available data anyway.

The are different ways of using historic data, and many of these show increased SOR risk with 100% equities

I still don't understand the undersampling. If you have circa 1200 samples (100 years with 12 monthly samples) you may miss out on some of the impact of WW1, but given sequencing risks makes itself felt most in the early years of retirement, 1929 should be covered as would WW2 and the 1970s shocker.
I'm also not sure how you could use historical data in a superior way (given the limitation of MC as previously discussed).
Agreed on future events being outside historical ranges, and that must be taken into account along with the impact of fees and investor behaviour.

Do you at least acknowledge that some data points are used more than others with moving window?  It's quite considerable given people are planning for 3+ decades of retirement.  That's at least 360 of the 1200 datapoints.  Including 2000 and 2008 crashes.

I don't understand what you think is so difficult about MC.  It's as hard as you want to make it.  On one level, we can just take pull random data based on monthly mean and standard deviation.  On another, you can randomly sample with replacement from old data.  

MarkCarnage

BritishInvestor said:

MarkCarnage said:

COVID is perhaps a black swan event, of as yet unknown impact. If you went back far enough, the Black Death would be one too.....there are times when you have to take a view as to what you could do in very extreme circumstances anyway. Two long haul holidays a year would be rather far down any priority list I suspect. 
 I think that there will be an inflationary impact arising from this, or the subsequent consequences of it. After all, there is a lot of debt needing to be devalued....hence my reservations about high exposures to cash and nominal bonds.

I don't see COVID as a black swan event because we have had similar events happening previously, as you mentioned the Black Death being one.

Yes, but we haven't had a pandemic in living memory, let alone one like the Black Death. It was also almost universally not forecast - and then underestimated (probably due to Chinese suppression of facts) so I think it was quite a Black Swan. Everyone was looking for problems in financial markets and/or global politics, not in this direction.  Therefore I do see it as a Black Swan, or maybe a cygnet.

MarkCarnage

Personally I think the 50% bonds is your biggest risk out of the lot there.

Agreed. The conventional wisdom of de risking and 'glide paths' into bonds wasn't formulated in this scenario. 

Whatever you do, don't make the mistake of thinking bonds are lower risk bets. The volatility may be lower than equities but the chances of capital loss are now just as great.

Again I agree. Short term volatility is a very one dimensional measure of risk. The long term real erosion of capital from nominal bonds could be quite significant in this environment. 

Thrugelmir

BritishInvestor said:

kinger101 said:

AnotherJoe said:

kinger101 said:

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. That has the highest success rate out of any asset allocation throughout retirement. Obviously sequencing risk is a big risk, so long as take no large withdrawals you would be pretty much set. 

You do NOT want to be in a cautious asset allocation throughout retirement. 

Presumably you also think there are no black swans.

DoNt see why you'd think that since he did point out there were 3 years when it underperformed. But all you can do is go with the odds. 

Black swans aren't period of poor performance that have happened historically.  They are events that have not previously been observed outside previous range. Historic moving-window doesn't factor this in.  And undersamples much of the available data anyway.

The are different ways of using historic data, and many of these show increased SOR risk with 100% equities

I still don't understand the undersampling. If you have circa 1200 samples (100 years with 12 monthly samples) you may miss out on some of the impact of WW1, but given sequencing risks makes itself felt most in the early years of retirement, 1929 should be covered as would WW2 and the 1970s shocker.
I'm also not sure how you could use historical data in a superior way (given the limitation of MC as previously discussed).
Agreed on future events being outside historical ranges, and that must be taken into account along with the impact of fees and investor behaviour.

First time that auditors were required to sign off Annual Annual accounts was 1933 and that was in the USA. Up until then there was no standard accounting policies anywhere in the world. Companies could report whatever figures they wished. Global accounting standards are a relatively new concept that still have weaknessess. Reading too much into global consolidated naked data isn't advisable.