Drawdown Pensions - your experiences during 2020 and intentions in 2021?

BritishInvestor

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

thriftytracey said:

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Hindsight is a wonderful tool.  Everyone is suddenly an expert after the event. Being cautious is using sound investment judgement when there's uncertainty.  Which there's no shortage of at the currrent time. Following the herd isn't always a wise strategy. 

Hindsight has nothing to do with it. You are surely paying an adviser for a robust retirement plan and peace of mind. A robust retirement plan would be very unlikely to have required any adjustments to spending plans during the recent downturn

Of course it's hindsight. You are using that very thing in making the statement above. I doubt that global pandemics would have been factored into many investors retirements plans. 

It really isn't hindsight - given the brevity of the downturn, benign inflation, the multi-year run-up in asset prices prior to the event, quality bonds holding up reasonably well and spending adjustments typically being made on a structured, annual basis, I'm perplexed.

If I had an investment advisor and they said that to me. I'd be running a mile. 

For someone that retired in March 2019 with a 60/40 portfolio, their portfolio would've been down around 5.5% over the year (ignoring fees). 

That's a well outdated concept that had it's day some years ago.  As low bond yields will not help offset a poor return on equity returns.  Let's not forget that equity markets have been driven by increasing p/e's (and from a UK investors perspective a falling exchange rate).  Not underlying overall company profitability.  

It has nothing to do with a "concept". It's a typical portfolio used to highlight the fact that falls have been minor relative to historical events.
Regarding low bond yields, it's worth looking back at history and seeing some of the bond returns that have been experienced.
https://www.timelineapp.co/blog/no-qe-didnt-break-the-4-rule/

I've no idea what future equity returns will be, but if we experience future returns that rewrite our safe withdrawal assumptions, then there may be other more important things to worry about. 

Thrugelmir

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

thriftytracey said:

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Hindsight is a wonderful tool.  Everyone is suddenly an expert after the event. Being cautious is using sound investment judgement when there's uncertainty.  Which there's no shortage of at the currrent time. Following the herd isn't always a wise strategy. 

Hindsight has nothing to do with it. You are surely paying an adviser for a robust retirement plan and peace of mind. A robust retirement plan would be very unlikely to have required any adjustments to spending plans during the recent downturn

Of course it's hindsight. You are using that very thing in making the statement above. I doubt that global pandemics would have been factored into many investors retirements plans. 

It really isn't hindsight - given the brevity of the downturn, benign inflation, the multi-year run-up in asset prices prior to the event, quality bonds holding up reasonably well and spending adjustments typically being made on a structured, annual basis, I'm perplexed.

If I had an investment advisor and they said that to me. I'd be running a mile. 

For someone that retired in March 2019 with a 60/40 portfolio, their portfolio would've been down around 5.5% over the year (ignoring fees). 

That's a well outdated concept that had it's day some years ago.  As low bond yields will not help offset a poor return on equity returns.  Let's not forget that equity markets have been driven by increasing p/e's (and from a UK investors perspective a falling exchange rate).  Not underlying overall company profitability.  

It has nothing to do with a "concept". It's a typical portfolio used to highlight the fact that falls have been minor relative to historical events.

Why look backwards? There's nothing in post WW2 economic history to compare to the challenges faced in the immediate future.  I'm hedging against both a relatively poor decade of equity returns and the possibility of a short term nudge upwards in inflation. My overall portfolio has never been more cautiously positioned. Sometimes it just boils down to basic maths. 

BritishInvestor

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

thriftytracey said:

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Hindsight is a wonderful tool.  Everyone is suddenly an expert after the event. Being cautious is using sound investment judgement when there's uncertainty.  Which there's no shortage of at the currrent time. Following the herd isn't always a wise strategy. 

Hindsight has nothing to do with it. You are surely paying an adviser for a robust retirement plan and peace of mind. A robust retirement plan would be very unlikely to have required any adjustments to spending plans during the recent downturn

Of course it's hindsight. You are using that very thing in making the statement above. I doubt that global pandemics would have been factored into many investors retirements plans. 

It really isn't hindsight - given the brevity of the downturn, benign inflation, the multi-year run-up in asset prices prior to the event, quality bonds holding up reasonably well and spending adjustments typically being made on a structured, annual basis, I'm perplexed.

If I had an investment advisor and they said that to me. I'd be running a mile. 

For someone that retired in March 2019 with a 60/40 portfolio, their portfolio would've been down around 5.5% over the year (ignoring fees). 

That's a well outdated concept that had it's day some years ago.  As low bond yields will not help offset a poor return on equity returns.  Let's not forget that equity markets have been driven by increasing p/e's (and from a UK investors perspective a falling exchange rate).  Not underlying overall company profitability.  

It has nothing to do with a "concept". It's a typical portfolio used to highlight the fact that falls have been minor relative to historical events.

Why look backwards? There's nothing in post WW2 economic history to compare to the challenges faced in the immediate future.  I'm hedging against both a relatively poor decade of equity returns and the possibility of a short term nudge upwards in inflation. My overall portfolio has never been more cautiously positioned. Sometimes it just boils down to basic maths. 

I'm looking backwards because I don't have a crystal ball to see what the future holds, and it also gives me a perspective on how bad things have been.
When you say poor decade and inflation nudging upwards, are you expecting worse than the two decades of cumulative negative real returns that the world markets experienced in the early 20th century? If so, why on earth wouldn't you take a secured income instead of exposing your money to investment risk and poor returns? 

itwasntme001

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

BritishInvestor said:

itwasntme001 said:

Deleted_User said:

A fund cost of 0.5% a year and a adviser cost of 0.5% a year is a lot. People should always translate these costs into its corresponding portfolio cost over a typical duration like 25 yrs. 

Annual	25 yr		Annual	25 yr		Annual	25 yr
0.1%	2.5%		1.1%	24%		2.1%	41%
0.2%	4.9%		1.2%	26%		2.2%	42%
0.3%	7.2%		1.3%	28%		2.3%	44%
0.4%	9.5%		1.4%	30%		2.4%	45%
0.5%	12%		1.5%	31%		2.5%	46%
0.6%	14%		1.6%	33%		2.6%	48%
0.7%	16%		1.7%	35%		2.7%	49%
0.8%	18%		1.8%	36%		2.8%	50%
0.9%	20%		1.9%	38%		2.9%	52%
1.0%	22%		2.0%	39%		3.0%	53%

So, 1% in annual costs translates to a portfolio that is a fifth smaller after 25 years than a portfolio with 0.1% costs, all other aspects being equal. Its a lot of money. 

Is it a lot of money if the fund manager delivers enough returns (above the benchmark) to more than offset the charges?

Also no one ever holds an active fund for much more than 10 years anyway - what are the charges after 10 years?  Styles go out of fashion quicker than the fashion itself.  Holding onto an active fund for long than 10 years means you are likely to be holding onto a loser.  Market timing is required if you hold active funds.

"Is it a lot of money if the fund manager delivers enough returns (above the benchmark) to more than offset the charges?"
I'm not aware of such an offering in the retail space.

You could argue SMT, fundsmith, LT, Baillie Gifford are such funds.  They all charge more than a global passive equities fund.  All have performed very well over the last 10 years or so.

The problem is what happens over longer time frames, when investors experience changes in economic regimes.  There is a reason why most of the funds held by active fund investors haven't been around that long.  Even a long standing fund like SMT has under-performed a wealth preservation fund Capital Gearing Trust since the 1980s.

So really it depends.  Passive equity funds with its low charges are just a vehicle where momentum is taken advantage without the high fees.  They can just as easily fail to perform under changing economic environments because even they take time to adapt (weightings in the new leaders would by definition be low).  But at least they don't miss out on tomorrow's leaders whereas active funds most likely will.

Probably the best long term example of the style is the Morgan Stanley fund.
Global Brands Fund (morganstanley.com)
20 years of good performance through two downturns and cycles.

Is 20 years really enough though?  2 downturns yes but effectively just one economic regime - lower growth/inflation/rates.

It will be interesting how this fund along with all the other common active funds will perform in a changing regime.  I think it was Ruffer's who had a very interesting piece on how Hershey's as an investment was thought of as a "quality brand investment" in the 1960s but did badly as an investment during the inflationary 1970s.

Maybe it isn't but like you say how many funds really go back that far. The style certainly fell apart during the 70s but the quality stocks were much more highly priced back then.

I am sure there are quite a few funds that still exist today going back 20 or more years.  The telling thing is that these funds won't be popular, that's why we never talk about them.  We only talk about the ones which have done well over recent years because that is what the majority of active fund retail investors hold - and that's not a good sign for active funds over multiple economic regimes...

This is the article I was referring to:

https://www.ruffer.co.uk/Thinking/Articles/The-Ruffer-Review/2020-03-Buy-and-hold

Seems to suggest valuation for Hershey's is a lot higher now than it was in the early 1970s prior to the multiple contraction.  That is probably due to the fact interest rates are lower now than they were in the late 1960s/ early 1970s.  But it won't take as much inflation and rates rising as the 1970s for Hershey's multiple to contract significantly - due to the convex nature of how discounting works...

Really does make you want to sell out of that Fundsmith or SMT fund doesn't it?

itwasntme001

Audaxer said:

itwasntme001 said:

Also no one ever holds an active fund for much more than 10 years anyway - what are the charges after 10 years?  Styles go out of fashion quicker than the fashion itself.  Holding onto an active fund for long than 10 years means you are likely to be holding onto a loser.  Market timing is required if you hold active funds.

I've never heard it said before that you are on a likely to be on a loser if you hold an active fund for more than 10 years. Is that a generally held view? Or that market timing is required if you hold active funds. I think there are plenty of investors on this forum with portfolios of active funds who would dispute that they require market timing to manage their portfolios? 

It can not be a generally held view because if it were, we would never get such herd behaviour of these popular funds - both from a pure performance perspective and the recommendations given to these funds.

Generally active funds like Fundsmith, SMT, Baillie Gifford tend to focus on a particular style - either by choice from the start or due to fund managers having to be forced to choose the style that works under current circumstances (in order to perform and attract more AUM).

Retail investors are usually always holding "the bag" when things change and works against these funds (because they think too short term and chase the winners).  Which is why they always lose out in the end.  Which is why timing it is paramount to long term success if you decide to go the active route.

Prism

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

BritishInvestor said:

itwasntme001 said:

Deleted_User said:

A fund cost of 0.5% a year and a adviser cost of 0.5% a year is a lot. People should always translate these costs into its corresponding portfolio cost over a typical duration like 25 yrs. 

Annual	25 yr		Annual	25 yr		Annual	25 yr
0.1%	2.5%		1.1%	24%		2.1%	41%
0.2%	4.9%		1.2%	26%		2.2%	42%
0.3%	7.2%		1.3%	28%		2.3%	44%
0.4%	9.5%		1.4%	30%		2.4%	45%
0.5%	12%		1.5%	31%		2.5%	46%
0.6%	14%		1.6%	33%		2.6%	48%
0.7%	16%		1.7%	35%		2.7%	49%
0.8%	18%		1.8%	36%		2.8%	50%
0.9%	20%		1.9%	38%		2.9%	52%
1.0%	22%		2.0%	39%		3.0%	53%

So, 1% in annual costs translates to a portfolio that is a fifth smaller after 25 years than a portfolio with 0.1% costs, all other aspects being equal. Its a lot of money. 

Is it a lot of money if the fund manager delivers enough returns (above the benchmark) to more than offset the charges?

Also no one ever holds an active fund for much more than 10 years anyway - what are the charges after 10 years?  Styles go out of fashion quicker than the fashion itself.  Holding onto an active fund for long than 10 years means you are likely to be holding onto a loser.  Market timing is required if you hold active funds.

"Is it a lot of money if the fund manager delivers enough returns (above the benchmark) to more than offset the charges?"
I'm not aware of such an offering in the retail space.

You could argue SMT, fundsmith, LT, Baillie Gifford are such funds.  They all charge more than a global passive equities fund.  All have performed very well over the last 10 years or so.

The problem is what happens over longer time frames, when investors experience changes in economic regimes.  There is a reason why most of the funds held by active fund investors haven't been around that long.  Even a long standing fund like SMT has under-performed a wealth preservation fund Capital Gearing Trust since the 1980s.

So really it depends.  Passive equity funds with its low charges are just a vehicle where momentum is taken advantage without the high fees.  They can just as easily fail to perform under changing economic environments because even they take time to adapt (weightings in the new leaders would by definition be low).  But at least they don't miss out on tomorrow's leaders whereas active funds most likely will.

Probably the best long term example of the style is the Morgan Stanley fund.
Global Brands Fund (morganstanley.com)
20 years of good performance through two downturns and cycles.

Is 20 years really enough though?  2 downturns yes but effectively just one economic regime - lower growth/inflation/rates.

It will be interesting how this fund along with all the other common active funds will perform in a changing regime.  I think it was Ruffer's who had a very interesting piece on how Hershey's as an investment was thought of as a "quality brand investment" in the 1960s but did badly as an investment during the inflationary 1970s.

Maybe it isn't but like you say how many funds really go back that far. The style certainly fell apart during the 70s but the quality stocks were much more highly priced back then.

I am sure there are quite a few funds that still exist today going back 20 or more years.  The telling thing is that these funds won't be popular, that's why we never talk about them.  We only talk about the ones which have done well over recent years because that is what the majority of active fund retail investors hold - and that's not a good sign for active funds over multiple economic regimes...

This is the article I was referring to:

https://www.ruffer.co.uk/Thinking/Articles/The-Ruffer-Review/2020-03-Buy-and-hold

Seems to suggest valuation for Hershey's is a lot higher now than it was in the early 1970s prior to the multiple contraction.  That is probably due to the fact interest rates are lower now than they were in the late 1960s/ early 1970s.  But it won't take as much inflation and rates rising as the 1970s for Hershey's multiple to contract significantly - due to the convex nature of how discounting works...

Really does make you want to sell out of that Fundsmith or SMT fund doesn't it?

I do think finding a fund that has been running for 20+ years with the same manager and the same style is pretty hard. People get bored and move on - or sacked or head hunted.

Its a good article. I was thinking more along the lines of the nifty fifty lower down than the Hershey's piece which highlights the true risk of over priced stocks regardless of how good they are.

I sold out of SMT mid 2019 (bad move it seems) because of those worries. Fundsmith I am staying with mainly because I can't think of anywhere else I want to park my cash. Fundsmith has been one of my worse performing funds over the last 2 years which I don't mind at all.

itwasntme001

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

BritishInvestor said:

itwasntme001 said:

Deleted_User said:

A fund cost of 0.5% a year and a adviser cost of 0.5% a year is a lot. People should always translate these costs into its corresponding portfolio cost over a typical duration like 25 yrs. 

Annual	25 yr		Annual	25 yr		Annual	25 yr
0.1%	2.5%		1.1%	24%		2.1%	41%
0.2%	4.9%		1.2%	26%		2.2%	42%
0.3%	7.2%		1.3%	28%		2.3%	44%
0.4%	9.5%		1.4%	30%		2.4%	45%
0.5%	12%		1.5%	31%		2.5%	46%
0.6%	14%		1.6%	33%		2.6%	48%
0.7%	16%		1.7%	35%		2.7%	49%
0.8%	18%		1.8%	36%		2.8%	50%
0.9%	20%		1.9%	38%		2.9%	52%
1.0%	22%		2.0%	39%		3.0%	53%

So, 1% in annual costs translates to a portfolio that is a fifth smaller after 25 years than a portfolio with 0.1% costs, all other aspects being equal. Its a lot of money. 

Is it a lot of money if the fund manager delivers enough returns (above the benchmark) to more than offset the charges?

Also no one ever holds an active fund for much more than 10 years anyway - what are the charges after 10 years?  Styles go out of fashion quicker than the fashion itself.  Holding onto an active fund for long than 10 years means you are likely to be holding onto a loser.  Market timing is required if you hold active funds.

"Is it a lot of money if the fund manager delivers enough returns (above the benchmark) to more than offset the charges?"
I'm not aware of such an offering in the retail space.

You could argue SMT, fundsmith, LT, Baillie Gifford are such funds.  They all charge more than a global passive equities fund.  All have performed very well over the last 10 years or so.

The problem is what happens over longer time frames, when investors experience changes in economic regimes.  There is a reason why most of the funds held by active fund investors haven't been around that long.  Even a long standing fund like SMT has under-performed a wealth preservation fund Capital Gearing Trust since the 1980s.

So really it depends.  Passive equity funds with its low charges are just a vehicle where momentum is taken advantage without the high fees.  They can just as easily fail to perform under changing economic environments because even they take time to adapt (weightings in the new leaders would by definition be low).  But at least they don't miss out on tomorrow's leaders whereas active funds most likely will.

Probably the best long term example of the style is the Morgan Stanley fund.
Global Brands Fund (morganstanley.com)
20 years of good performance through two downturns and cycles.

Is 20 years really enough though?  2 downturns yes but effectively just one economic regime - lower growth/inflation/rates.

It will be interesting how this fund along with all the other common active funds will perform in a changing regime.  I think it was Ruffer's who had a very interesting piece on how Hershey's as an investment was thought of as a "quality brand investment" in the 1960s but did badly as an investment during the inflationary 1970s.

Maybe it isn't but like you say how many funds really go back that far. The style certainly fell apart during the 70s but the quality stocks were much more highly priced back then.

I am sure there are quite a few funds that still exist today going back 20 or more years.  The telling thing is that these funds won't be popular, that's why we never talk about them.  We only talk about the ones which have done well over recent years because that is what the majority of active fund retail investors hold - and that's not a good sign for active funds over multiple economic regimes...

This is the article I was referring to:

https://www.ruffer.co.uk/Thinking/Articles/The-Ruffer-Review/2020-03-Buy-and-hold

Seems to suggest valuation for Hershey's is a lot higher now than it was in the early 1970s prior to the multiple contraction.  That is probably due to the fact interest rates are lower now than they were in the late 1960s/ early 1970s.  But it won't take as much inflation and rates rising as the 1970s for Hershey's multiple to contract significantly - due to the convex nature of how discounting works...

Really does make you want to sell out of that Fundsmith or SMT fund doesn't it?

I do think finding a fund that has been running for 20+ years with the same manager and the same style is pretty hard. People get bored and move on - or sacked or head hunted.

Its a good article. I was thinking more along the lines of the nifty fifty lower down than the Hershey's piece which highlights the true risk of over priced stocks regardless of how good they are.

I sold out of SMT mid 2019 (bad move it seems) because of those worries. Fundsmith I am staying with mainly because I can't think of anywhere else I want to park my cash. Fundsmith has been one of my worse performing funds over the last 2 years which I don't mind at all.

Whether it is the nifty fifty or Hershey's, the point is the same.  Good companies don't always make good investments because it depends on valuations and it also depends on other variables not directly related to the company such as interest rates and inflation.

Hal17

Interesting thread especially as I have a Royal London Governed Retirement Income Portfolio 3 pension fund. I have no FA charges associated so happy with discounted fund charges and annual profit share. However, I was concerned to read about the Junk bonds held in this Portfolio - no idea which bonds these these too though? After reading the many comments by Mordko on the RL fund, I don't feel as comfortable with my choice as I did before reading this thread. I thought I was doing alright over the last 5 years. Should I be concerned?

[Deleted User]

The classic 60/40 portfolio has been declared dead lots of times but has delivered great performance time after time.  I am guessing 6% per year net of inflation is about normal; over many decades. 

This time might be different. I could well be wrong but maths is telling me that the 40% portion of this portfolio will deliver negative real returns over the next 10 years or so. Its not unusual for bonds to deliver decades of negative returns. There has been a secular growth for 30+ years as interest rates went down but it can’t continue. 

With shares, returns are unpredictable but historically, world stocks have always gone up long term. 

Something like 70/30 with the focus on short term and inflation protected bonds could be the new 60/40. 

Whatever the weather, a 30/70 high cost RL portfolio filled with funds which suspended trading for months earlier this year, isn’t anyone’s answer to a safe and prosperous retirement. 

Thrugelmir

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

thriftytracey said:

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Hindsight is a wonderful tool.  Everyone is suddenly an expert after the event. Being cautious is using sound investment judgement when there's uncertainty.  Which there's no shortage of at the currrent time. Following the herd isn't always a wise strategy. 

Hindsight has nothing to do with it. You are surely paying an adviser for a robust retirement plan and peace of mind. A robust retirement plan would be very unlikely to have required any adjustments to spending plans during the recent downturn

Of course it's hindsight. You are using that very thing in making the statement above. I doubt that global pandemics would have been factored into many investors retirements plans. 

It really isn't hindsight - given the brevity of the downturn, benign inflation, the multi-year run-up in asset prices prior to the event, quality bonds holding up reasonably well and spending adjustments typically being made on a structured, annual basis, I'm perplexed.

If I had an investment advisor and they said that to me. I'd be running a mile. 

For someone that retired in March 2019 with a 60/40 portfolio, their portfolio would've been down around 5.5% over the year (ignoring fees). 

That's a well outdated concept that had it's day some years ago.  As low bond yields will not help offset a poor return on equity returns.  Let's not forget that equity markets have been driven by increasing p/e's (and from a UK investors perspective a falling exchange rate).  Not underlying overall company profitability.  

It has nothing to do with a "concept". It's a typical portfolio used to highlight the fact that falls have been minor relative to historical events.

Why look backwards? There's nothing in post WW2 economic history to compare to the challenges faced in the immediate future.  I'm hedging against both a relatively poor decade of equity returns and the possibility of a short term nudge upwards in inflation. My overall portfolio has never been more cautiously positioned. Sometimes it just boils down to basic maths. 

 If so, why on earth wouldn't you take a secured income instead of exposing your money to investment risk and poor returns? 

Secure income from investing in what ?  Cautious investments which provide sustainable returns. Poor is a relative term. As many companies are going to struggle from coronavirus. Stock selection will therefore prove key.