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

Prism

itwasntme001 said:

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.

I agree, however since I have no skill in making my own valuations of stocks I guess I will just need to leave it to others. I have no reason to believe that the rest of the market is priced to perform better. 

Anyway, the ride up has been so good that the ride down would need to be pretty drastic to remove all of the gains that some of these funds have made over the last 10 years. I won't be bailing just yet.

BritishInvestor

Thrugelmir said:

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. 

Secure income: some form of annuity
I'm not sure what a cautious investment is nor how it will provide sustainable returns.
I'm also not sure how stock selection will help - the market doesn't tend to misprice many assets for long. This is a good book to understand the kind of people that seek short term mispricings. 
https://www.amazon.co.uk/Man-Who-Solved-Market-SHORTLISTED/dp/0241422159/ref=sr_1_1

[Deleted User]

Hal17 said:

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?

Junk bonds: https://www.investopedia.com/terms/j/junkbond.asp

RL calls them “high yield bonds”, which is a nicer name for the same thing.   Don’t get me wrong - one can make money on junk bonds. I have 2 problems with this asset:

1. RL holds them in cautious portfolios.  There is nothing cautious about this type of investment. 

2.  Right now the yield  for holding bonds of heavily indebted companies, which are rated as prone to bankruptcies, is around 4%.  Thats only 2% over inflation.  Poor investors and funds desperate for yield buy them anyway.  For the sake of 2% over inflation investors are risking losing capital if/when these companies go bankrupt.  How is this “cautious”? 

Also, re assets within RL3:

1. I really dislike when illiquid property funds are promoted to cautious investors.  Highly misleading. Inappropriate for anyone in drawdown.
2. Commodities in RL3 have zero expected return. Same as bonds.  This wasn’t an issue 5 years ago but it is now. 

In my opinion, a cost efficient multi-asset 70/30 fund combined with a couple of years worth of cash buffer isa far more appropriate vehicle for someone in drawdown. 

Having said all this, you should not make any decisions based on what anyone says on a forum. Read a few books and make up your own mind. 

cfw1994

shinytop said:

cfw1994 said:

Is it just me, or has the intent of this thread disappeared in the bickering 
Anyone else got any *cough* actual experiences of drawdown pensions during 2020, and intentions in 2021?
Feels like there needs to be a separate and deeply technical thread for some posters.....

It happens to a lot of threads.  The OP askes how to wire a plug and before we know it people who have never wired a plug before are arguing about advanced electromagnetic theory. 

Seems to be precisely what has happened here.  I come back a few hours and 3 pages later and still no useful additions in the interim.......Where’s that “unsubscribe” button 

Hal17

Thank you Mordko for your reply and the link you kindly provided, all very much appreciated. I will certainly undertake some personal research.

BritishInvestor

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.

"You could argue SMT, fundsmith, LT, Baillie Gifford are such funds."
I'm guessing they all have the same investing style - namely large-cap growth/quality? If so, I guess it all down to whether you think it is luck or skill that they managed to jump on the massive run-up that stocks of this type have experienced. 

Audaxer

itwasntme001 said:

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.

I agree that you should not just invest in the recent best performing active funds and ITs like the ones you mention - I think that is sometimes referred to as fashion investing. I don't think that is the same for all active funds and ITs, some of which have paid increasing amounts of dividends for decades, and are attractive as buy and hold investments for a lot of retirees. 

DT2001

cfw1994 said:

shinytop said:

cfw1994 said:

Is it just me, or has the intent of this thread disappeared in the bickering 
Anyone else got any *cough* actual experiences of drawdown pensions during 2020, and intentions in 2021?
Feels like there needs to be a separate and deeply technical thread for some posters.....

It happens to a lot of threads.  The OP askes how to wire a plug and before we know it people who have never wired a plug before are arguing about advanced electromagnetic theory. 

Seems to be precisely what has happened here.  I come back a few hours and 3 pages later and still no useful additions in the interim.......Where’s that “unsubscribe” button 

Let us try to get it back on track.

thriftytracey 
Putting the off tangent comments aside can you tell us about your retirement plan? When your OH’s SP comes into payment (is it the full amount) was it your intention to reduce the amount drawn from RL or was the extra income allocated for something.
Will you be entitled to a full SP in 6 years and if so will you then draw less from RL?
Maybe someone can then suggest a few pertinent questions to ask your IFA?
My plan for drawdown starts when OH draws her SP (this dictates the amount needed in our pots, at that time, to meet our number). I know, as OH has now deferred retiring, that we will be able to draw down at a higher rate than considered reasonable which will eat into our capital but still have enough later on.

BritishInvestor

cfw1994 said:

shinytop said:

cfw1994 said:

Is it just me, or has the intent of this thread disappeared in the bickering 
Anyone else got any *cough* actual experiences of drawdown pensions during 2020, and intentions in 2021?
Feels like there needs to be a separate and deeply technical thread for some posters.....

It happens to a lot of threads.  The OP askes how to wire a plug and before we know it people who have never wired a plug before are arguing about advanced electromagnetic theory. 

Seems to be precisely what has happened here.  I come back a few hours and 3 pages later and still no useful additions in the interim.......Where’s that “unsubscribe” button 

I'm not really sure what more you were expecting from the thread. There were several comments from people on here that have wired a plug, from electricians that wire plugs for a living, and from electricians that write books on how to wire plugs.
Many expressed surprise that the RCD had tripped given the mild spike in current and wonder why the power hadn't been restored sooner.

jamesd

Deleted_User said:

 RL portfolio 3 delivered negative return over the last 3 years. Thats unusual.  Did this portfolio cushion the blow vs a 100% equity portfolio? No.   The adviser told OP to stop withdrawals after a really bad month. Give me one reason to continue with this adviser and RL 3. 

The original poster seems comfortable with them. That's your required one and only one that I see.

What I want to see is an adviser using safe withdrawal rate plus state pension substitution and phoning the customer to reassure them that it's OK to continue drawing as usual because the drawing rate is robust against far worse things. Or that and suggesting a rebalance into equities when prices are low.

Risk analysis seems to have been confined to investment volatility rather than risk of plan failure and that is also not a good thing.

I'd be happier with safe withdrwal rate and 30-40 year plan success at meeting objectives analysis. The sort of thing that amateurs routinely do in posts here.