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

dunstonh

They also have equities in this cautious fund and equities are normally regarded as high risk. Should they also remove equities? You seem to be missing a vital point: what matters is the overall portfolio risk, not the risk of individual pieces within it. Both junk bonds and equities are appropriate for this fund, as is commercial property in some version, but perhaps not this version if it requires 100% liquidity.

There is no liquidity issue with the property fund within the GP range.       As the GP range is retail individual investors, the actual flow of money is foreseeable and controllable and of a relatively low level.  So, whilst the RLP property fund did suspend like all the rest if you held it individually, it did not if you held it within the GP or GRIP range.

[Deleted User]

In a crisis commercial property becomes illiquid as buyers disappear.  That is  the exact point in time when owners need cash and try to sell the asset.  This has happened multiple times in the past.  Generating cash on private property becomes impossible.  Sure, you can still sell equity at the lowest point to generate cash to cover withdrawals from RL3. Until it runs out.  Meanwhile portfolio like RL3 becomes overweight in an unsellable-hard-to-value asset. Not exactly a safe heaven/bond replacement type of asset.  

itwasntme001

Prism said:

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.

Yeh the gains have been crazy.  This year I have made over 20% and that is on a 7 figure portfolio.  Last year was similar although it came after a poor 2018.  I am at a stage where I don't need to risk capital so to eek out a return matching inflation from now on will suit me fine.  But I am also in my 30s so makes sense to have some equity exposure for the long term.

Thrugelmir

Deleted_User said:

DT2001 said:

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.

3. Forced you to stop withdrawals completely (wow) and impacted your plan after a bad month on the stock exchange. 

One day it won't be a bad month.......  anyone who had the foresight to predict  the markets movements at the time would be exceedingly rich as a result. 

itwasntme001

BritishInvestor 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.

"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. 

Generally all growth but some more quality (fundsmith) and others more high octane growth (SMT).

Yes if there were a way to disentangle luck from skill, then it would a lot easier to pick the "right" active funds to invest in.  But that is virtually impossible.

Markets are adaptive which is why you find a lot of overlap in BG funds.  It is why you find a lot of retail investors owning the same funds.  It is why the passive index weights the recent winners more.

No one really knows how long the current trends will remain.  I suspect we have more to go because I can't imagine, given the debt load and the dire economic situation reversing anytime soon.  This means real interest rates will have to remain low for quite sometime which is very supportive for growth equities as opposed to value and other "reflation" style stocks.

The key thing to watch would be inflation because any surprise on this will mean a likely change in regime and assumptions on monetary policy and market interest rates.

And because no one can forecast these things consistently it makes sense that all of this is pretty much luck

itwasntme001

Audaxer said:

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. 

Well a momentum trader would want to buy the best performing fund as that is his strategy.  But a long term investor probably not, although no one really knows how long the top performers will continue to be top performers.  Which is why I say for the longer term, passive funds are the best vehicle - they include the winners of today and the eventual winner's of tomorrow.  With active funds there is a serious risk of missing out on tomorrow's winner and this risk will only continue to rise the longer you hold it.

Passive funds won't make you rich whilst active funds has the POTENTIAL to make you rich, but passive funds won't end in disaster, which active funds are known to do even with the smartest of managers.

Income funds are a style of investing - an example of one that had done well in the past but is currently doing very poorly.  It may have its day eventually but whether that is in 2 years or 20 years is anyone's guess really.

Thrugelmir

itwasntme001 said:

Audaxer said:

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. 

Which is why I say for the longer term, passive funds are the best vehicle - they include the winners of today and the eventual winner's of tomorrow.  With active funds there is a serious risk of missing out on tomorrow's winner and this risk will only continue to rise the longer you hold it.

As passive (and indeed many active funds) grow in size. Then tomorrow's winners buried in the depths of the likes AIM, or the micro, fledging and small indexes of the main London market (for example). Aren't even on the radar.  Simply too small in free float market capitisation to be considered.  Majority of gain is made by investing at the ground floor level. Having a long term investment horizon helps. 

Prism

dunstonh said:

jamesd said:

BritishInvestor said:

Regarding the dampening effect of index-linked offerings, most I've seen tend to be longer duration - something like a 15-20% fall in a week in March for example which is not ideal.
https://www.vanguardinvestor.co.uk/investments/vanguard-uk-inflation-linked-gilt-index-fund-gbp-acc/price-performance

Some US work looked at the retirement drawdown performance of bonds in low interest environments and found that cash (one year Treasury bills) beat bonds. The bonds paid more but not enough to compensate for their capital losses as interest rates rose. As you and others have illustrated well, dampening currently requires short duration bonds, not long, if bonds are to be used at all.

It's part of why I'm  currently low bonds and high cash, though an offset mortgage definitely helps that choice.

That is also reflected in the asset model allocations from our research company.  They started reducing bond allocations pretty consistently around 3 years ago and today there is no bond allocation in any of the risk profiles except those that have a long timescale duration.  Gilts (not index-linked) and cash are the two risk volatility reducers used (generally viewed as the two least worst options).

Do you not think that global (hedged) government bonds could perform a better job than Gilts funds at the moment, which all seem to be pretty long duration and therefore a bit more volatile?

dunstonh

Prism said:

dunstonh said:

jamesd said:

BritishInvestor said:

Regarding the dampening effect of index-linked offerings, most I've seen tend to be longer duration - something like a 15-20% fall in a week in March for example which is not ideal.
https://www.vanguardinvestor.co.uk/investments/vanguard-uk-inflation-linked-gilt-index-fund-gbp-acc/price-performance

Some US work looked at the retirement drawdown performance of bonds in low interest environments and found that cash (one year Treasury bills) beat bonds. The bonds paid more but not enough to compensate for their capital losses as interest rates rose. As you and others have illustrated well, dampening currently requires short duration bonds, not long, if bonds are to be used at all.

It's part of why I'm  currently low bonds and high cash, though an offset mortgage definitely helps that choice.

That is also reflected in the asset model allocations from our research company.  They started reducing bond allocations pretty consistently around 3 years ago and today there is no bond allocation in any of the risk profiles except those that have a long timescale duration.  Gilts (not index-linked) and cash are the two risk volatility reducers used (generally viewed as the two least worst options).

Do you not think that global (hedged) government bonds could perform a better job than Gilts funds at the moment, which all seem to be pretty long duration and therefore a bit more volatile?

The fear with global bonds is currency fluctuations.  Hedging can offset that and put you on par with investment-grade bonds.  So, that could be an option but the range of hedged global bond funds is not particularly wide.       Each asset class and investment pushes and pulls on the risk levels.    And when you measure the risk vs reward balance, are you better off holding cash and changing the ratio to equities.       If you held 20% in cash, 30% in gilts and 50% in equities, you wouldn't replace the cash element with gilts or hedged global bonds without altering the equity content downwards as well.     You may have to drop the equity content to 40% to maintain the same sort of volatility range.  Then you lose some upside.         The key to perfection is knowing how much of each is needed and being able to adapt the weightings as things change but nobody knows what perfection is.   Every weighting model is an opinion based on assumptions.
So, in answer to your question.  Yes, they could but maybe they won't but we will know in x years time if they did in that period. (I'm not telling you anything you dont already know).

cfw1994

dunstonh said:

BritishInvestor said:

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.

I think that is a fair assessment. 

We can eliminate all the posts talking about whether RL is a good option or not.  It is a simple option and does the job as well or better than all the other simple options out there.    It won't be best.  it won't be worst.  It will be like the rest of the simple options in being middle of the road.
The focus should really be on why there didn't appear to be the preparation for a negative period (maybe the was as the OP said they knew it could happen but didn't expect it so soon), the lack of any emergency fund outside of the pension (maybe there was and this was part of the plan to fall back on during negative periods)  and why such an extreme option of turning off the income altogether took place (again, maybe that was the plan if there were sufficient cash funds to call upon).   
Maybe an ad-hoc withdrawal should be made from the pension now to replenish those cash funds seeing as the markets are higher (maybe this is the plan too)

Not sure what I was expecting? 
Well, it isn't my thread, so it doesn't matter too much what I was expecting....
....but the OP did ask for "your experiences during 2020 and intentions in 2021?"
What were yours, @BritishInvestor?   Not too sure if you are an IFA/FA or even retiree?!
@dunstonh - we know you are an IFA - what experiences were your clients during 2020, & how do you guide their expectations for 2021?

The vast majority of the past 13 pages has been technical discussions around content of pots.....well done to @Moe_The_Bartender for providing a response these last few pages!   
Maybe OP has wandered off after the deeply technical discussion!