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

DT2001

Deleted_User said:

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Can I ask who defines the level of risk for funds?

I think I understand your answer and the logic however my concern is that many on here suggest everyone should improve their investment knowledge (agreed) and DIY but you are suggesting a portfolio that would be considered too risky for an investor with a cautious attitude. My point is how do you ensure you build the correct retirement plan if the basis on which you formulate it maybe flawed?

Thrugelmir

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. 

Thrugelmir

DT2001 said:

Deleted_User said:

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Can I ask who defines the level of risk for funds?

I think I understand your answer and the logic however my concern is that many on here suggest everyone should improve their investment knowledge (agreed) and DIY but you are suggesting a portfolio that would be considered too risky for an investor with a cautious attitude. My point is how do you ensure you build the correct retirement plan if the basis on which you formulate it maybe flawed?

DT2001 said:

Deleted_User said:

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Can I ask who defines the level of risk for funds?

The underlying assets held determine the risk level. By diversifying a portfolio it's possible to mitigate the volatility of an asset class.  Risk in itself comes in numerous forms. 

[Deleted User]

DT2001 said:

Deleted_User said:

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Can I ask who defines the level of risk for funds?

I think I understand your answer and the logic however my concern is that many on here suggest everyone should improve their investment knowledge (agreed) and DIY but you are suggesting a portfolio that would be considered too risky for an investor with a cautious attitude. My point is how do you ensure you build the correct retirement plan if the basis on which you formulate it maybe flawed?

Lets try to use simple intuitive concepts to define “risk” rather than what undereducated advisers use based on standard forms to cut time/effort and protect themselves.  

What should the OP be afraid of? Is it the maximum drawdown of the portfolio? Or long term losses? I would say its all of the above but the latter is more dangerous to his financial health.  

How is his portfolio performing when the stocks go down? Badly.  In 2018 this portfolio had a negative return. And in 2020.  And over the last 3 years. And the drawdown was as bad as a 100 equity portfolio.  

What will this portfolio do as the market recovers when the times are good? It will underperform every portfolio with a decent amount of equities.  In fact, 70% of assets in this portfolio have negative expected real return, particularly given high costs.

On top of this, his expensive adviser is telling him to stop withdrawals after a short downturn. Didn’t tell him to reduce withdrawals.  He had to cut them altogether. No cash buffer.  What use is this product as a  drawdown portfolio if it can’t withstand a 1 month of a downturn with a v-haped recovery?  

How is this not a high risk portfolio? How is that more risky than a 70-30 stocks/bonds portfolio with a couple of years as a cash buffer? Loaded with below zero return products, combined with its high costs, I can’t think of any scenario when RL portfolio 3 would do better.   That’s a very real risk of being poor but a very low risk of IFA being out of pocket. IFA gets paid whether portfolio gains or loses. And so does RL. 

[Deleted User]

Thrugelmir said:

DT2001 said:

Deleted_User said:

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Can I ask who defines the level of risk for funds?

I think I understand your answer and the logic however my concern is that many on here suggest everyone should improve their investment knowledge (agreed) and DIY but you are suggesting a portfolio that would be considered too risky for an investor with a cautious attitude. My point is how do you ensure you build the correct retirement plan if the basis on which you formulate it maybe flawed?

DT2001 said:

Deleted_User said:

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Can I ask who defines the level of risk for funds?

The underlying assets held determine the risk level. By diversifying a portfolio it's possible to mitigate the volatility of an asset class.  Risk in itself comes in numerous forms. 

Very much depends on what you are using to diversify. Adding property, commodity and junk bonds to equities does not reduce risk of drawdown at all. In a crisis all of these assets will be screwed.

itwasntme001

Deleted_User said:

Thrugelmir said:

DT2001 said:

Deleted_User said:

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Can I ask who defines the level of risk for funds?

I think I understand your answer and the logic however my concern is that many on here suggest everyone should improve their investment knowledge (agreed) and DIY but you are suggesting a portfolio that would be considered too risky for an investor with a cautious attitude. My point is how do you ensure you build the correct retirement plan if the basis on which you formulate it maybe flawed?

DT2001 said:

Deleted_User said:

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Can I ask who defines the level of risk for funds?

The underlying assets held determine the risk level. By diversifying a portfolio it's possible to mitigate the volatility of an asset class.  Risk in itself comes in numerous forms. 

Very much depends on what you are using to diversify. Adding property, commodity and junk bonds to equities does not reduce risk of drawdown at all. In a crisis all of these assets will be screwed.

You are assuming that all risky assets are +100% correlated.  They are not.  Property, commodity, equities each have their own risk profiles and perform differently across a variety of economic environments/regimes.

If you take a 70/30 portfolio, having 70% in equities compared to having 50% equities + 20% property, I would think that the latter portfolio would suffer reduced draw-downs whilst producing similar returns.

If anything, I think relying on public equities for the bulk of your portfolio, even over the long term, is quite foolish.  Particularly at today's prices.

I think the global market portfolio only allocates about 40% to public equities.

DT2001

Thruglemir
“The underlying assets held determine the risk level. By diversifying a portfolio it's possible to mitigate the volatility of an asset class.  Risk in itself comes in numerous forms. “

I thought Mordko was saying that high quality bonds are high risk in the current environment but I thought generally a fund of them has been considered lower risk than equities. Who determines that risk indicator say on HL website?

[Deleted User]

itwasntme001 said:

Deleted_User said:

Thrugelmir said:

DT2001 said:

Deleted_User said:

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Can I ask who defines the level of risk for funds?

I think I understand your answer and the logic however my concern is that many on here suggest everyone should improve their investment knowledge (agreed) and DIY but you are suggesting a portfolio that would be considered too risky for an investor with a cautious attitude. My point is how do you ensure you build the correct retirement plan if the basis on which you formulate it maybe flawed?

DT2001 said:

Deleted_User said:

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Can I ask who defines the level of risk for funds?

The underlying assets held determine the risk level. By diversifying a portfolio it's possible to mitigate the volatility of an asset class.  Risk in itself comes in numerous forms. 

Very much depends on what you are using to diversify. Adding property, commodity and junk bonds to equities does not reduce risk of drawdown at all. In a crisis all of these assets will be screwed.

You are assuming that all risky assets are +100% correlated.  They are not.  Property, commodity, equities each have their own risk profiles and perform differently across a variety of economic environments/regimes.

If you take a 70/30 portfolio, having 70% in equities compared to having 50% equities + 20% property, I would think that the latter portfolio would suffer reduced draw-downs whilst producing similar returns.

If anything, I think relying on public equities for the bulk of your portfolio, even over the long term, is quite foolish.  Particularly at today's prices.

I think the global market portfolio only allocates about 40% to public equities.

I do not assume they are “100% correlated” (sic).  Correlations for these assets change over time.  They become positively correlated during major events. If you don’t believe me check out what happened to junk bonds in 2008. Just one example. Junk bonds drop more than shares. When companies go bankrupt, those in trouble, the ones forced to borrow at higher interest become prime candidates for returning zilch on the pound. Property funds like this become illiquid.  Haven’t some British property funds stopped trading and banned withdrawals this year? And commodity is cyclical but its always down when something like  2008 happens. Because who will buy oil or metal if the economy is down? 

Buying lots of risky assets like this, even if they are not normally correlated, does not give you safety during a major downturn.  It might however make your model look less risky.  All models work on a fundamental concept called “SISO”. 

[Deleted User]

“ I think the global market portfolio only allocates about 40% to public equities...”. What is that? 

[Deleted User]

DT2001 said:

Thruglemir
“The underlying assets held determine the risk level. By diversifying a portfolio it's possible to mitigate the volatility of an asset class.  Risk in itself comes in numerous forms. “

I thought Mordko was saying that high quality bonds are high risk in the current environment but I thought generally a fund of them has been considered lower risk than equities. Who determines that risk indicator say on HL website?

I am saying this.  Right now I find it really hard justifying ownership of any long duration bonds in the developed world. Maths is against them. Deflation is the one and only scenario working for them.  This is not a normal situation and traditional “risk” measures are very misleading.