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

itwasntme001

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.

It is not ideal but it sure is a lot better than equities.  Long duration nominal bonds had a similar draw-down to linkers.  The key thing about linkers is in a sudden inflation shock scenario, linkers will perform well (perhaps very well), whilst equities will likely suffer and nominal bonds will get hammered.

BritishInvestor

itwasntme001 said:

BritishInvestor said:

itwasntme001 said:

BritishInvestor said:

itwasntme001 said:

Deleted_User said:

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”. 

You are assuming 100% correlation for all risky assets during a crisis.  You may not think you are but you most certainly are by your explanations.  Correlation is a function of both magnitude and direction.  Asset classes will clearly never always fall at the same time by the same magnitude, even during a "crisis", because they have different cash flow and risk profiles.  So it follows you are more diversified (i.e. less risk) by having assets across a number of asset classes for your risky portion compared to just equities.  Do a historical comparison and you will find this true for at least some combinations.

Junk bonds behave a lot like equities so asset classes such as this will obviously not improve diversification much if at all.  But IG corporate bonds will.  I think property will (UK property fell a lot less than the 50%+ equity crash in 2008/09).  Gold as well as other commodities do (in an inflationary environment commodities can do well whilst equities suffer due to higher rates / input costs).  After this, you can then assess which combination produced the best risk adjusted returns historically.  You will find there are at least a few asset class combinations that have been superior to just 100% equities.  You can diversify your "risky" allocation so you are taking overall less risk than if you just had equities as your risky allocation.

You can not use property OEIC fund liquidations to suggest they are as risky or more than equities.  These are a problem by design - it is absurd to have illiquid assets using OEICs as investment vehicles.

Re property - the Vanguard link I posted earlier had the performance of Global REIT during the GFC (which I think is a reasonable comparison vs global equities) - it didn't fare very well. But that said, people tend to be split over whether to include an explicit property fund in the growth part of their portfolio. 
For IG corporate bonds, is this as part of the growth or defensive part of the portfolio?

REITs will behave a lot like equities during crisis.  By property I meant holding direct holdings.  The point about holding more than equities as part of your risky allocation is not about short term liquidity driven draw-downs, but by the risk of a longer sustained loss in any particular asset class.  Having direct holdings in property means you do not have to rely on just equities to recover.

There is a case that IG corporate bonds in general are no longer defensive, because the FED has been buying these artificially keeping yields low.  But perhaps a well managed active fund for IG bonds (who are very selective) could be a defensive holding.

I'd struggle to compare direct property (assuming BTL) with something like global equities given the illiquidity, concentration risk, potential taxation, expenses, your time (or pay someone to manage), potential voids etc.

I take your point on potential sustained loss that equities may suffer, but they've been through lost decades in the past, and a robust plan should be able to cater for that.

The point is to find alternative asset classes to diversify away from equities.  BTL obviously pose risks but the key thing is they are different risks to equity risk.  Which is what you want in order to diversify your risks and reduce the chance of a long and sustained draw-down in your risky portfolio.

Yep, see your point, it's just that BTL wouldn't be that diversifier, IMO
https://www.amazon.co.uk/Reducing-Risk-Black-Swans-Volatility/dp/069206074X/ref=sr_1_3?
I recall this was an interesting read on the topic. 

itwasntme001

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.

itwasntme001

BritishInvestor said:

itwasntme001 said:

BritishInvestor said:

itwasntme001 said:

BritishInvestor said:

itwasntme001 said:

Deleted_User said:

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”. 

You are assuming 100% correlation for all risky assets during a crisis.  You may not think you are but you most certainly are by your explanations.  Correlation is a function of both magnitude and direction.  Asset classes will clearly never always fall at the same time by the same magnitude, even during a "crisis", because they have different cash flow and risk profiles.  So it follows you are more diversified (i.e. less risk) by having assets across a number of asset classes for your risky portion compared to just equities.  Do a historical comparison and you will find this true for at least some combinations.

Junk bonds behave a lot like equities so asset classes such as this will obviously not improve diversification much if at all.  But IG corporate bonds will.  I think property will (UK property fell a lot less than the 50%+ equity crash in 2008/09).  Gold as well as other commodities do (in an inflationary environment commodities can do well whilst equities suffer due to higher rates / input costs).  After this, you can then assess which combination produced the best risk adjusted returns historically.  You will find there are at least a few asset class combinations that have been superior to just 100% equities.  You can diversify your "risky" allocation so you are taking overall less risk than if you just had equities as your risky allocation.

You can not use property OEIC fund liquidations to suggest they are as risky or more than equities.  These are a problem by design - it is absurd to have illiquid assets using OEICs as investment vehicles.

Re property - the Vanguard link I posted earlier had the performance of Global REIT during the GFC (which I think is a reasonable comparison vs global equities) - it didn't fare very well. But that said, people tend to be split over whether to include an explicit property fund in the growth part of their portfolio. 
For IG corporate bonds, is this as part of the growth or defensive part of the portfolio?

REITs will behave a lot like equities during crisis.  By property I meant holding direct holdings.  The point about holding more than equities as part of your risky allocation is not about short term liquidity driven draw-downs, but by the risk of a longer sustained loss in any particular asset class.  Having direct holdings in property means you do not have to rely on just equities to recover.

There is a case that IG corporate bonds in general are no longer defensive, because the FED has been buying these artificially keeping yields low.  But perhaps a well managed active fund for IG bonds (who are very selective) could be a defensive holding.

I'd struggle to compare direct property (assuming BTL) with something like global equities given the illiquidity, concentration risk, potential taxation, expenses, your time (or pay someone to manage), potential voids etc.

I take your point on potential sustained loss that equities may suffer, but they've been through lost decades in the past, and a robust plan should be able to cater for that.

The point is to find alternative asset classes to diversify away from equities.  BTL obviously pose risks but the key thing is they are different risks to equity risk.  Which is what you want in order to diversify your risks and reduce the chance of a long and sustained draw-down in your risky portfolio.

Yep, see your point, it's just that BTL wouldn't be that diversifier, IMO
https://www.amazon.co.uk/Reducing-Risk-Black-Swans-Volatility/dp/069206074X/ref=sr_1_3?
I recall this was an interesting read on the topic. 

BTL is A diversifier but it may not be the most optimal one.  The problem is you are replacing some of your equity risk with something else that needs to contain some risk but different to equity.  You're gonna have to take risk with something.  Otherwise you'll be changing your asset allocation more drastically by choosing bonds for example, together with the expected lower returns.

itwasntme001

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.

It is not ideal but it sure is a lot better than equities.  Long duration nominal bonds had a similar draw-down to linkers.  The key thing about linkers is in a sudden inflation shock scenario, linkers will perform well (perhaps very well), whilst equities will likely suffer and nominal bonds will get hammered.

I replied to the wrong post, was meant to reply to the previous one you posted.

Prism

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.

itwasntme001

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.

Prism

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.

Thrugelmir

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.  

Audaxer

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?