Could you review my plan?

cfw1994

Cus said:

If the question is: Do we have enough to cover an estimated spend of £60k a year, then

DB's of £47k, plus SWR rate of 3% on the £1,100,000 is £33k, so total £80k, ignoring all the other minor elements, it's a yes.
If the question is: have I made any obvious mistakes, I cant see any, others better placed than me will comment.

Simply put: yes!
I think the key risk these numbers demonstrate is the massively high likelihood is of you being the richest person in the graveyard!   The only missing information I can see is which charitable causes you plan on helping out!

gm0

Thanks for clarifying Mordko.  

Liquidity mismatch between instantly tradeable shares and illiquid assets underneath is a driver for possible suspension under outflow.  And the fact that similar sounding things in the same asset class offer different levels of peril is just another example of how some things are best left well alone by the novice and the old adage about "buying what you know/understand".

tigerspill

BritishInvestor said:

"Our attitude to risk is Low - when we did this with out IFA five years ago we were either 2 or 3 from 7."I never really understand what IFAs mean or achieve when they undertake a risk questionnaire in isolation, nor what a "low attitude to risk" is. 
Risk can mean
1. Unacceptable short term volatility
2. Investment pot going to zero in the short term because you have bet on black
3. You portfolio becoming depleted over time and unable to support your withdrawals.
What happens if you have a "high attitude to risk" yet your pot is so large relative to your desired withdrawals that there is no need for you to take that much risk.

I don't disagree with this, but the IFA went through the standard questionnaire and this is what came out.  TBH., akk it did was reaffirm that I was risk averse.  To me, that means I don't really want to see huge swings in the funday's I want access to any time soon.  This I have defined as 5 years.  So I guess this means short term volatility.  My plan is trying to dress point 3.

tigerspill

Terron said:

BritishInvestor said:

"Our attitude to risk is Low - when we did this with out IFA five years ago we were either 2 or 3 from 7."
I never really understand what IFAs mean or achieve when they undertake a risk questionnaire in isolation, nor what a "low attitude to risk" is. 
Risk can mean
1. Unacceptable short term volatility
2. Investment pot going to zero in the short term because you have bet on black
3. You portfolio becoming depleted over time and unable to support your withdrawals.
What happens if you have a "high attitude to risk" yet your pot is so large relative to your desired withdrawals that there is no need for you to take that much risk.

I have had the same feeling whenever I have gone through such an assessment.

I know my attitude to risk. I look at the income I can expect and the lifestyle it brings. I want a solid safe base, then i am willing to take more risks with the more optional parts of the lifestyle, i.e. from Low to High at the same time.

The OPs base (inflation linked DB pensions + state pension in future) is very low risk and is enough to live very comfortably. In terms of money he should have no problem. So it is other factors (like peace of mind) that should determine his plans.

Exactly this.  Peace of Mind counts for a lot.  More so if your general attitude to risk is low (not just financial risk).

tigerspill

gm0 said:

This being looked at like a drawdown but most of the assets outside DB are in ISA and GIA not DC SIPP - which is nice as we can largely skip the whole LTA discussion.

40% equities on average is at the lower end of the "planning a long drawdown" range and yet your circumstances allow it so why not.  My take on this from my own reading is that the useful range for most mortals in deaccumulation is 40 - 80. 
Lower than that inflation + drag vs returns hurts.  Higher end volatility gets you in the worst sequences - if you need to keep drawing.  You can take only as much risk as you need and want to if inheritance is not an objective.  At 3% draw with a fat cash buffer for sequence of return - you should not have too many insomnia issues.  The balance of tax wrapped to GIA and managing the portfolio gains/losses and CGT seems more pressing.

Minor stuff

You are subject to the Vanguard position on home market UK bias vs global market cap weight.  That may be good or bad later. But understand what it is as a % / value and take a view on how you feel about it being more UK equities than global weight.  Many don't care.  A few do.

You could consider adding further diversification within equities by adding an EM or a Small Cap fund.  This will dial up  diversification within that asset class (and risk (partly offset by the diversification) + potential return). 
Can make a contrarian case at this point for some Value focus also.  None of this is really worth the bother unless you are going to 5-10% of it.

The next wave out from there would be commodities and commercial property (REITS).  I don't understand commodity cycles and think that the blood is not yet all in the water on commercial property.  So I'm out.  But they are the traditional next diversifiers alongside equties and bonds.  And you need a no regrets point of view on Gold (Permanent Portfolio etc.) as to why you have it or don't

Thank you for this.
I had to "cash in" the vast majority my DC part of my occupational pension when I moved into payment.  This was basically AVCs.  Unfortunately I started maxing out ISAs too late.  And inheritance.  These have led to the me having a large %age in non tax efficient wrappers.  I am also now subject to the £2880/£3660 pension contribution limit.  
On the VLS Home Bias - This was something that niggled me a bit. I looked at https://monevator.com/passive-fund-of-funds-the-rivals/ and decided that in the main, VLS had less downsides for me.  Also looking at https://www.bogleheads.org/blog/2020/03/02/50-years-of-investing-in-the-world-part-1/, home bias might not be such a bad thing.  I might balance it a little with a Global Ex. UK fund - I actually have this at the minute.
Regarding your suggestion on diversification, I might look at this - would you have suggestions for funds I could look at as a starting point for Small Cap. & Emerging markets? On "Value" focus - this isn't something I really want to do.  As you say, in order to have any impact, it needs to be 5%+ or even 10%+; and would take a fair bit of work/knowledge which I don't currently have.
My current portfolio has a couple of property feeder funds (chosen by my IFA at the time).  Not sure about these - and form the three funds I have, two cant be traded at the minute.  And I haven't really considered commodities at all.  Discussion on these seems to be very divided.

If I go with a Multi asset strategy (VLS or equivilent), I think I will stick with one lower and one higher risk funds - say VLS40 and VLS 80/100.  This gives me options when withdrawing as time goes on.

However, I am now wondering if I should move away from the likes of VLS and go for a Global equity funds (ex UK), supported by a UK fund and have a 20ish %age home bias (a little less than VLS); plus a bond fund for diversification.  Problem is I wouldn't know where to start deciding on a bond fund to use.
Or maybe just stick with VLS, adding a global ex UL fund to tweak the home bias down a bit.  Plus as you say something in Emerging / Small Cap. funds.

tigerspill

JohnWinder said:

Yes, the whole things screams comfort and common sense to me. You'd be well set up, but here are some comments and trivial nit-picking:

I can't reconcile your income/withdrawal maths, but if you want to monitor/control your investments drawdowns here's a clever approach: https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

If you'll be looking after the investments yourself there's a lot to be said for simplification for when you're old and/or less interested in all that. You (both, fair enough) are holding VLS 40, 60, and 80. Couldn't you omit the 60, and get the same risk/return mix, and the same 'draw from one in good times and the other in bad times' strategy, by just holding the 40 and the 80 in suitable proportions?

Your asset list includes 'wealth protection' at 9%. That's not an asset class, it's probably a collection of asset classes which is mostly stocks and bonds. It sounds to me like a marketing term, so I'd be checking on the fees compared with VLS or the like, and using a compound interest calculator on the web to see how much I'd be losing over possibly 35 years of investing by paying higher fees with which come no guarantee of better returns for the level of risk. However, assuming the 'wealth protection' component costs the same, how much benefit will you get from it at only 9% of assets? If it miraculously outperformed something comparable by 1%/year for 30 years you'd be gaining 0.09%/yr extra returns; not to be sneezed at, but worth the added complexity in view of the rare chance that will be achieved?

The wealth preservation funds sound like active management; you don't need to hear the arguments again, it's just a gamble on over- or under-performing the market returns and you're in a comfortable enough position to take that on. With the index following funds you don't need to diversify the managers as you do with active funds; it's easy to follow an index, but not easy to beat the market.

I haven't looked into the bonds in your funds, but are there enough of, or do you even need index linked bonds as well as nominal bonds? Longevity, inflation, sequence of returns and confiscation are retirement investing risks. You've got the first well covered, but the second? Not so sure. Apart from adding complexity, what's wrong with half your bonds as nominal bonds and half as index linked? They both should have the same return after inflation, but the nominal bonds will do better if there is below expected inflation (or deflation, obviously) while the index linked will do better with unexpected inflation. You've got both eventualities covered; in fact you've already got the deflation risk covered with all your cash holdings, so you might want even more inflation protected bonds. We all know stocks protect against inflation but they don't have to, and have failed to, over periods as long as 10-15 years; a lot of damage to a portfolio can be done in that time.

Thanks for your reply.
I think you are right regarding removing the mid ground VLS 60.  Thinking again, it doesn't really serve any real purpose for what I want.  In an other reply, I wondered if I should got down a slightly different route and have a couple of equity only funds (Global ex UK, UK, Small Cap & Emerging).  Plus a Bond fund.  But I don't really know where to start in choosing a bond fund(s).  It is easy just to let the likes of Vanguard do this - maybe use VLS20 for this.

Just on bonds - you mention nominal and inflation linked - could you suggest a couple of funds as a starting point for me learning a bit more on these?

JohnWinder

tigerspill said:

 I wondered if I should got down a slightly different route and have a couple of equity only funds (Global ex UK, UK, Small Cap & Emerging).  Plus a Bond fund.  But I don't really know where to start in choosing a bond fund(s).  It is easy just to let the likes of Vanguard do this - maybe use VLS20 for this.
Just on bonds - you mention nominal and inflation linked - could you suggest a couple of funds as a starting point for me learning a bit more on these?

Apart from there being more, or less, paperwork I don't think it matters much if you have a mix of VLS type funds or several equity and several bond funds. Of course, you get more tweaking options with the latter but the outcome differences could be small and their direction unknowable in advance. So if you don't 'get' bond funds, forget them as stand-alones.

But bonds aren't that hard; read some unbiased articles or get a bond book from the library. Most of the VLS type funds likely have a mix of higher and lower risk (of default) bonds in them, and they'll work. But for a 'build you own' mix, simplicity would suggest one just chooses the highest credit quality bonds, government ones, which should give the least volatility in a crisis (or even gain a bit), and try for better returns, at some risk, by holding more equities. For simple minded folk I think that's easier than holding commercial bonds whose credit rating might change in bad times, and whose riskiness you have to try to imagine being somewhere (but where?) between equities' and government bonds' when you choose your asset mix. The other bond matter is duration; most bond funds are intermediate I think, but you can get fancy by mixing short and long duration. Life's probably too short to bother, unless you've got the inclination to get those library books.

A hazard with putting together your own equity, bond etc 'building block' funds is that a year later you discover the dangers of inflation and decide everything you've done so far needs a re-build. A year later you discover currency hedging is an issue, and you want to up end everything again; and then taxation considerations etc and on it can go. With the VLS style it's all been thought out, even though you might disagree with their approach a bit.

I'm not familiar with what's on offer in bonds funds, so sorry, but might be better to start reading up somewhere other than a bond fund factsheet.

tigerspill

JohnWinder said:

tigerspill said:

 I wondered if I should got down a slightly different route and have a couple of equity only funds (Global ex UK, UK, Small Cap & Emerging).  Plus a Bond fund.  But I don't really know where to start in choosing a bond fund(s).  It is easy just to let the likes of Vanguard do this - maybe use VLS20 for this.
Just on bonds - you mention nominal and inflation linked - could you suggest a couple of funds as a starting point for me learning a bit more on these?

Apart from there being more, or less, paperwork I don't think it matters much if you have a mix of VLS type funds or several equity and several bond funds. Of course, you get more tweaking options with the latter but the outcome differences could be small and their direction unknowable in advance. So if you don't 'get' bond funds, forget them as stand-alones.

But bonds aren't that hard; read some unbiased articles or get a bond book from the library. Most of the VLS type funds likely have a mix of higher and lower risk (of default) bonds in them, and they'll work. But for a 'build you own' mix, simplicity would suggest one just chooses the highest credit quality bonds, government ones, which should give the least volatility in a crisis (or even gain a bit), and try for better returns, at some risk, by holding more equities. For simple minded folk I think that's easier than holding commercial bonds whose credit rating might change in bad times, and whose riskiness you have to try to imagine being somewhere (but where?) between equities' and government bonds' when you choose your asset mix. The other bond matter is duration; most bond funds are intermediate I think, but you can get fancy by mixing short and long duration. Life's probably too short to bother, unless you've got the inclination to get those library books.

A hazard with putting together your own equity, bond etc 'building block' funds is that a year later you discover the dangers of inflation and decide everything you've done so far needs a re-build. A year later you discover currency hedging is an issue, and you want to up end everything again; and then taxation considerations etc and on it can go. With the VLS style it's all been thought out, even though you might disagree with their approach a bit.

I'm not familiar with what's on offer in bonds funds, so sorry, but might be better to start reading up somewhere other than a bond fund factsheet.

Thank you for your reply.  Makes total sense.  I think I will try to read a bit more about bonds, but I think you are right.  Can I do a "better" job at setting up a portfolio similar to the likes of VLS, which seem to pretty much does what I want?  Very unlikely.  Along with one of my objectives being simplicity, I think this is the way to go for me.