SWR Question

Thrugelmir

Croeso69 said:

jamesd said:

I use cash - a mortgage offset account - and P2P lending as bond substitutes at the moment.

Cash is part of the bonds cut when you're using it as a bond substitute. It's fine to do that in situations like the current one as long as you switch to bonds when they make sense again. We're currently in a situation comparable to the odd few historic cases where cash was a better choice than bonds.

Dont really like the idea of 35% cash, seems such a waste.

Nor P2P being a suitable substitute for the safe guaranteed returns of Government bonds. 

Notepad_Phil

Croeso69 said:

jamesd said:

I use cash - a mortgage offset account - and P2P lending as bond substitutes at the moment.

Cash is part of the bonds cut when you're using it as a bond substitute. It's fine to do that in situations like the current one as long as you switch to bonds when they make sense again. We're currently in a situation comparable to the odd few historic cases where cash was a better choice than bonds.

Dont really like the idea of 35% cash, seems such a waste.

Personally I'd say that depends on what stage of life you are.

If you're in or getting close to retirement and a DC pension is the majority of your income, then 35% cash could seem very reassuring provided the rest was in a globally diverse set of equities (especially if you're on top of getting the best out of the savings accounts that are out there).

However, yes, 35% in cash in my opinion would certainly be a waste if you've still got many years left to contribute, in which case I'd be going for as close to 100% globally diverse equities as I could rather than have any bonds in this environment.

Croeso69

Notepad_Phil said:

Croeso69 said:

jamesd said:

I use cash - a mortgage offset account - and P2P lending as bond substitutes at the moment.

Cash is part of the bonds cut when you're using it as a bond substitute. It's fine to do that in situations like the current one as long as you switch to bonds when they make sense again. We're currently in a situation comparable to the odd few historic cases where cash was a better choice than bonds.

Dont really like the idea of 35% cash, seems such a waste.

Personally I'd say that depends on what stage of life you are.

If you're in or getting close to retirement and a DC pension is the majority of your income, then 35% cash could seem very reassuring provided the rest was in a globally diverse set of equities (especially if you're on top of getting the best out of the savings accounts that are out there).

However, yes, 35% in cash in my opinion would certainly be a waste if you've still got many years left to contribute, in which case I'd be going for as close to 100% globally diverse equities as I could rather than have any bonds in this environment.

Crystallised funds so PCLS fully taken and being ISAd and premium bond-ed. So ready to FIRE soon. Still think 35% cash too much. I currently have under 2% with the rest split between 14 or 15 investment trusts. The 2% will start to go back up as the 4% dividends start coming in so would be 10% in a couple of years.

Thrugelmir

Notepad_Phil said:

Croeso69 said:

jamesd said:

I use cash - a mortgage offset account - and P2P lending as bond substitutes at the moment.

Cash is part of the bonds cut when you're using it as a bond substitute. It's fine to do that in situations like the current one as long as you switch to bonds when they make sense again. We're currently in a situation comparable to the odd few historic cases where cash was a better choice than bonds.

Dont really like the idea of 35% cash, seems such a waste.

in which case I'd be going for as close to 100% globally diverse equities as I could rather than have any bonds in this environment.

Global equity funds are no longer as diverse as people are assuming currently.  

Notepad_Phil

Croeso69 said:

Crystallised funds so PCLS fully taken and being ISAd and premium bond-ed. So ready to FIRE soon. Still think 35% cash too much. I currently have under 2% with the rest split between 14 or 15 investment trusts. The 2% will start to go back up as the 4% dividends start coming in so would be 10% in a couple of years.

I've been FIRED for a while now and I'm the other way around as I'm intending to reduce the amount I hold in cash as I get closer to state retirement age.

I'm not as high as 35% but am in that kind of ballpark as we're in our fifties and have multiple years of income stored away in cash to help cover any prolonged market downturns that come over the next decade. Any cash not needed to supplement what we get from equities will then start to be invested as we get closer to receiving two full state pensions and a couple of small DB pensions which between them will cover most of our basic retirement needs.

I've read all the articles which say that I'd probably do better by reducing the cash, but our cash allows me to sleep easy at night and not make any stupid mistakes which I think are two of the major reasons for cash in a portfolio and not usually touched upon. e.g. I sailed through last year's covid tremor without once thinking that I had to sell everything, unlike many who came and posted this time last year with worries about what was happening.

However I know that we're in a very lucky position and that we can have that percentage amount in cash whilst still having a very decent amount in pounds (dollars, euros, etc) in equities. I might also need to reconsider this if inflation ever takes off again.

Thrugelmir said:

Global equity funds are no longer as diverse as people are assuming currently.  

That is very true - I personally usually buy extra Asian, European and Emerging markets to get to where I'm happy rather than just stick with the likes of 100% VWRL or VWRP with its current 55 percent in US and 22 percent in tech.

jamesd

Croeso69 said:

jamesd said:

I use cash - a mortgage offset account - and P2P lending as bond substitutes at the moment.

Cash is part of the bonds cut when you're using it as a bond substitute. It's fine to do that in situations like the current one as long as you switch to bonds when they make sense again. We're currently in a situation comparable to the odd few historic cases where cash was a better choice than bonds.

Dont really like the idea of 35% cash, seems such a waste.

Depends what asset mixture you need. Since we're in a time when cash is likely to beat bonds, at the moment you should think of it as bonds.

Cash and bonds is how you survive a prolonged equity downturn without selling equities.

You might also consider following Guyton's sequence of return risk reduction approach, like me. That's currently suggesting a cut to US equities in favour of more bonds or non-US at lower cyclically adjusted price/earnings.

My own natural inclination is more like 90% equities but I try to pay attention to the research.

jamesd

Thrugelmir said:

Nor P2P being a suitable substitute for the safe guaranteed returns of Government bonds. 

If not to your taste, don't include those as part of your mixture. For me, cash and P2P are OK.

Likely to add a BTL flat soon and many people will hate that, though it'll start out unleveraged in current equity market conditions.

michaels

jamesd said:

Thrugelmir said:

Nor P2P being a suitable substitute for the safe guaranteed returns of Government bonds. 

If not to your taste, don't include those as part of your mixture. For me, cash and P2P are OK.

Likely to add a BTL flat soon and many people will hate that, though it'll start out unleveraged in current equity market conditions.

Given borrowing rates are so low, why would you eschew leverage in a property investment?  Obviously the amount of 'management time' and 'individual risk' are much higher for a property investment than investment funds.
Finally we are about to get thrown out of ratesetter as they have sold their book - which platforms are you using if you don't mind sharing - are any of them sippable?

Thrugelmir

jamesd said:

Thrugelmir said:

Nor P2P being a suitable substitute for the safe guaranteed returns of Government bonds. 

If not to your taste, don't include those as part of your mixture. For me, cash and P2P are OK.

Not a question of taste. A view based on having been on the inside. 

BritishInvestor

Croeso69 said:

jamesd said:

3.7% is the UK equivalent of fifty percent large cap and fifty percent intermediate bonds in the US. But both are before costs and the adjustment for that is to deduct a third of costs. And of course it's for thirty years, not fifty, so it is a bit high.

Guyton-Klinger at 99% success for for forty years starts at 5.5% with a 65% equities and 35% bonds mix.

I usually give 3.2% and 5% to allow for 1.5% total costs.

I dont like bonds in the current environment. How good is G-K for 95% equity and 5% cash to fund drawdown?

I think you really have to understand the potential downside if considering this approach.