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Vanguard Life Strategy vs Target Retirement
Comments
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Or look at the evidence. Whatever suits.zagfles said:
Well what do RL know? They should ask the real experts on tw*tterBritishInvestor said:
I've just looked at the RL option:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:
"Even if you are going to drawdown it's usually sensible to derisk as you approach retirement"zagfles said:Linton said:Target Retirement funds (also known as Lifestyling) is really only highly desirable if you are going to buy an annuity. In that case you need to have all the money available needed to buy the annuity right at the start of retirement. An inconvenient crash could cause serious problems.
However if you are planning to drawdown nothing much happens when you retire since you will only be withdrawing a relatively small amount compared to the total pot size. You dont want to switch all your money into very cautious investments as you will need to stay invested to a significant extent in equity to ensure that your future income will match inflation.The Vanguard TRFs are clearly designed for people who want to drawdown in retirement, as it says here https://www.vanguardinvestor.co.uk/articles/latest-thoughts/retirement/why-your-pension-likes-a-target-retirement-fundEven if you are going to drawdown it's usually sensible to derisk as you approach retirement. It never derisks completely which annuity targeting lifestyling does, but it is does derisk approaching and into retirement, but remaining at least 30% equities.
I'm not sure what you mean by derisk? Take more equity exposure and therefore reduce the risk of running out of money further down the road?Read the link above, it explains it. Personally it's not a strategy I'd choose, and 30% equities does seem a little low in retirement, but derisking, as in lower % equities at the point of retirement than when you were in your 20's, is hardly controversial. At the point of retirement your wealth is at its peak, and so you're more susceptible to a crash wiping out half your wealth, something that would be hard to recover from if you're no longer adding to your pot.Personally I'm quite interested in the "prime harvesting" dynamic allocation model, something that seems to have actually been researched on non US markets, in which you start with an allocation of maybe 50-60% equities at the point of retirement, drawdown from bonds/cash, never buy more equities and sell 20% equities once they've risen 20%. This tends to increase the equity % in retirement, up to 100% in some scenarios. But usually does better with less fails than fixed allocations/annual rebalancing
"but derisking, as in lower % equities at the point of retirement than when you were in your 20's, is hardly controversial. At the point of retirement your wealth is at its peak, and so you're more susceptible to a crash wiping out half your wealth, something that would be hard to recover from if you're no longer adding to your pot."
But evidence shows us that higher % equity typically gives a higher SWR, so I would say it's reasonably controversial.You really think it's controversial that a 20 year old should have a higher % equities than a 60 year old about to retire? Really? What the equity balance should be at the point of retirement, and into retirement, and whether it should be static or dynamic, is controversial. Having a higher equity balance in an investment that won't be touched for at least 35 years (eg the 20 year old investing in a pension) compared to one that is about to be accessed (eg a 55/60 year old retiree), is hardly controversial.And if that equity balance is higher at 20 than 60, by definition it needs to reduce over the years.
The logic is that the more % you are in equities, the greater a risk of a large proportion of your wealth being wiped out in a crash, or a prolonged downturn. You seem to be assuming the only objective anyone would ever have is to retire as early as possible with the minimum needed to hopefully last them the rest of their lives. Some people may have that as their objective. Others might not be frantically counting down the years to "financial independance" like a prisoner's chalk marks on a cell wall, and maybe actually enjoy working, even if they don't "need" to, and have sufficient such they only need their investments to keep up with inflation for their pot to last them.For most people, their portfolio equity percentage is capped by how much volatility/drawdown they are willing to take (some people have more than enough so their equity percentage is driven by how much growth they need to get while minimising volatility).
Again, most people want to have the option to achieve financial independence as soon as possible. Putting aside the discussion around changing risk appetites as we move through life, if, for example, you have had a 70/30 portfolio from age 30-55 and a robust planning exercise says you can now finish work at n55 and not worry about running out of money (given prudent assumptions), if you now decide to "derisk" and reduce your equity exposure you have a very good chance that it probably isn't prudent to finish work now. Not clear on the logic here.The strategies for the two will be completely different, because the balance between the shortfall risk and the adverse market risk will be different.
Yet "prime harvesting" does seem to produce better results than static allocations even with periods of 100% equities. Loads on it online. Obviously not for everyone, particulary those who have an emotional attitude to risk."This tends to increase the equity % in retirement, up to 100% in some scenarios."
Not many people in my experience are happy with 100% equity portfolios once they appreciate the potential downsides.
"You really think it's controversial that a 20 year old should have a higher % equities than a 60 year old about to retire? Really?"
As mentioned, putting aside the discussion around risk appetite changing as we age (another discussion), I'm not clear why you think it should change dramatically.It's investment basics. If a 20 year old's equity investments plummet in a crash, they have 40 or more years for them to recover, plus they will now be buying investments from future pension contributions at a lower price. If a 60 year old retiree's investments plummet, they will likely need to sell at least some at a lower price, plus they aren't adding to the investment so don't get the benefit of buying at a lower price.And yes I'm not talking about people who are driven by emotional attitude to risk, rather those who prefer an analytical analysis of the appropriate risk to take.
Because there's less controversy over the idea that a 20 year old should have a higher % equity in their pension than a 60 year old, than what the asset allocation should be into retirement. I just wanted to park the uncontroversial stuff that most people agree on, but it seems not all..."Having a higher equity balance in an investment that won't be touched for at least 35 years (eg the 20 year old investing in a pension) compared to one that is about to be accessed (eg a 55/60 year old retiree), is hardly controversial. "
I'm not really sure why you are splitting the financial plan into two parts. Far more efficient to treat it as one continuous process.
Really? Can you point me at some of this "enormous" evidence that shows a 20 year old should have the same % equity in their pension as a 60 year old? What % equity at 20 would be sensible do you think? I'd have thought 100% equity at 20 would almost always provide the best outcome, given that a crash could even be advantageous as they'd be buying at a lower price. Whereas 100% at 60 would not."And if that equity balance is higher at 20 than 60, by definition it needs to reduce over the years. "
It doesn't need to, and potentially shouldn't, as an enormous amount of evidence shows.
It's not an objective of the strategy, but it's a possible (almost certainly) temporary outcome in some scenarios. Here's some graphs which demonstrate, yes very US biased but also with some negative scenarios comparing to traditional asset allocation."You seem to be assuming the only objective anyone would ever have is to retire as early as possible with the minimum needed to hopefully last them the rest of their lives."
In my experience, that is what the vast majority of people aspire to - namely achieve financial independence asap. Whether they choose to work for non-financial reasons beyond this point is another discussion.
"The strategies for the two will be completely different, because the balance between the shortfall risk and the adverse market risk will be different. "
Not significantly different. If having achieved financial independence, the person in question chooses to work for a few more years they may well have the option to reduce their equity exposure as they have already "won the game". Assuming an increase in gifting isn't on the cards.
"Yet "prime harvesting" does seem to produce better results than static allocations even with periods of 100% equities. Loads on it online. Obviously not for everyone, particulary those who have an emotional attitude to risk."
It depends what you mean by "better". Having discussed this with many people at retirement, the vast majority say that 100% equities isn't something they would be comfortable with, especially if it forms a large part of their retirement income.
"It's investment basics. "
it's not as clear cut as that. The human really does have an enormous impact on the viability/sustainability of the plan - see the fund best buy tables/investor vs investment returns etc. for evidenceWhat does that mean? I was hoping for a URL instead of a vague waft at best buy tables etc. Is that going to show me the ages of the buyers? Or how long they intend holding the investments?
SWRs are irrelevant at 20.Have a look at SWR vs asset allocation.
Virtually every workplace DC pension default investment strategy has some element of derisking (ie reducing the % equities) with age. They might not always start at 100% equity, but they will reduce % equities with age particularly towards retirement, even if they are targetting drawdown. Most people use the default, so it appears they're happy with it."What % equity at 20 would be sensible do you think? "
Whatever equity % equates to how much pain they are likely to be able to tolerate. And in my experience, and also in those that create risk profilers for a living (which you may have certain views on, as do I), it's typically a long way from 100% equity.
The distinction I was after was being 40 years from retirement and 0 years. Not being in and out of work, which I accept is controversial. You have provided zero evidence that it's considered sensible that a 20 years old and a 60 year old have the same investment profile."Really? Can you point me at some of this "enormous" evidence that shows a 20 year old should have the same % equity in their pension as a 60 year old?"
See points above re SWR, risk appetite and having a financial plan that doesn't (necessarily) have a (portfolio) distinction between working and not working
https://justusjp.medium.com/prime-harvesting-vs-rebalancing-graphs-2687930a995b
Given the choice between
1. Level of income
2. Variability of income
3. Plan success
4. Simplicity of plan
Most people (in my experience), would take a smaller income with a simple plan, a high degree of success and (boring!) inflation-adjusted increases each year. Given the decline in financial literacy as we age, I think introducing too much complexity has the potential to be detrimental.
https://retirementfieldguide.com/financial-decision-making-as-we-age/
Rebalancing is at least as complicated as the prime harvesting method. If you're worried about not being able to mange your finances as you age, buying an annuity would likely be best bet. And not always a bad deal as you get older.
"What does that mean? I was hoping for a URL instead of a vague waft at best buy tables etc. Is that going to show me the ages of the buyers? Or how long they intend holding the investments? "
Irrespective of age, most people won't be happy with 100% equity (they might only find out they aren't happy if/when we get a long market drawdown)
Even at retirement, the blended average of when the withdrawals are taken (e.g. 3.5% in the first year) over a typical 40 year retirement means the majority of the money isn't going to be needed for many, many years.And for a 20 year old, it will be many many decades. So the investment strategy should be different in my opinion, and that of virtually all workplace DC pension providers, and around 95%+ of their members as only a tiny minority go with a different strategy. Plus the likes of Vanguard as evidenced by their TR funds. You think it's wrong, fine. You're in a small minority.
I'm not interested in case studies as they just look at one case with one set of results. Nor am I interested in the psychology of investing and how some people assess risk emotionally rather than rationally. I'm interested in strategies with results backtested against historical returns over different time periods in different wordwide markets (not just the US as a lot are). I've been looking at a lot of those recently.
"SWRs are irrelevant at 20. "
You seem to have a two-phase approach (pre and post retirement) to financial/retirement planning - I'm not entirely clear why. In my experience, it is a joined-up exercise, with plan sustainability being evaluated a long time before work finishes.
"Virtually every workplace DC pension default investment strategy has some element of derisking (ie reducing the % equities) with age. They might not always start at 100% equity, but they will reduce % equities with age particularly towards retirement, even if they are targetting drawdown. Most people use the default, so it appears they're happy with it."
Most people have little understanding of it. I see a number of cases where equities are sold and long dated index linked gilts are purchased (of broadly the same volatility). In what way is that derisking? The "lifestyling" approach is flawed for many investors.
"The distinction I was after was being 40 years from retirement and 0 years. Not being in and out of work, which I accept is controversial. You have provided zero evidence that it's considered sensible that a 20 years old and a 60 year old have the same investment profile. "
Again, the overriding objective for almost everyone I see is for them to finish work asap. This means they will be capped by how much equity exposure they are happy to take (which typically isn't 100% equities) at all stages of life prior to retirement. Assuming all goes roughly to plan, using that same equity exposure, there will come a time when evidence (using tools such as https://www.timelineapp.co/) show that they can stop work with reasonable confidence. I can assure you that if a this stage they reduce their equity exposure significantly, most (depending on where they started) will have a much lower chance of success (if we put at least some faith in history).
We can really dig into evidence if you wish, I have a number of cases studies
So, do you have evidence that fixed asset allocation from age 20 to retirement beats an asset allocation that starts at 100% equities at 20 and moves to around 60% equities at retirement (with most of the phasing in later years)? Not in terms of average return, but in terms of low likelyhood of failure based on fixed (in real terms) withdrawals in retirement?Because most of the evidence I've looked at points at 100% equities in the early decades but a lower % at the point of retirement provides the best results in terms of success rates (ie less risk of running out of money based on fixed withdrawals). They vary as to the % at retirement, but none I've seen have the best results with a fixed allocation over entire working life.
"You're in a small minority."
I can assure you that amongst the people that specialise in retirement planning, be it authors, providers of tools or advising, I'm notYeah yeah, who advises all the workplace pension providers then? They disagree with you. As do their members. Just look at the default asset allocation of most providers. Here, I'll post a few:They all derisk as retirement approaches. Now, maybe you can post some major providers' which have a static asset allocation during the accumulation phase right up to the point of retirement as their default strategy. Don't bother replying with "assurances", I want evidence.
No, you provide the evidence. You're the one making the extraodinary claim about 100% equities at retirement, which is nowhere near typical asset allocation at retirement, so you can provide the evidence."I'm not interested in case studies as they just look at one case with one set of results. "
We can do many case studies in (near) real-time, using UK data.
"Nor am I interested in the psychology of investing and how some people assess risk emotionally rather than rationally."
But investors are human and unfortunately are prone to make emotional decisions. Unfortunately, you cannot escape that.....
"Because most of the evidence I've looked at points at 100% equities in the early decades but a lower % at the point of retirement provides the best results in terms of success rates (ie less risk of running out of money based on fixed withdrawals). "
But, let's turn it around. For Mr Automaton investor, why not start out at ~100% equities and stick with it to the very end? Do you have evidence to suggest that this approach is wildly suboptimal in terms of financial independence and plan sustainability?
"They all derisk as retirement approaches. Now, maybe you can post some major providers' which have a static asset allocation during the accumulation phase right up to the point of retirement as their default strategy"
I would suggest you don't hold providers up as the pinnacle of retirement planning expertise. Plenty of retirement planning specialists on twitter if you know where to look.
"No, you provide the evidence. You're the one making the extraodinary claim about 100% equities at retirement, which is nowhere near typical asset allocation at retirement, so you can provide the evidence. "
60% and 100% equity allocation below - £1m starting balance, £40k pa withdrawal increasing with inflation. As you can see, 100% gives slightly better longevity (worst case) and far better success rate. Happy to run some other scenarios or nudge the parameters. That's not to say 100% is optimal in all cases - 90% can be better
Commodities
High yield bonds
Absolute return strategies
Corporate bonds
That's certainly a "different" approach to the way most retirement planning specialists structure their portfolios.
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zagfles said:Just a final thought. What are these "CPM 60" and CPM 100" portfolios? And what are the charges? McClung's analysis shows that 4% drawdown peak success around 60-70% equities, usually at 100% success. But 5% drawdown peak success ratio is at higher equity allocations, and never 100% success.So, your software is showing similar trend as McClung finds with higher drawdown. At 5%, no 100% success at any ratio and higher success ratio with higher equity. So why would this be I wonder?It's likely that investments with high charges will have a similar effect as taking a higher drawdown. So, what charges are built into these portfolios? Including any "advice" charges from our "experts" on tw*tter or whereever.
"What are these "CPM 60" and CPM 100" portfolios? "
A mix of global equities and bonds.
"And what are the charges?"
Zero for this example
"It's likely that investments with high charges will have a similar effect as taking a higher drawdown. "
Correct. I've done that analysis as have others.
https://finalytiq.co.uk/impact-of-adviser-fees-on-withdrawal-rates-in-retirement-portfolio/
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BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:
"Even if you are going to drawdown it's usually sensible to derisk as you approach retirement"zagfles said:Linton said:Target Retirement funds (also known as Lifestyling) is really only highly desirable if you are going to buy an annuity. In that case you need to have all the money available needed to buy the annuity right at the start of retirement. An inconvenient crash could cause serious problems.
However if you are planning to drawdown nothing much happens when you retire since you will only be withdrawing a relatively small amount compared to the total pot size. You dont want to switch all your money into very cautious investments as you will need to stay invested to a significant extent in equity to ensure that your future income will match inflation.The Vanguard TRFs are clearly designed for people who want to drawdown in retirement, as it says here https://www.vanguardinvestor.co.uk/articles/latest-thoughts/retirement/why-your-pension-likes-a-target-retirement-fundEven if you are going to drawdown it's usually sensible to derisk as you approach retirement. It never derisks completely which annuity targeting lifestyling does, but it is does derisk approaching and into retirement, but remaining at least 30% equities.
I'm not sure what you mean by derisk? Take more equity exposure and therefore reduce the risk of running out of money further down the road?Read the link above, it explains it. Personally it's not a strategy I'd choose, and 30% equities does seem a little low in retirement, but derisking, as in lower % equities at the point of retirement than when you were in your 20's, is hardly controversial. At the point of retirement your wealth is at its peak, and so you're more susceptible to a crash wiping out half your wealth, something that would be hard to recover from if you're no longer adding to your pot.Personally I'm quite interested in the "prime harvesting" dynamic allocation model, something that seems to have actually been researched on non US markets, in which you start with an allocation of maybe 50-60% equities at the point of retirement, drawdown from bonds/cash, never buy more equities and sell 20% equities once they've risen 20%. This tends to increase the equity % in retirement, up to 100% in some scenarios. But usually does better with less fails than fixed allocations/annual rebalancing
"but derisking, as in lower % equities at the point of retirement than when you were in your 20's, is hardly controversial. At the point of retirement your wealth is at its peak, and so you're more susceptible to a crash wiping out half your wealth, something that would be hard to recover from if you're no longer adding to your pot."
But evidence shows us that higher % equity typically gives a higher SWR, so I would say it's reasonably controversial.You really think it's controversial that a 20 year old should have a higher % equities than a 60 year old about to retire? Really? What the equity balance should be at the point of retirement, and into retirement, and whether it should be static or dynamic, is controversial. Having a higher equity balance in an investment that won't be touched for at least 35 years (eg the 20 year old investing in a pension) compared to one that is about to be accessed (eg a 55/60 year old retiree), is hardly controversial.And if that equity balance is higher at 20 than 60, by definition it needs to reduce over the years.
The logic is that the more % you are in equities, the greater a risk of a large proportion of your wealth being wiped out in a crash, or a prolonged downturn. You seem to be assuming the only objective anyone would ever have is to retire as early as possible with the minimum needed to hopefully last them the rest of their lives. Some people may have that as their objective. Others might not be frantically counting down the years to "financial independance" like a prisoner's chalk marks on a cell wall, and maybe actually enjoy working, even if they don't "need" to, and have sufficient such they only need their investments to keep up with inflation for their pot to last them.For most people, their portfolio equity percentage is capped by how much volatility/drawdown they are willing to take (some people have more than enough so their equity percentage is driven by how much growth they need to get while minimising volatility).
Again, most people want to have the option to achieve financial independence as soon as possible. Putting aside the discussion around changing risk appetites as we move through life, if, for example, you have had a 70/30 portfolio from age 30-55 and a robust planning exercise says you can now finish work at n55 and not worry about running out of money (given prudent assumptions), if you now decide to "derisk" and reduce your equity exposure you have a very good chance that it probably isn't prudent to finish work now. Not clear on the logic here.The strategies for the two will be completely different, because the balance between the shortfall risk and the adverse market risk will be different.
Yet "prime harvesting" does seem to produce better results than static allocations even with periods of 100% equities. Loads on it online. Obviously not for everyone, particulary those who have an emotional attitude to risk."This tends to increase the equity % in retirement, up to 100% in some scenarios."
Not many people in my experience are happy with 100% equity portfolios once they appreciate the potential downsides.
"You really think it's controversial that a 20 year old should have a higher % equities than a 60 year old about to retire? Really?"
As mentioned, putting aside the discussion around risk appetite changing as we age (another discussion), I'm not clear why you think it should change dramatically.It's investment basics. If a 20 year old's equity investments plummet in a crash, they have 40 or more years for them to recover, plus they will now be buying investments from future pension contributions at a lower price. If a 60 year old retiree's investments plummet, they will likely need to sell at least some at a lower price, plus they aren't adding to the investment so don't get the benefit of buying at a lower price.And yes I'm not talking about people who are driven by emotional attitude to risk, rather those who prefer an analytical analysis of the appropriate risk to take.
Because there's less controversy over the idea that a 20 year old should have a higher % equity in their pension than a 60 year old, than what the asset allocation should be into retirement. I just wanted to park the uncontroversial stuff that most people agree on, but it seems not all..."Having a higher equity balance in an investment that won't be touched for at least 35 years (eg the 20 year old investing in a pension) compared to one that is about to be accessed (eg a 55/60 year old retiree), is hardly controversial. "
I'm not really sure why you are splitting the financial plan into two parts. Far more efficient to treat it as one continuous process.
Really? Can you point me at some of this "enormous" evidence that shows a 20 year old should have the same % equity in their pension as a 60 year old? What % equity at 20 would be sensible do you think? I'd have thought 100% equity at 20 would almost always provide the best outcome, given that a crash could even be advantageous as they'd be buying at a lower price. Whereas 100% at 60 would not."And if that equity balance is higher at 20 than 60, by definition it needs to reduce over the years. "
It doesn't need to, and potentially shouldn't, as an enormous amount of evidence shows.
It's not an objective of the strategy, but it's a possible (almost certainly) temporary outcome in some scenarios. Here's some graphs which demonstrate, yes very US biased but also with some negative scenarios comparing to traditional asset allocation."You seem to be assuming the only objective anyone would ever have is to retire as early as possible with the minimum needed to hopefully last them the rest of their lives."
In my experience, that is what the vast majority of people aspire to - namely achieve financial independence asap. Whether they choose to work for non-financial reasons beyond this point is another discussion.
"The strategies for the two will be completely different, because the balance between the shortfall risk and the adverse market risk will be different. "
Not significantly different. If having achieved financial independence, the person in question chooses to work for a few more years they may well have the option to reduce their equity exposure as they have already "won the game". Assuming an increase in gifting isn't on the cards.
"Yet "prime harvesting" does seem to produce better results than static allocations even with periods of 100% equities. Loads on it online. Obviously not for everyone, particulary those who have an emotional attitude to risk."
It depends what you mean by "better". Having discussed this with many people at retirement, the vast majority say that 100% equities isn't something they would be comfortable with, especially if it forms a large part of their retirement income.
"It's investment basics. "
it's not as clear cut as that. The human really does have an enormous impact on the viability/sustainability of the plan - see the fund best buy tables/investor vs investment returns etc. for evidenceWhat does that mean? I was hoping for a URL instead of a vague waft at best buy tables etc. Is that going to show me the ages of the buyers? Or how long they intend holding the investments?
SWRs are irrelevant at 20.Have a look at SWR vs asset allocation.
Virtually every workplace DC pension default investment strategy has some element of derisking (ie reducing the % equities) with age. They might not always start at 100% equity, but they will reduce % equities with age particularly towards retirement, even if they are targetting drawdown. Most people use the default, so it appears they're happy with it."What % equity at 20 would be sensible do you think? "
Whatever equity % equates to how much pain they are likely to be able to tolerate. And in my experience, and also in those that create risk profilers for a living (which you may have certain views on, as do I), it's typically a long way from 100% equity.
The distinction I was after was being 40 years from retirement and 0 years. Not being in and out of work, which I accept is controversial. You have provided zero evidence that it's considered sensible that a 20 years old and a 60 year old have the same investment profile."Really? Can you point me at some of this "enormous" evidence that shows a 20 year old should have the same % equity in their pension as a 60 year old?"
See points above re SWR, risk appetite and having a financial plan that doesn't (necessarily) have a (portfolio) distinction between working and not working
https://justusjp.medium.com/prime-harvesting-vs-rebalancing-graphs-2687930a995b
Given the choice between
1. Level of income
2. Variability of income
3. Plan success
4. Simplicity of plan
Most people (in my experience), would take a smaller income with a simple plan, a high degree of success and (boring!) inflation-adjusted increases each year. Given the decline in financial literacy as we age, I think introducing too much complexity has the potential to be detrimental.
https://retirementfieldguide.com/financial-decision-making-as-we-age/
Rebalancing is at least as complicated as the prime harvesting method. If you're worried about not being able to mange your finances as you age, buying an annuity would likely be best bet. And not always a bad deal as you get older.
"What does that mean? I was hoping for a URL instead of a vague waft at best buy tables etc. Is that going to show me the ages of the buyers? Or how long they intend holding the investments? "
Irrespective of age, most people won't be happy with 100% equity (they might only find out they aren't happy if/when we get a long market drawdown)
Even at retirement, the blended average of when the withdrawals are taken (e.g. 3.5% in the first year) over a typical 40 year retirement means the majority of the money isn't going to be needed for many, many years.And for a 20 year old, it will be many many decades. So the investment strategy should be different in my opinion, and that of virtually all workplace DC pension providers, and around 95%+ of their members as only a tiny minority go with a different strategy. Plus the likes of Vanguard as evidenced by their TR funds. You think it's wrong, fine. You're in a small minority.
I'm not interested in case studies as they just look at one case with one set of results. Nor am I interested in the psychology of investing and how some people assess risk emotionally rather than rationally. I'm interested in strategies with results backtested against historical returns over different time periods in different wordwide markets (not just the US as a lot are). I've been looking at a lot of those recently.
"SWRs are irrelevant at 20. "
You seem to have a two-phase approach (pre and post retirement) to financial/retirement planning - I'm not entirely clear why. In my experience, it is a joined-up exercise, with plan sustainability being evaluated a long time before work finishes.
"Virtually every workplace DC pension default investment strategy has some element of derisking (ie reducing the % equities) with age. They might not always start at 100% equity, but they will reduce % equities with age particularly towards retirement, even if they are targetting drawdown. Most people use the default, so it appears they're happy with it."
Most people have little understanding of it. I see a number of cases where equities are sold and long dated index linked gilts are purchased (of broadly the same volatility). In what way is that derisking? The "lifestyling" approach is flawed for many investors.
"The distinction I was after was being 40 years from retirement and 0 years. Not being in and out of work, which I accept is controversial. You have provided zero evidence that it's considered sensible that a 20 years old and a 60 year old have the same investment profile. "
Again, the overriding objective for almost everyone I see is for them to finish work asap. This means they will be capped by how much equity exposure they are happy to take (which typically isn't 100% equities) at all stages of life prior to retirement. Assuming all goes roughly to plan, using that same equity exposure, there will come a time when evidence (using tools such as https://www.timelineapp.co/) show that they can stop work with reasonable confidence. I can assure you that if a this stage they reduce their equity exposure significantly, most (depending on where they started) will have a much lower chance of success (if we put at least some faith in history).
We can really dig into evidence if you wish, I have a number of cases studiesSo, do you have evidence that fixed asset allocation from age 20 to retirement beats an asset allocation that starts at 100% equities at 20 and moves to around 60% equities at retirement (with most of the phasing in later years)? Not in terms of average return, but in terms of low likelyhood of failure based on fixed (in real terms) withdrawals in retirement?Because most of the evidence I've looked at points at 100% equities in the early decades but a lower % at the point of retirement provides the best results in terms of success rates (ie less risk of running out of money based on fixed withdrawals). They vary as to the % at retirement, but none I've seen have the best results with a fixed allocation over entire working life.
"You're in a small minority."
I can assure you that amongst the people that specialise in retirement planning, be it authors, providers of tools or advising, I'm notYeah yeah, who advises all the workplace pension providers then? They disagree with you. As do their members. Just look at the default asset allocation of most providers. Here, I'll post a few:They all derisk as retirement approaches. Now, maybe you can post some major providers' which have a static asset allocation during the accumulation phase right up to the point of retirement as their default strategy. Don't bother replying with "assurances", I want evidence.
No, you provide the evidence. You're the one making the extraodinary claim about 100% equities at retirement, which is nowhere near typical asset allocation at retirement, so you can provide the evidence."I'm not interested in case studies as they just look at one case with one set of results. "
We can do many case studies in (near) real-time, using UK data.
"Nor am I interested in the psychology of investing and how some people assess risk emotionally rather than rationally."
But investors are human and unfortunately are prone to make emotional decisions. Unfortunately, you cannot escape that.....
"Because most of the evidence I've looked at points at 100% equities in the early decades but a lower % at the point of retirement provides the best results in terms of success rates (ie less risk of running out of money based on fixed withdrawals). "
But, let's turn it around. For Mr Automaton investor, why not start out at ~100% equities and stick with it to the very end? Do you have evidence to suggest that this approach is wildly suboptimal in terms of financial independence and plan sustainability?
"They all derisk as retirement approaches. Now, maybe you can post some major providers' which have a static asset allocation during the accumulation phase right up to the point of retirement as their default strategy"
I would suggest you don't hold providers up as the pinnacle of retirement planning expertise. Plenty of retirement planning specialists on twitter if you know where to look.Tw*tter The cesspit of social media where you're not allowed too many words in case it confuses. Instead soundbites and memes mainly from political loonies and extremists. Some financial ones too by the sounds of it! "No, you provide the evidence. You're the one making the extraodinary claim about 100% equities at retirement, which is nowhere near typical asset allocation at retirement, so you can provide the evidence. "
60% and 100% equity allocation below - £1m starting balance, £40k pa withdrawal increasing with inflation. As you can see, 100% gives slightly better longevity (worst case) and far better success rate. Happy to run some other scenarios or nudge the parameters. That's not to say 100% is optimal in all cases - 90% can be better
I wanted evidence, you know, written analysis showing the effect of different start criteria over different time periods in different markets. Like the sort of evidence I linked to earlier showing graphs comparing prime harvesting with annual rebalancing, or the link to McClung's book extract via the monevator link or herewhere he shows the effect of different initial asset allocations on lots of different withdrawal strategies with different initial asset allocations, and around 60%-70% equities generally give the lowest failure rates with 4% drawdown.Not screenshots from some software you don't even identify. Carry on claiming to be some sort of expert, I'm sure someone will believe you. Meanwhile, I will derisk as I approach retirement, and likely use prime harvesting in retirement. Whatever any tw*tter "expert" thinks
"Tw*tter The cesspit of social media where you're not allowed too many words in case it confuses. Instead soundbites and memes mainly from political loonies and extremists. Some financial ones too by the sounds of it!"
Yep, there's a lot of noise on there, but why not start with some of the work that Abraham Okusanya has done over the years and see some of the discussions that go on there.
"I wanted evidence, you know, written analysis showing the effect of different start criteria over different time periods in different markets."
At a high level, that's what you've got with the success rate from the screenshots I posted. Monthly start points over the last century. Each series gives a pass or fail and these added up give the % overall success rate.
"and around 60%-70% equities generally give the lowest failure rates with 4% drawdown. "
for UK data? Furthermore, the "derisking" strategies you mentioned do not tend to finish at 60-70% equities, typically far lower. I was being deliberately "harsh" on the 100% equities example by using 60%, I could have made 100% look far more favourable by comparing to something at a lower equity %."Not screenshots from some software you don't even identify."
It's Timeline. Monevator have used it before
https://monevator.com/how-to-improve-your-sustainable-withdrawal-rate/As that article says "The answer isn’t to simply load up 80-100% in equities and hang on for dear life. Rather we can aim to alter our asset allocation as we go."We're done. Ta ta. There, a post that would almost fit in a tw*tter "discussion"0 -
"We're done."zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:zagfles said:BritishInvestor said:
"Even if you are going to drawdown it's usually sensible to derisk as you approach retirement"zagfles said:Linton said:Target Retirement funds (also known as Lifestyling) is really only highly desirable if you are going to buy an annuity. In that case you need to have all the money available needed to buy the annuity right at the start of retirement. An inconvenient crash could cause serious problems.
However if you are planning to drawdown nothing much happens when you retire since you will only be withdrawing a relatively small amount compared to the total pot size. You dont want to switch all your money into very cautious investments as you will need to stay invested to a significant extent in equity to ensure that your future income will match inflation.The Vanguard TRFs are clearly designed for people who want to drawdown in retirement, as it says here https://www.vanguardinvestor.co.uk/articles/latest-thoughts/retirement/why-your-pension-likes-a-target-retirement-fundEven if you are going to drawdown it's usually sensible to derisk as you approach retirement. It never derisks completely which annuity targeting lifestyling does, but it is does derisk approaching and into retirement, but remaining at least 30% equities.
I'm not sure what you mean by derisk? Take more equity exposure and therefore reduce the risk of running out of money further down the road?Read the link above, it explains it. Personally it's not a strategy I'd choose, and 30% equities does seem a little low in retirement, but derisking, as in lower % equities at the point of retirement than when you were in your 20's, is hardly controversial. At the point of retirement your wealth is at its peak, and so you're more susceptible to a crash wiping out half your wealth, something that would be hard to recover from if you're no longer adding to your pot.Personally I'm quite interested in the "prime harvesting" dynamic allocation model, something that seems to have actually been researched on non US markets, in which you start with an allocation of maybe 50-60% equities at the point of retirement, drawdown from bonds/cash, never buy more equities and sell 20% equities once they've risen 20%. This tends to increase the equity % in retirement, up to 100% in some scenarios. But usually does better with less fails than fixed allocations/annual rebalancing
"but derisking, as in lower % equities at the point of retirement than when you were in your 20's, is hardly controversial. At the point of retirement your wealth is at its peak, and so you're more susceptible to a crash wiping out half your wealth, something that would be hard to recover from if you're no longer adding to your pot."
But evidence shows us that higher % equity typically gives a higher SWR, so I would say it's reasonably controversial.You really think it's controversial that a 20 year old should have a higher % equities than a 60 year old about to retire? Really? What the equity balance should be at the point of retirement, and into retirement, and whether it should be static or dynamic, is controversial. Having a higher equity balance in an investment that won't be touched for at least 35 years (eg the 20 year old investing in a pension) compared to one that is about to be accessed (eg a 55/60 year old retiree), is hardly controversial.And if that equity balance is higher at 20 than 60, by definition it needs to reduce over the years.
The logic is that the more % you are in equities, the greater a risk of a large proportion of your wealth being wiped out in a crash, or a prolonged downturn. You seem to be assuming the only objective anyone would ever have is to retire as early as possible with the minimum needed to hopefully last them the rest of their lives. Some people may have that as their objective. Others might not be frantically counting down the years to "financial independance" like a prisoner's chalk marks on a cell wall, and maybe actually enjoy working, even if they don't "need" to, and have sufficient such they only need their investments to keep up with inflation for their pot to last them.For most people, their portfolio equity percentage is capped by how much volatility/drawdown they are willing to take (some people have more than enough so their equity percentage is driven by how much growth they need to get while minimising volatility).
Again, most people want to have the option to achieve financial independence as soon as possible. Putting aside the discussion around changing risk appetites as we move through life, if, for example, you have had a 70/30 portfolio from age 30-55 and a robust planning exercise says you can now finish work at n55 and not worry about running out of money (given prudent assumptions), if you now decide to "derisk" and reduce your equity exposure you have a very good chance that it probably isn't prudent to finish work now. Not clear on the logic here.The strategies for the two will be completely different, because the balance between the shortfall risk and the adverse market risk will be different.
Yet "prime harvesting" does seem to produce better results than static allocations even with periods of 100% equities. Loads on it online. Obviously not for everyone, particulary those who have an emotional attitude to risk."This tends to increase the equity % in retirement, up to 100% in some scenarios."
Not many people in my experience are happy with 100% equity portfolios once they appreciate the potential downsides.
"You really think it's controversial that a 20 year old should have a higher % equities than a 60 year old about to retire? Really?"
As mentioned, putting aside the discussion around risk appetite changing as we age (another discussion), I'm not clear why you think it should change dramatically.It's investment basics. If a 20 year old's equity investments plummet in a crash, they have 40 or more years for them to recover, plus they will now be buying investments from future pension contributions at a lower price. If a 60 year old retiree's investments plummet, they will likely need to sell at least some at a lower price, plus they aren't adding to the investment so don't get the benefit of buying at a lower price.And yes I'm not talking about people who are driven by emotional attitude to risk, rather those who prefer an analytical analysis of the appropriate risk to take.
Because there's less controversy over the idea that a 20 year old should have a higher % equity in their pension than a 60 year old, than what the asset allocation should be into retirement. I just wanted to park the uncontroversial stuff that most people agree on, but it seems not all..."Having a higher equity balance in an investment that won't be touched for at least 35 years (eg the 20 year old investing in a pension) compared to one that is about to be accessed (eg a 55/60 year old retiree), is hardly controversial. "
I'm not really sure why you are splitting the financial plan into two parts. Far more efficient to treat it as one continuous process.
Really? Can you point me at some of this "enormous" evidence that shows a 20 year old should have the same % equity in their pension as a 60 year old? What % equity at 20 would be sensible do you think? I'd have thought 100% equity at 20 would almost always provide the best outcome, given that a crash could even be advantageous as they'd be buying at a lower price. Whereas 100% at 60 would not."And if that equity balance is higher at 20 than 60, by definition it needs to reduce over the years. "
It doesn't need to, and potentially shouldn't, as an enormous amount of evidence shows.
It's not an objective of the strategy, but it's a possible (almost certainly) temporary outcome in some scenarios. Here's some graphs which demonstrate, yes very US biased but also with some negative scenarios comparing to traditional asset allocation."You seem to be assuming the only objective anyone would ever have is to retire as early as possible with the minimum needed to hopefully last them the rest of their lives."
In my experience, that is what the vast majority of people aspire to - namely achieve financial independence asap. Whether they choose to work for non-financial reasons beyond this point is another discussion.
"The strategies for the two will be completely different, because the balance between the shortfall risk and the adverse market risk will be different. "
Not significantly different. If having achieved financial independence, the person in question chooses to work for a few more years they may well have the option to reduce their equity exposure as they have already "won the game". Assuming an increase in gifting isn't on the cards.
"Yet "prime harvesting" does seem to produce better results than static allocations even with periods of 100% equities. Loads on it online. Obviously not for everyone, particulary those who have an emotional attitude to risk."
It depends what you mean by "better". Having discussed this with many people at retirement, the vast majority say that 100% equities isn't something they would be comfortable with, especially if it forms a large part of their retirement income.
"It's investment basics. "
it's not as clear cut as that. The human really does have an enormous impact on the viability/sustainability of the plan - see the fund best buy tables/investor vs investment returns etc. for evidenceWhat does that mean? I was hoping for a URL instead of a vague waft at best buy tables etc. Is that going to show me the ages of the buyers? Or how long they intend holding the investments?
SWRs are irrelevant at 20.Have a look at SWR vs asset allocation.
Virtually every workplace DC pension default investment strategy has some element of derisking (ie reducing the % equities) with age. They might not always start at 100% equity, but they will reduce % equities with age particularly towards retirement, even if they are targetting drawdown. Most people use the default, so it appears they're happy with it."What % equity at 20 would be sensible do you think? "
Whatever equity % equates to how much pain they are likely to be able to tolerate. And in my experience, and also in those that create risk profilers for a living (which you may have certain views on, as do I), it's typically a long way from 100% equity.
The distinction I was after was being 40 years from retirement and 0 years. Not being in and out of work, which I accept is controversial. You have provided zero evidence that it's considered sensible that a 20 years old and a 60 year old have the same investment profile."Really? Can you point me at some of this "enormous" evidence that shows a 20 year old should have the same % equity in their pension as a 60 year old?"
See points above re SWR, risk appetite and having a financial plan that doesn't (necessarily) have a (portfolio) distinction between working and not working
https://justusjp.medium.com/prime-harvesting-vs-rebalancing-graphs-2687930a995b
Given the choice between
1. Level of income
2. Variability of income
3. Plan success
4. Simplicity of plan
Most people (in my experience), would take a smaller income with a simple plan, a high degree of success and (boring!) inflation-adjusted increases each year. Given the decline in financial literacy as we age, I think introducing too much complexity has the potential to be detrimental.
https://retirementfieldguide.com/financial-decision-making-as-we-age/
Rebalancing is at least as complicated as the prime harvesting method. If you're worried about not being able to mange your finances as you age, buying an annuity would likely be best bet. And not always a bad deal as you get older.
"What does that mean? I was hoping for a URL instead of a vague waft at best buy tables etc. Is that going to show me the ages of the buyers? Or how long they intend holding the investments? "
Irrespective of age, most people won't be happy with 100% equity (they might only find out they aren't happy if/when we get a long market drawdown)
Even at retirement, the blended average of when the withdrawals are taken (e.g. 3.5% in the first year) over a typical 40 year retirement means the majority of the money isn't going to be needed for many, many years.And for a 20 year old, it will be many many decades. So the investment strategy should be different in my opinion, and that of virtually all workplace DC pension providers, and around 95%+ of their members as only a tiny minority go with a different strategy. Plus the likes of Vanguard as evidenced by their TR funds. You think it's wrong, fine. You're in a small minority.
I'm not interested in case studies as they just look at one case with one set of results. Nor am I interested in the psychology of investing and how some people assess risk emotionally rather than rationally. I'm interested in strategies with results backtested against historical returns over different time periods in different wordwide markets (not just the US as a lot are). I've been looking at a lot of those recently.
"SWRs are irrelevant at 20. "
You seem to have a two-phase approach (pre and post retirement) to financial/retirement planning - I'm not entirely clear why. In my experience, it is a joined-up exercise, with plan sustainability being evaluated a long time before work finishes.
"Virtually every workplace DC pension default investment strategy has some element of derisking (ie reducing the % equities) with age. They might not always start at 100% equity, but they will reduce % equities with age particularly towards retirement, even if they are targetting drawdown. Most people use the default, so it appears they're happy with it."
Most people have little understanding of it. I see a number of cases where equities are sold and long dated index linked gilts are purchased (of broadly the same volatility). In what way is that derisking? The "lifestyling" approach is flawed for many investors.
"The distinction I was after was being 40 years from retirement and 0 years. Not being in and out of work, which I accept is controversial. You have provided zero evidence that it's considered sensible that a 20 years old and a 60 year old have the same investment profile. "
Again, the overriding objective for almost everyone I see is for them to finish work asap. This means they will be capped by how much equity exposure they are happy to take (which typically isn't 100% equities) at all stages of life prior to retirement. Assuming all goes roughly to plan, using that same equity exposure, there will come a time when evidence (using tools such as https://www.timelineapp.co/) show that they can stop work with reasonable confidence. I can assure you that if a this stage they reduce their equity exposure significantly, most (depending on where they started) will have a much lower chance of success (if we put at least some faith in history).
We can really dig into evidence if you wish, I have a number of cases studiesSo, do you have evidence that fixed asset allocation from age 20 to retirement beats an asset allocation that starts at 100% equities at 20 and moves to around 60% equities at retirement (with most of the phasing in later years)? Not in terms of average return, but in terms of low likelyhood of failure based on fixed (in real terms) withdrawals in retirement?Because most of the evidence I've looked at points at 100% equities in the early decades but a lower % at the point of retirement provides the best results in terms of success rates (ie less risk of running out of money based on fixed withdrawals). They vary as to the % at retirement, but none I've seen have the best results with a fixed allocation over entire working life.
"You're in a small minority."
I can assure you that amongst the people that specialise in retirement planning, be it authors, providers of tools or advising, I'm notYeah yeah, who advises all the workplace pension providers then? They disagree with you. As do their members. Just look at the default asset allocation of most providers. Here, I'll post a few:They all derisk as retirement approaches. Now, maybe you can post some major providers' which have a static asset allocation during the accumulation phase right up to the point of retirement as their default strategy. Don't bother replying with "assurances", I want evidence.
No, you provide the evidence. You're the one making the extraodinary claim about 100% equities at retirement, which is nowhere near typical asset allocation at retirement, so you can provide the evidence."I'm not interested in case studies as they just look at one case with one set of results. "
We can do many case studies in (near) real-time, using UK data.
"Nor am I interested in the psychology of investing and how some people assess risk emotionally rather than rationally."
But investors are human and unfortunately are prone to make emotional decisions. Unfortunately, you cannot escape that.....
"Because most of the evidence I've looked at points at 100% equities in the early decades but a lower % at the point of retirement provides the best results in terms of success rates (ie less risk of running out of money based on fixed withdrawals). "
But, let's turn it around. For Mr Automaton investor, why not start out at ~100% equities and stick with it to the very end? Do you have evidence to suggest that this approach is wildly suboptimal in terms of financial independence and plan sustainability?
"They all derisk as retirement approaches. Now, maybe you can post some major providers' which have a static asset allocation during the accumulation phase right up to the point of retirement as their default strategy"
I would suggest you don't hold providers up as the pinnacle of retirement planning expertise. Plenty of retirement planning specialists on twitter if you know where to look.Tw*tter The cesspit of social media where you're not allowed too many words in case it confuses. Instead soundbites and memes mainly from political loonies and extremists. Some financial ones too by the sounds of it! "No, you provide the evidence. You're the one making the extraodinary claim about 100% equities at retirement, which is nowhere near typical asset allocation at retirement, so you can provide the evidence. "
60% and 100% equity allocation below - £1m starting balance, £40k pa withdrawal increasing with inflation. As you can see, 100% gives slightly better longevity (worst case) and far better success rate. Happy to run some other scenarios or nudge the parameters. That's not to say 100% is optimal in all cases - 90% can be better
I wanted evidence, you know, written analysis showing the effect of different start criteria over different time periods in different markets. Like the sort of evidence I linked to earlier showing graphs comparing prime harvesting with annual rebalancing, or the link to McClung's book extract via the monevator link or herewhere he shows the effect of different initial asset allocations on lots of different withdrawal strategies with different initial asset allocations, and around 60%-70% equities generally give the lowest failure rates with 4% drawdown.Not screenshots from some software you don't even identify. Carry on claiming to be some sort of expert, I'm sure someone will believe you. Meanwhile, I will derisk as I approach retirement, and likely use prime harvesting in retirement. Whatever any tw*tter "expert" thinks
"Tw*tter The cesspit of social media where you're not allowed too many words in case it confuses. Instead soundbites and memes mainly from political loonies and extremists. Some financial ones too by the sounds of it!"
Yep, there's a lot of noise on there, but why not start with some of the work that Abraham Okusanya has done over the years and see some of the discussions that go on there.
"I wanted evidence, you know, written analysis showing the effect of different start criteria over different time periods in different markets."
At a high level, that's what you've got with the success rate from the screenshots I posted. Monthly start points over the last century. Each series gives a pass or fail and these added up give the % overall success rate.
"and around 60%-70% equities generally give the lowest failure rates with 4% drawdown. "
for UK data? Furthermore, the "derisking" strategies you mentioned do not tend to finish at 60-70% equities, typically far lower. I was being deliberately "harsh" on the 100% equities example by using 60%, I could have made 100% look far more favourable by comparing to something at a lower equity %."Not screenshots from some software you don't even identify."
It's Timeline. Monevator have used it before
https://monevator.com/how-to-improve-your-sustainable-withdrawal-rate/As that article says "The answer isn’t to simply load up 80-100% in equities and hang on for dear life. Rather we can aim to alter our asset allocation as we go."We're done. Ta ta. There, a post that would almost fit in a tw*tter "discussion"
If you insist, but if you want to dig down into why a typical "derisking" provider strategy at retirement might not suit a number of retirees, I'm happy to do some further analysis - Timeline is a pretty decent tool that allows you to evaluate a number of variables- an example below (where coincidentally to can see the impact of increasing equity allocation (scenarios 3 and 5).
I find it useful for evaluating what could potentially go wrong, for example, having to accept large reductions in real income for a strategy that, on the face of it, shows no downsides.
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zagfles,
Your posts in this discussion might be worth reviewing, since while you appear to be totally correct in at least most instances, all anyone needs to do to disagree with you is quote your own post for a point, then quote another one of yours for the counter-argument.
You appear to believe that:
1. High equities is best for for younger people. Not sure whether you value the known improvement from some rebalancing with ten to twenty percent bonds or prefer 100% equities. I'd add that significant smaller company and emerging markets holdings have also historically been useful.
2. Where analysis uses historic sequences for drawdown around 50-60% equities tends to be good, with more equities for longer periods.
3. Reducing risk before retirement is good. You gave three examples, two of which seem to cut equities to 0% and the third to 30%.
4. You assert that you don't want investor psychology considered, just pure best case answers.
Yet:
1b. While you think high equities is best you then give three balanced managed default funds as examples and these do not use high equities.
2b. BritishInvestor is correct that if historic return variations but not historic sequences are used, safe withdrawal rates normally increase all the way to 100% equities. Morningstar has some published work covering this. This is the main case where quoting parts of your posts doesn't have you disagreeing with yourself.
3b. All three default funds with lifestyling derisk before retirement so much that a substantial increase in risk - equity holdings - is required to achieve the equity percentage you seem to think is desirable for retirement drawdown.
4b. All three funds incorporate investor risk tolerance and use lower equity holdings than strictly desirable as a result. Unfortunate though it is, younger people tend to have a very low risk tolerance and strong adverse reaction to loss. NEST goes as far as using low growth investments in the early years to avoid scaring customers away, instead of explaining about ups and downs.
To summarise a bit, my thoughts not yours:
A. High equities is desirable at younger ages but younger investor risk tolerance tends to be low so default funds tend not to do it. As a result, default funds without lifestyling would often have a good investment mix for drawdown.
B. Lifestyling still screws things up. Two of the products you gave seem to cut equities to 0% as if the person will buy a single annuity on a single date. The other cuts to 30% equities but if a 25% tax free lump sum could be taken out of the non-equity portion it'd be left about right for drawdown.
C. If we were in a theoretical best world, initial high equities would require risk reduction at retirement. In the non-ideal one, keeping the same (no lifestyling) or increasing (classic lifestyling) is more likely to be needed to get to ideal drawdown splits. And this is mainly because real investors have risk tolerance issues during accumulation.
Other than you not yet seeming to be aware of the different equity split for historic sequences vs random sequences of historic returns there doesn't seem to be much actual disagreement between you about what theory says is most desirable, nor about what real products do.
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Guyton-Klinger being a good example of that, though considering what it takes to cut to other rule initial level or annuity level is part of that picture. Also worth comparing with a worse than historic sequence, where rules that can cut are likely to beat those which can't. At least until humans notice and act, as they are likely to in the real world.BritishInvestor said:
I find it useful for evaluating what could potentially go wrong, for example, having to accept large reductions in real income for a strategy that, on the face of it, shows no downsides.
Your example gives just Guyton instead of Guyton-Klinger for some cases. Which is it? Matters for things like inflation where the former has a cap that the latter dropped.0 -
Thank you jamesd. Essential reading for 20 year olds. Sending link to my children. Not that they listen to a word I say...jamesd said:zagfles,
Your posts in this discussion might be worth reviewing, since while you appear to be totally correct in at least most instances, all anyone needs to do to disagree with you is quote your own post for a point, then quote another one of yours for the counter-argument.
You appear to believe that:
1. High equities is best for for younger people. Not sure whether you value the known improvement from some rebalancing with ten to twenty percent bonds or prefer 100% equities. I'd add that significant smaller company and emerging markets holdings have also historically been useful.
2. Where analysis uses historic sequences for drawdown around 50-60% equities tends to be good, with more equities for longer periods.
3. Reducing risk before retirement is good. You gave three examples, two of which seem to cut equities to 0% and the third to 30%.
4. You assert that you don't want investor psychology considered, just pure best case answers.
Yet:
1b. While you think high equities is best you then give three balanced managed default funds as examples and these do not use high equities.
2b. BritishInvestor is correct that if historic return variations but not historic sequences are used, safe withdrawal rates normally increase all the way to 100% equities. Morningstar has some published work covering this. This is the main case where quoting parts of your posts doesn't have you disagreeing with yourself.
3b. All three default funds with lifestyling derisk before retirement so much that a substantial increase in risk - equity holdings - is required to achieve the equity percentage you seem to think is desirable for retirement drawdown.
4b. All three funds incorporate investor risk tolerance and use lower equity holdings than strictly desirable as a result. Unfortunate though it is, younger people tend to have a very low risk tolerance and strong adverse reaction to loss. NEST goes as far as using low growth investments in the early years to avoid scaring customers away, instead of explaining about ups and downs.
To summarise a bit, my thoughts not yours:
A. High equities is desirable at younger ages but younger investor risk tolerance tends to be low so default funds tend not to do it. As a result, default funds without lifestyling would often have a good investment mix for drawdown.
B. Lifestyling still screws things up. Two of the products you gave seem to cut equities to 0% as if the person will buy a single annuity on a single date. The other cuts to 30% equities but if a 25% tax free lump sum could be taken out of the non-equity portion it'd be left about right for drawdown.
C. If we were in a theoretical best world, initial high equities would require risk reduction at retirement. In the non-ideal one, keeping the same (no lifestyling) or increasing (classic lifestyling) is more likely to be needed to get to ideal drawdown splits. And this is mainly because real investors have risk tolerance issues during accumulation.
Other than you not yet seeming to be aware of the different equity split for historic sequences vs random sequences of historic returns there doesn't seem to be much actual disagreement between you about what theory says is most desirable, nor about what real products do.I have borrowed from my future self
The banks are not our friends0 -
jamesd said:zagfles,
Your posts in this discussion might be worth reviewing, since while you appear to be totally correct in at least most instances, all anyone needs to do to disagree with you is quote your own post for a point, then quote another one of yours for the counter-argument.
You appear to believe that:
1. High equities is best for for younger people. Not sure whether you value the known improvement from some rebalancing with ten to twenty percent bonds or prefer 100% equities. I'd add that significant smaller company and emerging markets holdings have also historically been useful.
2. Where analysis uses historic sequences for drawdown around 50-60% equities tends to be good, with more equities for longer periods.
3. Reducing risk before retirement is good. You gave three examples, two of which seem to cut equities to 0% and the third to 30%.
4. You assert that you don't want investor psychology considered, just pure best case answers.1b. While you think high equities is best you then give three balanced managed default funds as examples and these do not use high equities.
2b. BritishInvestor is correct that if historic return variations but not historic sequences are used, safe withdrawal rates normally increase all the way to 100% equities. Morningstar has some published work covering this. This is the main case where quoting parts of your posts doesn't have you disagreeing with yourself.
3b. All three default funds with lifestyling derisk before retirement so much that a substantial increase in risk - equity holdings - is required to achieve the equity percentage you seem to think is desirable for retirement drawdown.
4b. All three funds incorporate investor risk tolerance and use lower equity holdings than strictly desirable as a result. Unfortunate though it is, younger people tend to have a very low risk tolerance and strong adverse reaction to loss. NEST goes as far as using low growth investments in the early years to avoid scaring customers away, instead of explaining about ups and downs.1b, you've been whooshed. I was using them purely as examples of funds that derisk approaching retirement. That was in response to BI's assertion that derisking as you approach retirement is not generally recommended by retirement experts. So I posted examples of workplace providers all of which derisk and challenged him to give examples of some that don't. He couldn't. Nothing whatsoever to do with actual % equities, just the fact that derisk.2b, historic sequences obviously need accounting for, the stockmarket isn't a roulette wheel. That's where I think Prime Harvesting has something to offer.3b I already said that eg Vanguard is too low in equities. I've not even looked at the others, other than the fact that they derisk. The only point was that they derisk. OK? Nothing to do with the actual equity %, just the fact that it changes with age particularly in the years before retirement. And no comment on any other aspect of their investment strategy.4b. So what? Have I said that the major funds don't account for risk tolerance? I just said I wasn't interested in discussing it, I'm more interested in discussing an analytical approach to the correct fund balance not emotional.0 -
zagfles said:jamesd said:zagfles,
Your posts in this discussion might be worth reviewing, since while you appear to be totally correct in at least most instances, all anyone needs to do to disagree with you is quote your own post for a point, then quote another one of yours for the counter-argument.
You appear to believe that:
1. High equities is best for for younger people. Not sure whether you value the known improvement from some rebalancing with ten to twenty percent bonds or prefer 100% equities. I'd add that significant smaller company and emerging markets holdings have also historically been useful.
2. Where analysis uses historic sequences for drawdown around 50-60% equities tends to be good, with more equities for longer periods.
3. Reducing risk before retirement is good. You gave three examples, two of which seem to cut equities to 0% and the third to 30%.
4. You assert that you don't want investor psychology considered, just pure best case answers.1b. While you think high equities is best you then give three balanced managed default funds as examples and these do not use high equities.
2b. BritishInvestor is correct that if historic return variations but not historic sequences are used, safe withdrawal rates normally increase all the way to 100% equities. Morningstar has some published work covering this. This is the main case where quoting parts of your posts doesn't have you disagreeing with yourself.
3b. All three default funds with lifestyling derisk before retirement so much that a substantial increase in risk - equity holdings - is required to achieve the equity percentage you seem to think is desirable for retirement drawdown.
4b. All three funds incorporate investor risk tolerance and use lower equity holdings than strictly desirable as a result. Unfortunate though it is, younger people tend to have a very low risk tolerance and strong adverse reaction to loss. NEST goes as far as using low growth investments in the early years to avoid scaring customers away, instead of explaining about ups and downs.1b, you've been whooshed. I was using them purely as examples of funds that derisk approaching retirement. That was in response to BI's assertion that derisking as you approach retirement is not generally recommended by retirement experts. So I posted examples of workplace providers all of which derisk and challenged him to give examples of some that don't. He couldn't. Nothing whatsoever to do with actual % equities, just the fact that derisk.2b, historic sequences obviously need accounting for, the stockmarket isn't a roulette wheel. That's where I think Prime Harvesting has something to offer.3b I already said that eg Vanguard is too low in equities. I've not even looked at the others, other than the fact that they derisk. The only point was that they derisk. OK? Nothing to do with the actual equity %, just the fact that it changes with age particularly in the years before retirement. And no comment on any other aspect of their investment strategy.4b. So what? Have I said that the major funds don't account for risk tolerance? I just said I wasn't interested in discussing it, I'm more interested in discussing an analytical approach to the correct fund balance not emotional.
"and challenged him to give examples of some that don't. He couldn't. "
I wouldn't even begin to try because, believe it or not, workplace pension providers are not (typically) considered the golden source for retirement planning expertise. I gave an example previously where equities were "derisked" into inflation-linked bonds as retirement approached.
We'll have to agree to disagree on this unless you are willing to start digging into the evidence - the offer is always open.0 -
BritishInvestor said:zagfles said:jamesd said:zagfles,
Your posts in this discussion might be worth reviewing, since while you appear to be totally correct in at least most instances, all anyone needs to do to disagree with you is quote your own post for a point, then quote another one of yours for the counter-argument.
You appear to believe that:
1. High equities is best for for younger people. Not sure whether you value the known improvement from some rebalancing with ten to twenty percent bonds or prefer 100% equities. I'd add that significant smaller company and emerging markets holdings have also historically been useful.
2. Where analysis uses historic sequences for drawdown around 50-60% equities tends to be good, with more equities for longer periods.
3. Reducing risk before retirement is good. You gave three examples, two of which seem to cut equities to 0% and the third to 30%.
4. You assert that you don't want investor psychology considered, just pure best case answers.1b. While you think high equities is best you then give three balanced managed default funds as examples and these do not use high equities.
2b. BritishInvestor is correct that if historic return variations but not historic sequences are used, safe withdrawal rates normally increase all the way to 100% equities. Morningstar has some published work covering this. This is the main case where quoting parts of your posts doesn't have you disagreeing with yourself.
3b. All three default funds with lifestyling derisk before retirement so much that a substantial increase in risk - equity holdings - is required to achieve the equity percentage you seem to think is desirable for retirement drawdown.
4b. All three funds incorporate investor risk tolerance and use lower equity holdings than strictly desirable as a result. Unfortunate though it is, younger people tend to have a very low risk tolerance and strong adverse reaction to loss. NEST goes as far as using low growth investments in the early years to avoid scaring customers away, instead of explaining about ups and downs.1b, you've been whooshed. I was using them purely as examples of funds that derisk approaching retirement. That was in response to BI's assertion that derisking as you approach retirement is not generally recommended by retirement experts. So I posted examples of workplace providers all of which derisk and challenged him to give examples of some that don't. He couldn't. Nothing whatsoever to do with actual % equities, just the fact that derisk.2b, historic sequences obviously need accounting for, the stockmarket isn't a roulette wheel. That's where I think Prime Harvesting has something to offer.3b I already said that eg Vanguard is too low in equities. I've not even looked at the others, other than the fact that they derisk. The only point was that they derisk. OK? Nothing to do with the actual equity %, just the fact that it changes with age particularly in the years before retirement. And no comment on any other aspect of their investment strategy.4b. So what? Have I said that the major funds don't account for risk tolerance? I just said I wasn't interested in discussing it, I'm more interested in discussing an analytical approach to the correct fund balance not emotional.
"and challenged him to give examples of some that don't. He couldn't. "
I wouldn't even begin to try because, believe it or not, workplace pension providers are not (typically) considered the golden source for retirement planning expertise. I gave an example previously where equities were "derisked" into inflation-linked bonds as retirement approached.
We'll have to agree to disagree on this unless you are willing to start digging into the evidence - the offer is always open.
"Offer" of what exactly? If you've got evidence post a URL to a reputable study on the issue. Otherwise I'm not interested in any "offer". You're starting to sound like a spammer.
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