Vanguard SIPP query - target retirement fund / lifestrategy fund

Mick70

Hi all,
this is similar to another posters thread so apologies in advance

I have a sipp for my wife that i pay into , it is a target retirement fund , with retirement date of 2030 , i realise it de-risks as that year approaches , but ideally we don't want it then falling behind inflation , which was suggested on another persons thread ?

So, if i were to pay more in this financial year , rather than add it to the retirement fund, could I open for her a lifestrategy (60% equity possibly  -  60:40)  sipp to sit alongside the retirement fund sipp.   I did have a look on vanguard earlier but wasn't sure if you could do this or if you could only add funds to the current sipp  ie the target retirement fund.

Also curious on what posters thoughts were on this , or should just stick with one or the other ?

many thanks
Mick

Costabit

Once the money is inside the SIPP it is yours to buy whatever you want ( assuming the platform have your chosen fund ).
You are not limited to only investing in one fund.
Whether or not, it is the best strategy to hold multiple funds is a different question for you to ponder on , but it is entirely feasible to do what you are thinking.

Thrugelmir

Equities aren't inflation proofed. There's no direct correlation between inflation and market performance over any particular time frame. As it all depends what form the inflation takes. 

Albermarle

Also curious on what posters thoughts were on this , or should just stick with one or the other ?
Which is exactly what the other long thread is about ...........

Mick70

Albermarle said:

Also curious on what posters thoughts were on this , or should just stick with one or the other ?
Which is exactly what the other long thread is about ...........

It became too bogged down with long arguments , much of which I couldn’t follow 😀

kuratowski

As the other thread shows, there is no cut and dried answer.  My opinion (fwiw) is that if you are using a multi-asset fund as your investment vehicle then it makes little sense to mix and match different variants.  Pick the one that best reflects your attitude to risk and stick with it, anything else defeats the "one stop shop" purpose of such funds.

If you think that Target Retirement 2030 is too conservative to meet your objectives, you always have the option to switch to another fund instead (such as 2040 or one of the Lifestrategy fixed allocations), but to my mind it makes more sense to do that consistently - and switch the current fund holdings as well as future contributions and not create a mixture.

DairyQueen

I'm not convinced that de-risking is achieved by a glide-path into bonds as their (recent decades) inverse relationship with equities no longer holds true and they are so exposed to inflation risk. If OTOH you are only seeking to reduce volatility as spouse's retirement date approaches then target retirement funds are an option.

Despite their volatility, equities are the preferred hedge against inflation over a 10+ year investment timeframe. Asset allocation for a <10 year timeframe is a tougher call. De-accumulation investing is tougher than accumulation IMO.

I wish to drawdown the max TF annually via UFPLS in retirement years 1 through 5. I will then move to a low annual withdrawal rate (<2%) but wish to retain flexibility to increase/reduce/suspend drawdown.

Year 1 is imminent (this or next tax year) and I have used 'buckets' to structure my portfolio in the lead-up. Many here would disagree with this approach but it works for me as the funds earmarked for near-term drawdown are invested at a risk level commensurate with their investment timeframe and not with my generally high tolerance for risk 

Years 1 thru 5 -100% cash
Year 6 - 100% bonds
Years 7 thru 10 - 20/80 
Years 10+ - 80/20. I resisted 100% equities as a I don't have the stomach to see a possible 50% reduction on a large chunk of my portfolio when the market crashes. A 40% drop is within my comfort zone.

I decided the known inflation hit on cash was the least worst option for the short-term. I am hoping that the 20% equity allocation will mitigate against inflation risk on bonds for years 7 thru 10 but a market crash and/or high inflation would put-paid to that. The 20/80 allocation will likely be glide-pathed into cash when I rebalance annually.

Mr DQ's portfolio is very low bonds despite his imminent retirement. Other than cash intended for drawdown over the next 5 years (and a smidge of bonds and WP) he is 100% equities. But his drawdown aims and constraints are different from mine.

How you structure your portfolio in preparation for, and during, de-accumulation is a product of more than risk/volatility tolerance. It also depends on your drawdown schedule, tax situation, LTA position, other income, inheritance plans, etc. There is no one-size-fits-all strategy.

Dansmam

I get what people are saying about multi asset funds but you can also go for different multi asset funds to diversify into a sort of a global mix and match. I have a split between worldwide including UK and rest of world. Rest of world has done better over the last few years but I think that's down to uk office properties. Next year it might be the other way round. Who knows 🥴

jamesd

Something with around 90% global equities and lots of small cap is what I suggest, without lifestyling, instead handling the risk change timing and rate yourself.

Target retirement starts out higher in equities, which is good, but she's already in the time period where it reduces equities, which is bad.

Lifestrategy 60 is even lower equities than Target retirement until mid 60s age, too low for optimum growth, which would take 80+.

If you need lower equities to meet her risk tolerance, Target retirement is unsuitable because it has higher equities. Even though higher equities - if risk tolerance is ignored - is better.

BritishInvestor

kuratowski said:

As the other thread shows, there is no cut and dried answer.  My opinion (fwiw) is that if you are using a multi-asset fund as your investment vehicle then it makes little sense to mix and match different variants.  Pick the one that best reflects your attitude to risk and stick with it, anything else defeats the "one stop shop" purpose of such funds.

If you think that Target Retirement 2030 is too conservative to meet your objectives, you always have the option to switch to another fund instead (such as 2040 or one of the Lifestrategy fixed allocations), but to my mind it makes more sense to do that consistently - and switch the current fund holdings as well as future contributions and not create a mixture.

"As the other thread shows, there is no cut and dried answer."

The research is pretty clear, but I appreciate there's a lot of noise on this forum.

I would suggest that purchasing this

https://www.amazon.co.uk/Beyond-4-Rule-retirement-portfolios-ebook/dp/B07BBTZXWN/ref=sr_1_2?

and navigating to Chapter 9 - "Asset allocation and sustainable withdrawal rate" for those who want to cut through the noise.

Historical worst case for 100% equities for the dataset in questions was 3.6% for 100% equities reducing to 2.5% for 20% equities. 

And some US data

https://www.retailinvestor.org/pdf/Bengen1.pdf

"Stock allocations lower than 50 percent are counterproductive, in that they lower the amount of accumulated wealth as well as lowering the minimum portfolio longevity. Somewhere between 50-percent and 75-percent stocks will be a client's "comfort zone."

zagfles

This article on monevator is worth a read, together with the links from it

https://monevator.com/decumulation-a-real-life-plan/