Planning a portfolio

bostonerimus

coastline said:

In the real world it looks like there ain't many with a substantial pot to make much difference to their retirement. Might be six figure sums on here but the links below show pots between £50-100K. Even those with Final Salary pensions ( DB pensions ) you need to be employed in the same job decades. One family member with a LGPS pension has been there since school 16 yo and now 55 yo. Latest report shows Lump sum + £13,000 a year at 60 yo and he's on a salary of £32,000. Yes I understand posters would much prefer a DB pension as DC.

 Highest average pension pot is less than £90,000 (actuarialpost.co.uk)

What is a good pension pot? - The Telegraph

Here it shows a fair few are taking 8% out of the pot. Can't blame them really as what difference would it make taking £1,500 or £1,200 out of a 50 grand pot?. Kids get more pocket money these days. Looks like many will be needing to make healthy monthly contributions in the future. I'm sure the governments main aim is to simply reduce the number of people on benefits in retirement. Not much else.

Retirement income market data 2019/20 | FCA

The brutal truth is that if you have to take 8% out of a pot then there's a very high probability that you will run out of money before you die. It's an unsustainable withdrawal and either they need to reduce spending or increase income by working. Just sticking your head in the sand won't work. But if you have a really small pot it doesn't make much difference and you may as well spend it down...hopefully after paying off any debt.

The balance of income with spending is why I always start by saying "Do a budget", it's far easier and less risky to cut spending than to increase your investment income. And paying off the mortgage and other debt while you are working can really reduce your need for income. If there isn't enough in DC or DB pension then you have to keep working and at least there will eventually be the extra roughly £9k in state pension, maybe more if married or getting more than the flat rate. The earlier this planning and action is taken the better. The hard cases are people who are 50, with little to no savings and hoping to retire comfortably because they just don't have the time to take risks and grow their money and the only real solution is to keep working until the time between retirement and death is short enough for their resources to cover them.

bostonerimus

"Much of the position people find themselves in is as a result of lifestyle choices - often decades earlier.  There are people here who were following a FIRE approach and living very frugally before anyone had heard the term. 

My approach was more balanced. We brought up a family and bought a house on one income - which meant there was a great deal of investment in our children. We managed to holiday abroad regularly, but driving and camping rather than flying somewhere expensive. In my opinion I've earned well, but I've never hit higher rate tax. "

Great points. I definitely started early and saving was high on my list of priorities. This came from my Mum who lived through the 1930s. I also did not have children which helped me control spending; kids are expensive. But I did have a divorce and the splitting of the assets put both me and my ex back several years. The key is to start investing and saving early and to live in a way that prioritizes the pension/ISA/saving account contributions over other discretionary spending.

aroominyork

dunstonh said:

Japan can be all of nothing.   On a rebalancing portfolio, that can be beneficial.  However, even then, our highest risk portfolio has under 5% in Japan.    If the op is planning to be a lazy investor (no research and no rebalancing) then it is probably best to avoid.  Not only for it being Japan but also because going single sector investing would not be a good idea either if you are just plucking numbers out of thin air.

Can you explain why you underweight Japan, and is that historic at your firm or only recent?

dunstonh

aroominyork said:

dunstonh said:

Japan can be all of nothing.   On a rebalancing portfolio, that can be beneficial.  However, even then, our highest risk portfolio has under 5% in Japan.    If the op is planning to be a lazy investor (no research and no rebalancing) then it is probably best to avoid.  Not only for it being Japan but also because going single sector investing would not be a good idea either if you are just plucking numbers out of thin air.

Can you explain why you underweight Japan, and is that historic at your firm or only recent?

I don't make the allocations myself.  They are bought in from an actuarial firm that uses long term economic data and a range of capital market assumptions when building the spreads.  The latest allocations at the highest risk level are 7.45% but typically the ballpark over the years is around 5% or less.    They have been trending upwards with each update though but we are probably looking at the peak currently.   
With Japan being under 5% of global GDP nowadays, we are actually overweight in Japan.

The problem with adjusting weightings is that any percentage you allocate to one area has to be taken away from another area.  That needs careful analysis and understanding of markets.   So, in the case of this poster with global holdings already, they would likely be sufficient for Japan without the need to boost them further.  Especially if the weightings are not being selected by a structured process. 

dharm999

Nebulous2 said:

WaywardDriver said:

Do you need regular income in your retirement? If so a fund or IT with a reliable track record of income from bonds is worth considering. For example, Royal London Sterling Extra Yield Bond.

Thanks - I don't anticipate having any need for money in retirement. I have a gap of 8 years from now until State Pension Age, but we have enough resources to cover that, in addition to our four ISAs. 

Surprised no-one has yet mentioned that you can still pay in to a pension, even with no pensionable income.  You can put in £2880 a year each, and then get it topped up by the tax relief to £3600, so between you an extra £1440 a year.  

aroominyork

dunstonh said:

aroominyork said:

dunstonh said:

Japan can be all of nothing.   On a rebalancing portfolio, that can be beneficial.  However, even then, our highest risk portfolio has under 5% in Japan.    If the op is planning to be a lazy investor (no research and no rebalancing) then it is probably best to avoid.  Not only for it being Japan but also because going single sector investing would not be a good idea either if you are just plucking numbers out of thin air.

Can you explain why you underweight Japan, and is that historic at your firm or only recent?

I don't make the allocations myself.  They are bought in from an actuarial firm that uses long term economic data and a range of capital market assumptions when building the spreads.  The latest allocations at the highest risk level are 7.45% but typically the ballpark over the years is around 5% or less.    They have been trending upwards with each update though but we are probably looking at the peak currently.   
With Japan being under 5% of global GDP nowadays, we are actually overweight in Japan.

The problem with adjusting weightings is that any percentage you allocate to one area has to be taken away from another area.  That needs careful analysis and understanding of markets.   So, in the case of this poster with global holdings already, they would likely be sufficient for Japan without the need to boost them further.  Especially if the weightings are not being selected by a structured process. 

Do you assess weightings by GDP rather than market cap - for which Japan is around 7% - and if so, why?

Nebulous2

dharm999 said:

Nebulous2 said:

WaywardDriver said:

Do you need regular income in your retirement? If so a fund or IT with a reliable track record of income from bonds is worth considering. For example, Royal London Sterling Extra Yield Bond.

Thanks - I don't anticipate having any need for money in retirement. I have a gap of 8 years from now until State Pension Age, but we have enough resources to cover that, in addition to our four ISAs. 

Surprised no-one has yet mentioned that you can still pay in to a pension, even with no pensionable income.  You can put in £2880 a year each, and then get it topped up by the tax relief to £3600, so between you an extra £1440 a year.  

Thanks - I'm on that.

My wife is doing it already, but I'm going to be doing some work for the NHS, which complicates it for me. I'm not sure how much work there will be. In the NHS scheme if you don't work for two years you get your contributions back, which could be the case for me. In addition to that if I'm paying into the NHS scheme I'm not clear how much more I would be able to contribute to a SIPP. 

LHW99

Nebulous2 said:

dharm999 said:

Nebulous2 said:

WaywardDriver said:

Do you need regular income in your retirement? If so a fund or IT with a reliable track record of income from bonds is worth considering. For example, Royal London Sterling Extra Yield Bond.

Thanks - I don't anticipate having any need for money in retirement. I have a gap of 8 years from now until State Pension Age, but we have enough resources to cover that, in addition to our four ISAs. 

Surprised no-one has yet mentioned that you can still pay in to a pension, even with no pensionable income.  You can put in £2880 a year each, and then get it topped up by the tax relief to £3600, so between you an extra £1440 a year.  

Thanks - I'm on that.

My wife is doing it already, but I'm going to be doing some work for the NHS, which complicates it for me. I'm not sure how much work there will be. In the NHS scheme if you don't work for two years you get your contributions back, which could be the case for me. In addition to that if I'm paying into the NHS scheme I'm not clear how much more I would be able to contribute to a SIPP. 

Surely even if you are there less than 2 years the contributions could be transferred to a SIPP or PP, rather than being refunded?

Nebulous2

LHW99 said:

Nebulous2 said:

dharm999 said:

Nebulous2 said:

WaywardDriver said:

Do you need regular income in your retirement? If so a fund or IT with a reliable track record of income from bonds is worth considering. For example, Royal London Sterling Extra Yield Bond.

Thanks - I don't anticipate having any need for money in retirement. I have a gap of 8 years from now until State Pension Age, but we have enough resources to cover that, in addition to our four ISAs. 

Surprised no-one has yet mentioned that you can still pay in to a pension, even with no pensionable income.  You can put in £2880 a year each, and then get it topped up by the tax relief to £3600, so between you an extra £1440 a year.  

Thanks - I'm on that.

My wife is doing it already, but I'm going to be doing some work for the NHS, which complicates it for me. I'm not sure how much work there will be. In the NHS scheme if you don't work for two years you get your contributions back, which could be the case for me. In addition to that if I'm paying into the NHS scheme I'm not clear how much more I would be able to contribute to a SIPP. 

Surely even if you are there less than 2 years the contributions could be transferred to a SIPP or PP, rather than being refunded?

Not as I understand it. As an unfunded public scheme they don't allow any transfers out. 


Leaving within the qualifying period gets you your contributions back - less tax. 

Thrugelmir

aroominyork said:

dunstonh said:

aroominyork said:

dunstonh said:

Japan can be all of nothing.   On a rebalancing portfolio, that can be beneficial.  However, even then, our highest risk portfolio has under 5% in Japan.    If the op is planning to be a lazy investor (no research and no rebalancing) then it is probably best to avoid.  Not only for it being Japan but also because going single sector investing would not be a good idea either if you are just plucking numbers out of thin air.

Can you explain why you underweight Japan, and is that historic at your firm or only recent?

I don't make the allocations myself.  They are bought in from an actuarial firm that uses long term economic data and a range of capital market assumptions when building the spreads.  The latest allocations at the highest risk level are 7.45% but typically the ballpark over the years is around 5% or less.    They have been trending upwards with each update though but we are probably looking at the peak currently.   
With Japan being under 5% of global GDP nowadays, we are actually overweight in Japan.

The problem with adjusting weightings is that any percentage you allocate to one area has to be taken away from another area.  That needs careful analysis and understanding of markets.   So, in the case of this poster with global holdings already, they would likely be sufficient for Japan without the need to boost them further.  Especially if the weightings are not being selected by a structured process. 

Do you assess weightings by GDP rather than market cap - for which Japan is around 7% - and if so, why?

Many investment managers now work on the basis of revenue source. Far more meaningful.