Best allocation across Cash, Bonds & Equities?

Thrugelmir

sheslookinhot said:

Deleted_User said:

sheslookinhot said:

Deleted_User said:

Albermarle said:

Deleted_User said:

By the way, when the posters here are saying “cash”, do you mean the actual cash sitting within a tax free pension wrapper and earning no interest? 

It can mean that , or it can mean cash outside a wrapper, sitting in a normal saving account(s) earning 1% maybe .
It varies depending on the poster.

Cash in a savings account earning interest which you can access in an instant? Absolutely. Cash in a SIPP losing value and subsidizing the brokerage? Why would one ever do that? 

Does cash in a SIPP receive  the 25% contribution from HMRC ?

That has nothing to do with how you use liquidity within a SIPP. 

I’m aware of that, but cash receives a 25% contribution from HMRC, so it’s hardly losing value.

If you do nothing. Then inflation slowly erodes the benefit. 

[Deleted User]

sheslookinhot said:

Deleted_User said:

sheslookinhot said:

Deleted_User said:

Albermarle said:

Deleted_User said:

By the way, when the posters here are saying “cash”, do you mean the actual cash sitting within a tax free pension wrapper and earning no interest? 

It can mean that , or it can mean cash outside a wrapper, sitting in a normal saving account(s) earning 1% maybe .
It varies depending on the poster.

Cash in a savings account earning interest which you can access in an instant? Absolutely. Cash in a SIPP losing value and subsidizing the brokerage? Why would one ever do that? 

Does cash in a SIPP receive  the 25% contribution from HMRC ?

That has nothing to do with how you use liquidity within a SIPP. 

I’m aware of that, but cash receives a 25% contribution from HMRC, so it’s hardly losing value.

Guess we see it differently.  Yes, the government returns some of my money to me when I deposit it into a pension wrapper.  It will take some of it later on.  While its within my control, I do not use any asset categories which are guaranteed to lose value over time. 

AlanP_2

We are at the stage (early 60s) where we will start to live off pensions / savings over the next couple of years (next month for me and 18/24 months time for my wife).

DB pensions (with 2 * SPs to come) will easily cover our living costs so the investment pot is for the "nice to have" things and one-off capital items like car replacement or private health treatment.

This is different to many who will be living off their investments in the main and so our approach may not suit everybody.

The way we are looking at is that "we have won" and have enough so don't need to take very high risk, but we do want to maintain a "real value" level for the investments as inflation and spend potentially erode the pot.

The target allocation that we are moving towards (along with likely choices) for that period will be:

20% in Cash / PBs

30% in Wealth Preservation ITs (10% each in CGT, PNL and RCP)

10% in Mixed Asset (Baillie Gifford Managed at 80/20 Equity / Bonds)

20% in Large Cap Global Equities (Fundsmith and Vanguard Global Equity)
10% in Small(er) Cap Equities (SSON for global and a UK Small Cap IT/Fund)
5% in EM Equities
5% in Private Equity (HVPE or similar)


That should end up as ~ 60% Equities, 10% Bonds, 10% Other (e.g infrastructure & commodities) and 20% Cash.

The 50% in cash/PB and WP ITs will hopefully keep up with inflation or thereabouts and the "risk" assets will hopefully generate enough positive return that we achieve something like CPI + 3% overall return.

That would be enough as the plan is to spend ~2.5% to 3% pa of the pot (albeit a lumpy spend).

Obviously no plan is set in concrete and "things" will happen that we will need to react to and adapt as we go (3 kids still to possibly get married for example and 1 still to buy a house).

Linton

AlanP_2 said:

We are at the stage (early 60s) where we will start to live off pensions / savings over the next couple of years (next month for me and 18/24 months time for my wife).

DB pensions (with 2 * SPs to come) will easily cover our living costs so the investment pot is for the "nice to have" things and one-off capital items like car replacement or private health treatment.

This is different to many who will be living off their investments in the main and so our approach may not suit everybody.

The way we are looking at is that "we have won" and have enough so don't need to take very high risk, but we do want to maintain a "real value" level for the investments as inflation and spend potentially erode the pot.

The target allocation that we are moving towards (along with likely choices) for that period will be:

20% in Cash / PBs

30% in Wealth Preservation ITs (10% each in CGT, PNL and RCP)

10% in Mixed Asset (Baillie Gifford Managed at 80/20 Equity / Bonds)

20% in Large Cap Global Equities (Fundsmith and Vanguard Global Equity)
10% in Small(er) Cap Equities (SSON for global and a UK Small Cap IT/Fund)
5% in EM Equities
5% in Private Equity (HVPE or similar)


That should end up as ~ 60% Equities, 10% Bonds, 10% Other (e.g infrastructure & commodities) and 20% Cash.

The 50% in cash/PB and WP ITs will hopefully keep up with inflation or thereabouts and the "risk" assets will hopefully generate enough positive return that we achieve something like CPI + 3% overall return.

That would be enough as the plan is to spend ~2.5% to 3% pa of the pot (albeit a lumpy spend).

Obviously no plan is set in concrete and "things" will happen that we will need to react to and adapt as we go (3 kids still to possibly get married for example and 1 still to buy a house).

Looks sensible to me.

Minor comments:

 - your 10% mixed asset allocation could be shared between equity and Wealth Preservation. I am not sure that having it as a top level allocation adds anything.
 - Check whether you really want RCP.  It can be a little lively.

AlanP_2

Linton said:

AlanP_2 said:

We are at the stage (early 60s) where we will start to live off pensions / savings over the next couple of years (next month for me and 18/24 months time for my wife).

DB pensions (with 2 * SPs to come) will easily cover our living costs so the investment pot is for the "nice to have" things and one-off capital items like car replacement or private health treatment.

This is different to many who will be living off their investments in the main and so our approach may not suit everybody.

The way we are looking at is that "we have won" and have enough so don't need to take very high risk, but we do want to maintain a "real value" level for the investments as inflation and spend potentially erode the pot.

The target allocation that we are moving towards (along with likely choices) for that period will be:

20% in Cash / PBs

30% in Wealth Preservation ITs (10% each in CGT, PNL and RCP)

10% in Mixed Asset (Baillie Gifford Managed at 80/20 Equity / Bonds)

20% in Large Cap Global Equities (Fundsmith and Vanguard Global Equity)
10% in Small(er) Cap Equities (SSON for global and a UK Small Cap IT/Fund)
5% in EM Equities
5% in Private Equity (HVPE or similar)


That should end up as ~ 60% Equities, 10% Bonds, 10% Other (e.g infrastructure & commodities) and 20% Cash.

The 50% in cash/PB and WP ITs will hopefully keep up with inflation or thereabouts and the "risk" assets will hopefully generate enough positive return that we achieve something like CPI + 3% overall return.

That would be enough as the plan is to spend ~2.5% to 3% pa of the pot (albeit a lumpy spend).

Obviously no plan is set in concrete and "things" will happen that we will need to react to and adapt as we go (3 kids still to possibly get married for example and 1 still to buy a house).

Looks sensible to me.

Minor comments:

 - your 10% mixed asset allocation could be shared between equity and Wealth Preservation. I am not sure that having it as a top level allocation adds anything.
 - Check whether you really want RCP.  It can be a little lively.

Thanks.

To be honest I think of the BG Managed as part of the equities allocation but when I wrote the post I thought it worth setting it apart as otherwise someone would have pointed out that it is an 80/20 fund.

I keep adding and then removing RCP because as you say it can be lively. It does something a bit less "wealth preservation" than the other two but it isn't full on equity / risk assets. Hopefully the overall set will complement each other in the years ahead (fingers crossed).

Canuck01

Nice explained Alan.  Looks similar to my set up and I am in the same boat wanting a bit of growth but no disasters, very happy with my current pot.  Will need about 2% a year from the pot to back up DBs, but also 3 kids that I want to help into home ownership.  I might consider less bonds in the future as I don't fully understand how they work and some different fixed income options.  For myself I like having plenty of cash on hand to throw in when the big dips come along.

AlanP_2

Canuck01 said:

Nice explained Alan.  Looks similar to my set up and I am in the same boat wanting a bit of growth but no disasters, very happy with my current pot.  Will need about 2% a year from the pot to back up DBs, but also 3 kids that I want to help into home ownership.  I might consider less bonds in the future as I don't fully understand how they work and some different fixed income options.  For myself I like having plenty of cash on hand to throw in when the big dips come along.

I'm with you on Bonds, I understand the principle concept and Yield To Maturity etc. but I can't get my head around how a Bond Index works. For equities they are generally Cap Weighted. Are Bond Indexes the same, in which case the largest "borrowers" will be the biggest constituents which sounds high risk to me. Prefer to use an active manager for these and let the likes of CGT, PNL decide which bonds are "sensible" to hold in current conditions as opposed to holding thousands that must include a load of duffers.

Linton

AlanP_2 said:

Canuck01 said:

Nice explained Alan.  Looks similar to my set up and I am in the same boat wanting a bit of growth but no disasters, very happy with my current pot.  Will need about 2% a year from the pot to back up DBs, but also 3 kids that I want to help into home ownership.  I might consider less bonds in the future as I don't fully understand how they work and some different fixed income options.  For myself I like having plenty of cash on hand to throw in when the big dips come along.

I'm with you on Bonds, I understand the principle concept and Yield To Maturity etc. but I can't get my head around how a Bond Index works. For equities they are generally Cap Weighted. Are Bond Indexes the same, in which case the largest "borrowers" will be the biggest constituents which sounds high risk to me. Prefer to use an active manager for these and let the likes of CGT, PNL decide which bonds are "sensible" to hold in current conditions as opposed to holding thousands that must include a load of duffers.

I have just checked Vanguard UK Government Bond Index Fund...

Yes, it follows a Cap Weighted index, which to my mind seems mad.  This results in its top 10 holdings iincluding bonds that mature next year and bonds that dont mature until 2055.  There is no apparent logic behind the allocations.

Unlike Equity there is no argument that can be made about the market knowing best.  Most Gilts are bought by UK institutions such as pension companies who would buy particular gilts not because they believe they will have the best return but simply because they have maturity dates that match the institution's liabilities.   I fail to see what relevence this has to meeting a private investor's objectives.

If you want to buy safe bonds it must make more sense to copy the institutions and choose ones with maturity dates that match your needs.  For example, buying bonds that mature around your planned retirement date for a pension, or perhaps a ladder of bonds that mature at 10-year intervals.

As far as I can see there are no funds that assist an investor wishing to do this.  There are funds of bonds that mature in say 3-10 years.  But if course in 5 years time it will still hold bonds that mature in 3-10 years.

Prism

I think the only way to deal with passive bond funds is to pick one that has an average duration and volatility that suits your requirement and then sell units whenever your withdrawal policy dictates it. Very different than building a bond ladder that you know will mature at a certain point. With a fund you never know when you are going to sell it and you typically are relying on the rush to safety that usually happens during an equity crash, rather than a specific future date.

MX5huggy

Linton said:

AlanP_2 said:

Canuck01 said:

Nice explained Alan.  Looks similar to my set up and I am in the same boat wanting a bit of growth but no disasters, very happy with my current pot.  Will need about 2% a year from the pot to back up DBs, but also 3 kids that I want to help into home ownership.  I might consider less bonds in the future as I don't fully understand how they work and some different fixed income options.  For myself I like having plenty of cash on hand to throw in when the big dips come along.

I'm with you on Bonds, I understand the principle concept and Yield To Maturity etc. but I can't get my head around how a Bond Index works. For equities they are generally Cap Weighted. Are Bond Indexes the same, in which case the largest "borrowers" will be the biggest constituents which sounds high risk to me. Prefer to use an active manager for these and let the likes of CGT, PNL decide which bonds are "sensible" to hold in current conditions as opposed to holding thousands that must include a load of duffers

Unlike Equity there is no argument that can be made about the market knowing best.  Most Gilts are bought by UK institutions such as pension companies who would buy particular gilts not because they believe they will have the best return but simply because they have maturity dates that match the institution's liabilities.   I fail to see what relevence this has to meeting a private investor's objectives.

If you want to buy safe bonds it must make more sense to copy the institutions and choose ones with maturity dates that match your needs.  For example, buying bonds that mature around your planned retirement date for a pension, or perhaps a ladder of bonds that mature at 10-year intervals.

Your ignoring that any bond has a value today and there is a market. If I have a 30 year 3% UK £100 gilt you would pay me more for it than  a 30 3% Thailand Government Bond. But because we don’t know which is actually better value I want a fund that holds both, or taking it to the final conclusion a fund that holds 14000 bonds.