Working out % Equity allocation

Albermarle

older_and_no_wiser said:

Albermarle said:

Based on my current portfolio and investing into retirement (around 5 years from now), I will have sufficient in the pot to outlast my lifetime by a significant margin. 

In this case I would not worry too much about asset allocations , but for what it is worth there are a few more options than cash or bonds , although probably no more than 10% in any one .

Gold/precious metals

Infrastructure funds 

Property funds 

Thanks for that. I actually also have £10k just recently invested in Loanpad P2P lending platform. This is in their premium account generating 4%. I thought it was a good diversifier and read good things about Loanpad. I may put more in it at some point but realise that it isn't covered by the FCA scheme

I was going to mention P2P as another diversifier, but usually generates a negative reaction on this forum . If you tread carefully and keep the % of it in your portfolio < 5% it is still a viable option/diversifier  in my opinion, along with the ones mentioned above and cash and still some % of bonds , although they are clearly less attractive than in the past.

pip895

Sea_Shell said:

So you have 60% of your assets in 100% equity funds, and keep the 40% as cash cash, not "other" within a split fund?

Personally I have cash outside my investment portfolio that we could live off for about 2-3 years if necessary.  Then I have cash, currently around 5%, and other “non equity like investments” 25% sitting inside my SIPP and ISAs.  

Those non equity like investments include bonds and gold but also some multi asset funds that have the remit of protecting value when equity is falling.  They generally have a track record of not dropping heavily during a crash and I treat them as a black box and ignore bond and equity percentages within them.  I am well aware every crash is different and some of these funds may mot perform as well next time so none of them forms more than about 5% of my total investments.  I used to consider Property REITs as part of this “safety group” - but they were actually worse effected than most equity in the COVID crash - I now sit them among the equity.

Personally I prefer holding separate funds for the equity/growth and “safety” sides of my portfolio.  It means that I can rebalance between them and change my risk profile by moving between them.  For instance during a correction/ crash when equity has lost ground, I might want to increase my % equity reducing it again after a long period of equity growth.

Notepad_Phil

Deleted_User said:

“ So far I've been able to beat CPI on our cash since retirement, but I can see that being impossible for the next few years, though I still prefer the risk of inflation on our savings against the risk of base rate increases on bonds.”

I hold fixed income specifically to help through major bear markets. The nice thing about bonds vs cash is that they tend to go up when stocks drop like a stone.  US bonds are particularly helpful in this respect because USD also goes up vs other currencies in a crisis.  Cash does not do that. Of course there is no guarantee bonds wont change their crisis behaviour.

Bonds have been on a multi-decade bull run and I for one have my doubts that there's much room for them to continue that run of form given where interest rates are, but they've proved me wrong before and who knows where governments might go if there is a major market crash in the near future.

I'm not saying that I'll always use cash instead of bonds, it can sometimes be a bit of a pain to keep on top of the myriad of savings accounts needed to get the best possible rates across large sums, but for the time being I'll stick with them for the majority of our non equity position and let the equity side rise and fall as the global markets dictate (though preferably rising in the long term  ) and just keep taking the natural yield from them, using the cash if needed (which it hasn't so far).

Thrugelmir

pip895 said:

Sea_Shell said:

So you have 60% of your assets in 100% equity funds, and keep the 40% as cash cash, not "other" within a split fund?

I used to consider Property REITs as part of this “safety group” - but they were actually worse effected than most equity in the COVID crash - I now sit them among the equity.

REITS come in many guises and can provide diversification in a portfolio. To the same degree you could add Corporate bonds to equity. While they rank higher than equity. If a company requires financial restructuring or goes bust. Then their value will either take a sizable hit or indeed be worthless. Risk premiums are in place for a reason.