Once you've "won the game"

uk1

bostonerimus said:

SMcGill said:

A fair few retirees with good DB pensions and in receipt of State Pensions are in that position, where they could easily keep all savings in cash

That’s me. I do have a personal pension too but what you describe is pretty much my position and I accept that it means my savings won’t keep up with inflation. In fact I’ve assumed they will earn 0% and that inflation will be 4% every year for the next 25 years.

Yes, I could have more if my cash was actively invested, but why risk it if I don’t actually need it? It’s a legitimate retirement strategy, even if most might not consider it very praiseworthy. 

Yes, the legitimate strategy in this case is the one that makes you most comfortable. But you could equally well say if you don't need the money why not take some risk with it?

In my case the answer is the fear of loss is greater than the potential  joy of gain. And, why risk the exposure of currently having enough in exchange for the possibility of having more than I need  This seems sensible to me and bewildering to me that many in similar circumstances never consider it an option.

zagfles

bostonerimus said:

zagfles said:

bostonerimus said:

zagfles said:

uk1 said:

michaels said:

Albermarle said:

uk1 said:

waveydavey48 said:

I've read the expression "once you've won the game why keep playing" in relation to investing and it seems to refer to the situation where someone has invested long and well enough to be in the position where they have enough money to achieve their objectives, and the advice is that they should now de-risk. In other words why keep exposing your money to the vagaries of the market when you don't need to.
What happens next?
Is there a way to ensure your money just keeps pace with inflation so that it doesn't decrease in real terms, or maybe increases by 1 or 2% per annum?   

I think a further option for a few that is rarely considered is that it you genuinely have enough and you believe using all reasonable assumptions that you will always have enough it does present the option to take all of your cash out of all speculative harbours and put them into purely safe havens that offer no stress at all. 

I believe that although few in number many might be in this situation without realising it.  A good early indicator of this is if you currently have all your cash in non-speculative places and simply keep an uncomplicated spreadsheet that shows that even with decent spending you have more cash at any point in the current year than you did last year and before then perhaps you can live a stress free life and forget fund management.There are of course loads of "ifs" and "buts" but not having to track and fret about investing might actually extend life.

Good analysis, but I guess plenty of the regulars on here would get stressed knowing they were losing out to inflation and missing potential stock market returns , even though they did not need the money . Old habits die hard and for many investing  is one of their hobbies.

Inflation will be 6% plus by early next year - a few years like that and you must have started with a very big pot it not to be a problem - 6% inflation = a 6% investment loss.  Personally I couldn't live with that level of risk.

But that might not be the right advice for someone who is older than you and wealthier than you.  The point is that one view isn't right for all and the place of advice is to offer thoughts for the widest.  Some mistankly believe that their view is the view that is right for everyone.

You're missing the point. It's not about "advice" or "views", it's about why play the "game" once you've won.

There is no "safe haven" that guarantees your pot will not reduce in value in real terms. So if the "game" is preserving the value of your pot, you have to keep playing. You either take investment risk or inflation risk, or both, whatever you do. Obviously, it may be sensible to reduce risk, people will have views and give advice on that, but you can't eliminate risk. 

If the "game" is getting a guaranteed income for life, you can "win" that with an index linked annuity.

We've got to agree on the rules of this game and whether it involves preserving the value of a pot to pass on. The rules I go by in my plan are to guarantee a comfortable income and simply not worry about any of the remaining "unused" pot and leave it invested aggressively.

How have you achieved that "guaranteed comfortable income"?

Lucky enough to have a DB pension and income from a rental property that produce $40k/year and I will get SP from the UK and US that combined will be another $40k...all go up with inflation, except the rent that I only increase when the tenant changes and that isn't often.

Rent is hardly "guaranteed". What if the tenant loses their job and can't pay the rent, or simply refuses to? Long and costly eviction process during which no rent and probably a trashed property. What if the area goes downhill eg a bail hostel opens nearby, drug gangs move in, areas can change over a few years. Property is definitely not risk free, and a single or even a handful are certainly risky. A diversified equity portfolio invested in hundreds of companies could be safer. And they won't phone you at 2am to say the toilet won't flush

michaels

uk1 said:

bostonerimus said:

SMcGill said:

A fair few retirees with good DB pensions and in receipt of State Pensions are in that position, where they could easily keep all savings in cash

That’s me. I do have a personal pension too but what you describe is pretty much my position and I accept that it means my savings won’t keep up with inflation. In fact I’ve assumed they will earn 0% and that inflation will be 4% every year for the next 25 years.

Yes, I could have more if my cash was actively invested, but why risk it if I don’t actually need it? It’s a legitimate retirement strategy, even if most might not consider it very praiseworthy. 

Yes, the legitimate strategy in this case is the one that makes you most comfortable. But you could equally well say if you don't need the money why not take some risk with it?

In my case the answer is the fear of loss is greater than the potential  joy of gain. And, why risk the exposure of currently having enough in exchange for the possibility of having more than I need  This seems sensible to me and bewildering to me that many in similar circumstances never consider it an option.

Investing to protect against inflation is nothing to do with chasing a gain, it is all about trying to make sure that 'enough' really is enough in all circumstances.  As pointed out above, clearly £1m in cash in 1970 would not have been enough if it had not been invested to try to mitigate inflation.

bostonerimus

uk1 said:

bostonerimus said:

SMcGill said:

A fair few retirees with good DB pensions and in receipt of State Pensions are in that position, where they could easily keep all savings in cash

That’s me. I do have a personal pension too but what you describe is pretty much my position and I accept that it means my savings won’t keep up with inflation. In fact I’ve assumed they will earn 0% and that inflation will be 4% every year for the next 25 years.

Yes, I could have more if my cash was actively invested, but why risk it if I don’t actually need it? It’s a legitimate retirement strategy, even if most might not consider it very praiseworthy. 

Yes, the legitimate strategy in this case is the one that makes you most comfortable. But you could equally well say if you don't need the money why not take some risk with it?

In my case the answer is the fear of loss is greater than the potential  joy of gain. And, why risk the exposure of currently having enough in exchange for the possibility of having more than I need  This seems sensible to me and bewildering to me that many in similar circumstances never consider it an option.

Well put. Any retirement plan is a balance between risks...risk of inflation, risk of stock crashes, longevity risk and long term care etc. If you can deal with the risk of inflation and have enough cash wrt you projected lifetime spending then that's a viable plan. I would look at getting as much interest on your cash as you can by using some fixed term saving accounts and at some point an annuity might be a good option to supplement SP if you think you will live a long time.

uk1

michaels said:

uk1 said:

bostonerimus said:

SMcGill said:

A fair few retirees with good DB pensions and in receipt of State Pensions are in that position, where they could easily keep all savings in cash

That’s me. I do have a personal pension too but what you describe is pretty much my position and I accept that it means my savings won’t keep up with inflation. In fact I’ve assumed they will earn 0% and that inflation will be 4% every year for the next 25 years.

Yes, I could have more if my cash was actively invested, but why risk it if I don’t actually need it? It’s a legitimate retirement strategy, even if most might not consider it very praiseworthy. 

Yes, the legitimate strategy in this case is the one that makes you most comfortable. But you could equally well say if you don't need the money why not take some risk with it?

In my case the answer is the fear of loss is greater than the potential  joy of gain. And, why risk the exposure of currently having enough in exchange for the possibility of having more than I need  This seems sensible to me and bewildering to me that many in similar circumstances never consider it an option.

Investing to protect against inflation is nothing to do with chasing a gain, it is all about trying to make sure that 'enough' really is enough in all circumstances.  As pointed out above, clearly £1m in cash in 1970 would not have been enough if it had not been invested to try to mitigate inflation.

The point you make is correct.   

My point was a different one and that is  simply that a small number of people have enough but do not realise it - that they will never spend all they have. Some needn’t over-worry about inflation if they have enough to reasonably cope with it.  Factors include their current income and assets and age etc etc.  The need to be concerned about protection against inflation isn’t a rule for everyone as seems often to be espoused is my very simple point. There is a decision point before this which is given a set of assumptions you are content with, how likely am I to run out of cash.

itwasntme001

zagfles said:

uk1 said:

zagfles said:

uk1 said:

zagfles said:

You uk1 said:

zagfles said:

bostonerimus said:

zagfles said:

uk1 said:

michaels said:

Albermarle said:

uk1 said:

waveydavey48 said:

I've read the expression "once you've won the game why keep playing" in relation to investing and it seems to refer to the situation where someone has invested long and well enough to be in the position where they have enough money to achieve their objectives, and the advice is that they should now de-risk. In other words why keep exposing your money to the vagaries of the market when you don't need to.
What happens next?
Is there a way to ensure your money just keeps pace with inflation so that it doesn't decrease in real terms, or maybe increases by 1 or 2% per annum?   

I think a further option for a few that is rarely considered is that it you genuinely have enough and you believe using all reasonable assumptions that you will always have enough it does present the option to take all of your cash out of all speculative harbours and put them into purely safe havens that offer no stress at all. 

I believe that although few in number many might be in this situation without realising it.  A good early indicator of this is if you currently have all your cash in non-speculative places and simply keep an uncomplicated spreadsheet that shows that even with decent spending you have more cash at any point in the current year than you did last year and before then perhaps you can live a stress free life and forget fund management.There are of course loads of "ifs" and "buts" but not having to track and fret about investing might actually extend life.

Good analysis, but I guess plenty of the regulars on here would get stressed knowing they were losing out to inflation and missing potential stock market returns , even though they did not need the money . Old habits die hard and for many investing  is one of their hobbies.

Inflation will be 6% plus by early next year - a few years like that and you must have started with a very big pot it not to be a problem - 6% inflation = a 6% investment loss.  Personally I couldn't live with that level of risk.

But that might not be the right advice for someone who is older than you and wealthier than you.  The point is that one view isn't right for all and the place of advice is to offer thoughts for the widest.  Some mistankly believe that their view is the view that is right for everyone.

You're missing the point. It's not about "advice" or "views", it's about why play the "game" once you've won.

There is no "safe haven" that guarantees your pot will not reduce in value in real terms. So if the "game" is preserving the value of your pot, you have to keep playing. You either take investment risk or inflation risk, or both, whatever you do. Obviously, it may be sensible to reduce risk, people will have views and give advice on that, but you can't eliminate risk. 

If the "game" is getting a guaranteed income for life, you can "win" that with an index linked annuity.

We've got to agree on the rules of this game and whether it involves preserving the value of a pot to pass on. The rules I go by in my plan are to guarantee a comfortable income and simply not worry about any of the remaining "unused" pot and leave it invested aggressively.

How have you achieved that "guaranteed comfortable income"?

By making and storing more than enough cash and assets than you will ever need. 

And how do you guarantee that cash and those assets will hold their real value? Or not drop enough that your "comfortable" income is no longer "comfortable"?

You really aren’t understanding.  

You are obsessed with protecting or increasing the value of the total asset pool.  Some do not need to but haven’t realised it, 

No, you aren't understanding. I'm not "obsessed" with anything. I'm making the point that you can't guarantee to have "more than enough cash and assets than you will ever need" unless you've found some way to guarantee they'll hold their value, or at least not reduce in value by so much that you now no longer have "enough". 

You really are talking nonsense. 

There are no people in the world that have more than enough?

Not guaranteed. All assets and cash hold some sort of risk. OK that risk would be tiny for a billionaire not to have "enough", but that would apply whether they're invested in equities or cash, so it doesn't really matter.

But for those with more realistic pots, the risk is more substantial.

£1 in 1970 was worth under 15p in 1990. So a pot of £1million would be worth under £150k in 20 years time with similar inflation. Or a £20,000 pa non-index linked income would be just £2993.

Other countries are far worse. In just one decade like Turkey's in the 1990's, a £1million pot would be worth £4000. A non index linked £20,000 income would be just £80. That's just in a decade. Turkey isn't even the most extreme, look at Venezuela or Zimbabwe, or pre-war Germany.

Of course you may choose to believe we'll never get such rates of inflation. But that's a gamble, a risk. Just like investing in the stock market, houses, or other assets which can rise and fall in value. The level of risk may be different, but risk is still there. You're playing the "game" ie taking a risk even if you sit in cash.

So, tell us, how much do you reckon is "more than enough cash and assets than you will ever need", and what those assets are?

But keep in mind that savings interest rates generally tracked inflation rates such that, with the exception of a few years in the 70s, your cash earning interest generally kept up with inflation - in fact for much of the 80s, 90s and early 2000s you had savings accounts paying more interest than inflation.

Since 2008, we have had the reverse with inflation generally above interest rates but inflation has still been pretty low.  We have had great returns from other assets such as equities and property in order to easily beat inflation.  But there is no certainty that this will continue and we may be entering a long period where cash does better than most asset classes.

zagfles

michaels said:

uk1 said:

bostonerimus said:

SMcGill said:

A fair few retirees with good DB pensions and in receipt of State Pensions are in that position, where they could easily keep all savings in cash

That’s me. I do have a personal pension too but what you describe is pretty much my position and I accept that it means my savings won’t keep up with inflation. In fact I’ve assumed they will earn 0% and that inflation will be 4% every year for the next 25 years.

Yes, I could have more if my cash was actively invested, but why risk it if I don’t actually need it? It’s a legitimate retirement strategy, even if most might not consider it very praiseworthy. 

Yes, the legitimate strategy in this case is the one that makes you most comfortable. But you could equally well say if you don't need the money why not take some risk with it?

In my case the answer is the fear of loss is greater than the potential  joy of gain. And, why risk the exposure of currently having enough in exchange for the possibility of having more than I need  This seems sensible to me and bewildering to me that many in similar circumstances never consider it an option.

Investing to protect against inflation is nothing to do with chasing a gain, it is all about trying to make sure that 'enough' really is enough in all circumstances.  As pointed out above, clearly £1m in cash in 1970 would not have been enough if it had not been invested to try to mitigate inflation.

Indeed, that's almost where I am now. I would be happy for my pot to keep up with inflation, but cash won't do it, interest rates are below inflation, and I definitely don't have enough for an index linked annuity, so my investment objective will be to get returns which keep up with inflation overall. Quite high on cash, bonds IMO are likely to lose value, so mainly equities and cash. So I'll still need to play the "game", not to increase my pot, but to preserve it.

There's also the issue, which we've discussed here before, of people who have capped inflation DB pensions - a decade of 1970's inflation would halve their value if they had a 5% inflation cap. So investing in a way to mitigate inflation risk reduces risk there too.

bostonerimus

zagfles said:

bostonerimus said:

zagfles said:

bostonerimus said:

zagfles said:

uk1 said:

michaels said:

Albermarle said:

uk1 said:

waveydavey48 said:

I've read the expression "once you've won the game why keep playing" in relation to investing and it seems to refer to the situation where someone has invested long and well enough to be in the position where they have enough money to achieve their objectives, and the advice is that they should now de-risk. In other words why keep exposing your money to the vagaries of the market when you don't need to.
What happens next?
Is there a way to ensure your money just keeps pace with inflation so that it doesn't decrease in real terms, or maybe increases by 1 or 2% per annum?   

I think a further option for a few that is rarely considered is that it you genuinely have enough and you believe using all reasonable assumptions that you will always have enough it does present the option to take all of your cash out of all speculative harbours and put them into purely safe havens that offer no stress at all. 

I believe that although few in number many might be in this situation without realising it.  A good early indicator of this is if you currently have all your cash in non-speculative places and simply keep an uncomplicated spreadsheet that shows that even with decent spending you have more cash at any point in the current year than you did last year and before then perhaps you can live a stress free life and forget fund management.There are of course loads of "ifs" and "buts" but not having to track and fret about investing might actually extend life.

Good analysis, but I guess plenty of the regulars on here would get stressed knowing they were losing out to inflation and missing potential stock market returns , even though they did not need the money . Old habits die hard and for many investing  is one of their hobbies.

Inflation will be 6% plus by early next year - a few years like that and you must have started with a very big pot it not to be a problem - 6% inflation = a 6% investment loss.  Personally I couldn't live with that level of risk.

But that might not be the right advice for someone who is older than you and wealthier than you.  The point is that one view isn't right for all and the place of advice is to offer thoughts for the widest.  Some mistankly believe that their view is the view that is right for everyone.

You're missing the point. It's not about "advice" or "views", it's about why play the "game" once you've won.

There is no "safe haven" that guarantees your pot will not reduce in value in real terms. So if the "game" is preserving the value of your pot, you have to keep playing. You either take investment risk or inflation risk, or both, whatever you do. Obviously, it may be sensible to reduce risk, people will have views and give advice on that, but you can't eliminate risk. 

If the "game" is getting a guaranteed income for life, you can "win" that with an index linked annuity.

We've got to agree on the rules of this game and whether it involves preserving the value of a pot to pass on. The rules I go by in my plan are to guarantee a comfortable income and simply not worry about any of the remaining "unused" pot and leave it invested aggressively.

How have you achieved that "guaranteed comfortable income"?

Lucky enough to have a DB pension and income from a rental property that produce $40k/year and I will get SP from the UK and US that combined will be another $40k...all go up with inflation, except the rent that I only increase when the tenant changes and that isn't often.

Rent is hardly "guaranteed". What if the tenant loses their job and can't pay the rent, or simply refuses to? Long and costly eviction process during which no rent and probably a trashed property. What if the area goes downhill eg a bail hostel opens nearby, drug gangs move in, areas can change over a few years. Property is definitely not risk free, and a single or even a handful are certainly risky. A diversified equity portfolio invested in hundreds of companies could be safer. And they won't phone you at 2am to say the toilet won't flush

There are risks in property which is why I don't rely on it entirely. I have the pensions and a substantial pot invested in stock and bonds that is a very large multiple of my annual spending. 

We went through a difficult 2020 and my tenant could not work for most of the summer so I cut her rent in half for 3 months. This was easy for me to do because I had the DB pension coming in. We are now back to normal. To make management of the property easy I live in a two family house and rent out the ground floor and live above. I bought in a nice neighbourhood close to the University and the house price has more than tripled in the last 20 years. There is risk everything to some extent and I bought the rental property to compliment my other investments and it has worked out well.

uk1

bostonerimus said:

uk1 said:

bostonerimus said:

SMcGill said:

A fair few retirees with good DB pensions and in receipt of State Pensions are in that position, where they could easily keep all savings in cash

That’s me. I do have a personal pension too but what you describe is pretty much my position and I accept that it means my savings won’t keep up with inflation. In fact I’ve assumed they will earn 0% and that inflation will be 4% every year for the next 25 years.

Yes, I could have more if my cash was actively invested, but why risk it if I don’t actually need it? It’s a legitimate retirement strategy, even if most might not consider it very praiseworthy. 

Yes, the legitimate strategy in this case is the one that makes you most comfortable. But you could equally well say if you don't need the money why not take some risk with it?

In my case the answer is the fear of loss is greater than the potential  joy of gain. And, why risk the exposure of currently having enough in exchange for the possibility of having more than I need  This seems sensible to me and bewildering to me that many in similar circumstances never consider it an option.

Well put. Any retirement plan is a balance between risks...risk of inflation, risk of stock crashes, longevity risk and long term care etc. If you can deal with the risk of inflation and have enough cash wrt you projected lifetime spending then that's a viable plan. I would look at getting as much interest on your cash as you can by using some fixed term saving accounts and at some point an annuity might be a good option to supplement SP if you think you will live a long time.

What also sweetens fear is properties in addition to a main home used for vacations rather than rent.  They can be an insurance buffer.  I suspect that many second-home owners do not mitigate their fears by factoring in their second home as an insurance policy for unplanned inflation. 

The earlier SP also offered a wonderful deferment  option.

zagfles

itwasntme001 said:

zagfles said:

uk1 said:

zagfles said:

uk1 said:

zagfles said:

You uk1 said:

zagfles said:

bostonerimus said:

zagfles said:

uk1 said:

michaels said:

Albermarle said:

uk1 said:

waveydavey48 said:

I've read the expression "once you've won the game why keep playing" in relation to investing and it seems to refer to the situation where someone has invested long and well enough to be in the position where they have enough money to achieve their objectives, and the advice is that they should now de-risk. In other words why keep exposing your money to the vagaries of the market when you don't need to.
What happens next?
Is there a way to ensure your money just keeps pace with inflation so that it doesn't decrease in real terms, or maybe increases by 1 or 2% per annum?   

I think a further option for a few that is rarely considered is that it you genuinely have enough and you believe using all reasonable assumptions that you will always have enough it does present the option to take all of your cash out of all speculative harbours and put them into purely safe havens that offer no stress at all. 

I believe that although few in number many might be in this situation without realising it.  A good early indicator of this is if you currently have all your cash in non-speculative places and simply keep an uncomplicated spreadsheet that shows that even with decent spending you have more cash at any point in the current year than you did last year and before then perhaps you can live a stress free life and forget fund management.There are of course loads of "ifs" and "buts" but not having to track and fret about investing might actually extend life.

Good analysis, but I guess plenty of the regulars on here would get stressed knowing they were losing out to inflation and missing potential stock market returns , even though they did not need the money . Old habits die hard and for many investing  is one of their hobbies.

Inflation will be 6% plus by early next year - a few years like that and you must have started with a very big pot it not to be a problem - 6% inflation = a 6% investment loss.  Personally I couldn't live with that level of risk.

But that might not be the right advice for someone who is older than you and wealthier than you.  The point is that one view isn't right for all and the place of advice is to offer thoughts for the widest.  Some mistankly believe that their view is the view that is right for everyone.

You're missing the point. It's not about "advice" or "views", it's about why play the "game" once you've won.

There is no "safe haven" that guarantees your pot will not reduce in value in real terms. So if the "game" is preserving the value of your pot, you have to keep playing. You either take investment risk or inflation risk, or both, whatever you do. Obviously, it may be sensible to reduce risk, people will have views and give advice on that, but you can't eliminate risk. 

If the "game" is getting a guaranteed income for life, you can "win" that with an index linked annuity.

We've got to agree on the rules of this game and whether it involves preserving the value of a pot to pass on. The rules I go by in my plan are to guarantee a comfortable income and simply not worry about any of the remaining "unused" pot and leave it invested aggressively.

How have you achieved that "guaranteed comfortable income"?

By making and storing more than enough cash and assets than you will ever need. 

And how do you guarantee that cash and those assets will hold their real value? Or not drop enough that your "comfortable" income is no longer "comfortable"?

You really aren’t understanding.  

You are obsessed with protecting or increasing the value of the total asset pool.  Some do not need to but haven’t realised it, 

No, you aren't understanding. I'm not "obsessed" with anything. I'm making the point that you can't guarantee to have "more than enough cash and assets than you will ever need" unless you've found some way to guarantee they'll hold their value, or at least not reduce in value by so much that you now no longer have "enough". 

You really are talking nonsense. 

There are no people in the world that have more than enough?

Not guaranteed. All assets and cash hold some sort of risk. OK that risk would be tiny for a billionaire not to have "enough", but that would apply whether they're invested in equities or cash, so it doesn't really matter.

But for those with more realistic pots, the risk is more substantial.

£1 in 1970 was worth under 15p in 1990. So a pot of £1million would be worth under £150k in 20 years time with similar inflation. Or a £20,000 pa non-index linked income would be just £2993.

Other countries are far worse. In just one decade like Turkey's in the 1990's, a £1million pot would be worth £4000. A non index linked £20,000 income would be just £80. That's just in a decade. Turkey isn't even the most extreme, look at Venezuela or Zimbabwe, or pre-war Germany.

Of course you may choose to believe we'll never get such rates of inflation. But that's a gamble, a risk. Just like investing in the stock market, houses, or other assets which can rise and fall in value. The level of risk may be different, but risk is still there. You're playing the "game" ie taking a risk even if you sit in cash.

So, tell us, how much do you reckon is "more than enough cash and assets than you will ever need", and what those assets are?

But keep in mind that savings interest rates generally tracked inflation rates such that, with the exception of a few years in the 70s, your cash earning interest generally kept up with inflation - in fact for much of the 80s, 90s and early 2000s you had savings accounts paying more interest than inflation.

Since 2008, we have had the reverse with inflation generally above interest rates but inflation has still been pretty low.  We have had great returns from other assets such as equities and property in order to easily beat inflation.  But there is no certainty that this will continue and we may be entering a long period where cash does better than most asset classes.

Yes it's the overall return that matters, clearly if inflation is 10% and you're getting 10% interest (after tax) then your cash is keeping up with inflation. But taxes on interest were quite high then I think,  with the investment income surcharge of 15% above normal income tax rates.

But now, there's talk of inflation going up to 6% or so with interest rates still sub 1% in general. So in some ways now is worse than the 70's for holding cash!

Property has lost real value since 2007.