Once you've "won the game"

zagfles

bostonerimus said:

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.

So, you're still playing the "game", ie taking a risk with your investments.

That's the point, which some people seem to be missing. Anyone who takes a risk is still playing the game. The level of the risk may be different, so they might be playing a less or more risky game, but they're still on the pitch. Even if 100% in cash.

itwasntme001

zagfles said:

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.

I don't think London property has lost real value since 2007, but yes, much of the rest of UK probably has (although perhaps not any more given the rises over the last 1.5 years).

There seems to be a lot of fear about inflation but I still think it is transitory.  We had the same fears in 2010/2011 following the great recession as producers/retailers stock piled inventory to get ready for the demand (whilst supply chains were slow to get back to normal production).  Only the demand was quite timid.  There are a lot of similarities with what happened back then to what is happening now - although I suspect we could be in this transitory phase for longer with more sizeable inflation rates given how deep the 2020 recession was.

zagfles

itwasntme001 said:

zagfles said:

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.

I don't think London property has lost real value since 2007, but yes, much of the rest of UK probably has (although perhaps not any more given the rises over the last 1.5 years).

There seems to be a lot of fear about inflation but I still think it is transitory.  We had the same fears in 2010/2011 following the great recession as producers/retailers stock piled inventory to get ready for the demand (whilst supply chains were slow to get back to normal production).  Only the demand was quite timid.  There are a lot of similarities with what happened back then to what is happening now - although I suspect we could be in this transitory phase for longer with more sizeable inflation rates given how deep the 2020 recession was.

Plus Boris's recent pronouncements about weaning ourselves off cheap foreign labour and moving to a high wage economy, if that doesn't come with higher productivity then that's a recipe for high inflation. Which might be a good way for the govt to inflate away the massive covid debt...

But whatever you think about the direction of inflation, equities, bonds or property, none are risk free. So we all have to carry on playing the game. Except those who can afford an index linked annuity...

Audaxer

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". 

Yes, some people have more than enough cash than they will ever need. Someone could have more than enough income from DB and SPs to more than meet their needs, and also have say, £500k in cash savings, with no relatives that they wish to leave an inheritance to. If they leave it as cash it will lose money to inflation, but that may not bother them if they are unlikely to spend much of it anyway.

Some people in the same situation may invest it, and it may retain or increase it's value, but if they don't spend it or need to leave an inheritance, does it matter that it has retained or increased it's value?

bostonerimus

zagfles said:

bostonerimus said:

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.

So, you're still playing the "game", ie taking a risk with your investments.

That's the point, which some people seem to be missing. Anyone who takes a risk is still playing the game. The level of the risk may be different, so they might be playing a less or more risky game, but they're still on the pitch. Even if 100% in cash.

I'm taking zero risk. The risk is entirely being taken by my heirs.

MK62

zagfles said:

itwasntme001 said:

zagfles said:

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.

I don't think London property has lost real value since 2007, but yes, much of the rest of UK probably has (although perhaps not any more given the rises over the last 1.5 years).

There seems to be a lot of fear about inflation but I still think it is transitory.  We had the same fears in 2010/2011 following the great recession as producers/retailers stock piled inventory to get ready for the demand (whilst supply chains were slow to get back to normal production).  Only the demand was quite timid.  There are a lot of similarities with what happened back then to what is happening now - although I suspect we could be in this transitory phase for longer with more sizeable inflation rates given how deep the 2020 recession was.

Plus Boris's recent pronouncements about weaning ourselves off cheap foreign labour and moving to a high wage economy, if that doesn't come with higher productivity then that's a recipe for high inflation. Which might be a good way for the govt to inflate away the massive covid debt...

But whatever you think about the direction of inflation, equities, bonds or property, none are risk free. So we all have to carry on playing the game. Except those who can afford an index linked annuity...

But then you are just swapping one "game" for another.......this time it's can you dodge the grim reaper long enough to get your money back.
Fair enough, some may not care about losing that game, and so this might be a viable option for them......for the rest, perhaps not so much...

zagfles

MK62 said:

zagfles said:

itwasntme001 said:

zagfles said:

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.

I don't think London property has lost real value since 2007, but yes, much of the rest of UK probably has (although perhaps not any more given the rises over the last 1.5 years).

There seems to be a lot of fear about inflation but I still think it is transitory.  We had the same fears in 2010/2011 following the great recession as producers/retailers stock piled inventory to get ready for the demand (whilst supply chains were slow to get back to normal production).  Only the demand was quite timid.  There are a lot of similarities with what happened back then to what is happening now - although I suspect we could be in this transitory phase for longer with more sizeable inflation rates given how deep the 2020 recession was.

Plus Boris's recent pronouncements about weaning ourselves off cheap foreign labour and moving to a high wage economy, if that doesn't come with higher productivity then that's a recipe for high inflation. Which might be a good way for the govt to inflate away the massive covid debt...

But whatever you think about the direction of inflation, equities, bonds or property, none are risk free. So we all have to carry on playing the game. Except those who can afford an index linked annuity...

But then you are just swapping one "game" for another.......this time it's can you dodge the grim reaper long enough to get your money back.
Fair enough, some may not care about losing that game, and so this might be a viable option for them......for the rest, perhaps not so much...

Well quite. Clearly if you buy an annuity your "game" is an income for life, not "will I get my money back".

zagfles

Audaxer 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". 

Yes, some people have more than enough cash than they will ever need. Someone could have more than enough income from DB and SPs to more than meet their needs, and also have say, £500k in cash savings, with no relatives that they wish to leave an inheritance to. If they leave it as cash it will lose money to inflation, but that may not bother them if they are unlikely to spend much of it anyway.

Some people in the same situation may invest it, and it may retain or increase it's value, but if they don't spend it or need to leave an inheritance, does it matter that it has retained or increased it's value?

So, assuming the DB pensions are uncapped inflation linked, you've won the "game" as defined earlier. Obviously a DB pension with uncapped inflation is equivalent to an index linked annuity (if we ignore the risk of the company going bust and ending up in the PPF with worse indexation).

But as you point out, you're still taking a risk with the £500k even if you leave it in cash. It may go down by less than equities, who knows, but in the current environment, it's almost certain to go down in value if in cash. Equities have more chance of keeping value in real terms.

zagfles

bostonerimus said:

zagfles said:

bostonerimus said:

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.

So, you're still playing the "game", ie taking a risk with your investments.

That's the point, which some people seem to be missing. Anyone who takes a risk is still playing the game. The level of the risk may be different, so they might be playing a less or more risky game, but they're still on the pitch. Even if 100% in cash.

I'm taking zero risk. The risk is entirely being taken by my heirs.

So you obviously have other guaranteed investments/income if your property income stopped. 

Audaxer

zagfles said:

Audaxer 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". 

Yes, some people have more than enough cash than they will ever need. Someone could have more than enough income from DB and SPs to more than meet their needs, and also have say, £500k in cash savings, with no relatives that they wish to leave an inheritance to. If they leave it as cash it will lose money to inflation, but that may not bother them if they are unlikely to spend much of it anyway.

Some people in the same situation may invest it, and it may retain or increase it's value, but if they don't spend it or need to leave an inheritance, does it matter that it has retained or increased it's value?

But as you point out, you're still taking a risk with the £500k even if you leave it in cash. It may go down by less than equities, who knows, but in the current environment, it's almost certain to go down in value if in cash. Equities have more chance of keeping value in real terms.

But the whole point is that the risk doesn't matter to the pensioner in that example. If the value of the cash halves in value to £250k due to inflation, it doesn't matter to him as he is more than covered for his income needs by DB and SP pensions. As he is more than covered by his income, in that example he is likely to add excess income to his cash balance.