Once you've "won the game"

uk1

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.

bostonerimus

jamesd said:

waveydavey48 said:

... 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?   

The traditional and still effective way to do this is to cover the inflation risk with index-linked annuity purchases.

A well known US retirement researcher, Wade Pfau, advocates substituting annuities for bonds and continuing with equity investing, on the basis that bonds are for risk reduction and annuity purchase is the ultimate in risk reduction.

His work advocating whole life insurance and annuities has been criticized in the Boglehead community, admittedly they do have a very strong bias against "insurance products". But he does take money from the insurance industry and is a professor at a university set up to educate insurance professionals...so I would be far more comfortable with his work if he was not so strongly tied into the insurance industry. Some of his assumptions (like 1.6% fees on an equity and bond portfolio) and methodologies in his work are argued to be slanted towards whole life and annuities. Also he is using US products and rates and they are very different from what's on offer in the UK.

For me I simply reject whole life insurance as expensive and complicated. With the disappearance of DB pensions annuities can provide a safe income floor and longevity insurance, but just as bonds look like bad value with today's low interest rates so do annuities. Right now they are an expensive longevity insurance product, but, if you've "won the game" you can afford them.

[Deleted User]

bostonerimus said:

jamesd said:

waveydavey48 said:

... 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?   

The traditional and still effective way to do this is to cover the inflation risk with index-linked annuity purchases.

A well known US retirement researcher, Wade Pfau, advocates substituting annuities for bonds and continuing with equity investing, on the basis that bonds are for risk reduction and annuity purchase is the ultimate in risk reduction.

His work advocating whole life insurance and annuities has been criticized in the Boglehead community, admittedly they do have a very strong bias against "insurance products". But he does take money from the insurance industry and is a professor at a university set up to educate insurance professionals...so I would be far more comfortable with his work if he was not so strongly tied into the insurance industry. Some of his assumptions (like 1.6% fees on an equity and bond portfolio) and methodologies in his work are argued to be slanted towards whole life and annuities. Also he is using US products and rates and they are very different from what's on offer in the UK.

For me I simply reject whole life insurance as expensive and complicated. With the disappearance of DB pensions annuities can provide a safe income floor and longevity insurance, but just as bonds look like bad value with today's low interest rates so do annuities. Right now they are an expensive longevity insurance product, but, if you've "won the game" you can afford them.

All retirement strategies have been criticized by one person or another on the internet.  A few people on Bogleheads criticized Dr Pfau using ad hominem you mentioned but many (most?) were interested, appreciated the information and quite supportive of what he had to say. 

Of course everyone is completely free to reject whatever they want and express unsupported opinions. 

Here are the links and a representative comment. 

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=321648&sid=36ca923c6199c741e69d917edbbde168&start=250

They also have a wiki page dedicated to Dr Pfau. 

https://www.bogleheads.org/wiki/Wade_Pfau

Thanks! I have some reading to do.

FWIW, I really appreciate you taking the time (and risk) of posting here. Many of us are very interested in the questions you are researching and wish we had some of the microphone time on the podcast to probe and understand some of the nuances in general and specifics of how it might relate to our planning. Being able to ask follow up questions and seek clarification is really very helpful.


WoodSpinner

bostonerimus

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.

I agree that a simple financial plan could well lower your blood pressure and stress levels and extend your life. I wonder if the actuaries factor that into their annuity rates ;-) ...ie people who buy annuities live longer because they buy annuities.
Seriously though most people are going to need some speculation in their retirement plan because they will need some growth to keep up with inflation. Index linked annuities are a guaranteed way to do that, but they are expensive, Government index linked bonds are also an option. You could get more from stocks but with added risk. But if you've "won the game" all that becomes irrelevant because whatever you do you will be ok. I just becomes a game of how much will you leave to your heirs.

Albermarle

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.

waveydavey48

Many thanks for the further, interesting replies to my original post.

I think the answer for me is to remain invested in a multi-asset fund but dial down the percentage of equities. There are different views on whether the remainder should be bonds, cash or something else.  

Many forum members are not fans of bonds but Vanguard continue to advocate them in their lifestrategy products. I know some people are pretty dismissive of Vanguard but they do seem to know what they are talking about and if bonds are such a bad idea it's surprising they continue to advocate them.    

[Deleted User]

waveydavey48 said:

Many thanks for the further, interesting replies to my original post.

I think the answer for me is to remain invested in a multi-asset fund but dial down the percentage of equities. There are different views on whether the remainder should be bonds, cash or something else.  

Many forum members are not fans of bonds but Vanguard continue to advocate them in their lifestrategy products. I know some people are pretty dismissive of Vanguard but they do seem to know what they are talking about and if bonds are such a bad idea it's surprising they continue to advocate them.    

Vanguard sells quality products. As a vendor they sell products the customers buy.  And that includes annuities. https://personal.vanguard.com/pdf/s433.pdf

michaels

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.

bostonerimus

waveydavey48 said:

Many thanks for the further, interesting replies to my original post.

I think the answer for me is to remain invested in a multi-asset fund but dial down the percentage of equities. There are different views on whether the remainder should be bonds, cash or something else.  

Many forum members are not fans of bonds but Vanguard continue to advocate them in their lifestrategy products. I know some people are pretty dismissive of Vanguard but they do seem to know what they are talking about and if bonds are such a bad idea it's surprising they continue to advocate them.    

The returns of individual bonds held to maturity are going to be pretty low for now and if rates go up you'll see bond fund prices fall. If you aren't in them for a while and reinvesting the distributions you will lose money. What you end up doing will depend on your circumstances, but my approach to retirement income has been to use my DB pensions (equivalent of a good value annuity) and rental income as my "fixed income" components and then have a very high equity allocation with the rest of my money along with a couple of years in cash for emergencies and just cash flow.

uk1

bostonerimus 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.

I agree that a simple financial plan could well lower your blood pressure and stress levels and extend your life. I wonder if the actuaries factor that into their annuity rates ;-) ...ie people who buy annuities live longer because they buy annuities.
Seriously though most people are going to need some speculation in their retirement plan because they will need some growth to keep up with inflation. Index linked annuities are a guaranteed way to do that, but they are expensive, Government index linked bonds are also an option. You could get more from stocks but with added risk. But if you've "won the game" all that becomes irrelevant because whatever you do you will be ok. I just becomes a game of how much will you leave to your heirs.

Exactly.  And isn't it possible to be fools gold?  How much will you be permited to leave your heirs past your spouse?  If you joined the dots and realised that your spouse will have more than enough and then it's what's left to the kids then you might drink some more voddy and shrug and say my main job is actually to spend what I have rather than fret about protecting and increasing it. More people could then actually tell their wives to spend more whilst they share a life together.  Who does?  But that is another topic that normally invites some flak .....