Retirement Investing - Less Risky Bets

DT2001

Linton said:

If you have excess money there are cases for either reducing risk and maximising flexibility by keeping a much larger cash buffer than required for crash protection or keeping cash to a minimum in order to maximise return.

There is the need for an initial allocation to provide for inflation matching normal expenditure in the long term.  Beyond that there is the question of how to manage one-off expenditure and any requirement to provide for one's beneficiaries.  So it depends on your circumstances.  If there are no beneficiaries who could reasonably expect a very large lump sum there is no great need to maximise investment return.

An alternative objective is to shield oneself from equity movements as much as reasonably possible to ensure future one off expenditure plans can be met regardless of the economic situation.  The expected costs could include such things as a regular foreign holiday, replacement of cars, possibly a new kitchen or other house refurbishment. On the other hand there is no point in keeping cash that could never be used.

To keep ongoing manaement simple I aim to have sufficient cash to max out his and hers PBs and then keep much the same amount of money in lower risk investments intended to match inflation. Anthing extra can be invested in equity at higher risk.  This should ensure that any foreseeable future expenditure at current prices can be made met without touching the equity portfolio which can be left in peace to do its job.




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Thank you for your considered reply. I agree it is horses for courses.
I wasn’t suggesting a desire to maximise returns for beneficiaries on any excess just hopefully an inflation beating return.

I agree about not keeping cash that could never be used but that is a difficult one to work out. Do you have to assume living to a 100 and the last ten years in a home at £50k p.a.?
My MIL rather than passing on capital early moved her portfolio to more income generating and gives her excess income to help fund son’s and grandchildren’s uni costs/pension. If she needs care at home she’ll just take the excess income herself but if she cannot live at home her property will fund quite a few years which will give time for her investments to be adjusted to a lower equity level.

Having read Johnwinder’s link holding more in cash (quasi cash) doesn’t seem as bad an option as often portrayed.

Albermarle

Having read Johnwinder’s link holding more in cash (quasi cash) doesn’t seem as bad an option as often portrayed.

If it held outside the pension , then no need for money market funds etc . Just use actual cash savings accounts, Premium Bonds etc.

Alexland

Prism said:

The problem historically seems to occur if and when inflation kicks in. In the 70s the yield needed to be 7%+ to keep up with inflation and over 10% to keep up with cash. I think its telling that our dividend heroes trusts date back to this point with their yearly increases but I can't find a single one that survived through this high inflation, high interest rate time period.

An AIC dividend hero doesn't need to keep up with inflation in order to achieve another year of increasing dividends. At a recent online Q&A for my favourite Murray Income trust I asked in advance if the board though it likely that they would be able to increase dividends with rising inflation (after a few years of sub 1% minimum 0.25p increases) and the chairman reminded me that it wasn't an objective for the trust but that the dividend was 98% covered last financial year (despite covid) so they should be in a position to make some decisions to move away from minimum rises soon.