When there is no need for asset diversification?

Thrugelmir

lozzy1965 said:

Malthusian said:

So your fund has fallen by 33% and is now at exactly the level needed to sustain your income indefinitely. Does that mean you'll be resting easy? Because most people will be panicking because everyone will be saying that the market is bound to continue falling (which is what all the experts and everybody else says at the bottom of the market) and that means your fund is about to drop below the level you need for an indefinite period of time.

I guess this thread is probably aimed more at the seasoned investors who know that the markets go up and down all the time, so don't panic when they go down.

Name me a seasoned investor that hasn't ended up on the wrong end of a trade. Markets aren't just numbers on a screen. 

Alexland

Albermarle said:

However 100% equities in the OP's situation seems too risky, and surely some dilution with cash, bonds, gold, infrastructure would be wise . At what % would be debatable of course.

I agree but for example if they do something sensible with the 100% of the money they need to support their drawdown (eg 1/30th drawdown keeping 30% in 'safe assets' enough to last 9 years) then I don't see the harm in them investing the further 50% surplus they have available in equities. Essentially it's taking more risk (eg 20% of the overall in 'safe' assets) but with a lower withdrawal rate (1/45th of the total) so the natural dividend yield and 'safe' buffer combined should provide substantial cover before needing to ever sell down equities while their price is low. So over-accumulating should reduce the proportion of 'safe' assets required in drawdown.

itwasntme001

Deleted_User said:

If you have more than enough capital, then there is a large plausible range for what percentage in equities is probably going to work out OK - i.e. either a relatively high, or a relatively low, percentage in equities, will probably be fine. But I would favour going relatively high, on the basis that attack is the best form of defence, i.e. gains in good periods are a good way to cushion yourself against losses in bad periods.

But I wouldn't go for 100% equities. Around 75% is plenty; that gets you close to the returns of 100% equities (because of the "rebalancing bonus"), and makes the bad periods significant less bad than with 100% equities. Maybe if you're only trying to spend 1% of your capital per year, you could go 100% equities, but even then, why do it?

But where do you draw the line?

I mean both of these statements seem plausible based on what you have said:

1) I have more than enough to fund my lifestyle so I can just take a lot of risk as draw-downs, even severe ones, won't impact my life much as equities eventually recover (I think?).  Plus I get a chance to improve my lifestyle.

2) I have more than enough to fund my lifestyle so I better not ruin my chances of a decent life by taking a lot of unnecessary risk.  Gaining more returns won't impact my life in any meaningful way.

I think in bull markets people have a tendency to prefer option 1.  Then when a nasty bear market hits (maybe after a few years since the peak), people wish they had gone for option 2.

Audaxer

lozzy1965 said:

Assuming that one is saving for retirement, one sets a target annual income to achieve.  One invests in higher risk/higher return assets when one is younger - higher risk meaning higher short term risk, higher return meaning higher average long term return.  In theory, one then de-risks as one approaches retirement, to minimise the short term risk of lower than expected returns.
What if one reaches a target of - say 150% - of ones desired annual income?  Then I suggest there is no need to de-risk.  You can suffer a 33% loss in investment with no loss of annual income and more than this if you consider that on average you can build your investments back up again during retirement when you are getting higher than average returns.
Thoughts on this anyone?

If you reach a target of say 150% with a medium risk portfolio, in my view it gives you options of staying with the same portfolio, increasing risk, or reducing risk. So say you need £3,500 per year from your investments to top up DB and SP income. Ideally of pot of £100k should allow you to draw £3,500 per year increasing with inflation. If your investment pot however has reached £150k, then I agree you have less need to worry about equity crashes because a 33% fall in portfolio value would still enable you to comfortably drawdown £3,500 per year.

Considering the options; I don't really see the point of going higher risk if you are still only going to draw out £3,500 per year rising with inflation, as with your current medium risk portfolio you will still be able to drawdown a higher income in most years if you wanted to. You could probably move to a lower risk portfolio and still be able to drawdown your £3,500 per year rising with inflation, but I think in that example if my pot had grown to £150k of what I need, I would stick with the same medium risk portfolio that had got me there.

Thrugelmir

itwasntme001 said:

Deleted_User said:

If you have more than enough capital, then there is a large plausible range for what percentage in equities is probably going to work out OK - i.e. either a relatively high, or a relatively low, percentage in equities, will probably be fine. But I would favour going relatively high, on the basis that attack is the best form of defence, i.e. gains in good periods are a good way to cushion yourself against losses in bad periods.

But I wouldn't go for 100% equities. Around 75% is plenty; that gets you close to the returns of 100% equities (because of the "rebalancing bonus"), and makes the bad periods significant less bad than with 100% equities. Maybe if you're only trying to spend 1% of your capital per year, you could go 100% equities, but even then, why do it?

I think in bull markets people have a tendency to prefer option 1.  Then when a nasty bear market hits (maybe after a few years since the peak), people wish they had gone for option 2.

Current bull market started in March 2009. There's a generation of equity investors who've never known anything different.  When's the next 7 year bear market going to strike, or a decade of US stocks underperforming inflation, or a debt crisis.........

itwasntme001

Thrugelmir said:

itwasntme001 said:

Deleted_User said:

If you have more than enough capital, then there is a large plausible range for what percentage in equities is probably going to work out OK - i.e. either a relatively high, or a relatively low, percentage in equities, will probably be fine. But I would favour going relatively high, on the basis that attack is the best form of defence, i.e. gains in good periods are a good way to cushion yourself against losses in bad periods.

But I wouldn't go for 100% equities. Around 75% is plenty; that gets you close to the returns of 100% equities (because of the "rebalancing bonus"), and makes the bad periods significant less bad than with 100% equities. Maybe if you're only trying to spend 1% of your capital per year, you could go 100% equities, but even then, why do it?

I think in bull markets people have a tendency to prefer option 1.  Then when a nasty bear market hits (maybe after a few years since the peak), people wish they had gone for option 2.

Current bull market started in March 2009. There's a generation of equity investors who've never known anything different.  When's the next 7 year bear market going to strike, or a decade of US stocks underperforming inflation, or a debt crisis.........

Yes precisely.  To top it off we now have passive investing taking a large share of the flows to equities.  Surely this may cause issues further down the line?  The idea of buying the market at any price just feels strange to me.  I used to think passive is the only way.  Now I am not so sure.  I think the opportunity for active investors is bigger now than it has been for a long time.

lozzy1965

Thrugelmir said:

lozzy1965 said:

Malthusian said:

So your fund has fallen by 33% and is now at exactly the level needed to sustain your income indefinitely. Does that mean you'll be resting easy? Because most people will be panicking because everyone will be saying that the market is bound to continue falling (which is what all the experts and everybody else says at the bottom of the market) and that means your fund is about to drop below the level you need for an indefinite period of time.

I guess this thread is probably aimed more at the seasoned investors who know that the markets go up and down all the time, so don't panic when they go down.

Name me a seasoned investor that hasn't ended up on the wrong end of a trade. Markets aren't just numbers on a screen. 

That's the point I was making, a seasoned investor knows they will have losses as well as gains because they have experienced both.

lozzy1965

Thrugelmir said:

itwasntme001 said:

Deleted_User said:

If you have more than enough capital, then there is a large plausible range for what percentage in equities is probably going to work out OK - i.e. either a relatively high, or a relatively low, percentage in equities, will probably be fine. But I would favour going relatively high, on the basis that attack is the best form of defence, i.e. gains in good periods are a good way to cushion yourself against losses in bad periods.

But I wouldn't go for 100% equities. Around 75% is plenty; that gets you close to the returns of 100% equities (because of the "rebalancing bonus"), and makes the bad periods significant less bad than with 100% equities. Maybe if you're only trying to spend 1% of your capital per year, you could go 100% equities, but even then, why do it?

I think in bull markets people have a tendency to prefer option 1.  Then when a nasty bear market hits (maybe after a few years since the peak), people wish they had gone for option 2.

Current bull market started in March 2009. There's a generation of equity investors who've never known anything different.  When's the next 7 year bear market going to strike, or a decade of US stocks underperforming inflation, or a debt crisis.........

Brexit Crash?  Covid crash?

Thrugelmir

lozzy1965 said:

Thrugelmir said:

itwasntme001 said:

Deleted_User said:

If you have more than enough capital, then there is a large plausible range for what percentage in equities is probably going to work out OK - i.e. either a relatively high, or a relatively low, percentage in equities, will probably be fine. But I would favour going relatively high, on the basis that attack is the best form of defence, i.e. gains in good periods are a good way to cushion yourself against losses in bad periods.

But I wouldn't go for 100% equities. Around 75% is plenty; that gets you close to the returns of 100% equities (because of the "rebalancing bonus"), and makes the bad periods significant less bad than with 100% equities. Maybe if you're only trying to spend 1% of your capital per year, you could go 100% equities, but even then, why do it?

I think in bull markets people have a tendency to prefer option 1.  Then when a nasty bear market hits (maybe after a few years since the peak), people wish they had gone for option 2.

Current bull market started in March 2009. There's a generation of equity investors who've never known anything different.  When's the next 7 year bear market going to strike, or a decade of US stocks underperforming inflation, or a debt crisis.........

Brexit Crash?  Covid crash?

What's driven markets over the past decade? A cheap and plentifull supply of money. Few retail investors care about company fundamentals. 

When US mega companies are performing so well who wants boring old UK companies in their portfolio. The mantra became self fulfilling. 

fizio

This is an interesting discussion as I find myself just retired and have a combination of db/bel property/stocks and in the fortunate position of just about  having my day to day expense covered by anyone of the 3 incomes. On the stocks side I am diversified in mainly index funds and 10% corporate bonds. I may get more govt bonds when they become affordable.
I’m not sure there is a right answer as the counterpoints all make sense so its probably down to a personal decision of either reducing risk to near 0 or being relaxed about ups/downs of the markets