What is your trigger point to start spending from cash buffer?? + QE, Does it change the game?

Thrugelmir

Sea_Shell said:

Thrugelmir said:

Sea_Shell said:

Thrugelmir said:

Sea_Shell said:

So no need to hit the cash panic button just yet!!!

Your portfolio should be aligned with your appetite and ability to weather risk at all times. 

I should hope so, as we only NEED £135,000 over the next 9 years, before DBs kick in, from a current portfolio of £615,000.

If the markets were to crash to that extent, I think we'd all have bigger worries!!!

Never invest on the basis of hope alone. 

I didn't say "hope alone", it was just a light hearted turn of phrase.     

But then the only two certain things in life are "death and taxes".

Many investors do unfortunately invest on that basis though far too often. 

Sea_Shell

Thrugelmir said:

Sea_Shell said:

Thrugelmir said:

Sea_Shell said:

Thrugelmir said:

Sea_Shell said:

So no need to hit the cash panic button just yet!!!

Your portfolio should be aligned with your appetite and ability to weather risk at all times. 

I should hope so, as we only NEED £135,000 over the next 9 years, before DBs kick in, from a current portfolio of £615,000.

If the markets were to crash to that extent, I think we'd all have bigger worries!!!

Never invest on the basis of hope alone. 

I didn't say "hope alone", it was just a light hearted turn of phrase.     

But then the only two certain things in life are "death and taxes".

Many investors do unfortunately invest on that basis though far too often. 

Maybe if you wanted to make a general point about "many investors", you shouldn't have quoted me specifically. 

[Deleted User]

michaels said:

zagfles said:

Thrugelmir said:

zagfles said:

Thrugelmir said:

zagfles said:

Anonymous101 said:

michaels said:

I find this thread really interesting in that almost everyone:
a) thinks they can time the markets (change asset mix depending on current equity valuations) and
b) don't seem to understand the theory behind SWR

The latter does reveal a flaw in SWR - many of the lowest scenarios (the ones that determine the historical SWR) have seen situations where the pot shrinks to some low multiple of the annual withdrawal amount quite early in the historical period and then recovers, fine with hindsight but had you 'lived' that series of returns I can guarantee you that everyone would have reduced withdrawals when they saw their pot fall to such a low multiple so early and would thus have had some years where they actually drew less than what turned out to be safe.

I think I understand the theory behind SWR's but what you've hit on is THE flaw in SWR. They work in theory but no-one in their right mind would continue to sell assets and spend as they set out once you get to the extremes of the cases which turned out ok.

If you're portfolio drops 50,60,70% of course you're going to alter spending habits, the SWR theory swims against the tide of human nature there. That's why threads like this are so interesting because what starts as a 5-10% drop and market timing ends up being panic selling. As the falls get bigger eventually everyone develops the fear of running out of money.

Emotions asides, drawing a static "SWR" probably doesn't make financial sense either, using a dynamic withdrawal rate would likely deliver better results overall, see link I posted earlier. Obviously assuming you can cope with swings in income.

But whatever, you need a plan which you stick to and which is designed to cope with big market swings, far bigger than those of the last 3 months, if you go changing your plan because of fairly normal markets movements eg Nov to now, how are you going to cope with a 40% drop? 

Fairly normal movements. That's an interesting take.   Worst fall in the S&P in January ever........

Yes. Up 19% since a year ago. A bit of froth came off, that's all. So far anyway, I make no prediction on the future, just in case you incorrectly read between the lines again.

Not reading between the lines. Markets are driven by differing opinions. Usefull in weighing up the moves one should take with ones own portfolio. 

I don't try to time the market. Certainly not short term anyway. I'm not arrogant enough to think I know better than the collective market opinion, ie that which sets the current market prices. Anyone who thinks they do know better and hasn't got their own private island is deluded.

AS soon as you start saying something like 'the market is low so I will spend from cash rather than shares' you are timing the market in that you are expressing an opinion that in the future the shares portion of your portfolio will be worth more in comparison to the cash part. 

If share prices are a random walk then this is wrong. 

If they show some sort of 'reversion to mean' then it is a wining strategy but if shares always 'revert to mean' then there is a guaranteed winning strategy that an efficient market will arbitrage away by definition.

Absolutely.

To me "Variable withdrawal"  means varying amounts but keeping allocation steady.  

[Deleted User]

Down 2.8% in January.  Up 10.4% over 12 months.  Time to take some measures. Like another nap. 

Audaxer

Sea_Shell said:

Thrugelmir said:

Sea_Shell said:

So no need to hit the cash panic button just yet!!!

Your portfolio should be aligned with your appetite and ability to weather risk at all times. 

I should hope so, as we only NEED £135,000 over the next 9 years, before DBs kick in, from a current portfolio of £615,000.

How much do you think you'll need to draw from your portfolio annually once your DBs kick in?

Sea_Shell

Audaxer said:

Sea_Shell said:

Thrugelmir said:

Sea_Shell said:

So no need to hit the cash panic button just yet!!!

Your portfolio should be aligned with your appetite and ability to weather risk at all times. 

I should hope so, as we only NEED £135,000 over the next 9 years, before DBs kick in, from a current portfolio of £615,000.

How much do you think you'll need to draw from your portfolio annually once your DBs kick in?

They'll pay £9000, in today's prices, index linked (max 5%), plus then £7700 SP 2 years later, again at today's prices.

Plus then my SP a further 5 years after that.

We're a few years short of full SP, which we'll review nearer the time.

So you could argue we need 11 years worth of spending from our pot.

Anonymous101

Deleted_User said:

michaels said:

zagfles said:

Thrugelmir said:

zagfles said:

Thrugelmir said:

zagfles said:

Anonymous101 said:

michaels said:

I find this thread really interesting in that almost everyone:
a) thinks they can time the markets (change asset mix depending on current equity valuations) and
b) don't seem to understand the theory behind SWR

The latter does reveal a flaw in SWR - many of the lowest scenarios (the ones that determine the historical SWR) have seen situations where the pot shrinks to some low multiple of the annual withdrawal amount quite early in the historical period and then recovers, fine with hindsight but had you 'lived' that series of returns I can guarantee you that everyone would have reduced withdrawals when they saw their pot fall to such a low multiple so early and would thus have had some years where they actually drew less than what turned out to be safe.

I think I understand the theory behind SWR's but what you've hit on is THE flaw in SWR. They work in theory but no-one in their right mind would continue to sell assets and spend as they set out once you get to the extremes of the cases which turned out ok.

If you're portfolio drops 50,60,70% of course you're going to alter spending habits, the SWR theory swims against the tide of human nature there. That's why threads like this are so interesting because what starts as a 5-10% drop and market timing ends up being panic selling. As the falls get bigger eventually everyone develops the fear of running out of money.

Emotions asides, drawing a static "SWR" probably doesn't make financial sense either, using a dynamic withdrawal rate would likely deliver better results overall, see link I posted earlier. Obviously assuming you can cope with swings in income.

But whatever, you need a plan which you stick to and which is designed to cope with big market swings, far bigger than those of the last 3 months, if you go changing your plan because of fairly normal markets movements eg Nov to now, how are you going to cope with a 40% drop? 

Fairly normal movements. That's an interesting take.   Worst fall in the S&P in January ever........

Yes. Up 19% since a year ago. A bit of froth came off, that's all. So far anyway, I make no prediction on the future, just in case you incorrectly read between the lines again.

Not reading between the lines. Markets are driven by differing opinions. Usefull in weighing up the moves one should take with ones own portfolio. 

I don't try to time the market. Certainly not short term anyway. I'm not arrogant enough to think I know better than the collective market opinion, ie that which sets the current market prices. Anyone who thinks they do know better and hasn't got their own private island is deluded.

AS soon as you start saying something like 'the market is low so I will spend from cash rather than shares' you are timing the market in that you are expressing an opinion that in the future the shares portion of your portfolio will be worth more in comparison to the cash part. 

If share prices are a random walk then this is wrong. 

If they show some sort of 'reversion to mean' then it is a wining strategy but if shares always 'revert to mean' then there is a guaranteed winning strategy that an efficient market will arbitrage away by definition.

Absolutely.

To me "Variable withdrawal"  means varying amounts but keeping allocation steady.  

I agree. However, playing devils advocate, it could be argued that if your strategy is to say be 70/30 within your investments and then have a cash pot on top of that which you spend from; and vary the amount you withdraw to the cash pot every year. There's not much difference between that and being 65/25/10 and amending the percentages slightly depending on your view of markets.

Anonymous101

Sea_Shell said:

Thrugelmir said:

Sea_Shell said:

So no need to hit the cash panic button just yet!!!

Your portfolio should be aligned with your appetite and ability to weather risk at all times. 

I should hope so, as we only NEED £135,000 over the next 9 years, before DBs kick in, from a current portfolio of £615,000.

If the markets were to crash to that extent, I think we'd all have bigger worries!!!

What's you asset allocation SS? Sorry if you've posted this before I couldn't see it in this thread.

I know your spending habits from your other thread, I'm just thinking through what strategy I'd take if I was in your position.
Some would advocate "De-risking" the £135k (to cash or a mixture of bonds, inflation linked or regular) and putting the rest in equities.

Sea_Shell

I don't have all the figures to hand, but off the top of my head, £53k is currently cash and £70k in our low equity ISA fund.

De-risked enough...who knows? 😉

Audaxer

Sea_Shell said:

Audaxer said:

Sea_Shell said:

Thrugelmir said:

Sea_Shell said:

So no need to hit the cash panic button just yet!!!

Your portfolio should be aligned with your appetite and ability to weather risk at all times. 

I should hope so, as we only NEED £135,000 over the next 9 years, before DBs kick in, from a current portfolio of £615,000.

How much do you think you'll need to draw from your portfolio annually once your DBs kick in?

They'll pay £9000, in today's prices, index linked (max 5%), plus then £7700 SP 2 years later, again at today's prices.

Plus then my SP a further 5 years after that.

We're a few years short of full SP, which we'll review nearer the time.

So you could argue we need 11 years worth of spending from our pot.

You're absolutely fine then, even if you kept the 11 years worth of spending as cash and left the rest invested to accumulate.