How risky is risky?

baggins11

I am trying to understand the right level of risk for my pension.  I have recently transferred my pension as the fees where expensive so have gone to vanguard.  I was going to go for the vanguard retirement but I have done some reading and would rather tailor to my needs.  I am still a beginner in this so learning as I go.  I have a pot of around 75K that I have ignored up until this point and now I am focusing more on my pension (previously we have been more interested in overpaying the mortgage).

 I am going for 60% into the LS60 and 40% into the LS80.  I am mid 40s and would love to semi retire in 10yrs but hope not to access my pension for 15yrs.  

I read a few articles that indicated the LS80 was rather risky but am I correct in thinking once I start accessing my pension I could access the money in the LS60 and not touch the LS80 until a later date.  So what I am trying to say is the LS80 is not really risky so long as I can allow flexibility to when I access it (eg ride out any downturn).  Is this correct or should I be looking at moving more (or all) towards the LS60? 

I would say I am a medium risk investor and will have a modest retirement pot so can't afford to lose massive sums but would hang on working for another few years if necessary.  I am hoping my pension pot will eventually match my state pension and then I will have another passive income of the same amount from BTL.

NannaH

I’d go mostly VLS80 and perhaps 30% in the 2035 or 2040 target scheme,  that way you are derisking as you go and can use the derisked part first when you start drawdown if needed. 

I’m 56 this year and am still in Vls80 plus Baillie Gifford global income growth and I’ve swapped all further contributions to HSBC all world index tracker, which is all equities.  Going too ‘safe’ is also a risk. 

cfw1994

Overall, your logic there looks sound to me, as an amateur!
If you are still working....I presume you are still paying into a work scheme (to get the benefits of company money as well)?
Not sure how high the fees are there....but Vanguard is a decent low-cost option (others are available, and plenty on here with views and opinions)

My only other suggestion would be to look at your cash buffer which is likely outside your pension: nice to have some premium bond cash or safe ISAs that you can access as well as your pension....particularly essential if you want to finish before you can access your pension, of course!

Good luck!

Albermarle

I would say I am a medium risk investor and will have a modest retirement pot so can't afford to lose massive sums but would hang on working for another few years if necessary.

To lose massive sums on mainstream funds over a ten year period is very unlikely . 

Long-term investing: Increasing your chances of positive returns (nutmeg.com)

dunstonh

v I am going for 60% into the LS60 and 40% into the LS80.   I am going for 60% into the LS60 and 40% into the LS80.  

What does that achieve other than create a hybrid VLS between the two?

There isn't a great deal of difference between VLS60 and VL80.  So, creating a VLS68 doesn't really serve any purpose.

I read a few articles that indicated the LS80 was rather risky but am I correct in thinking once I start accessing my pension I could access the money in the LS60 and not touch the LS80 until a later date. 

Some people use the segmented method. Others do not.  It comes down to personal preference.   Although those that segment tend to use more than just two levels.  e.g x% cash that covers y number of months income, xx% in short term investments, yy% in medium-term and zz% in long term.  Using just two levels doesn't really achieve risk segmentation and you may as well just have one portfolio that averages out plus a cash account for the short term.

VLS80 cannot really be referred to as rather risky.  Its medium/high risk and only really one notch up from VLS60.

should I be looking at moving more (or all) towards the LS60? 

Your investment behaviour and capacity for loss are the key drivers as to why you would reduce volatility. So, forget what other people would do as you may not have their behaviour or capacity for loss.  Focus on you.

I would say I am a medium risk investor and will have a modest retirement pot so can't afford to lose massive sums but would hang on working for another few years if necessary.  

So, with a 15 year timescale (medium-term), VLS60 would be the closest match to that.

baggins11

Thanks for all the input lots to think about here. My thinking behind the part 80 part 60 was just that I probably naturally sit around the 60 level but I could add a small proportion of extra risk to potentially get extra gain. I think I am probably being a bit simplistic though and need to understand things more.

Sadly no company pension as I am self employed so the 75k is my stakeholder pension so that's all I have pension wise. My husband will have a similar pot with work pension.

I do have potential to flex the passive income though. We will be downsizing our house and buying 2 or 3 properties so can go more modest with ours for a bigger passive return. So all in all we have flexibility I think to take some risks.

Thrugelmir

baggins11 said:

I do have potential to flex the passive income though. We will be downsizing our house and buying 2 or 3 properties so can go more modest with ours for a bigger passive return. So all in all we have flexibility I think to take some risks.

Downsize now and use the released equity to build your pension pots. Remains one of the most tax efficient ways to grow your money for the longer term. 

baggins11

Sadly that's not an option. We love our house and land so want to enjoy it for the next 10yrs! I totally understand its not the smart thing to do moneywise though

When the kids are grown up and gone we will make the move.

Audaxer

baggins11 said:

I read a few articles that indicated the LS80 was rather risky but am I correct in thinking once I start accessing my pension I could access the money in the LS60 and not touch the LS80 until a later date.  So what I am trying to say is the LS80 is not really risky so long as I can allow flexibility to when I access it (eg ride out any downturn).  Is this correct or should I be looking at moving more (or all) towards the LS60? 

Once you start taking your pension it is up to you which fund you draw from, but if you want to VLS funds at different risk levels, I would have thought it would be better to have 50% in VLS100 and 50% in VLS40, which would give you 70% equities overall, i.e. not much different in risk level from your hybrid VLS68 suggestion. Then if markets were falling you would be able to draw from the less volatile VLS40.

baggins11

Thanks that sounds a great suggestion!

Thrugelmir

Have you looked at the Vanguard Target range. (Not a recommendation). Would provide more of an invest and forget option. While you learn and experience some more.