What do you think of my asset allocation ...?

valiant24

May I invite comments on my allocation and ETFs, held across a variety of SIPPS, ISAs and dealing accounts?

I am 61, not really working, own my own home outright, soon to run out of savings and begin drawdown.

Global Equity Tracker (mainly VWRP): 40%
Fundsmith: 20%
Gilts (mainly VGOV): 20%
Index-linked UK-hedged Gilts: 10%
Gold: 10%

Thanks
V

Albermarle

soon to run out of savings and begin drawdown.

This statement is concerning . Normally with drawdown it is recommended to have at least a couple of years income in cash savings . This is for when the drawdown pot takes a hit from the markets . It is better then to withdraw as little as possible from the pot , to give it time to recover . 
Ideally you should have kept some savings and started the drawdown sooner . At least that is what it looks like from the limited info provided .

valiant24

Albermarle said:

soon to run out of savings and begin drawdown.

This statement is concerning . Normally with drawdown it is recommended to have at least a couple of years income in cash savings . This is for when the drawdown pot takes a hit from the markets . It is better then to withdraw as little as possible from the pot , to give it time to recover . 
Ideally you should have kept some savings and started the drawdown sooner . At least that is what it looks like from the limited info provided .

Fair comment.  Fact is, I haven't.  I could sell some assets now to raise some cash and just sit on it.   But who's to say it's better to do that now rather than later?   
Any thoughts on VWRP and VGOV as the main vehicles?
Thanks
V

Alistair31

I’d probably just put the 20% Fundsmith into VWRP, obviously still leaves you with 60% equities but should be less volatile -and cheaper.

Without any cash reserves and with requiring the drawdown to survive, could you handle, say, a 30% decline?

Prism

You do not need a cash buffer for retirement as your asset allocation is built to withstand an economic downturn. None of the original studies which defined the minimum safe withdrawal rate included any form of cash buffer. They used bonds to reduce the downside just like you have done. A proper downturn, the kind to mess with a retirement, lasts for 10 years plus.

Now you might consider some cash as part of the bond allocation as cash has certain properties that do well during rising interest rates, but thats entirely your call.

In general it looks absolutely fine to me.

Thrugelmir

Gold won't produce any income and that's a high % for entering drawdown with. 

You were close to the LTA a while back. How has the portfolio performed since? 

valiant24

Alistair31 said:

I’d probably just put the 20% Fundsmith into VWRP, obviously still leaves you with 60% equities but should be less volatile -and cheaper.

Without any cash reserves and with requiring the drawdown to survive, could you handle, say, a 30% decline?

Most of the Fundsmith is in a dealing account which I opened in 2011.   It would be a huge capital gain which I'm keen to avoid for now!   I'm busy moving the ISA-held Fundsmith into one of my ISA platforms so I can sell but not lose the ISA protection ... but I'm with iWEB so that won't be happening very quickly!

I previously posted about my dismay about how much my gilts have lost since I bought them, and things would have to get pretty bad for them to lose 30%, but yes I could.   With all this misery around my instinct is to sell Gilts and Equities and wait for the crash, but conscious both of the maxim about market timing, and my own very poor record in meddling, I'm resisting the temptation for now!

valiant24

Thrugelmir said:

Gold won't produce any income and that's a high % for entering drawdown with. 

You were close to the LTA a while back. How has the portfolio performed since? 

1 mth: -1.8%
3 mths: -4.07%
6 mths: -2.34%

Albermarle

Prism said:

You do not need a cash buffer for retirement as your asset allocation is built to withstand an economic downturn. None of the original studies which defined the minimum safe withdrawal rate included any form of cash buffer. They used bonds to reduce the downside just like you have done. A proper downturn, the kind to mess with a retirement, lasts for 10 years plus.

Now you might consider some cash as part of the bond allocation as cash has certain properties that do well during rising interest rates, but thats entirely your call.

In general it looks absolutely fine to me.

You are right about the calculations of SWR , not including a cash buffer .
However a cash buffer is recommended numerous times on this forum , especially to avoid sequence of returns risk early on in the drawdown. By doing this you should be able to hopefully increase the % SWR a little and/or have a better chance of having a decent amount when you die . That's the theory as I understand it anyway. 

This is an ongoing thread on the same subject, if anyone is interested.
What is your trigger point to start spending from cash buffer?? + QE, Does it change the game? - Page 2 — MoneySavingExpert Forum

Prism

Albermarle said:

Prism said:

You do not need a cash buffer for retirement as your asset allocation is built to withstand an economic downturn. None of the original studies which defined the minimum safe withdrawal rate included any form of cash buffer. They used bonds to reduce the downside just like you have done. A proper downturn, the kind to mess with a retirement, lasts for 10 years plus.

Now you might consider some cash as part of the bond allocation as cash has certain properties that do well during rising interest rates, but thats entirely your call.

In general it looks absolutely fine to me.

You are right about the calculations of SWR , not including a cash buffer .
However a cash buffer is recommended numerous times on this forum , especially to avoid sequence of returns risk early on in the drawdown. By doing this you should be able to hopefully increase the % SWR a little and/or have a better chance of having a decent amount when you die . That's the theory as I understand it anyway. 

This is an ongoing thread on the same subject, if anyone is interested.
What is your trigger point to start spending from cash buffer?? + QE, Does it change the game? - Page 2 — MoneySavingExpert Forum

Its certainly an option but a cash buffer is likely to reduce the SWR rather than increase it as the return from cash is lower over the long run from that of bonds. At the moment that might not be entirely the case but over the long term I still imagine the higher risk option of bonds beats that of cash. Cash likely doesn't protect as well against early sequence of returns risk as it doesn't go up when equities crash, unlike government bonds which do tend to.

I think the main problem with a cash buffer is that it has to come from somewhere, and that somewhere is the total pot. It basically means that the invested pot is around 8-12% lower to start with if someone thinks of the cash as a separate thing. Personally I think of cash as just another asset in the mix that under certain conditions (rising interest rates) is a decent thing to have. Having it in reserve as a fixed amount that is spent when some level of fall occurs introduces another set of complication. How much should you have? Should you top it up as inflation goes up? What kind of % fall triggers it? How do you replace it? Its these questions why that other thread has gone on for so long.. its all a bit vague.

Its a form of market timing to be honest and at any given time it is impossible to know if you should use it or not. And in situations that there has been a huge fall in the main pot then surely the asset allocation of the pot is more at fault? An original well balanced pot of assets should be able to cope with anything and never require a cash buffer. An income reduction should solve any extreme falls.

Albermarle

Good points , as always in these matters there are different ways to skin a cat .