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

Thrugelmir

Winding the clock back to a long past era. Bonds did once , for a period, provide an above inflation level of return. Also acted in an uncorrelated fashion with equities. The immediate future holds a very different outlook. Cash is not going to be the diversifier that many are presuming it will be. While equities are going to struggle to do all the heavy lifting that's neccessary to provide a decent level of growth while funds are being drawn down. 

Prism

Thrugelmir said:

Winding the clock back to a long past era. Bonds did once , for a period, provide an above inflation level of return. Also acted in an uncorrelated fashion with equities. The immediate future holds a very different outlook. Cash is not going to be the diversifier that many are presuming it will be. While equities are going to struggle to do all the heavy lifting that's neccessary to provide a decent level of growth while funds are being drawn down. 

I am working under the assumption that most things may well go down together for quite a long time, and the things that don't I am unlikely to pick ahead of time. So I will do what I can to reduce the losses and hope to be pleasantly surprised.

JohnWinder

Looks fine to me; one of a zillion reasonable combinations of options. I think the next steps are being sure you can stick to your guns through the bad times, and using a reasonable withdrawal strategy (perhaps one from the bogleheads wiki, eg SWR, VPW, AWR, PWR).

Frequentlyhere

First to OP, your portfolio seems quite sensible to me, a little bit 'golden butterfly' in style except for needing some long term bonds (all a bit brave for me). I would probably reduce/eliminate Fundsmith though, in the unlikely eventuality we end up with another Neil Woodford scenario, though. I see you've addressed that already though in a previous comment.

@Thrugelmir I entirely agree with your outlook, but where does that leave us with portfolio allocation (apart from stuffed), in your opinion?
My personal least worst option is to hold cash instead of bonds at present, with a view to picking up bonds again at some point in the next few months with the optionality that provides.

  I note that VGOV (Vanguard UK bond fund) excluding coupons is back at levels where it was in August 2016 already, and that's potentially before the interest rate rises really begin in earnest. Rather scary.

Re: equities, I've diversified a little away from US (not entirely by any means), and am at only circa 50% of portfolio size, reflecting that I don't see much good coming of them for a while. If they take a good cut, I'll rebalance into them.

I'll probably look back at this in 5 years and think, "Yup, should have just been in Vanguard lifestrategy 80" no doubt!

JohnWinder

I note that VGOV (Vanguard UK bond fund) excluding coupons is back at levels where it was in August 2016 already, and that's potentially before the interest rate rises really begin in earnest. Rather scary.

As I half understand it, you 'expect' (or, it's designed) to make your money with nominal bonds from their coupon payments, not from capital appreciation as you can with stocks. Par example, if interest rates are positive, bonds can be issued with a coupon equal to the current interest rate (so it will have a face value the same as the purchase price), and that value will be the same when it matures; ergo, the only money you make is from the coupons. If, on the other hand interest rates are negative, the issue price will be above the bond face value (because they can't pay you negative coupon payments!), and the maturity value will be less than you paid for it. Thus, we might not be surprised if VGOV excluding coupons is where it was 5 years ago. It is the nature of nominal bonds in an 'interest rate stead-ish' environment. You make your money from the coupons, if any's to be made.

Albermarle

My personal least worst option is to hold cash instead of bonds at present, with a view to picking up bonds again at some point in the next few months with the optionality that provides.

Of course it does not have to be an 'all or nothing' scenario. Not everybody is convinced that eliminating bonds from a portfolio is a good thing . I like to hedge my bets so I  reduced my bond % compared to 18 months ago but not to zero . At this moment in time I wish I had reduced a bit more but hindsight is a wonderful thing .

Thrugelmir

Frequentlyhere said:

@Thrugelmir I entirely agree with your outlook, but where does that leave us with portfolio allocation (apart from stuffed), in your opinion?

Likely to be an era when more targeted stock/fund selection will be key. Value is an often misused term as covers a broad range of scenarios. Not least that "value" companies themselves do grow. 

NannaH

So the truth of the matter is that nobody knows what a future well balanced portfolio should look like and those of us recently retired/about to retire in the next few years are the guinea pigs.
Marvellous 🙄
All I really know at the moment is that bonds aren’t doing what they are supposed to do -  but that there is currently no alternative.  Property/REITS?  

If Pension companies are moving out of Bonds, as I read in the FT ( I think) then I shall be watching very closely for the next few years. 

Linton

JohnWinder said:

I note that VGOV (Vanguard UK bond fund) excluding coupons is back at levels where it was in August 2016 already, and that's potentially before the interest rate rises really begin in earnest. Rather scary.

As I half understand it, you 'expect' (or, it's designed) to make your money with nominal bonds from their coupon payments, not from capital appreciation as you can with stocks. Par example, if interest rates are positive, bonds can be issued with a coupon equal to the current interest rate (so it will have a face value the same as the purchase price), and that value will be the same when it matures; ergo, the only money you make is from the coupons. If, on the other hand interest rates are negative, the issue price will be above the bond face value (because they can't pay you negative coupon payments!), and the maturity value will be less than you paid for it. Thus, we might not be surprised if VGOV excluding coupons is where it was 5 years ago. It is the nature of nominal bonds in an 'interest rate stead-ish' environment. You make your money from the coupons, if any's to be made.

This is true if you buy when the bond is issued.  However if you buy a bond at say 50% above the issue price you will receive 2/3rds of the coupon interest rate and make a capital loss at maturity.  What happens if you sell some time before maturity is unknown.

If you hold bonds in a standard bond index fund rather than individually you are certainly going to be buying the vast majority of the underlying assets a significant time after when they were issued and sell a significant time before they mature.

Thrugelmir

NannaH said:

All I really know at the moment is that bonds aren’t doing what they are supposed to do -  

  Bonds are doing precisely what they are suppose to do. Appears to be a fundamental misunderstanding in your thinking. Bond yields were higher in the past due to the cost of borrowing being higher. Government bonds being issued with durations of 30/40/50 years. Last time BOE base rate was above 10% was September 1992. Since then the cost of debt has progressively fallen. (a topic in itself i.e. mortgage securitisation).  Not possible to enjoy both the benefits of higher equity prices and a decent return on fixed interest stocks.