Advice for pension funds with looming stock market crash

MK62

BritishInvestor said:

Workerdrone said:

Not been a brilliant few years for new retirees SORR. I'd imagine most retirement portfolios stay clear of the tech stocks which saw a nice COVID bounce. First COVID, then inflationary pressures, now war in Ukraine. Glad I am still in the accumulation phase but watching with interest to learn how best to handle such things.

What makes you say that? A typical 60/40 portfolio is up over 20% over the last 3 years, and inflation has been relatively benign until recently. 

Have a look at the 1970s to understand what genuine SORR is.

That might be true, but it rather masks the volatility that's been seen over that period .....for example, the Covid crash of March 2020 might have come at a very inopportune time for some, just before the new tax year.....

Thrugelmir

BritishInvestor said:

Workerdrone said:

Not been a brilliant few years for new retirees SORR. I'd imagine most retirement portfolios stay clear of the tech stocks which saw a nice COVID bounce. First COVID, then inflationary pressures, now war in Ukraine. Glad I am still in the accumulation phase but watching with interest to learn how best to handle such things.

What makes you say that? A typical 60/40 portfolio is up over 20% over the last 3 years, and inflation has been relatively benign until recently. 

Have a look at the 1970s to understand what genuine SORR is.

Once the 2-3 year performance drops out of the figures. That 20% is going to look a lot more muted. Reversion to the mean. 

BritishInvestor

MK62 said:

BritishInvestor said:

Workerdrone said:

Not been a brilliant few years for new retirees SORR. I'd imagine most retirement portfolios stay clear of the tech stocks which saw a nice COVID bounce. First COVID, then inflationary pressures, now war in Ukraine. Glad I am still in the accumulation phase but watching with interest to learn how best to handle such things.

What makes you say that? A typical 60/40 portfolio is up over 20% over the last 3 years, and inflation has been relatively benign until recently. 

Have a look at the 1970s to understand what genuine SORR is.

That might be true, but it rather masks the volatility that's been seen over that period .....for example, the Covid crash of March 2020 might have come at a very inopportune time for some, just before the new tax year.....

The portfolio in question in my example would consist of
60% global equities
40% high quality, short-medium duration GBP hedged bonds

Given the falls in equities in March 2020, the withdrawal would be taken from the bond fund(s) (potentially as part of a rebalancing). From the end of Jan 2020, I see a trough of ~1% for short duration bonds and around 3.6% for medium (it was below -2% for less than a week).

So again, no big deal vs history - have a look at some of the bond returns here.

https://www.timelineapp.co/blog/no-qe-didnt-break-the-4-rule/

BritishInvestor

Thrugelmir said:

BritishInvestor said:

Workerdrone said:

Not been a brilliant few years for new retirees SORR. I'd imagine most retirement portfolios stay clear of the tech stocks which saw a nice COVID bounce. First COVID, then inflationary pressures, now war in Ukraine. Glad I am still in the accumulation phase but watching with interest to learn how best to handle such things.

What makes you say that? A typical 60/40 portfolio is up over 20% over the last 3 years, and inflation has been relatively benign until recently. 

Have a look at the 1970s to understand what genuine SORR is.

Once the 2-3 year performance drops out of the figures. That 20% is going to look a lot more muted. Reversion to the mean. 

Not really sure how your comment relates to SORR? Are you thinking of what might happen going forward?

If so, outside of the developed large cap growth space (in equities), are other areas really that overvalued?

Thrugelmir

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Workerdrone said:

Not been a brilliant few years for new retirees SORR. I'd imagine most retirement portfolios stay clear of the tech stocks which saw a nice COVID bounce. First COVID, then inflationary pressures, now war in Ukraine. Glad I am still in the accumulation phase but watching with interest to learn how best to handle such things.

What makes you say that? A typical 60/40 portfolio is up over 20% over the last 3 years, and inflation has been relatively benign until recently. 

Have a look at the 1970s to understand what genuine SORR is.

Once the 2-3 year performance drops out of the figures. That 20% is going to look a lot more muted. Reversion to the mean. 

Not really sure how your comment relates to SORR? Are you thinking of what might happen going forward?

If so, outside of the developed large cap growth space (in equities), are other areas really that overvalued?

That very much depends on how high bond yields rise in the months and years ahead. 

BritishInvestor

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Workerdrone said:

Not been a brilliant few years for new retirees SORR. I'd imagine most retirement portfolios stay clear of the tech stocks which saw a nice COVID bounce. First COVID, then inflationary pressures, now war in Ukraine. Glad I am still in the accumulation phase but watching with interest to learn how best to handle such things.

What makes you say that? A typical 60/40 portfolio is up over 20% over the last 3 years, and inflation has been relatively benign until recently. 

Have a look at the 1970s to understand what genuine SORR is.

Once the 2-3 year performance drops out of the figures. That 20% is going to look a lot more muted. Reversion to the mean. 

Not really sure how your comment relates to SORR? Are you thinking of what might happen going forward?

If so, outside of the developed large cap growth space (in equities), are other areas really that overvalued?

That very much depends on how high bond yields rise in the months and years ahead. 

I was referring more to equities - small-cap value and EM.

[Deleted User]

There may or may not be “reversion to the mean”.  Its a made-up rule.  People like patterns and make them up when there aren’t any.  The probability of getting “heads” is 50% even if you threw 3 in a row. 

grumiofoundation

Deleted_User said:

There may or may not be “reversion to the mean”.  Its a made-up rule.  People like patterns and make them up when there aren’t any.  The probability of getting “heads” is 50% even if you threw 3 in a row. 

Even highly educated, mathematically competent people struggle with this concept (Assuming a fair coin of course!)

Gambler's Fallacy.

zagfles

grumiofoundation said:

Deleted_User said:

There may or may not be “reversion to the mean”.  Its a made-up rule.  People like patterns and make them up when there aren’t any.  The probability of getting “heads” is 50% even if you threw 3 in a row. 

Even highly educated, mathematically competent people struggle with this concept (Assuming a fair coin of course!)

Gambler's Fallacy.

Except with a coin there's physics which determines the probability, history plays no part. Who says history plays no part in stockmarket movements? Do you think people who make the buying/selling decisions which move the market price aren't influenced by history? Does anyone seriously believe that the 3% or so rise in most markets today was in no part a reaction to or a "bounce" from the 3% or so drop yesterday?

Prism

zagfles said:

grumiofoundation said:

Deleted_User said:

There may or may not be “reversion to the mean”.  Its a made-up rule.  People like patterns and make them up when there aren’t any.  The probability of getting “heads” is 50% even if you threw 3 in a row. 

Even highly educated, mathematically competent people struggle with this concept (Assuming a fair coin of course!)

Gambler's Fallacy.

Except with a coin there's physics which determines the probability, history plays no part. Who says history plays no part in stockmarket movements? Do you think people who make the buying/selling decisions which move the market price aren't influenced by history? Does anyone seriously believe that the 3% or so rise in most markets today was in no part a reaction to or a "bounce" from the 3% or so drop yesterday?

Yes, the probability in the stock market is more like Monty Hall - when the situation changes, the probability changes. And it seems many mathematically competent people don't get that puzzle either.