DFM/FA Arrangement to DIY

Because_I_Can

You may recall on various posts over the last few months, I’ve been exploring the potential to move my DFM/FA SIPP arrangement over to a DIY one.  I’ve done a fair amount of research and reading in anticipation but it still feels like a blind leap of faith to a degree. 

The SIPP is around £1.5 million and will be my primary source of income from the age of 55 (in Oct this year).  I have other assets of approx £300k in an ISA and my wife will have a decent DB pension in 5 years or so.

Essentially, I’m looking for a simple, low cost fire and forget type DIY portfolio - nothing fancy.  At the moment, I’ve cobbled together a couple of options and invite constructive comments, more in terms of obvious errors as I know there’s no such thing as the perfect portfolio - I’m just looking for something simple and steady (my risk level would be viewed as balanced overall, a 4 on the 1-7 scale).

Option 1

Vanguard Lifestrategy 60% Equity - 35%

HSBC Global Strategy Balanced Portfolio C Acc - 25%

L&G Multi Index 5 Acc - 25%

Vanguard FTSE UK All Share Tracker - 5%

Vanguard UK Inflation Linked Bond ETF - 10%

Option 2

Vanguard Lifestrategy 60% Equity - 38%

Vanguard S&P Tracker - 13%

Vanguard FTSE UK All Share Tracker - 6%

Vanguard UK Inflation Linked Bond ETF - 9%

Vanguard Emerging Markets Index - 6%

Legal & General Pacific Index - 6%

Vanguard FTSE Japan ETF - 6%

WealthSelect Active Managed Portfolio 5 - 13%

Cash - 3%

Any feedback offered gratefully received.

Audaxer

I assume the ISA is £300k rather than £300?

It's quite brave to move £1.8m to a DIY portfolio of mainly multi asset funds, but agree if going DIY, best to keep it fairly simple.

Have you worked out a drawdown strategy - do you plan to sell capital monthly or annually for income? How often do you plan to rebalance?  

With both options, apart from the inflation linked bond fund, you don't seem to have much in pure defensive funds to draw on in the event of an equity crash and bear market?

While I agree a simple option is best for DIYing, have you considered including some equity income funds or ITs which pay increasing dividends each year? 

gm0

Have you actively considered and rejected Small(er) Cap funds as an additional source of diversification within Equities ?

Because_I_Can

gm0 said:

Have you actively considered and rejected Small(er) Cap funds as an additional source of diversification within Equities ?

Thanks gm0.  I did originally have a very small % (3-4%) allocated to the Vanguard Small-Cap Tracker but decided against it - can be quite volatile although it would only be a small % of the overall portfolio.  I’ll perhaps take another look before I finalise my going in position. 

Because_I_Can

Audaxer said:

I assume the ISA is £300k rather than £300?

It's quite brave to move £1.8m to a DIY portfolio of mainly multi asset funds, but agree if going DIY, best to keep it fairly simple.

Have you worked out a drawdown strategy - do you plan to sell capital monthly or annually for income? How often do you plan to rebalance?  

With both options, apart from the inflation linked bond fund, you don't seem to have much in pure defensive funds to draw on in the event of an equity crash and bear market?

While I agree a simple option is best for DIYing, have you considered including some equity income funds or ITs which pay increasing dividends each year? 

Thanks Audaxer - yes, it was £300k.

Draw down likely to be annually (selling units) along with any required rebalance.  I had considered additional defensive funds such as CGT but left it just with the increase in inflation linked bonds.  One reason for this is to stay true to one of our primary objectives - we don’t want to be asset rich when we get older and in fact, don’t want to have anything left before we pop off.  Things like inheritance planning aren’t really a concern as we have no dependents and whatever is left will go to various charities.

I hadn’t considered income funds or ITs but will visit that area as I begin to finalise my going in position. 

ian16527

Audaxer said:

It's quite brave to move £1.8m to a DIY portfolio of mainly multi asset funds, but agree if going DIY, best to keep it fairly simple.

Do you mean it is brave to DIY because of the value or because the OP is using Multi asset funds?

Is there any problem using these funds with a high value pot?

Mothman

You don't mention the income you require but with 1.8m in assets and a good DB pension & (assuming) 2 State pensions on the horizon, I would say you have already won the game and so in your position my primary objective would be wealth preservation in real terms. In your shoes I would probably go

Global Equity Index Tracker 20%
CGT 30%
PNL 30%
RICA 10%
Cash 10%

Your option 2 looks way to risky for me but like I say I don't know the income you are looking for.

ex-pat_scot

My general thoughts are:

- you are starting from a real position of strength
- using Vanguard lifestrategy #is# the investment strategy, rather than part of an investment strategy
- both options seem rather overcomplex. I would perhaps set out your broad investment principles and strategy eg what your broad appetite for equity, fixed interest and cash; geographical spread etc.
- in my approach, I have distilled this into a Vanguard fund approach, which helps on costs, transparency, auto rebalancing etc.

Because_I_Can

Mothman said:

You don't mention the income you require but with 1.8m in assets and a good DB pension & (assuming) 2 State pensions on the horizon, I would say you have already won the game and so in your position my primary objective would be wealth preservation in real terms. In your shoes I would probably go

Global Equity Index Tracker 20%
CGT 30%
PNL 30%
RICA 10%
Cash 10%

Your option 2 looks way to risky for me but like I say I don't know the income you are looking for.

Thanks Mothman.  Income between 50-70k per annum from the SIPP but obviously have the ISAs, OH’s DB pension and 2x SPs to contribute to that so if I want to spend more, hopefully I can - plan is to spend more before age 75 and then wind down and leave nothing. 

I’ve been tweaking option 1 above with an element of CGT so a timely sense check.

Albermarle

The SIPP is around £1.5 million 

Due to LTA ( even if you have some protection )  I would have a separate strategy for the SIPP and the ISA.

Any growth in the SIPP will be hit by LTA tax,  so seems unwise to pursue a relatively risky investment strategy in the SIPP. If markets tank your portfolio will drop significantly , if they go up you get hit by LTA. So a kind of lose/lose scenario.

So maybe more caution in the SIPP, partly counterbalanced by a more aggressive portfolio in the ISA.

Also usually with a pension this large it is recommended to take the full 25% tax free cash asap , again for LTA reasons .

gm0

It's very challenging for solo novice DIY retiree at the moment.  People like us.

Starting valuation is high (CAPE), Quality low risk bonds with negative yields, inflation impact to cash rising.  But as others say it depends on the income requirement vs fund size to dictate how pushy you need to be as opposed to how pushy you choose to be

I have also dithered about the CGT/PNL/Other - wealth preservers for part of the portfolio for a blend of strategies.  Enough return, dampened risk.  I find it harder to get similarly excited about small list sector stock pickers and dialing risk up even more.

And yet still very aware that anything stuffed with bonds is vulnerable to interest rate rises at some point which could yet be  contemporary or partly the trigger for an equities P/E valuation and sentiment correction happening during a period of above long term target inflation. 

So in the L&G half of my portfolio (legacy platfom).  I use World ex UK and UK FTSE All Share TR passives to build a cheap passive global developed tracker to 40% and then add on Small, EM and Multi-Asset 3 to get to ~70% equities (and other risk assets). Multi-asset to try out this approach to cheaply access a mix of "other" alongside the core passive. 

My rationale apart from stepping around the limited fund selection is more diversification within equities and more diversification across asset classes at low cost.  The above blends out to 0.18% (TMC + Platform). Insured basis.

Will tidy up the weaknesses of that mix and adjust overall risk level in the other portfolio section which has the the wider fund selection and in the S&S ISA

I am trying to draw 3.2% (with a willingness to vary income using SORR plan (more prior to 67, less later) - and also vary up income to draw nominal growth for LTA tax planning for the age 75 no growth in crystallised tests should there happen to be a return which will get raked otherwise - whether it's a nominal inflationary one or a real one