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Upside Gains vs Downside Protection

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  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    One last thought: which of us doesn't buy insurance of some sort in our daily lives, it seems odd that people would buy life insurance etc but not buy similar when investing.
    If I die and my spouse waits an indeterminate period of 5-10 years, I'm not going to come back to life.
    Most investors do have downside protection in the sense of 1) alternative asset classes to reduce volatility and 2) a cash emergency fund to ensure that it's unlikely they'll need to cash in investments during a downturn. Gung-ho DIY investors who go 100% equities are in a minority.
    Most investors hold any or all of 1) workplace pension default funds 2) Vanguard Lifestrategy type "60/40" funds 3) risk-targeted portfolios designed by advisers or the likes of Nutmeg 4) DIY portfolios with some downside protection.

    It does not make sense to me that a person would work all their life to acquire wealth and then in the final 10% of their life, risk losing a substantial portion of that wealth, simply because they didn't modify their approach.
    The final 10% of life for the typical investor is 80-90, possibly older.
    If your heirs are of a similar mindset to you, and are likely to leave any inherited funds invested, you are not necessarily running any more risk of loss than you were at 60. If your invested assets fall by 20% or 40% just before death you don't fall down the high score table.
    I love the positivity in this thread regarding longevity, everyone thinks they're going to live to be 90. 


    Positivity also helps one become a better investor. Attitude to life and events determines many things. 
  • ChilliBob
    ChilliBob Posts: 2,337 Forumite
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    Surely this depends on your ££ requirements each year/period, the size of your pot and your non portfolio cssh/other income etc?

    E. G. If you had a healthy dB pension, a string of btls and your pot was 2mn, then you'd not 'need' downside protection, you'd not really even need the pot!.. So you'd be maximising for future generations.

    If you had hardly any pension or other income, and a pot of 300k it's entirely different. You'd need to, probably, protect and grow, for your own requirements
  • masonic
    masonic Posts: 27,281 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 15 March 2022 at 8:24PM
    ChilliBob said:
    Surely this depends on your ££ requirements each year/period, the size of your pot and your non portfolio cssh/other income etc?

    E. G. If you had a healthy dB pension, a string of btls and your pot was 2mn, then you'd not 'need' downside protection, you'd not really even need the pot!.. So you'd be maximising for future generations.

    If you had hardly any pension or other income, and a pot of 300k it's entirely different. You'd need to, probably, protect and grow, for your own requirements
    Yes, very much depends on precise meaning of "money involved is not central to our well being". I took it to mean money that in all likelihood would not be needed.
  • ChilliBob
    ChilliBob Posts: 2,337 Forumite
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    Yeah, to some that means we literally have no use for it, and for others, we'll we don't *need* it as we can scrape by and not starve via other means!

    I'd assume most people would use the first definition! 
  • chiang_mai
    chiang_mai Posts: 225 Forumite
    Seventh Anniversary 100 Posts Combo Breaker
    ChilliBob said:
    Surely this depends on your ££ requirements each year/period, the size of your pot and your non portfolio cssh/other income etc?

    E. G. If you had a healthy dB pension, a string of btls and your pot was 2mn, then you'd not 'need' downside protection, you'd not really even need the pot!.. So you'd be maximising for future generations.

    If you had hardly any pension or other income, and a pot of 300k it's entirely different. You'd need to, probably, protect and grow, for your own requirements
    The money in question is a pension fund that is not required for day to day living and is not part of our emergency funds. The intention is to grow the fund and leave it as an inheritance to our respective spouses. Several of us have worked overseas for many years and acquired different pension funds from different sources, in different countries. After we retired we were able to transfer the contents of the funds to the UK where they were established as SIPP;s It took some time to accomplish this which is why the funds are separate from our main retirement income. Note: we had little choice in the destination country, which despite the potential tax aspect is still far better than the country of origin. The funds represent protected inheritance for our spouses since our pensions from various countries such as the US and UK will cease when we die.
  • chiang_mai
    chiang_mai Posts: 225 Forumite
    Seventh Anniversary 100 Posts Combo Breaker
    One last thought: which of us doesn't buy insurance of some sort in our daily lives, it seems odd that people would buy life insurance etc but not buy similar when investing.
    If I die and my spouse waits an indeterminate period of 5-10 years, I'm not going to come back to life.
    Most investors do have downside protection in the sense of 1) alternative asset classes to reduce volatility and 2) a cash emergency fund to ensure that it's unlikely they'll need to cash in investments during a downturn. Gung-ho DIY investors who go 100% equities are in a minority.
    Most investors hold any or all of 1) workplace pension default funds 2) Vanguard Lifestrategy type "60/40" funds 3) risk-targeted portfolios designed by advisers or the likes of Nutmeg 4) DIY portfolios with some downside protection.

    It does not make sense to me that a person would work all their life to acquire wealth and then in the final 10% of their life, risk losing a substantial portion of that wealth, simply because they didn't modify their approach.
    The final 10% of life for the typical investor is 80-90, possibly older.
    If your heirs are of a similar mindset to you, and are likely to leave any inherited funds invested, you are not necessarily running any more risk of loss than you were at 60. If your invested assets fall by 20% or 40% just before death you don't fall down the high score table.
    I love the positivity in this thread regarding longevity, everyone thinks they're going to live to be 90. 


    Positivity also helps one become a better investor. Attitude to life and events determines many things. 
    This is true! I know positively that I will die within five years hence I have taken the steps necessary to protect my investments. But it's worth pointing out that two years ago I was open to the idea that I may well live to be 90, well 80 at least. These things are true until they are not true, the problem for older investors is that they can change suddenly and with very little warning.
  • eskbanker
    eskbanker Posts: 37,217 Forumite
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    chiang_mai said:
    I know positively that I will die within five years hence I have taken the steps necessary to protect my investments
    Sorry to hear that, but IMHO it would have been worth mentioning this at the start of the thread, rather than entertaining all the generic conversation about life expectancy and posting comments like "how long is the longer term and how long can it possibly be to a 69 year old male!" - if your planning horizon for investing is less than five years, based on information you know, then that's a very important parameter for you specifically, that statistically would be less so for most 69 year olds, so much of the content of this thread is redundant after that revelation....

  • chiang_mai
    chiang_mai Posts: 225 Forumite
    Seventh Anniversary 100 Posts Combo Breaker
    edited 16 March 2022 at 2:51AM
    eskbanker said:
    chiang_mai said:
    I know positively that I will die within five years hence I have taken the steps necessary to protect my investments
    Sorry to hear that, but IMHO it would have been worth mentioning this at the start of the thread, rather than entertaining all the generic conversation about life expectancy and posting comments like "how long is the longer term and how long can it possibly be to a 69 year old male!" - if your planning horizon for investing is less than five years, based on information you know, then that's a very important parameter for you specifically, that statistically would be less so for most 69 year olds, so much of the content of this thread is redundant after that revelation....

    I really did not expect that personal details about my life expectancy or health would be a key factor in a generic discussion about investment risk. It should go without saying that a person who is almost 70 years old cannot be automatically assumed to live for decades longer, despite some comments here to the contrary. I wholly disagree that it would be less relevant for others of my age, let's be realistic shall we for a moment. Current UK Actuarial tables assume a person born in my birth year may live until age 81 years, ON AVERAGE, how much more specific does a discussion about investing on the internet really need to be!!!
  • eskbanker
    eskbanker Posts: 37,217 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 16 March 2022 at 3:09AM
    eskbanker said:
    chiang_mai said:
    I know positively that I will die within five years hence I have taken the steps necessary to protect my investments
    Sorry to hear that, but IMHO it would have been worth mentioning this at the start of the thread, rather than entertaining all the generic conversation about life expectancy and posting comments like "how long is the longer term and how long can it possibly be to a 69 year old male!" - if your planning horizon for investing is less than five years, based on information you know, then that's a very important parameter for you specifically, that statistically would be less so for most 69 year olds, so much of the content of this thread is redundant after that revelation....

    I really did not expect that personal details about my life expectancy or health would be a key factor in a generic discussion about investment risk. It should go without saying that a person who is almost 70 years old cannot be automatically assumed to live for decades longer, despite some comments here to the contrary. I wholly disagree that it would be less relevant for others of my age, let's be realistic shall we for a moment. Current UK Actuarial tables assume a person born in my birth year may live until age 81 years, ON AVERAGE, how much more specific does a discussion about investing on the internet really need to be!!!
    But it wasn't a generic discussion, it was about your choices, which you'd presumably have made on the basis of a planning horizon of less than five years but chose not to share that fact, which, like it or not, is a very significant influence on investment strategy.

    According to ONS data, a 69 year old male will live a further 17 years on average, with a 25% chance of reaching 92, but having the whole discussion based on those generic timescales is a waste of time if you're working off completely different undeclared assumptions....

  • chiang_mai
    chiang_mai Posts: 225 Forumite
    Seventh Anniversary 100 Posts Combo Breaker
    edited 16 March 2022 at 3:28AM
    eskbanker said:
    eskbanker said:
    chiang_mai said:
    I know positively that I will die within five years hence I have taken the steps necessary to protect my investments
    Sorry to hear that, but IMHO it would have been worth mentioning this at the start of the thread, rather than entertaining all the generic conversation about life expectancy and posting comments like "how long is the longer term and how long can it possibly be to a 69 year old male!" - if your planning horizon for investing is less than five years, based on information you know, then that's a very important parameter for you specifically, that statistically would be less so for most 69 year olds, so much of the content of this thread is redundant after that revelation....

    I really did not expect that personal details about my life expectancy or health would be a key factor in a generic discussion about investment risk. It should go without saying that a person who is almost 70 years old cannot be automatically assumed to live for decades longer, despite some comments here to the contrary. I wholly disagree that it would be less relevant for others of my age, let's be realistic shall we for a moment. Current UK Actuarial tables assume a person born in my birth year may live until age 81 years, ON AVERAGE, how much more specific does a discussion about investing on the internet really need to be!!!
    But it wasn't a generic discussion, it was about your choices, which you'd presumably have made on the basis of a planning horizon of less than five years but chose not to share that fact, which, like it or not, is a very significant influence on investment strategy.

    According to ONS data, a 69 year old male will live a further 17 years on average, with a 25% chance of reaching 92, but having the whole discussion based on those generic timescales is a waste of time if you're working off completely different undeclared assumptions....

    There is nothing undeclared whatsoever about the fact I am almost 70 years of age. Even using the ONS tables my life expectancy may be as little as no more than three more years because those are average figures, where is the common sense in this debate for goodness sake. The ONS tables do not agree with the actuarial tables I have seen this year, albeit I have already said I have lived in Asia and abroad for many many years where life expectancy is different from the UK. Since you're all happy to work on the basis of averages, my medical diagnosis is also based on an average which means I may drop dead tomorrow, or, I may live for a further 10 years. A logical next step is that somebody will open a thread on the accuracy of diagnosis and life expectancy estimates in Asia, just to make the inputs to the debate more accurate! Regardless of the state of their health, if anyone of my age can pinpoint their life expectancy with more precision, their crystal ball must be the extra deluxe model.
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