Thoughts on moving 100% equities to 60/40 in current climate?

scdandem

Hi, We have a sizeable sum in a FTSE Global Index fund. We have pensions and other funds that meet our needs so we can afford to not touch this but can't afford to lose it. I had always planned to keep it invested but move it into something with lower risk as we reached retirement (which is this year) but the current world situation and falling share prices has almost wiped out the growth. I've been watching it keenly with a view to moving it once it got back to a certain point of growth, but fear I may have missed that particular boat.

If we weren't at retirement age the fluctuations wouldn't bother me and I'd just ride it out longer term in the 100% equities fund and follow the plan of moving it nearer retirement. But retirement is here right in the middle of the uncertainties and I'm unsure what to do.

Are there huge disadvantages to moving from 100% equities to a 60/40 equities/bonds split when markets are low?

Thanks in advance of any thoughts or advice.

GeoffTF

scdandem said:

Are there huge disadvantages to moving from 100% equities to a 60/40 equities/bonds split when markets are low?

The market prices (for both equities and bonds) are not at all low by historical standards. They are still very high. If you cannot afford to lose any of the money, perhaps you should put it in a savings account. We do not know anything about your personal circumstances, so we cannot possibly comment any further than that.

Albermarle

Bonds are not a great investment at the moment . You should compare your 100% equity fund with a 60/40 fund over the last 12 months to see how they compare. You will see the 60:40 funds have done worse. In a big crash the 60/40 fund will probably hold up better .

 We have pensions and other funds that meet our needs so we can afford to not touch this but can't afford to lose it
Even in a big crash , you would not lose it , just a significant % of it and most likely would recover again at some point .

when markets are low?
As above they are not low, just down a bit in recent months .

tebbins

scdandem said:

Hi, We have a sizeable sum in a FTSE Global Index fund. We have pensions and other funds that meet our needs so we can afford to not touch this but can't afford to lose it. I had always planned to keep it invested but move it into something with lower risk as we reached retirement (which is this year) but the current world situation and falling share prices has almost wiped out the growth. I've been watching it keenly with a view to moving it once it got back to a certain point of growth, but fear I may have missed that particular boat.

If we weren't at retirement age the fluctuations wouldn't bother me and I'd just ride it out longer term in the 100% equities fund and follow the plan of moving it nearer retirement. But retirement is here right in the middle of the uncertainties and I'm unsure what to do.

Are there huge disadvantages to moving from 100% equities to a 60/40 equities/bonds split when markets are low?

Thanks in advance of any thoughts or advice.

In general yes, de-risking closer to retirement is sensible. However:
1. You're thinking in market-timing terms.
2. You're thinking in just as bad "when it gets back to a certain level" terms

3. You should be thinking of terms of derisking ANYWAY, in spite of not because of "the news".
4. There is literally always stuff going on, there is always the "current world situation/climate/everything going on these days/uncertainties". Reacting to the news is a. Too late and b. Reactive (obviously). Investing is about planning ahead.
To get a nice balance you could spread out your derisking over a few months/years rather than go straight to 60/40 all at once, say go to 90/10 now then 60/40 within 4 years - just a suggestion.

scdandem

Thanks @tebbins. To be fair I'm not reacting to the market, I'm just questioning whether my always intended plan to de-risk at this point is now still wise given the current climate. 

Thrugelmir

scdandem said:

Are there huge disadvantages to moving from 100% equities to a 60/40 equities/bonds split when markets are low?

If markets are low now. How would describe them if they were to fall another 20% - 30%? 

What's your investment rationale for switching to a 60/40 portfolio?  

scdandem

Just words. I'm not a financial adviser so excuse the wrong terminology. I'm simply reflecting on the fact that markets have gone down recently and it's clearly not the usual volatility for us to have experienced a world wide pandemic and now a war that may badly escalate. I think it's reasonable to be wondering whether a long term investment plan of de-risking near retirement is still a good plan in the circumstances. 

Rationale is based on the general consensus of de-risking nearer retirement when you don't have as many years to claw back the losses. Dropping a further 20/30% would obviously not be good but is a risk I understand. Doesn't everyone consider the risks and options and take appropriate action along the way? That's all I'm doing. 

Albermarle

Most people derisk as they approach retirement , but there is no one size fits all .
Probably the main issue at the moment is that the traditional non equity part of a 60/40 is bonds, and they have been under pressure for some time and that will continue going forward. I think some 100% bond funds have dropped as much as 15% , so more than equities , which are pretty much at the same level as a year ago. 

I'm simply reflecting on the fact that markets have gone down recently and it's clearly not the usual volatility for us to have experienced a world wide pandemic and now a war that may badly escalate.

In terms of their effect on financial markets , the pandemic and Ukraine have had a relatively mild effect , compared to some prolonged heavy crashes in the past . Just look at the Dotcom crash of 2001 or the GFC in 2008. 
Maybe there is worse to come, who knows....

Finally if you have guaranteed pensions and income to meet your needs ( you seemed to indicate that ) then maybe derisking this particular investment is not necessary ? 

scdandem

@albermarle Thank you for that, it's exactly the sort of advice I was seeking. Cheers 👍🏻

jimjames

scdandem said:

Thanks @tebbins. To be fair I'm not reacting to the market, I'm just questioning whether my always intended plan to de-risk at this point is now still wise given the current climate. 

The problem is that derisking at pension age (60/65?) means that you now have funds that will have less growth potential when you might need the money for the next 20 years. Originally reducing risk to retirement was because people bought an annuity at that point and needing to maximise their pot. For many people that isn't the case now and they live off the pension pot instead in which case you probably want the pot to maintain value against inflation.

Exodi

Just to comment on the 60/40 thing - if you thought equities have 'tanked', I'd make sure you're sitting down when you look at the bond markets... 

Also - you mention that the current fluctuations have almost wiped out all of your growth? I can't see how this would be the case if you were invested in broad market funds, unless you started contributing to your pension in 2022. You'd struggle to find any broad market equity funds that were down in the medium-long term.

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