Sick sense anyone?

Albermarle

LV_426 said:

zagfles said:

LV_426 said:

zagfles said:

1980ds said:

My pension, as most likely many others, has had more down than ups over the last 12 months.  Does anyone else have somewhat of a sick sense seeing the downs knowing each month you’re purchasing more units than if it was increasing? 

I’m approx 15 years away from a sniff of the TFLS so the way I look at it is there’s plenty of time for this to recover, am I right in thinking this? Naturally there is no mystic Meg of the pension world. 

I check my pension too regularly I know (mostly daily) but that’s just my OCD more than the desire to make any knee jerk reactions.  Is it best to leave well alone as still a fair chunk of time before I can access it?  

Appreciate your views!!!

Just look at a chart like this one to put into context how tiny the blip of the last year or so is:

https://backtest.curvo.eu/market-index/msci-world

It's worrying how so many people seem to go into panic mode over a slight downturn.

Crikey, what happened at the turn of the century? That's one hell of a downturn.

Dot com bubble, deflated till about 2003, then a bit of a recovery, then the financial crisis. Just shows how insignificant the downturn of the last year or so is, market is well up over 3-5 despite COVID, Ukraine etc. Of course the worst might be yet to come. I think equities are quite high at the moment, but I'm comparing to 5 years ago not last November. I worry when people think they should be using emergency cash buffers because they think equities are low, they're not unless you have a very short memory.

By 'cash buffer' do you means assets such as ISAs? 

If you mean Stocks and shares ISA's , that is not cash, just to be clear.

If you have a pension pot and a S&S ISA pot, from an investment point of view they are both the same, and presumably they will both go up and down in tandem, unless for some reason they are invested completely differently.

LV_426

Albermarle said:

By 'cash buffer' do you means assets such as ISAs? 

If you mean Stocks and shares ISA's , that is not cash, just to be clear.

If you have a pension pot and a S&S ISA pot, from an investment point of view they are both the same, and presumably they will both go up and down in tandem, unless for some reason they are invested completely differently.

Yes I was referring to a S&S ISA. I was just thinking in terms of accessibility really. I can make withdrawals at any time from my ISA. I kind of treat it like a savings account, but it isn't. Maybe I should look to taking some out and putting it in a regular savings account. But then, how much is enough? I currently have about £70k in the ISA.

zagfles

Malthusian said:

zagfles said:

Personally I think this strategy is flawed as it relies on the ability to time the market short term. If anyone can really do that successfully, they should be a billionaire already. Plus it seems most don't have an objective criteria to measure when when the market is high or low, rather a "finger in air", or "gut feeling".  The market is low relative to last November, it's high relative to 3 years ago. So is it low or high now?

Guessing correctly when to turn off withdrawals (so that you don't exhaust your emergency fund) technically is market timing, but it has a much lower level of difficulty than what we traditionally think of as market timing (i.e. hokey-cokeying an entire investment fund in and out of the market attempting to guess the tops and bottoms) and lower consequences for failure.

It's the exact same difficulty, ie calling highs and lows, but with a lower stake. Like putting £10 on the favourite in the 3:30 at Kempton Park rather than £10,000.

If you get the timing of pausing/restarting withdrawals wrong, then for each year's worth of error, a small slice of your fund - say about 4% - either misses out on a year's growth or gets cashed in a year too late. If the rise in the market you missed out on or the fall in the market that you could have dodged is say 10%, that means you lose 0.4%. If it's a 20% plummet you lose 0.8%. Whoop de do. Break out the tins of cat food and take an axe to the fusebox.

That assumes you realise you got it wrong after a year and cut your losses. If you think the market is low now so use some of your "cash buffer" this year, then what if it falls further? Do you say "I was wrong" and go back to your usual drawdown? Or do you say "well I thought it was low last year, it's dropped further this year, so it's definitely low now", and use more of your cash buffer? You could end compounding your losses, running out of the cash buffer after a few years' bear market, and be forced to sell when the market is much lower than it was in your first year of using your cash buffer.

As you say it is about gut feel, like pretty much every retirement planning decision you ever make (including how much of your earnings to pay into a pension, how long to carry on working and how much of your retirement fund to hold in equities). One way to inform the gut feel decision is to look at how much you are now withdrawing from the fund per annum following the market crash. If you started off with þe olde 4% withdrawal and the markets are down 5%, the withdrawal is now 4.2%pa, i.e. if it was sustainable before it's probably sustainable now. If you went all-in on equities and are down 40%, the withdrawal is now 6.7%pa, which for most of us would cause a re-think. 
If someone cancelled withdrawals from invested assets now I would personally be worried about depleting the cash too early and losing the cushion against a prolonged 2000-2003 style downturn. To me it would make more sense to leave investment withdrawals as they are and dip into the cash savings for cost-of-living increases.

Which is why I was careful to say "short term" market timing. Everyone makes decisions based on expectations of long term market movements, which is effectively long term market timing, which is why people use equities in the first place, if you don't think equities will rise long term why would anyone use them?

Having a long term plan based on objective criteria including varying withdrawals and varying asset allocation is something I'll be doing (probably "prime harvesting"), but I will not be making decisions based on short term market movements and gut feel. It's really easy to give into the temptation to do that when you have to buy/sell anyway - ie change your normal withdrawal or deposit strategy based on short term market movements, but just ask yourself if you didn't have to buy/sell anyway, would you change your asset allocation now? If no, then why do it when you're doing normal buying/selling?

Albermarle

LV_426 said:

Albermarle said:

By 'cash buffer' do you means assets such as ISAs? 

If you mean Stocks and shares ISA's , that is not cash, just to be clear.

If you have a pension pot and a S&S ISA pot, from an investment point of view they are both the same, and presumably they will both go up and down in tandem, unless for some reason they are invested completely differently.

Yes I was referring to a S&S ISA. I was just thinking in terms of accessibility really. I can make withdrawals at any time from my ISA. I kind of treat it like a savings account, but it isn't. Maybe I should look to taking some out and putting it in a regular savings account. But then, how much is enough? I currently have about £70k in the ISA.

But if your ISA investments are also down at the same time as your pension investments, then you will still be selling investments at a potential loss in a downturn. If you are over 55 , pension money is as accessible as money in a S&S ISA ( maybe with some more admin). The difference is that the ISA money is not taxable of course.

In an ideal world, you should have some emergency cash ( for unexpected expenses, like needing a new boiler etc )

Then as part of your pension drawdown strategy, it is normally recommended to have enough cash so you can stop selling investments in a downturn for 2 to 5 years. This could be held in a savings account outside the pension, or held as cash in the pension. 

You can see from debate in this thread there are different ideas as to what constitutes a downturn, and different opinions generally about drawdown strategies.

One thing that is known is that selling investments at a loss has a more significant detrimental effect in the first years of drawdown, compared to later. Google ' Sequence of returns risk' 

lisyloo

Albermarle said:

LV_426 said:

Albermarle said:

By 'cash buffer' do you means assets such as ISAs? 

If you mean Stocks and shares ISA's , that is not cash, just to be clear.

If you have a pension pot and a S&S ISA pot, from an investment point of view they are both the same, and presumably they will both go up and down in tandem, unless for some reason they are invested completely differently.

Yes I was referring to a S&S ISA. I was just thinking in terms of accessibility really. I can make withdrawals at any time from my ISA. I kind of treat it like a savings account, but it isn't. Maybe I should look to taking some out and putting it in a regular savings account. But then, how much is enough? I currently have about £70k in the ISA.

But if your ISA investments are also down at the same time as your pension investments, then you will still be selling investments at a potential loss in a downturn. If you are over 55 , pension money is as accessible as money in a S&S ISA ( maybe with some more admin). The difference is that the ISA money is not taxable of course.

I may have missed some context here - easy to do on long threads.
if you are working and wanting to still put into your pension then isn’t accessing your pension different to the isa because you’ll hit the MPAA?

our cash pots are cash isas and premiums bonds.
we have considered lowering the risk on S&S isa.

Albermarle

lisyloo said:

Albermarle said:

LV_426 said:

Albermarle said:

By 'cash buffer' do you means assets such as ISAs? 

If you mean Stocks and shares ISA's , that is not cash, just to be clear.

If you have a pension pot and a S&S ISA pot, from an investment point of view they are both the same, and presumably they will both go up and down in tandem, unless for some reason they are invested completely differently.

Yes I was referring to a S&S ISA. I was just thinking in terms of accessibility really. I can make withdrawals at any time from my ISA. I kind of treat it like a savings account, but it isn't. Maybe I should look to taking some out and putting it in a regular savings account. But then, how much is enough? I currently have about £70k in the ISA.

But if your ISA investments are also down at the same time as your pension investments, then you will still be selling investments at a potential loss in a downturn. If you are over 55 , pension money is as accessible as money in a S&S ISA ( maybe with some more admin). The difference is that the ISA money is not taxable of course.

I may have missed some context here - easy to do on long threads.
if you are working and wanting to still put into your pension then isn’t accessing your pension different to the isa because you’ll hit the MPAA?

our cash pots are cash isas and premiums bonds.
we have considered lowering the risk on S&S isa.

Yes you are right if you are still working.

The poster was querying whether a S&S ISA could be used as 'cash' to avoid selling pension investments in a downturn.
I was trying to make the point that this was not logical as both pension and ISA were still investments and cash meant cash !