Annual Review - Rebalancing and Changes to Investments Concerns

[Deleted User]

GSP said:

Deleted_User said:

GSP said:

Deleted_User said:

GSP said:

Deleted_User said:

bostonerimus said:

The OP gives us some comments from the IFA about changing some funds from income to accumulation and rationalizing portfolio contents across similar clients and of course this all comes with the usual boilerplate macro-economic BS taken from a copy of Barrons or The Economist that is so broad and vague to be meaningless. What I haven't heard anything about is what the IFA suggests for drawdown actions and management of the portfolio with that in mind that are specific to the OP's situation. If I employed an IFA I'd want them to be modelling various income levels and the sustainability of the portfolio. Is that being done. has the IFA suggested a 25% drop in income to match the portfolio losses?

Yep. All true. Motherhood statements which are typed once and sent out to every client with a different name on the top and a very special individualized invoice.

But there is a more fundamental issue. How exactly did he lose 25%?  Very heavy allocation to long term term British bonds? Illiquid assets?  Was the IFA unaware that longterm bonds are risky in an inflationary environment? Didn’t he think some international diversification would be helpful? What was the added value vs a simple and cost efficient all-in-one fund? 

My risk appetite is 5 out of 10, so whether on that scale I was more exposed than that rating suggests? Out of interest, I wonder what falls should have occurred for someone on my risk profile?
With my losses of 25%, I do wonder with the proposed recommendation of 13 new funds how these will perform? My concern wonders if my overall loss is better left alone and has a chance to recover, rather than chasing a better return or less losses with new funds?

All these risk numbers are unhelpful except for streamlining things. Risks can be long and short term and what is damaging to your financial success isn’t the same thing as volatility which these questionnaire derived numbers usually reflect. The same person answers the same “risk” question differently on a different day. Important to understand whats risky for you personally. 

 The point is that where you are at, large drawdowns are harmful. Wouldn’t be an issue for a 30 year old climbing career ladder. The standard approach is to say “5 out of 10 risk appetite, lets give him lots of bonds”.  Thats (and I am guessing) what happened.  That’s fine when inflation is decreasing but bouts of inflation can be devastating to such a portfolio.  Inflation wasn’t hard to anticipate; plus after 2020 bonds had nowhere to go but down.  As a minimum yourportfolio should have had international diversification and that (again, guessing from the return) didn’t happen either.  

You are not alone; its a fairly typical story.  If I were you, I would spend a month reading, understanding what is risky to you, and then I would decide on asset allocation and ditch the advisor. 

I have now:
Region
UK 30%.
North America 24%.
Emerging Markets? 15%.
Japan 13%.
Europe (not UK) 11%.
Asia (not Japan) 7%.

And Equity’s 69%.
Fixed Interest 26%.
Money Markets 5%.
 

Whether this is fair split of International diversification?

Nothing’s particularly wrong with that.   Is Fixed Interest 100% UK? Longterm bonds? Still, Surprised that the fall in your portfolio is quite as large as it is. Do you know how much you withdrew over the period of 25% reduction in the value (in %)? Was it over 12 months?

It looks like the actual fund selection might be the problem. Also, do you know the total annual costs (platform, fund fees,advice, etc)? 

I can’t see with the splits of information if the Fixed Interest is 100% UK, or long term bonds.
£35k withdrawn.
platform/fees/advice £4.6k.

You obviously don’t have to tell but if you provide the total value of your portfolio 12 months ago, we could benchmark the performance  properly. And yes, naming funds/% would let us look under the bonnet. 

dunstonh

You have 69% in equities which seems like a high percentage for the average retiree.

Seems to be in the ideal ballpark for drawdown for the average retiree.

 I also wonder what the justification for 13 funds is, I bet your IFA is just passing on the recommendations of a portfolio service he employs and didn't come up with that themselves.

Hopefully that is the case.

It sounds like this 25% figure that people have been quoting is not too meaningful.

Also noting that it will be the drop in the markets plus the withdrawals made in that period.   The draw rate needs context in that figure.

Audaxer

Linton said:

GSP said:

Deleted_User said:

GSP said:

Deleted_User said:

GSP said:

Deleted_User said:

bostonerimus said:

The OP gives us some comments from the IFA about changing some funds from income to accumulation and rationalizing portfolio contents across similar clients and of course this all comes with the usual boilerplate macro-economic BS taken from a copy of Barrons or The Economist that is so broad and vague to be meaningless. What I haven't heard anything about is what the IFA suggests for drawdown actions and management of the portfolio with that in mind that are specific to the OP's situation. If I employed an IFA I'd want them to be modelling various income levels and the sustainability of the portfolio. Is that being done. has the IFA suggested a 25% drop in income to match the portfolio losses?

Yep. All true. Motherhood statements which are typed once and sent out to every client with a different name on the top and a very special individualized invoice.

But there is a more fundamental issue. How exactly did he lose 25%?  Very heavy allocation to long term term British bonds? Illiquid assets?  Was the IFA unaware that longterm bonds are risky in an inflationary environment? Didn’t he think some international diversification would be helpful? What was the added value vs a simple and cost efficient all-in-one fund? 

My risk appetite is 5 out of 10, so whether on that scale I was more exposed than that rating suggests? Out of interest, I wonder what falls should have occurred for someone on my risk profile?
With my losses of 25%, I do wonder with the proposed recommendation of 13 new funds how these will perform? My concern wonders if my overall loss is better left alone and has a chance to recover, rather than chasing a better return or less losses with new funds?

All these risk numbers are unhelpful except for streamlining things. Risks can be long and short term and what is damaging to your financial success isn’t the same thing as volatility which these questionnaire derived numbers usually reflect. The same person answers the same “risk” question differently on a different day. Important to understand whats risky for you personally. 

 The point is that where you are at, large drawdowns are harmful. Wouldn’t be an issue for a 30 year old climbing career ladder. The standard approach is to say “5 out of 10 risk appetite, lets give him lots of bonds”.  Thats (and I am guessing) what happened.  That’s fine when inflation is decreasing but bouts of inflation can be devastating to such a portfolio.  Inflation wasn’t hard to anticipate; plus after 2020 bonds had nowhere to go but down.  As a minimum yourportfolio should have had international diversification and that (again, guessing from the return) didn’t happen either.  

You are not alone; its a fairly typical story.  If I were you, I would spend a month reading, understanding what is risky to you, and then I would decide on asset allocation and ditch the advisor. 

I have now:
Region
UK 30%.
North America 24%.
Emerging Markets? 15%.
Japan 13%.
Europe (not UK) 11%.
Asia (not Japan) 7%.

And Equity’s 69%.
Fixed Interest 26%.
Money Markets 5%.
 

Whether this is fair split of International diversification?

Nothing’s particularly wrong with that.   Is Fixed Interest 100% UK? Longterm bonds? Still, Surprised that the fall in your portfolio is quite as large as it is. Do you know how much you withdrew over the period of 25% reduction in the value (in %)? Was it over 12 months?

It looks like the actual fund selection might be the problem. Also, do you know the total annual costs (platform, fund fees,advice, etc)? 

I can’t see with the splits of information if the Fixed Interest is 100% UK, or long term bonds.
£35k withdrawn.
platform/fees/advice £4.6k.

If you can tell us the full fund names and their %s we can tell you what their performance has been and what they are invested in.  That is if you are interested.

It sounds like this 25% figure that people have been quoting is not too meaningful.

I'd also be interested to see the fund names and their percentages.

I note that in the first post the OP said that individual investments are down anywhere between 10% and 50%, so I would think the overall 25% loss figure may be correct?

bostonerimus

GSP said:

bostonerimus said:

The OP gives us some comments from the IFA about changing some¡ funds from income to accumulation and rationalizing portfolio contents across similar clients and of course this all comes with the usual boilerplate macro-economic BS taken from a copy of Barrons or The Economist that is so broad and vague to be meaningless. What I haven't heard anything about is what the IFA suggests for drawdown actions and management of the portfolio with that in mind that are specific to the OP's situation. If I employed an IFA I'd want them to be modelling various income levels and the sustainability of the portfolio. Is that being done. has the IFA suggested a 25% drop in income to match the portfolio losses?

The IFA has produced his own by his naming a ‘quick and dirty simple planner’.
Last year this must have been okay, this year with the fall in funds it’s not.
He said a few months back if you don’t have to withdraw then don’t, but that’s easier said than done when drawdown is your income.

" if you don’t have to withdraw then don’t" is a ridiculous bit of advice for a retiree in drawdown. You have to get income from somewhere, so it might come from your cash buffer...which seems to be more important to you than your IFA. Can you just take dividends or reduce you drawdown according to some pre-considered algorithm? Are there assets that have done relatively well that you can sell at not such a loss. Is there any rebalancing being considered. A baseline income plan should allow you to drawdown through market down turns, has your IFA modelled that for you. It seems to me than your IFA is not doing much for you as far as retirement income planning and drawdown at all.

bostonerimus

dunstonh said:

You have 69% in equities which seems like a high percentage for the average retiree.

Seems to be in the ideal ballpark for drawdown for the average retiree.

 I also wonder what the justification for 13 funds is, I bet your IFA is just passing on the recommendations of a portfolio service he employs and didn't come up with that themselves.

Hopefully that is the case.

It sounds like this 25% figure that people have been quoting is not too meaningful.

Also noting that it will be the drop in the markets plus the withdrawals made in that period.   The draw rate needs context in that figure.

69% is the ideal equity percentage? and yet the IFA is telling the client not to drawdown for the time being. If the IFA is implementing a total return approach they don't seem to have considered sequence of returns issues very well. Why aren't they telling the OP that everything is ok, we have room in the plan for this and you can take out this much from here? There will be plenty of people in the OP's situation looking at 25% losses over the last year and cashing in a larger percentage of their pot than planned (if they even have a real plan) to meet their income needs. Add in 10% inflation and we have a perfect storm for the retiree who is relying on DC pensions with high equity components or even with gilts and bonds given the big fall in their values as interest rates have peaked. If the triple lock is lost that will be another gut punch for many.

Now is the time that the IFA really needs to earn their fees. They need to hold their client's hand and make sure they navigate them and their DC pensions through these difficult times. They should have developed a robust plan and I don't count advice like "if you don't have to withdraw, then don't" as doing the job especially as the IFA will keep taking the fees while the client takes out nothing.

GSP

Really appreciate people’s thoughts with this review

I’m out most of the day, but will get those investments on here later on so you can look at if you wish.

One thought is if my advisor is suggesting that most of his clients have more or less the same type of investments so he wants to centralise.
I suppose some of them already have those new investments he wants me to change to.

Though in the same direction of travel, I doubt everyone has made the same % of losses. If mine are down 25% and others are down say 17%, it’s a longer way back for me.

If my current investments suddenly bounce back better because they have dropped more makes me feel very uncomfortable I’m being recommended to change them at this time?

dunstonh

One thought is if my advisor is suggesting that most of his clients have more or less the same type of investments so he wants to centralise.

If it follows the typical pattern, then it's likely that the same asset weightings are used for everyone (applicable to risk profile and timescale) but over decades of investing, clients have ended up with different funds and he is doing what most adviser firms have done and that is make the fund recommendations consistent.

Though in the same direction of travel, I doubt everyone has made the same % of losses. If mine are down 25% and others are down say 17%, it’s a longer way back for me.

Apples and Oranges.  There are low risk investors down over 30%.  There are high risk investors down over 30%.   If you have been heavier in tech or gilts then the loss has been magnified.  Plus, as this is drawdown, some of your fall in value will be because of the withdrawals.  We don't know your draw rate.     So people saying its down too much are jumping to conclusions whilst not being aware of the facts.   They may be right but there hasn't been any information posted to back it up.

bostonerimus

I'm curious, you have an IFA so surely they should be answering all these questions as that's their job. I would definitely push them a bit more on the drawdown strategy and how your asset allocation dovetails with that.

Audaxer

bostonerimus said:

I'm curious, you have an IFA so surely they should be answering all these questions as that's their job. I would definitely push them a bit more on the drawdown strategy and how your asset allocation dovetails with that.

I agree, and I would have thought the IFA would also be able to give an accurate percentage of performance, taking account of amounts withdrawn for income throughout the year. From the comments I'm not sure whether 25% down is accurate, or whether the loss is actually not as high as that.

[Deleted User]

We also need to know the age and if the investments are supposed to last “until state pension/other db income kicks in” or until the end.

Accounting for inflation the OP lost over a third of the real value of his fund in one year.  If he is in the early stages of retirement and is relying on this pot for the full duration of retirement then the issue is very serious. And boilerplate statements are even more problematic.