Taking The Growth When You Can?

GSP

My wife started out with £150k in a pension fund 5 years ago, and last month ‘qualified’ for drawdown.

The £150k five years ago gradually grew over the years and reached nearly £200k last November. As we know funds have fallen since then and now she is back round the £150k mark.

The message is ‘keep invested’, but it does make you wonder at some point when ‘things are that good’, should some of that good growth be shielded in some way in the fund, rather than losing all those ‘gains’ that were building up over the years.

Seems such a waste!

NannaH

Well she could have used inc. funds and kept the dividends in cash?   

Is she actually thinking of drawdown in the near future?
If she is then having up to 10% in cash would be wise in any case. 

JohnWinder

I don’t know where the ‘keep invested’ epithet comes from but as others have pointed out there’s usually a counter-epithet sending you conflicting advice, perhaps ‘leave some profit for the next person’. Or ‘buy low’ and ‘don’t catch a falling knife’. Or ‘sell high’ and ‘let your winners run’. Perhaps skip the epithets as a basis for investing, and use something rational and testable.

We’ve seen one can draw about 3% of the starting value of a portfolio, and vary that amount each year with inflation, and have a very low chance of running out of money by 30 years (which might be your wife’s timeframe). Secondly, a portfolio of stocks as your wife has is very likely to outperform a portfolio of stocks and cash after 20 years. So, if she’s got enough to manage with less than the ‘3%’ it makes sense to not ‘take the growth when you can’, particularly if the inheritance has another lifetime to run in the hands of the child beneficiaries. On the other hand, a bad run of equity returns when you’ve committed the portfolio to withdrawals can be more damaging if you don’t have some cash buffer. As the future returns, portfolio volatility, asset behaviours are all unknown, no one knows which approach would turn out providing more spending from which portfolio. Plan sensibly and it shouldn’t cost you much sleep.

dunstonh

My wife started out with £150k in a pension fund 5 years ago, and last month ‘qualified’ for drawdown.

So, that makes her 55 (assuming no protected scheme age)

The message is ‘keep invested’, but it does make you wonder at some point when ‘things are that good’, should some of that good growth be shielded in some way in the fund, rather than losing all those ‘gains’ that were building up over the years.

At 55, she could be invested for another 30-40 years.   During that time there will be plenty of negative periods and positive periods.  Zig zagging is normal.  Trying to time the market is futile as you will never know the peak and trough.

You could pull profits out which miss out on a further 25% of gains.  It then drops 15% but you would have missed out on the 10% difference.  You are unlikely to go back in at the lowest point. So, it would be worse than that.

investors are nearly always better at sticking to the strategy and investing through it and coming out the other side.

Albermarle

As we know funds have fallen since then and now she is back round the £150k mark.

A 25% drop is at the higher end of the range of drops seen. Staying invested does not necessarily mean no changes at all. Might be worth saying what the investment(s) are, to get some more feedback. 

Linton

GSP said:

My wife started out with £150k in a pension fund 5 years ago, and last month ‘qualified’ for drawdown.

The £150k five years ago gradually grew over the years and reached nearly £200k last November. As we know funds have fallen since then and now she is back round the £150k mark.

The message is ‘keep invested’, but it does make you wonder at some point when ‘things are that good’, should some of that good growth be shielded in some way in the fund, rather than losing all those ‘gains’ that were building up over the years.

Seems such a waste!

How much wealth does she need at this stage to meet the drawdown plan ? (Rhetorical question) 

If she has more than she needs, what she needs could be invested at lower risk, I like the Wealth Preservation funds duch as Capital Gearing Trust.  The excess could be invested in 100% equity for the longer term, particularly longer term inflation. 

Looking at things in this way answers your question on the other thread regarding what % equity should one hold.  You dont decide up front, rather the answer is determined by your circumstances and strategy.

L9XSS

GSP said:

My wife started out with £150k in a pension fund 5 years ago, and last month ‘qualified’ for drawdown.

The £150k five years ago gradually grew over the years and reached nearly £200k last November. As we know funds have fallen since then and now she is back round the £150k mark.

The message is ‘keep invested’, but it does make you wonder at some point when ‘things are that good’, should some of that good growth be shielded in some way in the fund, rather than losing all those ‘gains’ that were building up over the years.

Seems such a waste!

I liquidated my portfolio of circa 190k to cash in November.......I’m so glad I did. I’ve made some small gains trading 10k amounts in EFT in 2022 from this pot but ultimately the pot has grown only by the 1.8% interest on it. As im close to retirement, under 5 years away I am happy with my decision. At some point I will reinvest once I’ve done my due diligence and research. I have DB pension and State pension at 60 and 67 respectively. 

[Deleted User]

If you “won the game” and have enough accounting for inflation risks then “shield” by all means. Absolutely.  Makes a lot of sense to have your basic needs covered by a “guaranteed” DB/annuity-like pot.  

If, on the other hand, you are trying to time the investments to maximize growth after a market surge and in anticipation of a downturn, then you will lose out. 

GSP

dunstonh said:

My wife started out with £150k in a pension fund 5 years ago, and last month ‘qualified’ for drawdown.

So, that makes her 55 (assuming no protected scheme age)

The message is ‘keep invested’, but it does make you wonder at some point when ‘things are that good’, should some of that good growth be shielded in some way in the fund, rather than losing all those ‘gains’ that were building up over the years.

At 55, she could be invested for another 30-40 years.   During that time there will be plenty of negative periods and positive periods.  Zig zagging is normal.  Trying to time the market is futile as you will never know the peak and trough.

You could pull profits out which miss out on a further 25% of gains.  It then drops 15% but you would have missed out on the 10% difference.  You are unlikely to go back in at the lowest point. So, it would be worse than that.

investors are nearly always better at sticking to the strategy and investing through it and coming out the other side.

That’s the thing, my planner/hope is for growth of 3% p.a. This was exceeded by quite a long way as at last November, but now it’s all but gone. What goes up will come down at some point.
I’m not looking for the highest point, and modest growth would hopefully see us through.