Convincing myself to go 100% equities

El_Torro

Being a regular reader of this forum I know the theory. "If you've got more than 10 years worth of investing go 100% equities, if your risk tolerance allows". Easy enough to say, just thought I'd see what people think looking at one example. That example being me. 

I'll start with my Stocks & Shares ISAs. These are currently at about 60/40 in favour of equities. I'm fine with this, mainly because I don't have a huge amount in my ISAs and if I decide to spend some of the money I can be assured that the fund hasn't experienced as much volatility as a 100% equities investment. So if I do decide to withdraw a significant amount (deposit for a bigger property for example) I know my money is more stable. As my ISA grows I am planning to increase the equities weighting with any new money, once I have a few years worth of spend in place in 60/40 funds. 

So far so good. My dilemma comes with what I am doing with my pensions. First of all, I am about 15 years away from legally being allowed to access my pensions.

I have a workplace pension and have chosen the most adventurous option, which is Mercer Drawdown Adventurous Retirement. From reading the factsheet it's not clear to me what the equity holding is. Might be 90%, might be less. Like I say it's the most adventurous fund option I have in my workplace pension so there's not a lot I can do about it. Every couple of years I take some money out of this pension and move it to my SIPPs anyway. 

So my SIPPs: Currently 90% of the money is in multi asset funds, with roughly an 80/20 split. The other 10% is a global smaller companies fund, which is 100% equities. This means that I already have a lot of equities, but could go further. I'm currently thinking that maybe I should just sell my multi asset funds and go into global trackers.

One thing I like about multi asset funds is that some invest in smaller companies, some in property. BlackRock even invests in gold (I don't have any BlackRock funds, just using that as an example). They just seem a bit more refined than global trackers. Whether that means they will perform better in the coming decades is up for debate of course. A global tracker just seems like a cruder instrument than a multi asset fund. That's not to say it's an inferior option though. 


So yeah, I guess my question is: Are almighty global trackers the be all and end all? Am I wrong in relying on multi asset funds? 


Just a note on my risk tolerance, as someone might ask: I have been investing for over 20 years and have seen various ups and downs. I like to think my risk tolerance is pretty high, considering that I have never been tempted to sell an investment just because it dropped in value. I have been taking more notice of my investments as the years have gone by, mainly because they have grown and I have added to them so the values have become more significant over the years.

kinger101

I didn't read all your post but 100 percent equities in your pension more than 10 years from being able to access it sounds fine.  

D924

Buy when there is blood in the streets, as that guy said once.

You're in the fortunate position where the blood is not your own.

hallmark

I don't think I can advise you, but I can suggest a factor you should think of which is this:  Don't just base your decision on what will do best. Try to factor in what you might do if things do badly.

By which I mean, the thing with the "equities do best if your timeframe is longer than 10 years" logic is that it's only true if you don't panic and sell if it really really tanks.  And although none of us want to be that guy, and most of us think "I'd never be that guy" the fact is, lots of people sell at the worst possible time (because it's always darkest before the dawn).  So lots of people who don't want to be that guy and don't think they are that guy, turn out to be that guy.

Peter Lynch puts it like this: 

"the key organ in your body is your stomach, it's not your brain. If you can add 8+8 and get to 16, that's the only level of math that you need to know. It's always going to be scary, there's going to be always something to worry about, and you just have to forget about all of that. If you own good companies, you'll do well."

Personally, I'm investing in dull stuff with decent yields .

adindas

Below are plot the performance of Vanguards life Strategy 100% equity vs Vanguard Global Bonds Index Fund. You could choose different plot for comparison between bonds vs equity performance.

As you clearly indicated that you are pretty high risk tolerance, to me the choice is clear.  In the past people investing in Bonds might be just following the crowd without looking into their own goal, whether it is wealth creation or wealth preservation. This is also due the popularity of multi assets funds such as VLS 60/40 at that time. Proven investors billionaires investors do not consider bond as a good investment

Those who rely on bonds for wealth creation good luck with that.

I personally never have bonds right from the beginning. For this I have RSA and high interest saving accounts which is deployed into equity using "enhanced" DCA. But if I had bond, I personally would not sell VLS 60/40 if it was still making a loss. If I decided to go for 100% I would wait until it turned green before reallocating them.

But again this is just my personal opinion, a person will need to DYOR and decides what is suitable for him/her.

hallmark

I would also say, probably no time spent watching YT clips of Peter Lynch, Buffet/Munger, or Jack Bogle, is wasted.  They're all great.

Peter Lynch tends to say buy what you know / buy SME not large cap.  Buffet/Munger kinda say modestly if you're not them, then buy S&P500 (Munger looks more favourably on China).   Jack Bogle is 60/40 or maybe a little more inclined towards stocks latterly. He thinks the big difference between historical returns and future returns will be yield.

All four are great value though and I watch them over and over.  Of modern guys, Jeffrey Gundlach is great and some of Jeremy Grantham.

All IMO DYOR.  

bostonerimus

100% equities is a lot less stressful if you have paid off the mortgage. That way there would less income generation pressure on your retirement pot if we have a lost decade like Japan back in the 1990s and you end up retiring with less than planned. Stress test any plan or asset allocation and give yourself options. Remember that the growth of your pot is not just down to investment returns, it also depends on how much you contribute.

Linton

It is a mistake, I believe, to determine your %equity on a wimp/hero risk acceptance scale. Better to calculate it based on what you want from your investments.

Equities can reasonably be assumed to provide the best long term returns but the highest risk of all the expected money not being available when you need it.  So to optimise your allocations you need to have determined how much money you will need when. If the need is important one can reasonably assume that the unhappiness caused by having x% less than you need outweighs the happiness at having x% more.

So I suggest you allocate sufficient equity to meet your needs making pessimistic but reasonable assumptions on future returns and inflation. Then allocate sufficient lower risk non-equity to meet any needs within say the next 10 years. The composition of that non-equity is a secondary concern. Elsewhere I have given my reasons for avoiding simple bond index funds.

With these allocations and monitoring to ensure you are on track you should be able to face the future with few worries. You are safe in the short/medium term, and in the long term anything could happen anyway.

You may find that the total equity and non-equity needed is more than you have available In that case you should either change your needs or reduce the amount of non-equity accepting the higher risk that you could end up be worse off than predicted.

On the other hand if the total is less than your investable wealth you have the choice knowing that whatever you decide makes no fundamental difference.

safe_hands2

I found this helpful: https://youtu.be/ylxJePSnYR8

NoviceInvestor1

adindas said:

Changing the dates gives a very different outlook though....

Total Return Bond Index vs Total Return S&P500 from 2000 - 2010 (orange is TR bonds, black TR S&P500, red S&P500 share price no dividends)

JohnWinder

Linton said:

It is a mistake, I believe, to determine your %equity on a wimp/hero risk acceptance scale. Better to calculate it based on what you want from your investments.

Yes, the accepted wisdom is that ‘willingness’ to take equity risk is not the best basis for choosing an equity allocation. Better to also consider ‘need’ (do I need those sort of returns?), and ability (can I ‘feed’ myself with that much volatility and potential downside?). Willingness, need, ability, then choose the lowest equity percentage that those three point to.
https://www.cbsnews.com/news/asset-allocation-guide-how-much-risk-should-you-take/