How are your pension pots doing

Cus

All fair points. I'm not worried, and performance over the 7 years I have used them is better than my benchmark, just still disappointing tbh.  Maybe also disappointing as there were no long term bonds or gilts in there, they were sold a year or 2 back, so the drop is more due to some higher risk equity I think.  It's a 60% equity portfolio so my benchmark is vanguard 60, as that's what I would have chosen if I did it myself.

Linton

Deleted_User said:

Prism said:

Deleted_User said:

Well, lifestyle funds are different but  I would be a wee bit disappointed if anyone I paid money to manage investments held long duration bonds in 22.  Although the timing couldn’t be predicted, it was an asset which was going yo lose money. Having money in a losing asset needs to be explained. I’ve seen a few attempts by financial advisors to justify their failure to act for their clients by talking about how if you blend poor long-term bond returns with present and future short-term bonds returns, the blend isn’t too bad.  This is like tossing some sawdust into your soup.  The blend may be tolerable, but why include the sawdust?

Its surprisingly difficult to access medium duration bonds in the UK. Most Gilt funds last year were around duration 12+. Many of the global passive funds include corporate bonds and are also slightly higher duration and risk. Euro and Dollar funds which cover a variety of bond durations are available but little for UK Gilts. Combining a short duration and longer duration fund seems to be the only realistic alternative.

Prism said:

Deleted_User said:

Well, lifestyle funds are different but  I would be a wee bit disappointed if anyone I paid money to manage investments held long duration bonds in 22.  Although the timing couldn’t be predicted, it was an asset which was going yo lose money. Having money in a losing asset needs to be explained. I’ve seen a few attempts by financial advisors to justify their failure to act for their clients by talking about how if you blend poor long-term bond returns with present and future short-term bonds returns, the blend isn’t too bad.  This is like tossing some sawdust into your soup.  The blend may be tolerable, but why include the sawdust?

Its surprisingly difficult to access medium duration bonds in the UK. Most Gilt funds last year were around duration 12+. Many of the global passive funds include corporate bonds and are also slightly higher duration and risk. Euro and Dollar funds which cover a variety of bond durations are available but little for UK Gilts. Combining a short duration and longer duration fund seems to be the only realistic alternative.

Bond yields tell you exactly what average return you’ll get over the life of the bond.  This is true whether you own that bond on its own or blended into a fund. Inflation was never going to be zero over a 10 year duration.  Only the exact timing of losses was uncertain.  If a 10-year gilt yielded zero in 2021, then it was guaranteed to lose lots of money.  Many funds do not have either medium or long duration bonds. For example money market funds. Managed portfolios should have got rid of bonds after coupons got close to zero in 2020. 

The price and coupon does tell you exactly the return of a bond over its lifetime.  However most people are buying bond funds rather than individual bonds.  If you buy a bond fund with average time to maturity of 10 years today it will still be a bond fund of average time to maturity of 10 years when you sell in 10 years time.  It would be wrong for that fund to choose some other allocation. The role of a bond fund is to hold bonds according to its remit, not to second guess the wider market.

As to the hindsight advice to sell bonds in 2020 - did anyone here strongly suggect it then at the height of Covid? Clearly the all-knowing market did not see the crash in long dated bond prices coming otherwise it would have happened earlier.  And had circumstances been different with interest rates rising slowly the crash may have been very much less severe.

It is worth pointing out though that WP funds did move into safer things like short duration US index linked bonds well in advance.

noclaf

Due to a number of changes last year (consolidating old pensions into a SIPP, changing job so new pension scheme etc) I've given up trying to accurately track performance.

We know Equities and Bonds have taken a bit of a battering last but I don't hold the latter at present and with 15 years to retirement trying not to get too bogged down with the movements in markets and pension fund performance. 

Once fund selection was determined I tend to focus more on my monthly contributions and this is where I'm finding it more challenging, specifically what is the minimum I should put in monthly/annually to achieve a 'reasonable' size pot in retirement. Based on 'back of a fag packet' maths, I use what I think is a conservative assumption of 3% returns per year for the next 15 years, no idea if this is too conservative or I'm expecting too much!

Linton

noclaf said:

Due to a number of changes last year (consolidating old pensions into a SIPP, changing job so new pension scheme etc) I've given up trying to accurately track performance.

We know Equities and Bonds have taken a bit of a battering last but I don't hold the latter at present and with 15 years to retirement trying not to get too bogged down with the movements in markets and pension fund performance. 

Once fund selection was determined I tend to focus more on my monthly contributions and this is where I'm finding it more challenging, specifically what is the minimum I should put in monthly/annually to achieve a 'reasonable' size pot in retirement. Based on 'back of a fag packet' maths, I use what I think is a conservative assumption of 3% returns per year for the next 15 years, no idea if this is too conservative or I'm expecting too much!

For planning a time period of 15 years you have to make some assumptions.  But it is essential to monitor progress towards your goal so you can take remedial action well in advance eg changing your contributions or changing your planned retirement date. .  Working in this way it should not be disastrous if your initial assumptions are wrong.

noclaf

Linton said:

noclaf said:

Due to a number of changes last year (consolidating old pensions into a SIPP, changing job so new pension scheme etc) I've given up trying to accurately track performance.

We know Equities and Bonds have taken a bit of a battering last but I don't hold the latter at present and with 15 years to retirement trying not to get too bogged down with the movements in markets and pension fund performance. 

Once fund selection was determined I tend to focus more on my monthly contributions and this is where I'm finding it more challenging, specifically what is the minimum I should put in monthly/annually to achieve a 'reasonable' size pot in retirement. Based on 'back of a fag packet' maths, I use what I think is a conservative assumption of 3% returns per year for the next 15 years, no idea if this is too conservative or I'm expecting too much!

For planning a time period of 15 years you have to make some assumptions.  But it is essential to monitor progress towards your goal so you can take remedial action well in advance eg changing your contributions or changing your planned retirement date. .  Working in this way it should not be disastrous if your initial assumptions are wrong.

Fair point Linton, ever since I became interested and more focussed on my pension(s) I found it hard to avoid checking the performance on a daily basis...I am down to weekly now so getting better but still some work to do here. So I won't completely stop monitoring and certainly will periodically check how it's progressing but trying to be less obsessive!

Alice_Holt

        I measure my returns against RPI, using a spreadsheet dating back to the end of 2005.

        The 2022 fall, in real terms, of c21% (including a c.7% fall in investment valuations) makes 2022 my worst year for inflation-adjusted investment returns (even worse than 2008, which was down 10%).

     However at the start of the 2022 my cumulative investment returns outperformed RPI by c.60%.
In only 4 calendar years have investment returns been negative in real terms (2008, 2011, 2018, and 2022).

Albermarle

noclaf said:

Due to a number of changes last year (consolidating old pensions into a SIPP, changing job so new pension scheme etc) I've given up trying to accurately track performance.

We know Equities and Bonds have taken a bit of a battering last but I don't hold the latter at present and with 15 years to retirement trying not to get too bogged down with the movements in markets and pension fund performance. 

Once fund selection was determined I tend to focus more on my monthly contributions and this is where I'm finding it more challenging, specifically what is the minimum I should put in monthly/annually to achieve a 'reasonable' size pot in retirement. Based on 'back of a fag packet' maths, I use what I think is a conservative assumption of 3% returns per year for the next 15 years, no idea if this is too conservative or I'm expecting too much!

Presume you mean 3% above inflation? Possibly a bit too optimistic, but not wildly so. Maybe better to aim lower, and then be pleasantly surprised if it is better.

[Deleted User]

Linton said:

Deleted_User said:

Prism said:

Deleted_User said:

Well, lifestyle funds are different but  I would be a wee bit disappointed if anyone I paid money to manage investments held long duration bonds in 22.  Although the timing couldn’t be predicted, it was an asset which was going yo lose money. Having money in a losing asset needs to be explained. I’ve seen a few attempts by financial advisors to justify their failure to act for their clients by talking about how if you blend poor long-term bond returns with present and future short-term bonds returns, the blend isn’t too bad.  This is like tossing some sawdust into your soup.  The blend may be tolerable, but why include the sawdust?

Its surprisingly difficult to access medium duration bonds in the UK. Most Gilt funds last year were around duration 12+. Many of the global passive funds include corporate bonds and are also slightly higher duration and risk. Euro and Dollar funds which cover a variety of bond durations are available but little for UK Gilts. Combining a short duration and longer duration fund seems to be the only realistic alternative.

Prism said:

Deleted_User said:

Well, lifestyle funds are different but  I would be a wee bit disappointed if anyone I paid money to manage investments held long duration bonds in 22.  Although the timing couldn’t be predicted, it was an asset which was going yo lose money. Having money in a losing asset needs to be explained. I’ve seen a few attempts by financial advisors to justify their failure to act for their clients by talking about how if you blend poor long-term bond returns with present and future short-term bonds returns, the blend isn’t too bad.  This is like tossing some sawdust into your soup.  The blend may be tolerable, but why include the sawdust?

Its surprisingly difficult to access medium duration bonds in the UK. Most Gilt funds last year were around duration 12+. Many of the global passive funds include corporate bonds and are also slightly higher duration and risk. Euro and Dollar funds which cover a variety of bond durations are available but little for UK Gilts. Combining a short duration and longer duration fund seems to be the only realistic alternative.

Bond yields tell you exactly what average return you’ll get over the life of the bond.  This is true whether you own that bond on its own or blended into a fund. Inflation was never going to be zero over a 10 year duration.  Only the exact timing of losses was uncertain.  If a 10-year gilt yielded zero in 2021, then it was guaranteed to lose lots of money.  Many funds do not have either medium or long duration bonds. For example money market funds. Managed portfolios should have got rid of bonds after coupons got close to zero in 2020. 

The price and coupon does tell you exactly the return of a bond over its lifetime.  However most people are buying bond funds rather than individual bonds.  If you buy a bond fund with average time to maturity of 10 years today it will still be a bond fund of average time to maturity of 10 years when you sell in 10 years time.  It would be wrong for that fund to choose some other allocation. The role of a bond fund is to hold bonds according to its remit, not to second guess the wider market.

As to the hindsight advice to sell bonds in 2020 - did anyone here strongly suggect it then at the height of Covid? Clearly the all-knowing market did not see the crash in long dated bond prices coming otherwise it would have happened earlier.  And had circumstances been different with interest rates rising slowly the crash may have been very much less severe.

It is worth pointing out though that WP funds did move into safer things like short duration US index linked bonds well in advance.

It does not matter about average fund duration in 10 years’ time. Anyone holding 5, 10 or 30 year bonds a year ago held an asset which was going to lose money, whether it was directly or via a fund. Had inflation been lower, the losses might have been lower too but it was always going to be a loss.

 Funds which said “bonds” couldn’t do much about that. Advisors could and should have. Pretty sure the point was raised here at the time. Might search the forum later.

[Deleted User]

Linton said:

Deleted_User said:

Prism said:

Deleted_User said:

Well, lifestyle funds are different but  I would be a wee bit disappointed if anyone I paid money to manage investments held long duration bonds in 22.  Although the timing couldn’t be predicted, it was an asset which was going yo lose money. Having money in a losing asset needs to be explained. I’ve seen a few attempts by financial advisors to justify their failure to act for their clients by talking about how if you blend poor long-term bond returns with present and future short-term bonds returns, the blend isn’t too bad.  This is like tossing some sawdust into your soup.  The blend may be tolerable, but why include the sawdust?

Its surprisingly difficult to access medium duration bonds in the UK. Most Gilt funds last year were around duration 12+. Many of the global passive funds include corporate bonds and are also slightly higher duration and risk. Euro and Dollar funds which cover a variety of bond durations are available but little for UK Gilts. Combining a short duration and longer duration fund seems to be the only realistic alternative.

Prism said:

Deleted_User said:

Well, lifestyle funds are different but  I would be a wee bit disappointed if anyone I paid money to manage investments held long duration bonds in 22.  Although the timing couldn’t be predicted, it was an asset which was going yo lose money. Having money in a losing asset needs to be explained. I’ve seen a few attempts by financial advisors to justify their failure to act for their clients by talking about how if you blend poor long-term bond returns with present and future short-term bonds returns, the blend isn’t too bad.  This is like tossing some sawdust into your soup.  The blend may be tolerable, but why include the sawdust?

Its surprisingly difficult to access medium duration bonds in the UK. Most Gilt funds last year were around duration 12+. Many of the global passive funds include corporate bonds and are also slightly higher duration and risk. Euro and Dollar funds which cover a variety of bond durations are available but little for UK Gilts. Combining a short duration and longer duration fund seems to be the only realistic alternative.

Bond yields tell you exactly what average return you’ll get over the life of the bond.  This is true whether you own that bond on its own or blended into a fund. Inflation was never going to be zero over a 10 year duration.  Only the exact timing of losses was uncertain.  If a 10-year gilt yielded zero in 2021, then it was guaranteed to lose lots of money.  Many funds do not have either medium or long duration bonds. For example money market funds. Managed portfolios should have got rid of bonds after coupons got close to zero in 2020. 

As to the hindsight advice to sell bonds in 2020 - did anyone here strongly suggect it then at the height of Covid? Clearly the all-knowing market did not see the crash in long dated bond prices coming otherwise it would have happened earlier.  And had circumstances been different with interest rates rising slowly the crash may have been very much less severe.

It is worth pointing out though that WP funds did move into safer things like short duration US index linked bonds well in advance.

Here is my post from December 28th 2022:

 Here is my problem with long duration bonds right now. Forget “risk”, different people have different risks. Lets look at certainty.

As I write this, 10-year gilts pay 0.256% interest.  If you invest £10,000, you’ll get a total of only £256 pounds in interest over the decade, and then you’ll get your £10,000 back.  This is crazy. Even if inflation stays at just 2%, you’ll lose about £1750 in purchasing power. In other words, you are tying your money in exchange for a substantial loss.

Inflation has to be negative for most of the next decade for this to make any sense. What is the likelihood of that?

For me, choice of assets has to meet two criteria:

1. Negative correlation during a downturn

2. Positive long term return.

Long duration bonds fail this test.

Source: https://forums.moneysavingexpert.com/discussion/comment/77906134/#Comment_77906134

Another similar post: https://forums.moneysavingexpert.com/discussion/comment/77907000/#Comment_77907000

noclaf

Albermarle said:

noclaf said:

Due to a number of changes last year (consolidating old pensions into a SIPP, changing job so new pension scheme etc) I've given up trying to accurately track performance.

We know Equities and Bonds have taken a bit of a battering last but I don't hold the latter at present and with 15 years to retirement trying not to get too bogged down with the movements in markets and pension fund performance. 

Once fund selection was determined I tend to focus more on my monthly contributions and this is where I'm finding it more challenging, specifically what is the minimum I should put in monthly/annually to achieve a 'reasonable' size pot in retirement. Based on 'back of a fag packet' maths, I use what I think is a conservative assumption of 3% returns per year for the next 15 years, no idea if this is too conservative or I'm expecting too much!

Presume you mean 3% above inflation? Possibly a bit too optimistic, but not wildly so. Maybe better to aim lower, and then be pleasantly surprised if it is better.

Maybe I've been calculating this incorrectly, using the online compound interest calculator I just input 3% as the interest rate, current pension value, expected/assumed monthly contributions and expected timeframe. So I don't think I'm including inflation?