Simplest Drawdown Investment Portfolio?

GSP

If I transferred out of a DB Pension and went straight into Drawdown, what would be the fewest investments I would need at moderate risk?
I would be looking for an average 3% annual growth.
Thanks

dunstonh

If I transferred out of a DB Pension and went straight into Drawdown, what would be the fewest investments I would need at moderate risk?

It depends on what you mean by investments.   A multi-asset fund would be a single holding but it would have thousands of investments within it.    A single company share would be a single holding of just one investment.     You could have 10 funds holding 200 investments or 10 funds holding 20,000 investments.

I would be looking for an average 3% annual growth.

Net of long term inflation?
What strategy would you be using, both for drawdown and for investing?    Ad hoc withdrawals, regular monthly income?  yield, total return, segmenting for timescales or what?

There are a number of different ways to do this.   You then put in place your chosen investments to meet your method.

GSP

dunstonh said:

If I transferred out of a DB Pension and went straight into Drawdown, what would be the fewest investments I would need at moderate risk?

It depends on what you mean by investments.   A multi-asset fund would be a single holding but it would have thousands of investments within it.    A single company share would be a single holding of just one investment.     You could have 10 funds holding 200 investments or 10 funds holding 20,000 investments.

I would be looking for an average 3% annual growth.

Net of long term inflation?
What strategy would you be using, both for drawdown and for investing?    Ad hoc withdrawals, regular monthly income?  yield, total return, segmenting for timescales or what?

There are a number of different ways to do this.   You then put in place your chosen investments to meet your method.

Thanks dunstonh,

It’s me again!

As you may remember I was going to seek a new IFA this year as my present one will soon be retiring, and I have appts with 2 IFA’s in the next two weeks.

I feel like I want to start from scratch again, even though I’m five years into drawdown.

I still have six years to go before my state pension, and my wife who has just become eligible for her smaller drawdown fund still has 11 years to go before hers.

Last year’s review in Oct 21 had us withdrawing at a sustainable rate. Because of the 20% fall or so since, this years review a couple of months back suddenly had us withdrawing at an unsustainable rate.

While during my relatively short drawdown experience, I’ve been through the drop in early 2020 due to covid, but saw the fund recover well in probably three months from that time.

This time however at the end of 21 and most of 22 there has been very little bounce back and my feeling is this could stay like this for another two to three years at least.

We had just over a million between us in Nov 21, and a year later that went down to a little above three quarters of a million with withdrawals.

We can cut back a little bit on our withdrawing, but fear our funds will be depleting so much and will be much smaller than I expected when we are eligible for our state pension’s, which are crucial.

With my current IFA, I have 18 investments. From the top of my head regionally it’s quite split 30% here, 26% N.A., then 15, 10s, 5s in other areas. I have nearly 70% in equities, 25% bonds and 5% others.

Again my understanding of investments is rubbish, and have been happy to choose an IFA and trust them to do what’s best.

I have been seeing however mentions and some YouTubes where people suggest just having one or two investments.One of the main ones appears to the Vanguard Lifestrategy 60/40 (I’m not sure what other investment(s) should sit alongside this if they should).

I obviously want my fund to do as well as it can while drawing down, without taking the highest risks but allowing for moderate medium risk to allow some growth to sustain it longer.

For simplicity, just having one, two or three investments to rely on sounds good. But is it best to diversify and spread those funds even more. Some on here have said my IFA has chosen to give me so many investments it makes it look more complicated and that he is doing more for his money (0.5%).

When I meet with the new IFA’s, I’ll ask them more and questions such as above and how to get the both us to state pension with a sizeable fund still there if possible.
Also, with my current investments do I now stick with these waiting/hoping for a recovery, or scrap into something else? 

I’m over 60, and despite not working for five years I’ve just applied for a job. Looking back, I should have looked more for another job to at least bring something in and not relying as much on the fund, but it seemed there was enough in it at the time. I know as well I’m not as ‘sharp’ as I was five years ago and suspect the working environment has changed from the last time I was in it.

Sorry this has turned into bit of a read, but thought if I jotted down my position it might help with any responses and suggestions for my short term position at least.

Thank you.

gm0

There is no generic product which is universally applicable. 
Or that is *certain* to deliver the (indexed) income.
Certainty is what you are trading away for heritability and speculative risk with the DB/DC move

There *is* the simplest portfolio that is acceptable to you in its probable behaviour
The least complicated portfolio that meets your preferences for growth potential/pot depletion to term, income and along the way volatility.  And investment ideas.

There are factors which might influence you to add to a one fund portfolio. Because you believe that substituting/tilting the assets will either reduce risk and volatility (a bit) or add to potential return.  My use of "believe" is deliberate. You cannot know over any given timescale if you have made it better or worse.

0) Single multi-asset fund.

Vanguard VLS60 - 60% global large cap developed equities, 40% global bonds).  Hard to be simpler. 
Enough equities for income just about on a returns+capital depletion approach. 
A chance of leftovers for heirs depending on sequence and longevity
Other providers have similar funds. HSBC. As do platforms e.g. Aegon (risk tiered multi-asset portfolios) which are similarly "one and done" choices for you.

Cost matters over 40 years but should not be an obsession.  In a world with ~5% long term annual returns a cost difference of 0.5% is material and worth having. But 0.05% is likely not worth a lot of extra work.  A decision for you.
It is something you can control to some degree.  The city will happily charge you 2x or 3x to hold broadly the same thing without blushing.  Caveat emptor.

1) Home market bias

VLS60 has its critics.  There is a tilt to the UK weighting - how much UK equities is in there - up from its global position for UK investors. Efficient market hypothesis purists dislike that.  Some prefer to keep it at global market capitalisation weight <4%. 
Which do you want. Both versions are available.  You are taking a (slightly) different mix of speculative and FX risks.

Or not enough - a custom % can be achieved by holding your global equities as Global or Dev World Ex UK and adding a UK only Equities fund to the desired mix. And then one or more bonds funds to reassemble a multi-asset broad equivalent.  Similar but tuned to preference.  You may choose well or poorly. Or it may make little difference. 
And you need to rebalance it yourself. Complexity has been added to accommodate preference.

2) Diversification

Some critics would argue that VLS use of global developed market equities alone is insufficiently diversified.  I would. 
Others would argue that diversification and older book learning ideas are arbitraged away now and thus overrated in the literature.  So that it will now underperform or at best make no material difference.

Two diversification within asset class (equities) examples (that I use) would be Small Capitalisation and Emerging Markets equities to increase the range and number of equities held beyond what is in the multi-asset.  
Same overall % equities exposure in total.  More individual stocks (across both company sizes and countries).

3) Gold

Enter stage left a permanent portfolio / golden butterfly enthusiast who would at this point observe that there is no gold in this portfolio apart from some scraps of mining stocks as proxy in VLS40.  So you decide whether you believe in the tail risk that gold enthusiasts argue it hedges (backtests for).  And decide to add sufficient gold to make a difference.  Or not.  Up to you.

4) Factors & Sectors

Growth, Value, Momentum, High Dividend etc.  Another way to slice and dice global long stock lists. Not really my thing but like all investment ideas it has fans and detractors.

5) Ethical & ESG

Greenwashing and some lightweight filtering of guns/ammo, gambling and fags.  As suits you. And some more expensive but more actively ethically managed investment options.  Your call as to whether these funds are value for your investing.

6) Economics and timing

You look at the state of the world at the time you are investing the capital - and which regions and countries are stranded or growing or in short term crisis. And where equity market valuations are vs historic averages.   That might suggest to you further tilts to a just "hold the world" view.

Perhaps you believe some current out of fashion areas will recover and mean revert at some point during your investment horizon. 

Or there may be countries whose governments you dislike and want to avoid holding anyway - whether it is human rights record or just the fear that markets or capital controls may be arbitrarily manipulated against foreign holdings and investors like you.

Both these may influence your behaviour

7) Drawdown access design

Your portfolio needs assets to support income when assets are stressed (bad sequence).  Whether these are in the pension or outside does not matter.  What matters is that you are not a forced seller in the worst of an over correction.  Portfolio shape is influenced by sequence of return risk (SORR).  Again this is argued between cash bufferers and keep the maximum invested enthusiasts.  So again - whatever version lets you sleep happily and ignore a lot of short term investment noise.

Linton

GSP said:

If I transferred out of a DB Pension and went straight into Drawdown, what would be the fewest investments I would need at moderate risk?
I would be looking for an average 3% annual growth.
Thanks

You are asking a question to which no-one can give a useful answer.  If you found exactly the right fund that met your requirements you would only really need that one.  Any others would be a waste of time/effort.  If you can't you should put together a minimal set of funds that together did meet your requirements.  

Clearly you need to know what your requirements are at some level of detail.  eg
 - amount of income required from your investments over time to meet day to day and one-off expenses
- ability to withstand changes in that income eg if investments crashed to what extent would you be prepared to cut your expenditure.
- how much  money would you want to be available for inheritances after your death?
- what short/medium term variability in your total wealth are you prepared to accept emotionally?

Given this list it should be possible to devise a strategy which defines what type and value of investments you need.  You may well find that it is not possible to satisfy all your requirements with the wealth you have available.  In which case compromises will need to be made.

Only at this point can you sensibly start to think abut funds.

gm0

Ah I see from subsequent post you are shopping for advised not DIY. 

All that I said still applies as design considerations to an adviser recommended portfolio
A position *will* have been taken on each of these issues to include or not within the overall portfolio recommended. 

Since they are your investments and risks it is still best to understand what that position is. 

All being well - the adviser assembled (or provider selected) something appropriate to you and technically correctly as a sum of the parts - understood overlaps and mix. Using their tools of the trade.

Whether those decisions are right for you is something only you can explore and determine.  And it will then peform how it does.

After 5-10 years the recommended portfolio will start to demonstrate true value, or not, net all fees over VLS60 or something like that. Or it may be a wash - but you had someone qualified to guide you and help maintain your drawdown confidence, review changes to rules, funds etc.

Extra performance was not in the contract.

GSP

gm0 said:

There is no generic product which is universally applicable. 
Or that is *certain* to deliver the (indexed) income.
Certainty is what you are trading away for heritability and speculative risk with the DB/DC move

There *is* the simplest portfolio that is acceptable to you in its probable behaviour
The least complicated portfolio that meets your preferences for growth potential/pot depletion to term, income and along the way volatility.  And investment ideas.

There are factors which might influence you to add to a one fund portfolio. Because you believe that substituting/tilting the assets will either reduce risk and volatility (a bit) or add to potential return.  My use of "believe" is deliberate. You cannot know over any given timescale if you have made it better or worse.

0) Single multi-asset fund.

Vanguard VLS60 - 60% global large cap developed equities, 40% global bonds).  Hard to be simpler. 
Enough equities for income just about on a returns+capital depletion approach. 
A chance of leftovers for heirs depending on sequence and longevity
Other providers have similar funds. HSBC. As do platforms e.g. Aegon (risk tiered multi-asset portfolios) which are similarly "one and done" choices for you.

Cost matters over 40 years but should not be an obsession.  In a world with ~5% long term annual returns a cost difference of 0.5% is material and worth having. But 0.05% is likely not worth a lot of extra work.  A decision for you.
It is something you can control to some degree.  The city will happily charge you 2x or 3x to hold broadly the same thing without blushing.  Caveat emptor.

1) Home market bias

VLS60 has its critics.  There is a tilt to the UK weighting - how much UK equities is in there - up from its global position for UK investors. Efficient market hypothesis purists dislike that.  Some prefer to keep it at global market capitalisation weight <4%. 
Which do you want. Both versions are available.  You are taking a (slightly) different mix of speculative and FX risks.

Or not enough - a custom % can be achieved by holding your global equities as Global or Dev World Ex UK and adding a UK only Equities fund to the desired mix. And then one or more bonds funds to reassemble a multi-asset broad equivalent.  Similar but tuned to preference.  You may choose well or poorly. Or it may make little difference. 
And you need to rebalance it yourself. Complexity has been added to accommodate preference.

2) Diversification

Some critics would argue that VLS use of global developed market equities alone is insufficiently diversified.  I would. 
Others would argue that diversification and older book learning ideas are arbitraged away now and thus overrated in the literature.  So that it will now underperform or at best make no material difference.

Two diversification within asset class (equities) examples (that I use) would be Small Capitalisation and Emerging Markets equities to increase the range and number of equities held beyond what is in the multi-asset.  
Same overall % equities exposure in total.  More individual stocks (across both company sizes and countries).

3) Gold

Enter stage left a permanent portfolio / golden butterfly enthusiast who would at this point observe that there is no gold in this portfolio apart from some scraps of mining stocks as proxy in VLS40.  So you decide whether you believe in the tail risk that gold enthusiasts argue it hedges (backtests for).  And decide to add sufficient gold to make a difference.  Or not.  Up to you.

4) Factors & Sectors

Growth, Value, Momentum, High Dividend etc.  Another way to slice and dice global long stock lists. Not really my thing but like all investment ideas it has fans and detractors.

5) Ethical & ESG

Greenwashing and some lightweight filtering of guns/ammo, gambling and fags.  As suits you. And some more expensive but more actively ethically managed investment options.  Your call as to whether these funds are value for your investing.

6) Economics and timing

You look at the state of the world at the time you are investing the capital - and which regions and countries are stranded or growing or in short term crisis. And where equity market valuations are vs historic averages.   That might suggest to you further tilts to a just "hold the world" view.

Perhaps you believe some current out of fashion areas will recover and mean revert at some point during your investment horizon. 

Or there may be countries whose governments you dislike and want to avoid holding anyway - whether it is human rights record or just the fear that markets or capital controls may be arbitrarily manipulated against foreign holdings and investors like you.

Both these may influence your behaviour

7) Drawdown access design

Your portfolio needs assets to support income when assets are stressed (bad sequence).  Whether these are in the pension or outside does not matter.  What matters is that you are not a forced seller in the worst of an over correction.  Portfolio shape is influenced by sequence of return risk (SORR).  Again this is argued between cash bufferers and keep the maximum invested enthusiasts.  So again - whatever version lets you sleep happily and ignore a lot of short term investment noise.

Thanks.
From all those sections you have listed, just confirms I would need an adviser to cover all these.

GSP

Linton said:

GSP said:

If I transferred out of a DB Pension and went straight into Drawdown, what would be the fewest investments I would need at moderate risk?
I would be looking for an average 3% annual growth.
Thanks

You are asking a question to which no-one can give a useful answer.  If you found exactly the right fund that met your requirements you would only really need that one.  Any others would be a waste of time/effort.  If you can't you should put together a minimal set of funds that together did meet your requirements.  

Clearly you need to know what your requirements are at some level of detail.  eg
 - amount of income required from your investments over time to meet day to day and one-off expenses
- ability to withstand changes in that income eg if investments crashed to what extent would you be prepared to cut your expenditure.
- how much  money would you want to be available for inheritances after your death?
- what short/medium term variability in your total wealth are you prepared to accept emotionally?

Given this list it should be possible to devise a strategy which defines what type and value of investments you need.  You may well find that it is not possible to satisfy all your requirements with the wealth you have available.  In which case compromises will need to be made.

Only at this point can you sensibly start to think abut funds.

Yes a good chat through at the two IFA meetings will be interesting to hear their thoughts, and a strategy they would use.

How close the two responses will be?

GSP

gm0 said:

Ah I see from subsequent post you are shopping for advised not DIY. 

All that I said still applies as design considerations to an adviser recommended portfolio
A position *will* have been taken on each of these issues to include or not within the overall portfolio recommended. 

Since they are your investments and risks it is still best to understand what that position is. 

All being well - the adviser assembled (or provider selected) something appropriate to you and technically correctly as a sum of the parts - understood overlaps and mix. Using their tools of the trade.

Whether those decisions are right for you is something only you can explore and determine.  And it will then peform how it does.

After 5-10 years the recommended portfolio will start to demonstrate true value, or not, net all fees over VLS60 or something like that. Or it may be a wash - but you had someone qualified to guide you and help maintain your drawdown confidence, review changes to rules, funds etc.

Extra performance was not in the contract.

Yes I’m not looking at growing my fund each year, but looking at some growth in a slowly depleting fund that will see us through.

For the kids, I’m not looking to hand over any real sums as god willing by the time we depart they will be 55-60ish and should have their own retirement plans in place.

bostonerimus

I would double and triple check your logic for transferring out of your DB scheme, particularly in light of the recent turmoil in stock and bond markets.

If you are still convinced that drawdown is right for you and you want a relatively simple approach I would search for "Target Retirement Date" or "LifeStrategy" funds. This will give you a diversified portfolio of funds in a single fund with a mix of stocks and bonds. The Target Date fund will change it's allocation to stocks and bonds as you get older. Also research "Bogleheads" and "Guyton Klinger" to understand simple investing portfolios and withdrawal methods.

GSP

bostonerimus said:

I would double and triple check your logic for transferring out of your DB scheme, particularly in light of the recent turmoil in stock and bond markets.

If you are still convinced that drawdown is right for you and you want a relatively simple approach I would search for "Target Retirement Date" or "LifeStrategy" funds. This will give you a diversified portfolio of funds in a single fund with a mix of stocks and bonds. The Target Date fund will change it's allocation to stocks and bonds as you get older. Also research "Bogleheads" and "Guyton Klinger" to understand simple investing portfolios and withdrawal methods.

Sorry and thanks for replying bostonerimus.
For some reason I put the DB mention as a scenario, but I have already transferred out 5 years ago. 

The bit I wanted people to focus on was drawdown and having the fewest investments possible and keeping it simple.
Sorry if I went a strange way about it.