Flexi Access Drawdown

Albermarle

Spivo46 said:

"GP1 is medium risk.   GP4 is medium to adventurous".

GP 4 is listed as Moderately Cautious / balanced

Description of fund risk levels is less than an exact science.

For example Vanguard Life strategy 20, 40 & 60 are all listed as risk 4 out of 7 on the Vanguard website.

Spivo46

dunstonh said:

GP 4 is listed as Moderately Cautious / balanced

Context is needed within the scale and phrasing.  RL refer to it as cautious/balanced in one place but as balanced in their main factsheet.

GP4 has 75% equities and 6% commodities along with 12% property.    In many scales, that would put it above medium risk.    Broadly speaking, 60% equity is around medium risk and 80% equity around medium/high. 

Balanced is a phrase that was intended to be phased out as it was found funds using from 40% to 90% equity were calling themselves Balanced.     This led to the renaming of the old defensive, cautious and balanced sectors being renamed to reflect their equity content.   Some scales start with cash as the starting point.   Some scales start with gilts being the starting point.  Some scales end at mainstream global equity being the upper point. Some much higher.   Some have clear faults in that they put 100% emerging markets equity in the same risk score as 100% global equity.

So, you must always look at the context within your own risk analysis.

Thanks, but wow, why is everything so bloody complicated!! with a header (in RL words) "Moderately Cautious" you would take that as moderately cautious - Absolute minefield that needs to be addressed. 

AlanP_2

With regards to risk rating and interpretations I think personal viewpoint is important as well.

One person's Moderately Cautious is another's High Risk and another's Low Risk.

For example I hold minimal cash as I feel it is less risky to be invested in a diversified portfolio. To me my overall situation is moderately cautious.

A friend, similar situation and age, is a big fan of cash and would prefer not to be invested if he could possibly avoid it. He thinks he is  moderately cautious.

Ciprico

Some would say cash is 100% safe, yet currently is one of the only financial  holdings that is guaranteed to make you a loss. (inflation)

Spivo46

dunstonh said:

I used an IFA back in 2017. They put me into Royal London GP1. I did not want the ongoing cost of the IFA so i went alone after the transfer. Last year i switched to GP4 as the returns were slightly better.

GP1 is medium risk.   GP4 is medium to adventurous.

The three linked portfolios are 1-2-3 ,  4-5-6,  7-8-9.      With the first one being long term, second one being medium term and third one being short term.

You don't have to use the models that way if you are looking to fine tune the equity content.   However, do remember that certain assets in the models will reflect the timescale weighting.  So, you may increase the equity content with the long term model but also the weightings to assets with a short term or long term nature get adjusted as well.

So, think about when you need to be drawing the money.  You can use multiple GPs to reflect your draw rate.

Dear Dunstonh - your thoughts please and excuse my lack of understanding. I am confused. I am in GP 4 with a view to retiring in 6 months, GP4 is long term. Should i be in short term? And if i had been i would have lost out on the good performance GP4 provided. Are the descriptions misleading or have i just been lucky?

Linton

Spivo46 said:

dunstonh said:

I used an IFA back in 2017. They put me into Royal London GP1. I did not want the ongoing cost of the IFA so i went alone after the transfer. Last year i switched to GP4 as the returns were slightly better.

GP1 is medium risk.   GP4 is medium to adventurous.

The three linked portfolios are 1-2-3 ,  4-5-6,  7-8-9.      With the first one being long term, second one being medium term and third one being short term.

You don't have to use the models that way if you are looking to fine tune the equity content.   However, do remember that certain assets in the models will reflect the timescale weighting.  So, you may increase the equity content with the long term model but also the weightings to assets with a short term or long term nature get adjusted as well.

So, think about when you need to be drawing the money.  You can use multiple GPs to reflect your draw rate.

Dear Dunstonh - your thoughts please and excuse my lack of understanding. I am confused. I am in GP 4 with a view to retiring in 6 months, GP4 is long term. Should i be in short term? And if i had been i would have lost out on the good performance GP4 provided. Are the descriptions misleading or have i just been lucky?

In retirement you will still need long term higher equity riskier investments to ensure inflation protection.  However you may find it helpful to switch the first say 5 years drawdown into something safer to ensure the money is there when you need it.

Spivo46

Linton said:

Spivo46 said:

dunstonh said:

I used an IFA back in 2017. They put me into Royal London GP1. I did not want the ongoing cost of the IFA so i went alone after the transfer. Last year i switched to GP4 as the returns were slightly better.

GP1 is medium risk.   GP4 is medium to adventurous.

The three linked portfolios are 1-2-3 ,  4-5-6,  7-8-9.      With the first one being long term, second one being medium term and third one being short term.

You don't have to use the models that way if you are looking to fine tune the equity content.   However, do remember that certain assets in the models will reflect the timescale weighting.  So, you may increase the equity content with the long term model but also the weightings to assets with a short term or long term nature get adjusted as well.

So, think about when you need to be drawing the money.  You can use multiple GPs to reflect your draw rate.

Dear Dunstonh - your thoughts please and excuse my lack of understanding. I am confused. I am in GP 4 with a view to retiring in 6 months, GP4 is long term. Should i be in short term? And if i had been i would have lost out on the good performance GP4 provided. Are the descriptions misleading or have i just been lucky?

In retirement you will still need long term higher equity riskier investments to ensure inflation protection.  However you may find it helpful to switch the first say 5 years drawdown into something safer to ensure the money is there when you need it.

Thanks Linton - are you suggesting 2 different portfolios, so i only move 5 years worth of funds to a lower risk portfolio and leave the rest where it is? i have to move some into a drawdown account in the next 6 months

Albermarle

Spivo46 said:

Linton said:

Spivo46 said:

dunstonh said:

I used an IFA back in 2017. They put me into Royal London GP1. I did not want the ongoing cost of the IFA so i went alone after the transfer. Last year i switched to GP4 as the returns were slightly better.

GP1 is medium risk.   GP4 is medium to adventurous.

The three linked portfolios are 1-2-3 ,  4-5-6,  7-8-9.      With the first one being long term, second one being medium term and third one being short term.

You don't have to use the models that way if you are looking to fine tune the equity content.   However, do remember that certain assets in the models will reflect the timescale weighting.  So, you may increase the equity content with the long term model but also the weightings to assets with a short term or long term nature get adjusted as well.

So, think about when you need to be drawing the money.  You can use multiple GPs to reflect your draw rate.

Dear Dunstonh - your thoughts please and excuse my lack of understanding. I am confused. I am in GP 4 with a view to retiring in 6 months, GP4 is long term. Should i be in short term? And if i had been i would have lost out on the good performance GP4 provided. Are the descriptions misleading or have i just been lucky?

In retirement you will still need long term higher equity riskier investments to ensure inflation protection.  However you may find it helpful to switch the first say 5 years drawdown into something safer to ensure the money is there when you need it.

Thanks Linton - are you suggesting 2 different portfolios, so i only move 5 years worth of funds to a lower risk portfolio and leave the rest where it is? i have to move some into a drawdown account in the next 6 months

That is a possible strategy.
You can have 2 years in cash, 5 years in medium/low risk and the rest in something more focused on growth.
Or if you have significant cash savings outside the pension, then you do not really need cash in the pension.

Linton

Spivo46 said:

Linton said:

Spivo46 said:

dunstonh said:

I used an IFA back in 2017. They put me into Royal London GP1. I did not want the ongoing cost of the IFA so i went alone after the transfer. Last year i switched to GP4 as the returns were slightly better.

GP1 is medium risk.   GP4 is medium to adventurous.

The three linked portfolios are 1-2-3 ,  4-5-6,  7-8-9.      With the first one being long term, second one being medium term and third one being short term.

You don't have to use the models that way if you are looking to fine tune the equity content.   However, do remember that certain assets in the models will reflect the timescale weighting.  So, you may increase the equity content with the long term model but also the weightings to assets with a short term or long term nature get adjusted as well.

So, think about when you need to be drawing the money.  You can use multiple GPs to reflect your draw rate.

Dear Dunstonh - your thoughts please and excuse my lack of understanding. I am confused. I am in GP 4 with a view to retiring in 6 months, GP4 is long term. Should i be in short term? And if i had been i would have lost out on the good performance GP4 provided. Are the descriptions misleading or have i just been lucky?

In retirement you will still need long term higher equity riskier investments to ensure inflation protection.  However you may find it helpful to switch the first say 5 years drawdown into something safer to ensure the money is there when you need it.

Thanks Linton - are you suggesting 2 different portfolios, so i only move 5 years worth of funds to a lower risk portfolio and leave the rest where it is? i have to move some into a drawdown account in the next 6 months

That is how I run my investments.  Each portfolio is based on a single objective and only contains funds that are appropriate for meeting that objective.  This seems a much more rational approach than having a single portfolio with an arbitrary asset allocation trying to satisfy incompatible objectives.

dunstonh

Spivo46 said:

Linton said:

Spivo46 said:

dunstonh said:

I used an IFA back in 2017. They put me into Royal London GP1. I did not want the ongoing cost of the IFA so i went alone after the transfer. Last year i switched to GP4 as the returns were slightly better.

GP1 is medium risk.   GP4 is medium to adventurous.

The three linked portfolios are 1-2-3 ,  4-5-6,  7-8-9.      With the first one being long term, second one being medium term and third one being short term.

You don't have to use the models that way if you are looking to fine tune the equity content.   However, do remember that certain assets in the models will reflect the timescale weighting.  So, you may increase the equity content with the long term model but also the weightings to assets with a short term or long term nature get adjusted as well.

So, think about when you need to be drawing the money.  You can use multiple GPs to reflect your draw rate.

Dear Dunstonh - your thoughts please and excuse my lack of understanding. I am confused. I am in GP 4 with a view to retiring in 6 months, GP4 is long term. Should i be in short term? And if i had been i would have lost out on the good performance GP4 provided. Are the descriptions misleading or have i just been lucky?

In retirement you will still need long term higher equity riskier investments to ensure inflation protection.  However you may find it helpful to switch the first say 5 years drawdown into something safer to ensure the money is there when you need it.

Thanks Linton - are you suggesting 2 different portfolios, so i only move 5 years worth of funds to a lower risk portfolio and leave the rest where it is? i have to move some into a drawdown account in the next 6 months

That is known as a bucketing strategy.    i.e. bucket 1 = money out over the next 3 years (which nearly always be cash based).  bucket 2 = short term (likely heavy in cash with short term gilts and large cap/developed markets for equities)  bucket 3 = medium term (general market for equities, likely a higher ratio towards equities) and bucket 4 = long term (maybe introducing emerging market and long term gilts etc)

So, money being drawn in the next three years would be in cash.  Money drawn from years 3-8 in short term 8-15 medium term and 16+ long term.   The timescale and number of buckets you operate can vary (mine here are an example) but the idea is that the risk applied to your portfolio reflects the timescale that money is going to be invested for.   The longer you have, the greater the risk you can take as you have time to average out the ups and downs.

I have seen people just use two (cash and portfolio) or three (cash, short and long) or as many as 6 (0-3 cash, 3-5 years, 5-10 yrs, 11-15, 15-20, 21+).   There is no right or wrong here.  They are just themes of a well-used strategy.