Glide path to 55 - decreasing pot value volatility is my intention but feels equity/ region heavy

Sunnylifeover50plan

Afternoon

I will be 55 next summer and my current intention is to take 25% tfls and move to drawdown thereafter. This post isn't really about the efficacy or otherwise of my overall plan. Instead I'm looking for views on trying to introduce a little more stability into my pot value so that I can have more confidence over the likely tax free lump sum next year.

I am invested in Vanguard funds and have reconfigured the composition over the last 2 years so as to reduce my bond holdings albeit after much of the value had already leaked. It might look odd in terms of mixing percentages over multiple funds but that was a by product of trying to increase my equity holding whilst reducing bond holdings.

From the liquidated LS40 fund I started putting an increasing percentage into their STG money market fund and intend to put another £17k into that once I sell the last of my Vanguard ls 40, this will leave me around £117k in the money market fund and zero in the ls40 with the other spread remaining the same as the screen shot.

Vanguard funds have a relatively heavy weighting to US and UK and I'm interested in thoughts on whether there is any obvious risk in my thinking/ positioning over the next 10 months. Is it too equity and geographically heavy?

Thanks

Bravepants

Just one comment from me...looking at the ensemble of your Lifestrategy funds their weighted average in terms of equity percentage is approx 39%. In other words you could have just used Lifestrategy 40% and got the same result. Of course this assumes that you funded al the funds at the same time with those amounts you show. 

But, going forward, if you add no other contribution, your Lifestrategy portfolio is equivalent (near enough) to LS 40.

Linton

At this stage in the development of your portfolio provided you are using broadly diversified funds I would not worry about details like geographic weightings.   Although of great interest to investment nerds the long term difference in performance is likely to be marginal and in the short/medium term equally could go more significantly either way.  Far more important is your drawdown strategy and the balance of equity, bonds and any other primary assets you may choose to implement the strategy.

As to the % of equity....

I work it out to be about 58%.  That does not seem unreasonable overall.  It would be nice to know why 58% and not 40% or 75%.

To bring in your drawdown strategy: from history it would seem likely that you will experience a 50% equity crash at some stage.  So your total pot would drop about 30%.  What will you do? Panic and sell your equity like you cut your bond%? Cut your expenditure until the crash is over?  Or shrug your shoulders and carry on spending confident that the markets will recover before any real damage is done.  Is a 30% fall vs a 50% fall significantly different in practice?

Bravepants

Linton said:

I work it out to be about 58%.  That does not seem unreasonable overall.  It would be nice to know why 58% and not 40% or 75%.

Ah yes, apologies I had messed up my spreadsheet while reading down the list! 58% it is.

Sunnylifeover50plan

Thanks, I still hold just over 25% bonds after moving more funds from them into the money market fund as returns at present are quite good for the risk and should hopefully remain so over my 10 month timeline. I am conscious the of the SORR pitfall given my plan to take 25% out on day 1.  

Are there any amongst you that would consider increasing the money market fund holding over my short term period to afford greater stability? Or is there a % point at which one could be accused of holding too much in these over the short term?

Doctor_Who

Sunnylifeover50plan said:

Thanks, I still hold just over 25% bonds after moving more funds from them into the money market fund as returns at present are quite good for the risk and should hopefully remain so over my 10 month timeline. I am conscious the of the SORR pitfall given my plan to take 25% out on day 1.  

Are there any amongst you that would consider increasing the money market fund holding over my short term period to afford greater stability? Or is there a % point at which one could be accused of holding too much in these over the short term?

I'm holding ~2 years' worth of withdrawals from my SIPP in a STMMF so I have some certainty of the amounts I can withdraw. If you are looking to withdraw the 25% TFC in ~10 months then you'll need another ~£40K in addition to the ~£96K in the MMF - where do you plan to take this from? Without some certainty you could end up with a lot less TFC in ~10 months if the markets crash (or you could end up with more!).

Linton

Sunnylifeover50plan said:

Thanks, I still hold just over 25% bonds after moving more funds from them into the money market fund as returns at present are quite good for the risk and should hopefully remain so over my 10 month timeline. I am conscious the of the SORR pitfall given my plan to take 25% out on day 1.  

Are there any amongst you that would consider increasing the money market fund holding over my short term period to afford greater stability? Or is there a % point at which one could be accused of holding too much in these over the short term?

How to manage a major one-off drawdown rather depends on what you intend to do with the money.  For example if it is going straight back into investments then there would be a much lower need for care than if you were going to immediately spend all the money.

So to only consider the spend it all/or hold it as cash with the amount in £s being critical case then one's overall objective comes into play.  Is it to get maximum return or to achieve sufficient return at minimum risk?  Mine is the latter.  In which case I would be steadily derisking the amount to be transferred perhaps several years before day 1 with it all being held in cash perhaps no less than 6 months beforehand.

WHat other people accuse you of is irrelevent.  Whether your actions satisfy your objectives should be the sole criterion.

Do you really need to take the full 25% on day 1?  If you are not going to spend the money immediately why not spread it over time.  This may help optimise your tax either by using the tax free money alongside sufficient taxable money to keep you just below your tax allowance or to shelter all the money within an ISA as soon as it is transferred.

Albermarle

Vanguard funds have a relatively heavy weighting to US and UK 

The Vanguard Life Strategy funds do have a high UK weighting compared to similar multi asset funds from other providers. Over 20% compared to 4% .

However their US weighting at around 50% is lower than the others, which are in the 60 to 65% range.

Some would say that even 50% in the US is too high, considering the current high valuations of some major US companies. Some would say the US is the place to be and consider 65% too low.

Same for UK , some think 4% is enough, whilst others prefer more in their home market.

Sunnylifeover50plan

It's interesting that given my desire for fund value stability the money market fund over the short term seems to be a good home given the risk and to a degree the predictability of returns. 

My instinct is that I would be more likely to achieve my desired outcome by upping the % I hold there and then re-structuring  after the TFLS event in 10 months time.

NedS

Linton said:

Sunnylifeover50plan said:

Thanks, I still hold just over 25% bonds after moving more funds from them into the money market fund as returns at present are quite good for the risk and should hopefully remain so over my 10 month timeline. I am conscious the of the SORR pitfall given my plan to take 25% out on day 1.  

Are there any amongst you that would consider increasing the money market fund holding over my short term period to afford greater stability? Or is there a % point at which one could be accused of holding too much in these over the short term?

How to manage a major one-off drawdown rather depends on what you intend to do with the money.  For example if it is going straight back into investments then there would be a much lower need for care than if you were going to immediately spend all the money.

So to only consider the spend it all/or hold it as cash with the amount in £s being critical case then one's overall objective comes into play.  Is it to get maximum return or to achieve sufficient return at minimum risk?  Mine is the latter.  In which case I would be steadily derisking the amount to be transferred perhaps several years before day 1 with it all being held in cash perhaps no less than 6 months beforehand.

WHat other people accuse you of is irrelevent.  Whether your actions satisfy your objectives should be the sole criterion.

Do you really need to take the full 25% on day 1?  If you are not going to spend the money immediately why not spread it over time.  This may help optimise your tax either by using the tax free money alongside sufficient taxable money to keep you just below your tax allowance or to shelter all the money within an ISA as soon as it is transferred.

Exactly - it all depends on whether you absolutely need a minimum fixed amount from the TFLS. If you do, and your pot meets that goal now, sell everything (or at least enough to crystallise and meet your goal) and stick it in a short term money market fund for the next 9 months at ~5.25% almost guaranteed return. Then take your TFLS and rebalance the remainder for a 40 year drawdown.

The price you will pay for locking in that certainty is if markets rise significantly from here. If UC inflation and interest rates fall faster than expected and the US economy avoids a hard landing and moves back to healthy growth, markets may move upwards quickly and you could miss out on a strong recovery story, but I actually think much of that is already priced in for US equities.

If you don't absolutely need a set amount from the TFLS, rebalance now for a 40 year drawdown and take 25% of whatever the pot is next summer, if that is what your plan is.

Albermarle

Sunnylifeover50plan said:

It's interesting that given my desire for fund value stability the money market fund over the short term seems to be a good home given the risk and to a degree the predictability of returns. 

My instinct is that I would be more likely to achieve my desired outcome by upping the % I hold there and then re-structuring  after the TFLS event in 10 months time.

It hasn't been mentioned yet, but the general consensus is to only take all the TFLS at once if you really need the money for something. Most providers will allow you to take the TFLS in stages, or combined with some taxable income at the same time. This can be more tax efficient in certain circumstances, and avoids the need to find a home for a large TFLS, if you are not going to spend it relatively quickly.