Royal London Pension Options

JohnWinder

Try this for a summary of ‘downers’: https://earlyretirementnow.com/2019/10/30/who-is-afraid-of-a-bear-market/

Pat38493

dunstonh said:

Pat38493 said:

dunstonh said:

You also need to be aware of the less common 80% loss periods.   Most timescales that people invest will miss that one but you may not be ask lucky.      So, you need remember capacity for loss.

When has this happened then, and how quickly did it recover?  Also - do you man 80% net loss including inflation or some kind of currency revaluation in that country, or 80% just investment loss?

One of the most recognised was Sept 1929 to Summer 1932  saw the Dow fall 89%.   Without inflation adjustment.  The Dow didnt return to that level again until 1954

The Great depression was deflationary

Strange thing is that common SWR software like Timeline or cfire sim purports to include this period, but surely no modern investment portfolio would survive that?  Unless the deflation was so much that the net losses was a lot less?

JohnWinder

‘ 25 Yrs For The Dow To Recover From The Great Depression is not entirely correct. The total return of the Dow was higher over that 25 year period. The Dow was paying around 5% in dividend yield doing the period. The actual time it took people to break even including dividends was 15 years.’
https://www.bogleheads.org/forum/viewtopic.php?t=30546

Altior

Not a recommendation of course OP, this is the mainstay of my RL workplace pension portfolio:

https://markets.ft.com/data/funds/tearsheet/summary?s=GB00B2NNBJ59:GBP

It is, of course very US heavy, consequently it is not my only fund under this hood, but does allow for the controlling of any domestic allocation.

Prism

Pat38493 said:

dunstonh said:

Pat38493 said:

dunstonh said:

You also need to be aware of the less common 80% loss periods.   Most timescales that people invest will miss that one but you may not be ask lucky.      So, you need remember capacity for loss.

When has this happened then, and how quickly did it recover?  Also - do you man 80% net loss including inflation or some kind of currency revaluation in that country, or 80% just investment loss?

One of the most recognised was Sept 1929 to Summer 1932  saw the Dow fall 89%.   Without inflation adjustment.  The Dow didnt return to that level again until 1954

The Great depression was deflationary

Strange thing is that common SWR software like Timeline or cfire sim purports to include this period, but surely no modern investment portfolio would survive that?  Unless the deflation was so much that the net losses was a lot less?

Most of the studies that calculate SWR are based on the assumption of a good chunk of US government bonds being included. Some use cash (Bills). The original studies were based on 50/50 allocations. That is why they survive these periods. It is also why it seems a bit strange to me that some people focus on the 4% rule as a guide as to when to retire but then don't follow through with the recommended asset allocations. 

Pat38493

Prism said:

Pat38493 said:

dunstonh said:

Pat38493 said:

dunstonh said:

You also need to be aware of the less common 80% loss periods.   Most timescales that people invest will miss that one but you may not be ask lucky.      So, you need remember capacity for loss.

When has this happened then, and how quickly did it recover?  Also - do you man 80% net loss including inflation or some kind of currency revaluation in that country, or 80% just investment loss?

One of the most recognised was Sept 1929 to Summer 1932  saw the Dow fall 89%.   Without inflation adjustment.  The Dow didnt return to that level again until 1954

The Great depression was deflationary

Strange thing is that common SWR software like Timeline or cfire sim purports to include this period, but surely no modern investment portfolio would survive that?  Unless the deflation was so much that the net losses was a lot less?

Most of the studies that calculate SWR are based on the assumption of a good chunk of US government bonds being included. Some use cash (Bills). The original studies were based on 50/50 allocations. That is why they survive these periods. It is also why it seems a bit strange to me that some people focus on the 4% rule as a guide as to when to retire but then don't follow through with the recommended asset allocations. 

A lot of the studies I saw though were looking at 80/20 as being the optimal for a 40+ year period.   I did a bit more reading about this today and it seems like these studies a) took into account a 5% dividend on the Down Jones during that time which reduced the losses  and b) took into account the deflation in the Great Depression so they considered the effective net loss as significantly lower.

aside - historical comparison tools like Timeline and cfiresim also assume that guaranteed income streams like DB pensions do not decease during deflation periods so their real term values goes up.  Given that DB pension never existed during those times anyway it’s a bit of a paper exercise.  

Prism

Pat38493 said:

Prism said:

Pat38493 said:

dunstonh said:

Pat38493 said:

dunstonh said:

You also need to be aware of the less common 80% loss periods.   Most timescales that people invest will miss that one but you may not be ask lucky.      So, you need remember capacity for loss.

When has this happened then, and how quickly did it recover?  Also - do you man 80% net loss including inflation or some kind of currency revaluation in that country, or 80% just investment loss?

One of the most recognised was Sept 1929 to Summer 1932  saw the Dow fall 89%.   Without inflation adjustment.  The Dow didnt return to that level again until 1954

The Great depression was deflationary

Strange thing is that common SWR software like Timeline or cfire sim purports to include this period, but surely no modern investment portfolio would survive that?  Unless the deflation was so much that the net losses was a lot less?

Most of the studies that calculate SWR are based on the assumption of a good chunk of US government bonds being included. Some use cash (Bills). The original studies were based on 50/50 allocations. That is why they survive these periods. It is also why it seems a bit strange to me that some people focus on the 4% rule as a guide as to when to retire but then don't follow through with the recommended asset allocations. 

A lot of the studies I saw though were looking at 80/20 as being the optimal for a 40+ year period.   I did a bit more reading about this today and it seems like these studies a) took into account a 5% dividend on the Down Jones during that time which reduced the losses  and b) took into account the deflation in the Great Depression so they considered the effective net loss as significantly lower.

aside - historical comparison tools like Timeline and cfiresim also assume that guaranteed income streams like DB pensions do not decease during deflation periods so their real term values goes up.  Given that DB pension never existed during those times anyway it’s a bit of a paper exercise.  

Yeah, as you start playing with the duration of retirement, swapping cash for bonds, and using more global equities rather than just US or UK, the number change. Longer retirements require a bit more in equities and a UK/global investor also does better with a higher allocation to equities. 

dunstonh

Pat38493 said:

Prism said:

Pat38493 said:

dunstonh said:

Pat38493 said:

dunstonh said:

You also need to be aware of the less common 80% loss periods.   Most timescales that people invest will miss that one but you may not be ask lucky.      So, you need remember capacity for loss.

When has this happened then, and how quickly did it recover?  Also - do you man 80% net loss including inflation or some kind of currency revaluation in that country, or 80% just investment loss?

One of the most recognised was Sept 1929 to Summer 1932  saw the Dow fall 89%.   Without inflation adjustment.  The Dow didnt return to that level again until 1954

The Great depression was deflationary

Strange thing is that common SWR software like Timeline or cfire sim purports to include this period, but surely no modern investment portfolio would survive that?  Unless the deflation was so much that the net losses was a lot less?

Most of the studies that calculate SWR are based on the assumption of a good chunk of US government bonds being included. Some use cash (Bills). The original studies were based on 50/50 allocations. That is why they survive these periods. It is also why it seems a bit strange to me that some people focus on the 4% rule as a guide as to when to retire but then don't follow through with the recommended asset allocations. 

A lot of the studies I saw though were looking at 80/20 as being the optimal for a 40+ year period.   I did a bit more reading about this today and it seems like these studies a) took into account a 5% dividend on the Down Jones during that time which reduced the losses  and b) took into account the deflation in the Great Depression so they considered the effective net loss as significantly lower.

aside - historical comparison tools like Timeline and cfiresim also assume that guaranteed income streams like DB pensions do not decease during deflation periods so their real term values goes up.  Given that DB pension never existed during those times anyway it’s a bit of a paper exercise.  

You also need to be wary that the original research was only between 1926 and 1967.   The US was an emerging market for much of the 20th century and wasn't dragged down with developed market issues.

The research found that 3.5% increased annually didn't fail but 4% increased annually did fail over some 50 year time periods.   The worst failed after 33 years.

Life expectancy was different as well.      The original research noted that life expectancy was 25-30 years, and 4% was recommended as a SWR because of the worst case being 33 years.

During the period of research Bengen found that portfolio longevity was actually worse with higher equity exposures than with a 50/50 portfolio.   He ended up with an optimal asset allocation as close to 75% equities but no less than 50%.