Vanguard Target retirement funds for SIPP

Pat38493

RSVMark said:

Thanks @Albermarle

Albermarle said:

Is there are a specific reason why you are contributing separately to a SIPP, as well as your employer scheme?

Yes, I have maxed out my % with work (9% of salary which is matched by my employer) and recently paid off the mortgage so I have ‘spare’ cash. I am saving as hard as I reasonably can to both make my retirement as comfortable as possible combined with some flexibility as to when I decide to retire.

Most regular contributors to the forum, are not convinced that actively managed funds outperform passively managed ones, so not worth the extra charges.

I am aware of this opinion and definitely want to balance the risk out with some actives and some passives. 

Also you should not see a pension in isolation from other investments, pensions and cash savings. For example if you have a lot of cash you can afford to take a bit more risk in your pension.

I am lucky insofar as I have some cash, a rainy day fund for emergency and a decent income. I have a few pension pots Inc current company and previous company dc schemes and the Sipp was set up to self manage and be destination for the spare (mortgage) money. 

@dunstonh
@pat38493

 Thanks and points noted. I am clear that my objective is to de risk by moving into bonds. Interesting to hear your views on V performance and fees so if there are better products or fund houses out there, I don’t know where to look. Out of interest how far underperforming do you think they are? Are they 95% as good or utterly rubbish and only half as good?

@leosayer has a diy approach (which may be better) in selecting your own bonds and cash funds….. but again, my lack of knowledge on where to look to select these is letting me down…… which brings me back to the V products…. It’s an easy win and if it’s 95% as good, it appears to solve the immediate objective. 

OK and maybe you know all this already, but keep in mind that after your retirement, assuming you are using Drawdown for example, you will remain invested for many years into the future, hopefully decades.  Study after study has showed that moving too much into bonds at retirement (and staying there), doesn’t give the best long term outcomes.  Unless of course you have such a large fund that you can meet your spending goals even using bond growth rates and/or you want to buy an annuity at retirement.

Pat38493

jamesd said:

leosayer said:

With rebalancing on the LifeStrategy funds, if there's an equities crash then the bond portion would be sold and equities bought to bring the fund back into balance. In other words, you buy equities cheap and potentially increase your future returns.

Unlikely. They rebalance far too frequently for that. If you want this, use different bond and equity funds.

Doesn’t that depend partly on the fund in question - for example I’m sure I’ve seen a poster on here claim that Vanguard only rebalance (some of?) their funds annually?

jamesd

RSVMark said:

... hasn't the bond market been historically poor? 

No. Not even close.

"The conditions for the greatest bond bull market in modern history were set in the 1970s, when inflation hit runaway levels. Central banks, led by the US Federal Reserve, launched a draconian response, pushing interest rates sky-high. Over the 40 deflationary years to the end of 2021, the annualised real return on bonds in the world bond index was 6.3 per cent, not far short of the 7.4 per cent return on global equities over the same period. " https://www.ft.com/content/ea867ea4-08ec-40ab-9bfb-a3dc4de3fe94

There are times when equities beat bonds, including the long term average, and times when bonds beat equities. Even less common times when cash beats both, during a transition from low to high interest rates outside an equity bull market. Fortunately it was clear in 2020-22 that fiscal easing was ending with rate rises and bond capital losses to follow, so it was possible to recognise one of those cash beats bonds times and switch.

For income drawdown part of the issue is sequence of returns risk and using both equities and bonds reduces the chance and consequences of an early retirement years bad sequence. It's why the highest safe income tends to be around 65:35 or 60:40 depending on planned duration and drawdown rules being used.

jamesd

RSVMark said:
Do you have any opinions of where a good source of information is? 

The places I link to in Drawdown: safe withdrawal rates are good.

Vanguard have lots of slightly cheaper rivals, particularly if you split fund and bond holdings as you'll see is highly desirable after reading up on drawdown. Nothing particularly bad about Vanguard, just a chance to save money with cheaper as good passives if you want.

Lifestrategy tends to get mentioned a lot here because it's handy for beginners and well known and understood. If you want just one Vanguard fund take a look there.

https://forums.moneysavingexpert.com/discussion/5466114/drawdown-safe-withdrawal-rates/p1

RSVMark

Thanks @jamesd
I read the ft article and sadly undestand maybe 10% of it as a newb into this area. Baby steps needed for me although the interesting thing is that it a) shows bonds aren’t that far behind equities over the time b) challenges the theory that bonds are risk free and c) walks us through the 60/40 rule of thumb and questions it. 

 Would like to read the second article but the link doesn’t work on my iPad?

Pat38493

I would be careful about drawing conclusion a) - I just read the article and as far as I can tell, it says that bonds were nearly as good as equities in the 40 years leading up to 2021.  It does not say this is expected to continue going forwards - in fact it implies the opposite.

I would also be interested in the second link but it doesn’t work for me either, since most of the stuff that I’ve read concluded that an equity / bonds mix of more like 80/20 or 70/30 is better than 60/40 when looking at long term historical trends.

jamesd

Pat38493 said:

jamesd said:

leosayer said:

With rebalancing on the LifeStrategy funds, if there's an equities crash then the bond portion would be sold and equities bought to bring the fund back into balance. In other words, you buy equities cheap and potentially increase your future returns.

Unlikely. They rebalance far too frequently for that. If you want this, use different bond and equity funds.

Doesn’t that depend partly on the fund in question - for example I’m sure I’ve seen a poster on here claim that Vanguard only rebalance (some of?) their funds annually?

Yes, it depends on the fund and my observation is based on their description of how these do it. Annual or six monthly would be OK except for the safe withdrawal rate things.

jamesd

RSVMark said:

Thanks @jamesd
I read the ft article and sadly undestand maybe 10% of it as a newb into this area. Baby steps needed for me although the interesting thing is that it a) shows bonds aren’t that far behind equities over the time b) challenges the theory that bonds are risk free and c) walks us through the 60/40 rule of thumb and questions it. 

 Would like to read the second article but the link doesn’t work on my iPad?

I've tried editing the link and added it explicitly so it should do better now. It's to https://forums.moneysavingexpert.com/discussion/5466114/drawdown-safe-withdrawal-rates/p1. There's a huge amount of research linked from there so take your time.

jamesd

Pat38493 said:

I would also be interested in the second link but it doesn’t work for me either, since most of the stuff that I’ve read concluded that an equity / bonds mix of more like 80/20 or 70/30 is better than 60/40 when looking at long term historical trends.

I don't think I've ever seen equities that high in a safe withdrawal rate maximising mixture. It's potentially reachable with longer than usual plans that FIRE followers might need since the general trend is higher bonds as the time gets shorter.

Pat38493

jamesd said:

Pat38493 said:

I would also be interested in the second link but it doesn’t work for me either, since most of the stuff that I’ve read concluded that an equity / bonds mix of more like 80/20 or 70/30 is better than 60/40 when looking at long term historical trends.

I don't think I've ever seen equities that high in a safe withdrawal rate maximising mixture. It's potentially reachable with longer than usual plans that FIRE followers might need since the general trend is higher bonds as the time gets shorter.

Good point as most of my research was looking at 40+ year timeframes for early retirement.  Maybe if you are looking at 30 years it’s a different matter.