What long-ish term (10yrs) investments do you make, where, and why?

AllNightDiner

Hi all, 

i get so much value from reading these threads - thanks to all for the incredible opinions and comments (thanks especially to @jamesd whose recent thoughts about Nest were great).

My OH and I are in the process of starting longer-term planning for retirement and would love to hear anyone’s stories about the investment platform they chose and why, the types of funds they chose and why, plus any other random thoughts. We are thinking of a 10-year horizon.

I am aware that nothing said may be construed as advice. But having some comparison from very smart people would be so helpful. 

What I would like to avoid is one of these funds that automatically switches you to very conservative funds, the closer one gets to retirement. I don’t see the point of that unless one is ultra-risk-averse, which I/we are not.

Thank you!

Linton

With investing 10 years is short/medium term, not long term.  Are you going to spend all the money in 10 years, say buying an annuity,  or could your usage spread over possibly several decades and so you would have an average outlook of much more than 10 years?  I assume the latter.

There are different broad ways you could move forward.  One is smple.  Just  build a split global portfolio fund in a pension with something like 60% equity (perhaps a global equity index fund) and 40% bonds.  It wont be wrong.  It is easy to do as it only needs 1 or 2 funds and the management, if any,  could be limited to an annual rebalance to keep the % allocations fairly constant.  That ratio could be sensible if you were planning on saving for drawdown from a pension.  Or you could move more into bonds as you approach retirement if you want to buy an annuity.

Another approach which I use myself is to decide what I want out of the investment over time and then use funds specifically chosen for the purpose.  That needs a lot more effort and experience but avoids the somewhat arbitrary use of values like 60/40.

You should avoid any attempt to chase the highest returns especially if that choice is based on recent values.  The higher the return you chase the higher the risk from a major crash and last year's performance is not a good predictor of next year's.

The standard platforms (eg Fidelity, HL, AJBell, II) you will see mentioned on this forum are all pretty similar, work in much the same way and in my experience are well run.  I dont believe that the differences will concern you except that the Vanguard platform is restricted to Vanguard funds whereas the others generally can supply almost any fund available, at least the ones that may be of use to you.  Cost is a reasonable basis for your choice.  You pay more for higher functionality, ease of use and the availability of help.  But if your portfolio is simple these should not be a major factor.

Starting planning for retirement in what I assume is 10 years time is rather late since you may not have much time to accumulate a portfolio large enough to significantly change your situation.   So I hope you already have  plenty of other money in pensions, investments and savings.  What returns do you need from your investments to meet your retirement needs?

Hoenir

AllNightDiner said:

What I would like to avoid is one of these funds that automatically switches you to very conservative funds, the closer one gets to retirement. I don’t see the point of that unless one is ultra-risk-averse, which I/we are not.

How much can you can afford to lose? 

JayRitchie

Great post by @Linton above. OP - how old are you now, when might you look to retire?

Pat38493

Linton said:

With investing 10 years is short/medium term, not long term.  Are you going to spend all the money in 10 years, say buying an annuity,  or could your usage spread over possibly several decades and so you would have an average outlook of much more than 10 years?  I assume the latter.

In one way I take your piont, but, when choosing how to invest the money, I would generally take the view that I don't need for at least 10 years or more, goes into a "long term" bucket - yes some of it may only be needed 30 years later, but anything 10 years plus I would put in a long term approach (which in my view at the momen would be 100% equities).

I agree though that OP could take the approach to look at for example:
- How much will I need in first 2 years?
- How much in following 3 years?
- How much in years 5-10
- Years 10+

And then take an investment approach accordingly.  Of course this is a bit more work as you say as you have to recalculate it and make adjustments each year.

SVaz

I’m of the opinion of staying in mainly 100% equities until say 3-5 years before retirement.
We have low cost global index funds, a 70/30 mixed asset fund and are now looking at building up a cash / Short term money market fund for use in 2028, at the end of next year, all contibutions will be directed to that pot to fund 4 years of early retirement. 

During those 4 years the fund dividends will go into the cash pot ready to build up another couple of years income and so on, once we hit 67,  a 2% drawdown will be sufficient. 

It all very much depends on your plans. 

AllNightDiner

Thanks for these comments - most thought-provoking. 

We are very lucky to have enough defined benefit pensions to cover the basics when we “FIR” rather than “FIRE” (ie Financial Independence? Retire!).

We also have SIPPs of about £500k that we want to grow so that we can afford a few extra luxuries. We would not want to buy an annuity since we have sufficient guaranteed income. So our risk tolerance for this particular money is fairly high - although we are not looking for huge returns; perhaps just enough to keep up with inflation plus maybe a couple of percent over the medium-to-long term.

@Linton you are right that 10 years is not long term but @Pat38493 slices it right: we estimate we would want to withdraw a bit in the first two years, then some more in subsequent years etc., ie draw down as we need/want it. 

Our question is what to do with the money now? At present it is split between fixed interest, etfs, and individual stocks, the latter of which we don’t really have time or expertise to keep up with and would like to convert to something simpler.

We would love to hear opinions on things like investing that money right now. Eg investing in the UK vs RoW etc. Fixed income? High-yielding equities? Or keep it all in a low-fee index fund?

And after say 10 years, what would you do with the money?

AllNightDiner

And again, thank you for the comments!

JayRitchie

That makes all the difference.

I would (and do) look for lowest charges and world or US type funds. If you can take the risks the rewards have been better historically. I would avoid individual stocks as index funds are much simpler and often lower cost.

I'm suspicious about high yield equities unless held for a specific objective and / or not too large a percentage of the total invested. I'm sure that there are decent ways to invest in them but whenever someone points out an opportunity they always seem too overweight in particular companies and sectors for comfort.

Hoenir

AllNightDiner said:

we estimate we would want to withdraw a bit in the first two years, then some more in subsequent years etc., ie draw down as we need/want it. 

Then capital preservation would seem a more appropriate objective. Attempting to out perform inflation by a couple of % over short periods of time is speculative. With absolutely no guarantees of sucess and considerable downside. Match your savings/investment choices against the likely time you intend accessing the money. 

dunstonh

JayRitchie said:

That makes all the difference.

I would (and do) look for lowest charges and world or US type funds. If you can take the risks the rewards have been better historically. I would avoid individual stocks as index funds are much simpler and often lower cost.

I'm suspicious about high yield equities unless held for a specific objective and / or not too large a percentage of the total invested. I'm sure that there are decent ways to invest in them but whenever someone points out an opportunity they always seem too overweight in particular companies and sectors for comfort.

Just as US equity has been a driver in this cycle and HYP have been off the boil, it is worth remembering that things change.  In the previous cycle, US equity was dire and HYP was all the rage.