Pension Investment Portfolios

Spivo46

I was asking about RL pension portfolio performance and related risk scaling with a view to a balanced approach to investment in retirement. Below are some examples. Does anyone think that GP4 is a no brainer despite having 70% in stocks. Even at its worse during COVID 19, in comparison to the others, the fall was not significantly worse?

El_Torro

That chart certainly looks impressive. How does the performance of RL GP4 compare to a global tracker? It looks like it has kept up with growth more or less, but it also doesn't seem significantly less volatile. I'm a long way from retirement myself but I would have thought that minimising volatility would be a good idea when in drawdown.

Also the usual warning that past performance does not necessarily predict future performance. 

Looking at the fund you mention it seems to be pretty overweight in UK equities. While that's not necessarily a bad thing I'm not a fan.


EDIT: I was reading the chart wrong. It has actually performed similarly to VLS60 (not a global tracker), though its value does seem to jump around more than VLS60. They both look more or less equivalent in terms of performance.

Sarahspangles

Who is this portfolio designed for?

It is designed for someone who has a moderately

cautious or balanced attitude to risk and is a long

time away from retirement. With this time horizon

and attitude to risk, a medium to high level of

investment risk is appropriate.

Does it sound like you?

Spivo46

Sarahspangles said:

Who is this portfolio designed for?

It is designed for someone who has a moderately

cautious or balanced attitude to risk and is a long

time away from retirement. With this time horizon

and attitude to risk, a medium to high level of

investment risk is appropriate.

Does it sound like you?

Semi retired at 64. I am targeting above inflation growth and 12 months of living expenses set aside for any market crash. While i am in GP4 currently (70% equity) my sensible side is telling me to switch to GP5 (50% equity)

dunstonh

The GP range is about to be modified and renamed to simplify it.

Linton

I do not think going for GP4 is a no brainier.  The fund performed well because of perhaps the 2 most important  investment events of the past few years, the rapid fall in interest rates severely hit bonds and the US megatechs significantly out performing other sectors in the global equity market.

GP4 has fewer bonds and more US megatechs than the other funds listed and hence performed better.The economic events are not permanent features  of the investing landscape and the situation in the future could be very different. Basing investment choices on a small number of years performance figures is a seriously bad idea.

In my view you should base your portfolio on your objectives, not performance graphs.In retirement one has a need for secure income over the shorter term and inflation exceeding growth in the long term. Bonds provide for the first and equity for the second.

Spivo46

Linton said:

I do not think going for GP4 is a no brainier.  The fund performed well because of perhaps the 2 most important  investment events of the past few years, the rapid fall in interest rates severely hit bonds and the US megatechs significantly out performing other sectors in the global equity market.

GP4 has fewer bonds and more US megatechs than the other funds listed and hence performed better.The economic events are not permanent features  of the investing landscape and the situation in the future could be very different. Basing investment choices on a small number of years performance figures is a seriously bad idea.

In my view you should base your portfolio on your objectives, not performance graphs.In retirement one has a need for secure income over the shorter term and inflation exceeding growth in the long term. Bonds provide for the first and equity for the second.

Thanks Linton - everything you have highlighted makes sense. However, is 10 years a sample that is too small? 
Devils advocate - "Economic events are not a permanent" surely all advice is based on educated guessing. Is it impossible that GP4 out performs the other portfolios or the next 10 years?

Linton

Spivo46 said:

Linton said:

I do not think going for GP4 is a no brainier.  The fund performed well because of perhaps the 2 most important  investment events of the past few years, the rapid fall in interest rates severely hit bonds and the US megatechs significantly out performing other sectors in the global equity market.

GP4 has fewer bonds and more US megatechs than the other funds listed and hence performed better.The economic events are not permanent features  of the investing landscape and the situation in the future could be very different. Basing investment choices on a small number of years performance figures is a seriously bad idea.

In my view you should base your portfolio on your objectives, not performance graphs.In retirement one has a need for secure income over the shorter term and inflation exceeding growth in the long term. Bonds provide for the first and equity for the second.

Thanks Linton - everything you have highlighted makes sense. However, is 10 years a sample that is too small? 
Devils advocate - "Economic events are not a permanent" surely all advice is based on educated guessing. Is it impossible that GP4 out performs the other portfolios or the next 10 years?

Performance is the key factor that you cannot control.  There is no point in chasing it because economic factors vary greatly over time.  For example during the 2001-2010 decade US stocks went nowhere with the tech sector crashing at the start and once it had barely recovered the finance sector crashed. So yes 10 years is far too short to come to any useful conclusion as to where to invest for the future.

40 years may be too short.  Since around 1980 interest rates steadily declined and so bond returns were enhanced by increases in capital value due to older higher interest bonds being more valuable than newer lower interest ones.  Clearly not sustainable, but it worked for a generation of investors.  Then in 2022 it didn't.

So what can you do?  Set up your portfolio appropriately based on your objectives knowing that the unknown future could derail you.

Firstly there is a choice of asset classes eg mainly global equity and bonds.  But there are many others - eg property, loans, infrastructure etc.  Each has different characteristics and so you chose the types of asset appropriate to your objectives.

The second important consideration is diversification.  The more different countries, industries, company sizes, growth versus value etc you invest in the more likely you are to catch the stars of the future and the less likely you are to be wiped out by a localised crash.

Finally I will mention risk.  This is not about whether you lose sleep over a major crash but rather how much the result matters.  For something like investing for retirement you may be satisfied with sufficient return to retire when you are ready and not want to have to work longer because you looked for higher returns than you needed and failed.

Another risk occurs if you want income from your investments in retirement.  Stability of sufficient income may be more important to you than maximising it and then finding that in a major crash you are selling core funds to meet your monthly bills.