Thoughts on Bonds versus Stocks & Shares

Dornfield

My (m59) SIPP is currently 100% in a managed Global fund.  Despite charges, it has performed well over the last two years and is now c. 830K.  Full State Pension in 8 years. I'm not reaolutely retired yet, but I'm 'post-pandemic relaxed' about finding another employment, and currently not working. Married, wife still working and two pre-university (dependant) children for the next 10 years or so. So not all holidays and cruises.
I have the "high class problem" of wondering how do I maximise growth potential of the SIPP, whilst not overly exposing myself to any painful reversal that might come with 100% invested in the markets.
If you were in my shoes, would you be reducing risk now, perhaps moving some proportion (40% ?) into gilts? Or what? Bonds are apparently attractive at the moment, compared to recent history.

Nebulous2

What are you living on at the moment?

The answer to your question would depend on how soon you need / intend to draw from your SIPP, or indeed if you're drawing from it already. 

It's sensible to have some money needed in the short-term in cash / near cash.  The further out you will require to draw on it, the more risk you can take. If you aren't working, and haven't been in 24/25 tax year, then you have a limited period to make tax-efficient withdrawals from your SIPP. 

You are dealing with the conundrum many people have, related to your risk appetite. Maximising growth, and insulating against painful reversals are mutually exclusive. You need to work out how far along you are prepared to push the safety ------> risk slider. 

Dornfield

Currently living on savings and, as my wife is relatively well paid, employed person, she doing the heavy lifting without dipping into savings too much at the moment, but it is tight!

Simon11

With a pot of that size and your wife pot to consider too, I don't personally understood why you haven't given up work yet and enjoy the best years of your life health wise. I personally enjoy my work, but there is also more to life than work and so much that I want to do in the world!

It seems that you may need a mind shift and consider that you should be dipping into your pension now, to at least ensure you have earnings up to the 40% threshold for this year (or have you achieved this already?) or stretch your purse strings to enjoy life now (with holidays & cruises- it shouldn't be tight as you mention above!).

Otherwise you are likely to end up as the richest man in the graveyard! And I'm sure your children would have plenty of inheritance anyway, assume they would benefit from the sale of your home.

Just my way of thinking here!

Linton

Bonds are very useful if you have a specific requirement for them.  In particular they are very good at providing ongoing income.

So I would say hold them if you have ongoing short term (< 10 ywears) requirement for the money.  If your objectives are purely long term (>10-15 years) I dont see much need. Why would a few years of low performance matter when you are confident that your assets are sufficiently diversified to ensure that they will rise with global  growth.  If there isnt any long term global growth we are all doomed anyway.

If you need both shorter and long term needs, rather than trying to construct a portfolio that does 2 different things at once, I would split it (at least in your own mind)  into 2 separate tranches sized and invested to meet the specific objectives. 

Hoenir

Dornfield said:

I have the "high class problem" of wondering how do I maximise growth potential of the SIPP, whilst not overly exposing myself to any painful reversal that might come with 100% invested in the markets.

On occassions markets regress. The nature of equities is such that corrections can rapidly unwind paper growth.  Never been any different. Though the longest bull market in history has seemingly bred a high level of complacency.  To buy something you need to sell something. When the entire herd moves in the same direction. The pendulum can rapdly swing. 

The key factor is your personal appetite for risk. 

poseidon1

Linton said:

Bonds are very useful if you have a specific requirement for them.  In particular they are very good at providing ongoing income.

So I would say hold them if you have ongoing short term (< 10 ywears) requirement for the money.  If your objectives are purely long term (>10-15 years) I dont see much need. Why would a few years of low performance matter when you are confident that your assets are sufficiently diversified to ensure that they will rise with global  growth.  If there isnt any long term global growth we are all doomed anyway.

If you need both shorter and long term needs, rather than trying to construct a portfolio that does 2 different things at once, I would split it (at least in your own mind)  into 2 separate tranches sized and invested to meet the specific objectives. 

I would add to Linton's comment re bonds, that even if you don't have immediate need for the income cash flow, buying bonds ( gilts and/or corporate bonds) could be a canny move given reasonably favourable  prices right now. Locking in some of your accrued global equity gains might not be a bad thing either.

Alexland

My view is that having a multi asset portfolio looks attractive again now bond yields have recovered in recent years. High valuations on US shares may lead to lower returns going forwards so there doesn’t seem to be enough likely additional compensation for carrying the risk of going 100% equities.

incus432

As I get older I think my tolerance to a big market crash is now much lower, and I wanted to protect most of the gains I've made and sleep soundly. I don't like the look of the US market atm and the fact that every Reddit post is people throwing money into the S&P500 is a big red flag to me.  

I have good DB pension plus SP so I don't need the money any time soon but can take an income from it to spend on hols and treats. So I have moved the majority of my investments from equities to bonds and gilts.

Only you know what you feel though.

Dornfield

Simon11 said:

With a pot of that size and your wife pot to consider too, I don't personally understood why you haven't given up work yet and enjoy the best years of your life health wise. I personally enjoy my work, but there is also more to life than work and so much that I want to do in the world!

Otherwise you are likely to end up as the richest man in the graveyard! And I'm sure your children would have plenty of inheritance anyway, assume they would benefit from the sale of your home.

Just my way of thinking here!

Yes, I agree, but with relatively young children (15 and 10) and a desire that they don't run up big debts if they are (i) capable and (ii) choose to go to university, my goals are still mainly focused on them, rather than me.  Also, I don't think it is healthy for them to see me without regular work.  I'm conscious that (unconsciously) our future support to them could backfire and have them develop a mindset where they believe it is not necessary to work hard.

With changes in IHT related to SIPP type pensions, I think I will in the next couple of years, develop a plan to run down the pension pot, maybe even to near zero by my late eighties (assuming....) and regularly transfer some of that as "excess income" to the children in some form of trust.  The same needs to be done for the house, which currently will also be annihilated by IHT.

Thanks for your comments; I do realise that I am in a fortunate position at the moment, but the 100% exposure to the markets is a niggling doubt that everything in the garden will continue to be rosey.

I don't want to die rich.

Hoenir

Out of interest which managed global fund do you hold?