80% equity at 55 - bad idea?

safe_hands2

The question is as the title says. For context, I have a small DB pension coming at age 60, I'm saving into a SIPP to make up my income until state pension age and that is well on track for where I want to be. I also save cash every month and have plenty of cash savings. I'm fortunate enough to have a bit of money remaining most months and am thinking about putting it into a S&S ISA to make it work harder for the future. I'm thinking 10 years +. I understand risk and potential losses. My natural risk level is balanced. But as I don't need this money I'm thinking of upping my risk level slightly for the potential long term benefits. Therefore I'd welcome your thoughts and insights - is 80% equity sensible for this situation?

jimjames

I have 100% equity in the same situation, not sure if that helps your context or not!

InvesterJones

I don't normally recommend investment platforms own articles, as they clearly have an advertising/nudge motive, however this one at Fidelity/The Telegraph seems relevant - skip the portfolio specifics and look at the section where he talks about the need to take on risk even at the age of 61.

https://www.fidelity.co.uk/markets-insights/personal-finance/saving-for-retirement/why-im-not-ready-to-de-risk-my-pension-pot/

dunstonh

is 80% equity sensible for this situation?

It all depends on your capacity for loss, your behaviour when a loss event occurs and the timescale.

Your age is irrelevant in that sense unless it impacts on timescale.

Swipe

The ratio is relative to the size of your portfolio, 20% could either be a huge or very small amount compared to your outgoings.

Hoenir

safe_hands2 said:

Therefore I'd welcome your thoughts and insights - is 80% equity sensible for this situation?

How much of a correction would you be comfortable with? Markets have been relatively benign for a considerable period of time. Volatile markets are like riding a roller coaster. There's no certainty as to what lies ahead.

Eyeful

The correct share/bond split is the one that gives you piece of mind & lets you get a good nights sleep. 

kempiejon

safe_hands2 said:

The question is as the title says. For context, I have a small DB pension coming at age 60, I'm saving into a SIPP to make up my income until state pension age and that is well on track for where I want to be. I also save cash every month and have plenty of cash savings. I'm fortunate enough to have a bit of money remaining most months and am thinking about putting it into a S&S ISA to make it work harder for the future. I'm thinking 10 years +. I understand risk and potential losses. My natural risk level is balanced. But as I don't need this money I'm thinking of upping my risk level slightly for the potential long term benefits. Therefore I'd welcome your thoughts and insights - is 80% equity sensible for this situation?

I tried to assign a capital value to my SPs, same for those with DB. They are doing the work of the cash/bonds element and considered the less risky part of an asset allocation. Pick a multiplier that suits 15, 16, 20, use what an annuity would cost to replace the index linked income use that number as the cash/bond value when doing a % equities calculation.

boingy

safe_hands2 said:

I also save cash every month and have plenty of cash savings. 

Just clarify whether you are including your cash savings in your % calculation.
In other words, are you thinking 20% cash and 80% equities, or 20% bonds and 80% equities plus some cash outside of that?

As for your risk profile, ask yourself how you would feel if your equity investment halved in value then took 5 or 6 years to get back to the original amount. 

safe_hands2

Thanks all, that's helpful. 
@IvanOpinion - I'm similar to you with the decision about de-risking my SIPP. Because my cash savings can cover any losses for a while I'm thinking of leaving it a bit longer, but hard to pick the right course of action!
@JamesRobinson48 - it's just the spare money I plan to save that would be in 80% equity. Taking into account my cash savings, my overall asset allocation is a lot lower in equities. I know I know, probably should have invested some of it but was late to start investing.
@Hoenir - because it's spare money for a long term pot, happy to ride out corrections and keep drip feeding money in the dip.

Bostonerimus1

safe_hands2 said:

The question is as the title says. For context, I have a small DB pension coming at age 60, I'm saving into a SIPP to make up my income until state pension age and that is well on track for where I want to be. I also save cash every month and have plenty of cash savings. I'm fortunate enough to have a bit of money remaining most months and am thinking about putting it into a S&S ISA to make it work harder for the future. I'm thinking 10 years +. I understand risk and potential losses. My natural risk level is balanced. But as I don't need this money I'm thinking of upping my risk level slightly for the potential long term benefits. Therefore I'd welcome your thoughts and insights - is 80% equity sensible for this situation?

How much of you spending will the DB pension and SP cover? How much debt do you have...that includes mortgages? What is the size of your portfolio relative to your annual spending?

As an example I'm retired and I have 85% equity allocation in my liquid portfolio and the proportion is going up. However, I don't mind if I lose it all because I don't use it for income. I have a DB pension and rental income to cover my spending and SPs still to come.  So I can take lots of risk in my investing without endangering my retirement income. People who are using drawdown for a vital part of their retirement income could get into trouble with a similar asset allocation, particularly if they have losses close to their retirement date. However, over the long term, historical data and modeling shows that high equity allocations have provided the highest levels of retirement income, but that comes with risk.