Timing the market?

2nd_time_buyer

MetaPhysical said:

2nd_time_buyer said:

I made the decision to move my DC pension from a global tracker into a cash fund back in mid-November (£220k). The SIPP cash fund offers around 4.5% with a 0.1% fee with II. At the time, I felt that I was on track for my retirement without needing to rely on growth beyond inflation, so I didn't want to take on additional risk. I also had concerns about US tech valuations, particularly with the market reaction after the election.

Since making the change, global markets initially rose by about 3% before experiencing a downturn. While I believe the markets could be higher a year from now, I’m more focused on the security of my retirement. While a larger balance would be ideal, ensuring I have enough to retire comfortably is my main priority.

4.4% is still very respectable and your pot is moving forward wrt inflation.  You have to keep your eye on that though.  If it creeps higher and higher you may need to rethink.

By moving my pension out of the workplace scheme where the fee was 0.5% (even in a cash fund) into ii with a 0.1% fee (0.2% including the platform fee), my hope is that this will give me a bit more margin to at least keep up with inflation for the time being.

MetaPhysical

2nd_time_buyer said:

MetaPhysical said:

2nd_time_buyer said:

I made the decision to move my DC pension from a global tracker into a cash fund back in mid-November (£220k). The SIPP cash fund offers around 4.5% with a 0.1% fee with II. At the time, I felt that I was on track for my retirement without needing to rely on growth beyond inflation, so I didn't want to take on additional risk. I also had concerns about US tech valuations, particularly with the market reaction after the election.

Since making the change, global markets initially rose by about 3% before experiencing a downturn. While I believe the markets could be higher a year from now, I’m more focused on the security of my retirement. While a larger balance would be ideal, ensuring I have enough to retire comfortably is my main priority.

4.4% is still very respectable and your pot is moving forward wrt inflation.  You have to keep your eye on that though.  If it creeps higher and higher you may need to rethink.

By moving my pension out of the workplace scheme where the fee was 0.5% (even in a cash fund) into ii with a 0.1% fee (0.2% including the platform fee), my hope is that this will give me a bit more margin to at least keep up with inflation for the time being.

0.5% in workplace is poor.  I get 0.12% charges on a MoneyMarklet fund inside my pension with my employer.

Hoenir

2nd_time_buyer said:

I made the decision to move my DC pension from a global tracker into a cash fund back in mid-November (£220k). The SIPP cash fund offers around 4.5% with a 0.1% fee with II.

Is this now yielding 3.25% before charges? 

2nd_time_buyer

Hoenir said:

2nd_time_buyer said:

I made the decision to move my DC pension from a global tracker into a cash fund back in mid-November (£220k). The SIPP cash fund offers around 4.5% with a 0.1% fee with II.

Is this now yielding 3.25% before charges? 

I think it is closer to an annualised rate of 4.8% as an accumulation and 4.0% otherwise over the 3 months:

https://www.trustnet.com/factsheets/O/GWUO/royal-london-short-term-money-market-y-acc

Bostonerimus1

MetaPhysical said:

I am not an IFA, I'm an engineer so take what I say with a large pinch of salt.  However, in my view you shouldn't change strategy just because of a slight downturn, even a larger downturn.  Emotion has zero place in investing.  This downturn is not even in the top thirty of "bad periods" in the markets.  All the big companies - with the possible exception of Tesla and its future with Elon - are minting it still and their businesses are sound.  A few downturns are not a bad thing,  The only "bad" thing about a downturn is if you need to crystallise into cash - so don't if you can avoid it.

I de-risked £100k into cash Money Markets inside my pension just before all of this because of the very real and tangible reason that I am retiring next March and so do not want to sell into cash at the bottom of the market.  However, the rest of my DC fund - £500k - I am still continuing to heavily invest in, infact, I have moved more into equities because I do not think there is a fundamental problem.  I get more for the contributions in a downturn.  Sure it may go down more. But it could all explode back up as well when the markets have adjusted to the orange man.

Keep calm and carry on is my mantra - this is a long term game.  You can be a goal down and still win,  Where there is risk there is opportunity.

As I say, just my opinion FWIW.

If you aren't too close to retirement then I think it's probably ok to keep on with your strategy and not react other than maybe doing some rebalancing. However, this all underlines the importance of having a cash buffer and an asset allocation that you can live with through market fluctuations. The tricky thing now is the specter of a recession and with so much uncertainty in the world, companies as well as individuals are going to be scared to invest which will hit growth. So I think global markets will be down until there are some policy changes.

michaels

Bostonerimus1 said:

MetaPhysical said:

I am not an IFA, I'm an engineer so take what I say with a large pinch of salt.  However, in my view you shouldn't change strategy just because of a slight downturn, even a larger downturn.  Emotion has zero place in investing.  This downturn is not even in the top thirty of "bad periods" in the markets.  All the big companies - with the possible exception of Tesla and its future with Elon - are minting it still and their businesses are sound.  A few downturns are not a bad thing,  The only "bad" thing about a downturn is if you need to crystallise into cash - so don't if you can avoid it.

I de-risked £100k into cash Money Markets inside my pension just before all of this because of the very real and tangible reason that I am retiring next March and so do not want to sell into cash at the bottom of the market.  However, the rest of my DC fund - £500k - I am still continuing to heavily invest in, infact, I have moved more into equities because I do not think there is a fundamental problem.  I get more for the contributions in a downturn.  Sure it may go down more. But it could all explode back up as well when the markets have adjusted to the orange man.

Keep calm and carry on is my mantra - this is a long term game.  You can be a goal down and still win,  Where there is risk there is opportunity.

As I say, just my opinion FWIW.

If you aren't too close to retirement then I think it's probably ok to keep on with your strategy and not react other than maybe doing some rebalancing. However, this all underlines the importance of having a cash buffer and an asset allocation that you can live with through market fluctuations. The tricky thing now is the specter of a recession and with so much uncertainty in the world, companies as well as individuals are going to be scared to invest which will hit growth. So I think global markets will be down until there are some policy changes.

All the modelling based on historic experience shows a cash buffer to actually be a costly mistake but if it makes people seep better at night then why not?

Bostonerimus1

michaels said:

Bostonerimus1 said:

MetaPhysical said:

I am not an IFA, I'm an engineer so take what I say with a large pinch of salt.  However, in my view you shouldn't change strategy just because of a slight downturn, even a larger downturn.  Emotion has zero place in investing.  This downturn is not even in the top thirty of "bad periods" in the markets.  All the big companies - with the possible exception of Tesla and its future with Elon - are minting it still and their businesses are sound.  A few downturns are not a bad thing,  The only "bad" thing about a downturn is if you need to crystallise into cash - so don't if you can avoid it.

I de-risked £100k into cash Money Markets inside my pension just before all of this because of the very real and tangible reason that I am retiring next March and so do not want to sell into cash at the bottom of the market.  However, the rest of my DC fund - £500k - I am still continuing to heavily invest in, infact, I have moved more into equities because I do not think there is a fundamental problem.  I get more for the contributions in a downturn.  Sure it may go down more. But it could all explode back up as well when the markets have adjusted to the orange man.

Keep calm and carry on is my mantra - this is a long term game.  You can be a goal down and still win,  Where there is risk there is opportunity.

As I say, just my opinion FWIW.

If you aren't too close to retirement then I think it's probably ok to keep on with your strategy and not react other than maybe doing some rebalancing. However, this all underlines the importance of having a cash buffer and an asset allocation that you can live with through market fluctuations. The tricky thing now is the specter of a recession and with so much uncertainty in the world, companies as well as individuals are going to be scared to invest which will hit growth. So I think global markets will be down until there are some policy changes.

All the modelling based on historic experience shows a cash buffer to actually be a costly mistake but if it makes people seep better at night then why not?

Having money outside the "markets" can be a drag on overall performance, but in the real world, where we have to pay bills and sleep at night, a cash buffer is necessary for most people to have a good retirement. Having done a large amount of modeling for my own retirement, I decided that it was merely a useful exercise that helped me understand the issues. I ultimately rejected the whole DC pension income edifice that developed from changes to 1970s US tax codes and used DB pensions, SP and rental income for retirement.

Hoenir

michaels said:

Bostonerimus1 said:

MetaPhysical said:

I am not an IFA, I'm an engineer so take what I say with a large pinch of salt.  However, in my view you shouldn't change strategy just because of a slight downturn, even a larger downturn.  Emotion has zero place in investing.  This downturn is not even in the top thirty of "bad periods" in the markets.  All the big companies - with the possible exception of Tesla and its future with Elon - are minting it still and their businesses are sound.  A few downturns are not a bad thing,  The only "bad" thing about a downturn is if you need to crystallise into cash - so don't if you can avoid it.

I de-risked £100k into cash Money Markets inside my pension just before all of this because of the very real and tangible reason that I am retiring next March and so do not want to sell into cash at the bottom of the market.  However, the rest of my DC fund - £500k - I am still continuing to heavily invest in, infact, I have moved more into equities because I do not think there is a fundamental problem.  I get more for the contributions in a downturn.  Sure it may go down more. But it could all explode back up as well when the markets have adjusted to the orange man.

Keep calm and carry on is my mantra - this is a long term game.  You can be a goal down and still win,  Where there is risk there is opportunity.

As I say, just my opinion FWIW.

If you aren't too close to retirement then I think it's probably ok to keep on with your strategy and not react other than maybe doing some rebalancing. However, this all underlines the importance of having a cash buffer and an asset allocation that you can live with through market fluctuations. The tricky thing now is the specter of a recession and with so much uncertainty in the world, companies as well as individuals are going to be scared to invest which will hit growth. So I think global markets will be down until there are some policy changes.

All the modelling based on historic experience shows a cash buffer to actually be a costly mistake but if it makes people seep better at night then why not?

What if there's a scenario that's never occured before. Markets have never been so easy to actively trade. The QT era hasn't really begun in earnest yet. As QE wasn't the solution to the GFC. Just the sticking plaster to stop the wound getting infected. As the task in hand was too big to be addressed all at once. 

OldScientist

michaels said:

Bostonerimus1 said:

MetaPhysical said:

I am not an IFA, I'm an engineer so take what I say with a large pinch of salt.  However, in my view you shouldn't change strategy just because of a slight downturn, even a larger downturn.  Emotion has zero place in investing.  This downturn is not even in the top thirty of "bad periods" in the markets.  All the big companies - with the possible exception of Tesla and its future with Elon - are minting it still and their businesses are sound.  A few downturns are not a bad thing,  The only "bad" thing about a downturn is if you need to crystallise into cash - so don't if you can avoid it.

I de-risked £100k into cash Money Markets inside my pension just before all of this because of the very real and tangible reason that I am retiring next March and so do not want to sell into cash at the bottom of the market.  However, the rest of my DC fund - £500k - I am still continuing to heavily invest in, infact, I have moved more into equities because I do not think there is a fundamental problem.  I get more for the contributions in a downturn.  Sure it may go down more. But it could all explode back up as well when the markets have adjusted to the orange man.

Keep calm and carry on is my mantra - this is a long term game.  You can be a goal down and still win,  Where there is risk there is opportunity.

As I say, just my opinion FWIW.

If you aren't too close to retirement then I think it's probably ok to keep on with your strategy and not react other than maybe doing some rebalancing. However, this all underlines the importance of having a cash buffer and an asset allocation that you can live with through market fluctuations. The tricky thing now is the specter of a recession and with so much uncertainty in the world, companies as well as individuals are going to be scared to invest which will hit growth. So I think global markets will be down until there are some policy changes.

All the modelling based on historic experience shows a cash buffer to actually be a costly mistake but if it makes people seep better at night then why not?

To some extent it depends on what you mean by 'cash'. For example, one can think of it as a low duration component of a fixed income holding (in other words it gets rebalanced) or as a separate holding. STMMFs have a maturity/duration of about a month and in the UK try to track the SONIA rate (which may or may not be higher than bond yields). On the other hand, cash (outside of a pension) could equally be held in fixed rate savings accounts to potentially benefit from higher rates.

Some links to research

This one suggests that 'cash' could help when tax and costs are included (note that they used a Monte Carlo solution)
https://www.financialplanningassociation.org/article/journal/SEP13-benefits-cash-reserve-strategy-retirement-distribution-planning

This one shows that holding a cash buffer (consisting of 1 month T-bills) has a negative effect
https://bpb-us-w2.wpmucdn.com/sites.udel.edu/dist/a/855/files/2020/08/Sustainable-Withdrawal-Rates.pdf

FWIW, in retirement I use cash as a component of fixed income to target my required duration (which lies between 1 and 2 years - shorter end when the yield curve is inverted, longer end when it isn't).

MetaPhysical

Bostonerimus1 said:

MetaPhysical said:

I am not an IFA, I'm an engineer so take what I say with a large pinch of salt.  However, in my view you shouldn't change strategy just because of a slight downturn, even a larger downturn.  Emotion has zero place in investing.  This downturn is not even in the top thirty of "bad periods" in the markets.  All the big companies - with the possible exception of Tesla and its future with Elon - are minting it still and their businesses are sound.  A few downturns are not a bad thing,  The only "bad" thing about a downturn is if you need to crystallise into cash - so don't if you can avoid it.

I de-risked £100k into cash Money Markets inside my pension just before all of this because of the very real and tangible reason that I am retiring next March and so do not want to sell into cash at the bottom of the market.  However, the rest of my DC fund - £500k - I am still continuing to heavily invest in, infact, I have moved more into equities because I do not think there is a fundamental problem.  I get more for the contributions in a downturn.  Sure it may go down more. But it could all explode back up as well when the markets have adjusted to the orange man.

Keep calm and carry on is my mantra - this is a long term game.  You can be a goal down and still win,  Where there is risk there is opportunity.

As I say, just my opinion FWIW.

If you aren't too close to retirement then I think it's probably ok to keep on with your strategy and not react other than maybe doing some rebalancing. However, this all underlines the importance of having a cash buffer and an asset allocation that you can live with through market fluctuations. The tricky thing now is the specter of a recession and with so much uncertainty in the world, companies as well as individuals are going to be scared to invest which will hit growth. So I think global markets will be down until there are some policy changes.

Thanks for your commentary and thoughts.  I have a split of about 15% MM cash and 85% equities/bonds still.  Of that 85% the split is 75% equities/25% bonds in a globally diversified mix in funds of 4/7 and 5/7 risk.

The 15% of cash - about £100k - should allow me to ride out 3-4 years of withdrawals - and pay my bills (added to my DB schemes) - without needing to touch the other 85% of equities and bonds and hopefully ride out any market turbulence in that three/four year buffer.  Should there be a spike in the performance of equities and I have spent some of the cash buffer then I might replenish the cash buffer during that spike by selling some more equities to always give me a rolling three year buffer fund to withdraw from.

My intention is not to invest my way to be a multi-millionaire but to live a decent and comfortable retirement with my wife and be able to sleep at night and pay my bills.  I accept some reduced overall performance because of that cash buffer but it serves my purpose and fits in with my plans. And in any rate, I still have that other 85% fully invested.