Timing the market?

michaels

But logically either you need a buffer or you don't. If you need it then you need to rebalance to maintain it so you are still selling equities that you have decided are 'worth more than the current market value'

For example if after 4 or however many years do you replenish another 4 year buffer at whatever the level of equities then or is a cash buffer no longer part of your strategy at that point?

SVaz

How’s having cash/ a cash equivalent going to be a mistake if you are going to spend that cash within a certain time frame? 

What abject nonsense. 

Losing half in a crash by being greedy/ arrogant is a far bigger mistake, no? 

Sarahspangles

michaels said:

But logically either you need a buffer or you don't. If you need it then you need to rebalance to maintain it so you are still selling equities that you have decided are 'worth more than the current market value'

For example if after 4 or however many years do you replenish another 4 year buffer at whatever the level of equities then or is a cash buffer no longer part of your strategy at that point?

This is me. I moved enough for one year’s pension income to a STMM last May, 12-18 months out from needing to draw it. Plan A was to do the same this Spring so there’s always a year’s worth in hand, a year in advance, derisked.

But should I actually plan to take my pension income from sale of any fund that’s outperformed the STMM since I bought it, and just leave the existing STMM fund to fester in case of a bigger fall in markets?

I only have this quandary for two-and a-half years until my first db pension starts, at which point I don’t have to factor in the need to draw on my SIPP to ensure I get the benefit of my personal allowance.

MetaPhysical

michaels said:

But logically either you need a buffer or you don't. If you need it then you need to rebalance to maintain it so you are still selling equities that you have decided are 'worth more than the current market value'

For example if after 4 or however many years do you replenish another 4 year buffer at whatever the level of equities then or is a cash buffer no longer part of your strategy at that point?

No.  My plan is to maintain a cash buffer of three years worth of spend from the DC pot whilst the large majority remains invested. I concede that three years of cash is a lot and maybe I will revise that downward in due course as my confidence - hopefully - improves.  The reason is to keep that cash that I need de-risked from market turbulence and the seemingly endless geo-political headwinds nowadays.

Bostonerimus1

michaels said:

But logically either you need a buffer or you don't. If you need it then you need to rebalance to maintain it so you are still selling equities that you have decided are 'worth more than the current market value'

For example if after 4 or however many years do you replenish another 4 year buffer at whatever the level of equities then or is a cash buffer no longer part of your strategy at that point?

You might be selling bonds or replenishing the cash with dividends, there's more to a Total Return strategy than just selling equities. A cash and short term bond holding acts as a capacitor that smoothes out the variations in your portfolio and allows you to take cash from a fairly stable source when needed. There is obviously an element of market timing in deciding to spend from a cash buffer rather than equities and bonds and the pure in heart will want to do without the cash buffer and just plough ahead with an index linked SWR. However, that takes a lot of faith and such plans are often abandoned when they meet reality. All these uncertainties are why the UK once relied on SP, DB pensions and annuities and I think there is a lot to be said for life time guaranteed income as part of a retirement portfolio.

Triumph13

pterri said:

Moonwolf said:

SouthCoastBoy said:

I don't really understand the concern about the current market volatility, it is to be expected, there are always bumps in the road. If your portfolio can't withstand a 30% drop and not recover for at least 10 years I would argue you don't have the financial resilience to retire just yet.

Personally I am more impacted as I am retiring two weeks tomorrow.

I have run multiple scenarios and I should be better off than many, even on a 1929 scale crash, although I would have to make adjustments. 

It is just that starting drawdown, particularly at a temporarily unsustainable rate, as I am bridging to my DB and state pensions, is more uncomfortable after a fall in the market.

Im exactly in this place. May 27th and three years to bridge to DB. I’ve plenty of headroom but very annoying! 

It's precisely because of this type of situation that I have always disliked 'single pot' approaches.  So many people seem to have chosen strategies where they draw a high percentage for a few years, then reduce to a sustainable level once DB and/or DC come on line.  That really magnifies your exposure to SORR.

Personally, I have a separate bridging pot, wholly in cash now, to do the bridging.  My long term income pot is then 90%+ equities and I can afford to have that income fluctuate precisely because I have a good floor of fixed income / cash.  It can be hard psychologically to do it this way.  You are so clearly earmarking a big chunk of capital to be spent in the bridging period, rather than just secretly hoping your portfolio manages to sustain an 'unsustainable' withdrawal rate in the short term.  It's a whole lot safer though when a bad SOR bites you in the bum.

Bobziz

I'm attracted to the bridging pot approach, question I'm pondering is how long before retirement to construct such a pot 🤔

Triumph13

Bobziz said:

I'm attracted to the bridging pot approach, question I'm pondering is how long before retirement to construct such a pot 🤔

That largely comes down to how prepared you are to delay retirement if markets go South...

Hoenir

Triumph13 said:

Bobziz said:

I'm attracted to the bridging pot approach, question I'm pondering is how long before retirement to construct such a pot 🤔

That largely comes down to how prepared you are to delay retirement if markets go South...

Or take many years to recoup losses. There's more than one market. Some investors are likely to be unaware of the risks they are exposed too.

michaels

I plan to bridge DB and SP income using a fixed term RPI annuity or index linked gilts ladder.  I should have had this in place sooner but did not.

But this is a different issue to 'timing the market' by varying the proportions of 'cash', bonds and equities dependent on 'recent' market performance.  The latter requires some sort of judgement about whether the current equity valuation is 'high' or 'low' which implies that the person making the decision thinks they have more information than the average market participant....