Timing the market?

Notepad_Phil

Sarahspangles said:

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.

If you've already got a years worth of cash in your STMM then in your position I personally would look at how many units of your fund(s) you sold last year and sell up to the same number of units in those funds again this year; if you sell the same number of units and have a shortfall in cash then use your STMM fund to make up the needed cash.

If there's a big market decline then you're saved from having to sell a much bigger percentage of your funds to make up the cash - though it will obviously only help until your STMM fund runs out, but if it only needs to keep going for 2 and a bit years then you could deal with a 40% decline without too many worries before it runs out.

Bobziz

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...

6 years until retirement. May delay if I'm enjoying working but absolutely wouldn't want to if I'm not.

Cobbler_tone

I’ve always known what my DB will be and projected zero growth on my DC based on my contributions. Now my DC has recently started going ‘south’ (i.e. my pot is being diluted, about 5% in 3 weeks) I have switched to a cash profile to protect it. I assumed a zero growth was risk adverse but maybe not adverse enough if retiring in 12/18 months. The DC is mostly extra income so no damage done really. Since 2021 my DC growth is down to 5-6%.

Storcko14

The way I'm thinking of approaching the 'what to sell question' it is to use a % age above or below the portfolio unit price on a TBD date in the past (I started to calculate unit prices in 2016) to determine what asset type to sell from the start of drawdown.  E.g., if unit price at start is 100 and at first drawdown it's 60 then I'll use STMM.  If it's 120 it'll be equity.  I'm sure there are flaws to this but it doesn't need to be perfect as there are margins.

MK62

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?

The historic modelling I've read suggests that "on average", a retiree would have been better off with a cash buffer about a third of the time......and better off without one the other two thirds. 

That said, you also have to account for "how much better or worse off" you would have been in your own circumstances.......and its going to be different for everyone, as in reality, "on average" has little real meaning to each individual retiree.
For me, the potential of being "worse off" outweighs being "better off", despite the historical statistics suggesting the latter to be more likely.....the potential consequences of the former outweigh any benefit of the latter in my view. Others take a different view on this, but that's fine.....none of us is blessed with any real foresight to know what the future holds.

Roger175

MK62 said:

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?

The historic modelling I've read suggests that "on average", a retiree would have been better off with a cash buffer about a third of the time......and better off without one the other two thirds. 

That said, you also have to account for "how much better or worse off" you would have been in your own circumstances.......and its going to be different for everyone, as in reality, "on average" has little real meaning to each individual retiree.
For me, the potential of being "worse off" outweighs being "better off", despite the historical statistics suggesting the latter to be more likely.....the potential consequences of the former outweigh any benefit of the latter in my view. Others take a different view on this, but that's fine.....none of us is blessed with any real foresight to know what the future holds.

MK62

Spot on!  I note that you use specifically refer to 'a retiree'. Many of the contributors on this discussion are not yet retirees and all I can say as somebody without the comfort of a DB backup, is that entering retirement changes your outlook a little. As I've said before, in my case I feel I have sufficient for a comfortable retirement so why on earth would I want to remain fully invested in equities (and particularly US equities, which I consider over valued) and all the stress that goes with that, when I can shift some of it into STMM funds and sit back and get a guaranteed inflation beating %. Far from getting out of equities (I haven't), I've simply significantly reduced my holding in those that I feel uncomfortable with.

Triumph13

There is an important distinction that needs to be made here.  On the one hand we have changing your asset allocation because you consider overall markets to be currently overvalued - which looks, walks and quacks like market timing. 

On the other hand, you have moving to a more conservative asset allocation because your personal portfolio has appreciated so much you can afford to.  That can be a perfectly sensible de-risking approach for someone (usually a retiree) who has already won the game and now has less interest in chasing even more.

OldScientist

Roger175 said:

MK62 said:

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?

The historic modelling I've read suggests that "on average", a retiree would have been better off with a cash buffer about a third of the time......and better off without one the other two thirds. 

That said, you also have to account for "how much better or worse off" you would have been in your own circumstances.......and its going to be different for everyone, as in reality, "on average" has little real meaning to each individual retiree.
For me, the potential of being "worse off" outweighs being "better off", despite the historical statistics suggesting the latter to be more likely.....the potential consequences of the former outweigh any benefit of the latter in my view. Others take a different view on this, but that's fine.....none of us is blessed with any real foresight to know what the future holds.

MK62

Spot on!  I note that you use specifically refer to 'a retiree'. Many of the contributors on this discussion are not yet retirees and all I can say as somebody without the comfort of a DB backup, is that entering retirement changes your outlook a little. As I've said before, in my case I feel I have sufficient for a comfortable retirement so why on earth would I want to remain fully invested in equities (and particularly US equities, which I consider over valued) and all the stress that goes with that, when I can shift some of it into STMM funds and sit back and get a guaranteed inflation beating %. Far from getting out of equities (I haven't), I've simply significantly reduced my holding in those that I feel uncomfortable with.

Without wanting to disagree with much of what you have said, can I quibble about the word guaranteed in 'get a guaranteed inflation beating %' with STMMF - while this is currently true, it has not necessarily been true historically (including the very recent past - IIRC I managed to get a 6.5% rate for a cash account and SONIA was about 2.2% while CPIH was nearly 10% and RPI a shade over 14% a couple of years ago) and won't necessarily be true in the future.

Hoenir

Roger175 said:

 when I can shift some of it into STMM funds and sit back and get a guaranteed inflation beating %. 

Any trade that's too good to be true soon gets swallowed up. Unfortunately investing at times does become challenging. Hence the rewards if one makes the right choices. Lounging around in deck chairs is not advisable. 

michaels

MK62 said:

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?

The historic modelling I've read suggests that "on average", a retiree would have been better off with a cash buffer about a third of the time......and better off without one the other two thirds. 

That said, you also have to account for "how much better or worse off" you would have been in your own circumstances.......and its going to be different for everyone, as in reality, "on average" has little real meaning to each individual retiree.
For me, the potential of being "worse off" outweighs being "better off", despite the historical statistics suggesting the latter to be more likely.....the potential consequences of the former outweigh any benefit of the latter in my view. Others take a different view on this, but that's fine.....none of us is blessed with any real foresight to know what the future holds.

I tend to look at avoiding a worst case scenario of running out of money and what the highest real terms income consistent with that is and in this case my understanding is that a cash pot of whatever duration gives a lower 'never fails' income than not having one - although of course I guess there are a million ways of executing a cash pot depending on rebalancing rules.