Timing the market?

MK62

michaels 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.

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 

....but that's not the case all the time. 
Granted, it gets complicated, and it depends on what exactly you define as "cash buffer".......eg, how do you classify a gilt ladder?

Ultimately though, generally speaking, a cash buffer is not about maximising income, but more about smoothing the variation of income which is otherwise inevitable when that income is supplied by volatile assets. Personally, I want to be able to plan things for a few years into the future, and not worry too much about whether the income will actually be there to support those plans.
Fair enough, a retiree in drawdown with a 50-50 equity/fixed income portfolio might have little need for a cash buffer......and employing one might cost some......but you also need to consider how much the 50-50 portfolio might have cost in terms of returns that the retiree never got.

Personally find it strange that the cash buffer approach is derided as being a potential drag on performance......but an eg 50-50 portfolio allocation is not, despite historical statistics which say otherwise. In fact, a 100% equity portfolio is statistically most likely to deliver the maximum income........but I'll wager few will risk that in, or approaching, drawdown.

Sarahspangles

MK62 said:

Personally find it strange that the cash buffer approach is derided as being a potential drag on performance......but an eg 50-50 portfolio allocation is not, despite historical statistics which say otherwise. In fact, a 100% equity portfolio is statistically most likely to deliver the maximum income........but I'll wager few will risk that in, or approaching, drawdown.

When people talk about their own portfolios it’s sometimes unclear to me whether they’re just focusing on the allocation within pension wrappers. The standard advice is usually to build an emergency fund in something like easy access savings before starting to build a pension. Presumably at a certain age you can shift some or all of this into a pension wrapper because it will still be accessible to you. So when people say they are 100% equities, I wonder where their emergency fund is and if that’s still in cash.

It’s on my mind because I currently hold cash in savings and have a STMMF (currently ‘as good as cash’) in my SIPP and I’m wondering if I need both.

kempiejon

I don't know about what everyone else says/does but my emergency fund is quite separate to my pension planning. The EF is to bail me out in an emergency and a few months worth of income is about enough. I accumulate cash savings for big expected events like holidays, moving, new teeth, Christmas, whatever. I do personal finance planning that isn't related to retirement really. I have access to cheap credit for regular spending and keep savings for expected expenses and emergencies

My early retirement plan was all equity, initially to build a big enough income stream from my ISA, (all individual stock picks) to support my basic lifestyle; that would give me freedom about work choices. I had a few jobs with DC pensions I picked global funds, no life-styling. Eventually I gathered all the accumulated pensions from various employments into a SIPP where I settled on a spread of global exUk ETFs with 5% bonds/gold. I did not maximise my pension contributions as I wanted access to my money before 55 so filled ISAs first.
I am at around my highest gilt/gold/bond proportion currently, gold has risen, I parked cash when gilts looked good value and there are some good picks in fixed interest to find. My proportion of equity has always been high, recently it's drifted down towards 85%. 
A cash/cash like buffer of 3 years of anticipated retirement income to mitigate sequence of returns risk is the number I settled on. Premium bonds and short dated gilts in unsheltered accounts; ISA/SIPP have some corporate bonds, preference shares and conventional/index linked gilts.

Sarahspangles

kempiejon said:

I don't know about what everyone else says/does but my emergency fund is quite separate to my pension planning. The EF is to bail me out in an emergency and a few months worth of income is about enough. I accumulate cash savings for big expected events like holidays, moving, new teeth, Christmas, whatever. I do personal finance planning that isn't related to retirement really. I have access to cheap credit for regular spending and keep savings for expected expenses and emergencies

My early retirement plan was all equity, initially to build a big enough income stream from my ISA, (all individual stock picks) to support my basic lifestyle; that would give me freedom about work choices. I had a few jobs with DC pensions I picked global funds, no life-styling. Eventually I gathered all the accumulated pensions from various employments into a SIPP where I settled on a spread of global exUk ETFs with 5% bonds/gold. I did not maximise my pension contributions as I wanted access to my money before 55 so filled ISAs first.
I am at around my highest gilt/gold/bond proportion currently, gold has risen, I parked cash when gilts looked good value and there are some good picks in fixed interest to find. My proportion of equity has always been high, recently it's drifted down towards 85%. 
A cash/cash like buffer of 3 years of anticipated retirement income to mitigate sequence of returns risk is the number I settled on. Premium bonds and short dated gilts in unsheltered accounts; ISA/SIPP have some corporate bonds, preference shares and conventional/index linked gilts.

That’s interesting - and also makes me wonder if I need to budget for dental costs, I’ve already got a ‘big filling’ appointment on my first day as a retiree!

I think I need something more like a playbook so I know which pot I would dip in to in different scenarios. 

Cobbler_tone

Sarahspangles said:

kempiejon said:

I don't know about what everyone else says/does but my emergency fund is quite separate to my pension planning. The EF is to bail me out in an emergency and a few months worth of income is about enough. I accumulate cash savings for big expected events like holidays, moving, new teeth, Christmas, whatever. I do personal finance planning that isn't related to retirement really. I have access to cheap credit for regular spending and keep savings for expected expenses and emergencies

My early retirement plan was all equity, initially to build a big enough income stream from my ISA, (all individual stock picks) to support my basic lifestyle; that would give me freedom about work choices. I had a few jobs with DC pensions I picked global funds, no life-styling. Eventually I gathered all the accumulated pensions from various employments into a SIPP where I settled on a spread of global exUk ETFs with 5% bonds/gold. I did not maximise my pension contributions as I wanted access to my money before 55 so filled ISAs first.
I am at around my highest gilt/gold/bond proportion currently, gold has risen, I parked cash when gilts looked good value and there are some good picks in fixed interest to find. My proportion of equity has always been high, recently it's drifted down towards 85%. 
A cash/cash like buffer of 3 years of anticipated retirement income to mitigate sequence of returns risk is the number I settled on. Premium bonds and short dated gilts in unsheltered accounts; ISA/SIPP have some corporate bonds, preference shares and conventional/index linked gilts.

That’s interesting - and also makes me wonder if I need to budget for dental costs, I’ve already got a ‘big filling’ appointment on my first day as a retiree!

I think I need something more like a playbook so I know which pot I would dip in to in different scenarios. 

Cars, pets, medical (either BUPA or underwriting, undecided yet) and dental are a big part (probably the biggest part) of my future budgeting. Far, far more than running the house anyway.
My NHS dentist (I was lucky for 50+ year) is suddenly no longer NHS. Regardless I have a £10k budget to get a few 'Turkey teeth'...which I will definitely not be going to Turkey for!  

Bostonerimus1

Cobbler_tone said:

Sarahspangles said:

kempiejon said:

I don't know about what everyone else says/does but my emergency fund is quite separate to my pension planning. The EF is to bail me out in an emergency and a few months worth of income is about enough. I accumulate cash savings for big expected events like holidays, moving, new teeth, Christmas, whatever. I do personal finance planning that isn't related to retirement really. I have access to cheap credit for regular spending and keep savings for expected expenses and emergencies

My early retirement plan was all equity, initially to build a big enough income stream from my ISA, (all individual stock picks) to support my basic lifestyle; that would give me freedom about work choices. I had a few jobs with DC pensions I picked global funds, no life-styling. Eventually I gathered all the accumulated pensions from various employments into a SIPP where I settled on a spread of global exUk ETFs with 5% bonds/gold. I did not maximise my pension contributions as I wanted access to my money before 55 so filled ISAs first.
I am at around my highest gilt/gold/bond proportion currently, gold has risen, I parked cash when gilts looked good value and there are some good picks in fixed interest to find. My proportion of equity has always been high, recently it's drifted down towards 85%. 
A cash/cash like buffer of 3 years of anticipated retirement income to mitigate sequence of returns risk is the number I settled on. Premium bonds and short dated gilts in unsheltered accounts; ISA/SIPP have some corporate bonds, preference shares and conventional/index linked gilts.

That’s interesting - and also makes me wonder if I need to budget for dental costs, I’ve already got a ‘big filling’ appointment on my first day as a retiree!

I think I need something more like a playbook so I know which pot I would dip in to in different scenarios. 

Cars, pets, medical (either BUPA or underwriting, undecided yet) and dental are a big part (probably the biggest part) of my future budgeting. Far, far more than running the house anyway.
My NHS dentist (I was lucky for 50+ year) is suddenly no longer NHS. Regardless I have a £10k budget to get a few 'Turkey teeth'...which I will definitely not be going to Turkey for!  

I've found dental work to be increasingly necessary as I age. I've had quite a few crowns and a couple of root canals so it's important to plan for such inevitable "decay". In the US all dentists are "private", but if you can pay then access is very quick and the service is good. I'm lucky enough to have dental insurance which pays half of my bill; a recent crown cost $2000 and I paid $1000, but for many people that is just too much.

michaels

MK62 said:

michaels 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.

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 

....but that's not the case all the time. 
Granted, it gets complicated, and it depends on what exactly you define as "cash buffer".......eg, how do you classify a gilt ladder?

Ultimately though, generally speaking, a cash buffer is not about maximising income, but more about smoothing the variation of income which is otherwise inevitable when that income is supplied by volatile assets. Personally, I want to be able to plan things for a few years into the future, and not worry too much about whether the income will actually be there to support those plans.
Fair enough, a retiree in drawdown with a 50-50 equity/fixed income portfolio might have little need for a cash buffer......and employing one might cost some......but you also need to consider how much the 50-50 portfolio might have cost in terms of returns that the retiree never got.

Personally find it strange that the cash buffer approach is derided as being a potential drag on performance......but an eg 50-50 portfolio allocation is not, despite historical statistics which say otherwise. In fact, a 100% equity portfolio is statistically most likely to deliver the maximum income........but I'll wager few will risk that in, or approaching, drawdown.

I am fine with the idea of 'cash' being part of an asset mix to reduce volatility/avoid correlated returns. 

What I don't get is this thought that it forms a pot that will be drawn on in certain 'not well defined' periods when you 'decide' that equity valuations are in some way 'low'.  Can you explain how you make such a call and that if you are in a situation where you are basically deciding that your asset allocation should move more to equities (this is what drawing cash from a cash pot will do), how you are deciding that your new mix is only adjusted by the rate of your draw down - by your own logic, there will be circumstances when you want to shift out of cash into equities (when you are drawing from the cash buffer) but you are also saying in those times it is only to a limited degree that you are backing equities because the change in asset mix is limited by your rate of draw down.

And that is even before you define the circumstances in which you move your asset mix the other way or 'replenish the cash buffer' as you would refer to it.

DRS1

Well I have just given instructions to sell my UK Equity Tracker and Mixed Fund (60% equities) in my pension.  So starting Wednesday you can expect equities to go soaring to the Moon.  Just avoid normal gilts (which is where I have put most of the proceeds)

I am not going to do drawdown - it would make me too nervous.  But I had always imagined that when you went into drawdown you would switch investments to income producing assets like High yield shares bonds prefs PIBS and so on and then try to just draw the income while preserving the capital.  So your cash pot would just be where you put the dividends and interest payments until you drew them out of the pension.

kinger101

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 think that's the key really isn't it.  I wouldn't be that disappointed if I had to eat rump instead of ribeye.  But if I had to eat luncheon meat fritters...

Sunnylifeover50plan

Spam fritters are so unloved these days.