Anyone in high equity allocation whilst retired?

MetaPhysical

How do you guys hold your cash?  Inside a MM fund within the pension wrapper or withdrawn from the pension completely and in a cash ISA, etc ? There's still some risk - albeit tiny - even in a MM fund.  Life's not without risk though....
EDIT: meant to say that I have no wish to pass any of my pension to my daughters, they have been provided for elsewhere.  This money is for me for living expenses and to blow on stuff me and (soon-to-be) Mrs MetaPhysical want to do.

Sarian

I'm in the process of doing similar...1/3 in DB and State Pension 2/3 in funds but I'm mid-sixties. Looking to have 2years income in cash (for downturn) and then try to move funds to cash when market is above trend to avoid crystallising losses/poor performance. Of course guessing when market is above trend is the challenge!

MetaPhysical

Sarian said:

I'm in the process of doing similar...1/3 in DB and State Pension 2/3 in funds but I'm mid-sixties. Looking to have 2years income in cash (for downturn) and then try to move funds to cash when market is above trend to avoid crystallising losses/poor performance. Of course guessing when market is above trend is the challenge!

Indeed.
I really need growth of about 5-6 % ideally to prevent withering away the capital.  My plan is that at any time growth is over 5% for the year (hope springs eternal!), I will cream off the excess into the cash buffer.  That means on good years I can grow the equity pot a bit as well as the cash buffer.  If there is less than 2% growth I will leave the equities alone that year and live off of the cash to avoid damage to the equities pot.  There is no science behind that lower percentage - just a gut feel.  Of course, plenty of unknowns and a lot of damage could be done by a run of 4-5 bad years.  However, we'd all be screwed in that situation.

kempiejon

I hold some cash in my stocks and shares ISAs and in my SIPPs.
Unsheltered cash can cause a liability, with comparitively high interest rates and small allowances, for tax payers. For unsheltered cash-like I use premium bonds, prizes are tax free and short-dated low-coupon gilts trading below par, to minimise interest as capital gains on UK gilts are tax free.

Hoenir

MetaPhysical said:

Sarian said:

I'm in the process of doing similar...1/3 in DB and State Pension 2/3 in funds but I'm mid-sixties. Looking to have 2years income in cash (for downturn) and then try to move funds to cash when market is above trend to avoid crystallising losses/poor performance. Of course guessing when market is above trend is the challenge!

 Of course, plenty of unknowns and a lot of damage could be done by a run of 4-5 bad years.  

Far from unusual. If the portfolio is weighted towards the underperfoming market sector. Then can be a drawn out wait just to return back to the previous high. Hence why portfolio management theory has historically used bonds to dampen and smooth out equity market volatility. 

ali_bear

I'm not saying there is anything wrong with holding a cash cash or other less-volatile buffer in case of poor market valuations. But if you try to keep this buffer at a fixed level you are still faced with selling equities to keep it filled. And that money is less able to benefit from the steady market growth in equities in other less unsavoury times. 

Why not just think of it as deaccumulation, the reverse of accumulation. Keep it all in equities and sell them at a steady rate for income despite the market upturns and downturns. OK maybe tighten your belt and sell fewer during market downturns. 

phlebas192

We're a little over 85% in equities, mostly investment trusts with strong track records for paying dividends. Of the rest, 6% is in gilts (held within a SIPP) and the rest is in cash (premium bonds and easy access savings accounts).

I've got a modest DB pension and the dividends are more than sufficient to meet the rest of our normal spending. The cash is there as much to cover large purchases as anything else, but if necessary could meet over 3 years of spending.

MetaPhysical

I've built on paper the portfolio I think would meet my objectives from discrete funds and ETF's.  I'm starting to think though that rather than trying to be "too" clever, to just use an off the shelf fund such as Vanguard LifeStrategy 80 with its 0.22 charge where all the heavy lifting has been done and has a track record of performance.

kempiejon

MetaPhysical said:

I've built on paper the portfolio I think would meet my objectives from discrete funds and ETF's.  I'm starting to think though that rather than trying to be "too" clever, to just use an off the shelf fund such as Vanguard LifeStrategy 80 with its 0.22 charge where all the heavy lifting has been done and has a track record of performance.

One could DIY a 80:20 and avoid lifestrategy's home bias with a blend of 70% vanguard developed etf VEVE, 10% Vanguard Emerging markets VFEM and 20% Vanguard bonds perhaps VGOV or VAGP. Should halve the fee, there might be some need to rebalance occasionally but not often.

leosayer

I was 100% equities and relatively comfortable with this because my wife and I had DB pensions that would provide enough for all our basic spending needs.

However once we got to within 2-3 years of our planned retirement, I started to feel less comfortable and started buying short-term gilt and money market funds. They now make up 35% of our investments with the remainder being global equity index funds. I now feel much more comfortable and if a large unexpected expense arises (which it has) then we're not at risk of selling depressed equities.

The main questions you have to ask yourself with a high equity allocation are:

1. How will you deal with a prolonged equity bear market early in your retirement?

My answer to this is that we would have spent less and had a less enjoyable first few years, which is something I wasn't willing to compromise on. Who knows how many healthy years we have left?

2. Do you actually need such a high allocation to meet your retirement spending needs?

My answer to this is no, so I didn't see the point of adding stress for no real need.