My pension investment strategy S&P500. Wise or foolish ?

kempiejon

Roger175 said:

Your strategy would scare the hell out of me. Arguably the S&P500 is in a bubble (huge debate on this and not wishing to get into it here), but given the current high, I would be minded to sell some of my holding and diversify. 

Nobody ever went broke taking a profit, the S&P is off of the all-time highs having fallen about 5% in 6 months but up 300% in a decade or so.
I'd say being all in America is taking some risk above holding say Vanguard's global VWRL/P however that's been a good strategy for a decade or so. My portfolio has S&P below 40% so I'm taking a risk over holding that same global ETF.
Roger if it was handed to you to manage today how much would you be selling down and where to redirect? Just other stock markets or other classes too?

sgx2000

I am shortly going to move my pension into a sipp.
My daily needs are met (or will be met in 9 months) by a DB pension and the SP

I have a small (by this fourums standard) £150K pot with Aviva that I am probably moving to a SIPP and probably  FTSE All-World UCITS ETF (VWRL)
Possibly then taking 25% TFLS into my ISA over the next 2 years

For me. 
The future looks very murky at the moment...
(Yes, I know, many people will say I am being too negative)

Stock market, long term crash (over 10 years)?
A.I. influence on the world economy? (Who knows what will happen)
Probable Universal Basic Income.... ?

Roger175

kempiejon said:

Roger175 said:

Your strategy would scare the hell out of me. Arguably the S&P500 is in a bubble (huge debate on this and not wishing to get into it here), but given the current high, I would be minded to sell some of my holding and diversify. 

Nobody ever went broke taking a profit, the S&P is off of the all-time highs having fallen about 5% in 6 months but up 300% in a decade or so.
I'd say being all in America is taking some risk above holding say Vanguard's global VWRL/P however that's been a good strategy for a decade or so. My portfolio has S&P below 40% so I'm taking a risk over holding that same global ETF.
Roger if it was handed to you to manage today how much would you be selling down and where to redirect? Just other stock markets or other classes too?

Kempiejon

From what I can see the S&P500 is very much at an all-time high at the moment, an ideal time to take a profit. https://www.google.com/finance/quote/.INX:INDEXSP?hl=en&window=5Y

Regards your other question, that's a very difficult one to answer. It's not my money and I am in a different position to the OP. I have recently retired and concluded that I have sufficient investments to live out my time comfortably, what I can't afford is a large loss (sequencing risk right at the start of retirement), for that reason I sold a large chunk of my USA exposure last Autumn and am currently holding about 25% of my total in STMM funds - I did spend some of this buying in April (the tariff dip) and have seen some substantial gains on these purchases and I will be buying when the next crash/correction comes along, in the meantime, I am happy trying to just keep apace or hopefully a little ahead of inflation.

I have a large chunk of my investments (c30% O/A) in a portfolio of individual company high yield shares. This well diversified portfolio of mainly FTSE100 companies is intended as a sort of annuity alternative. The portfolio pays around 5% in dividends, but I'm not giving up any capital to achieve this. We're currently living on savings and my wife's small DB pension, so all dividends are reinvested and the recent purchases were top-ups of shares in this portfolio. In due course, the dividends will be used as income to cover living expenses. 

The rest of my investments are dotted around here and there, all well diversified, some 60/40 mixed asset funds, some global trackers, a little in Japan & China - a real mixture really, but certainly well diversified which for me is key.

Cobbler_tone

I have no idea what I am doing (!) and have 60% in the target date fund and 40% in UK equities. I feel as though I am doing 'something' (good or bad!), as opposed to the vast, vast majority who will be 100% in their target date fund.
It is working out OK at the moment. When I retire next year I will have to decide where to place it to drawdown. The bulk of my retirement plan is DB and the DC will be to convert to cash over a 5-6 year period in the most tax efficient way.
On the positive side our company shares have hit an important benchmark of around 400% growth since the point of purchase. Around a 700% net growth, so a good selling day, although you can always hold off for a 'bit more'.

Exodi

Cobbler_tone said:

I have no idea what I am doing (!) and have 60% in the target date fund and 40% in UK equities. I feel as though I am doing 'something' (good or bad!), as opposed to the vast, vast majority who will be 100% in their target date fund.
It is working out OK at the moment. When I retire next year I will have to decide where to place it to drawdown. The bulk of my retirement plan is DB and the DC will be to convert to cash over a 5-6 year period in the most tax efficient way.
On the positive side our company shares have hit an important benchmark of around 400% growth since the point of purchase. Around a 700% net growth, so a good selling day, although you can always hold off for a 'bit more'.

What platform out of interest, as the Vanguard Target Retirement 2030 Fund (for example) already feature a large home bias.  As of the end of last month, it was made up of the following:

Global Bond Index Fund GBP Hedged Acc	19.4%
FTSE Developed World ex-U.K. Equity Index Fund GBP Acc	19.3%
U.S. Equity Index Fund GBP Acc	12.2%
FTSE U.K. All Share Index Unit Trust GBP Acc	11.3%
U.K. Government Bond Index Fund GBP Acc	8.3%
Global Aggregate Bond UCITS ETF GBP Hedged Accumulating	8.0%
Emerging Markets Stock Index Fund GBP Acc	4.8%
FTSE North America UCITS ETF (USD) Accumulating	4.0%
U.K. Investment Grade Bond Index Fund GBP Acc	3.8%
FTSE 100 UCITS ETF (GBP) Accumulating	3.7%
FTSE Developed Europe ex-U.K. Equity Index Fund GBP Acc	2.9%
Japan Stock Index Fund GBP Acc	1.5%
Pacific ex-Japan Stock Index Fund GBP Acc	0.7%

As you can see and as I've bolded, the UK makes up ~27.1% of this fund.

If you combine this with the other 40% of your fund that is invested in UK equities, then it means ~56.3% of your total portfolio is invested in the UK (well technically you could argue that many of these UK companies do business abroad, but that would apply vice versa). In comparison, the UK makes up about 3.4% of global market captilisation so a significant difference.

You may be aware and have made the decision to include this large UK bias in your portfolio - only raising it as I've seen countless people totally oblivious to the fact the Vanguard Target Retirement and LifeStrategy funds typically include a large (~25%) home bias.

Pat38493

To clarify the points above about S&P 500 being at an all time high, check DunstonH post about FX and sterling.

The S&P 500 in US dollar has hit an all time high closing several times in the last week, including even yesterday I think - it closed above 6300 for the first time this week.

However, the US dollar was getting weaker against the pound this year, so when you see your S&P 500 balance in sterling, it is not an all time high - the all time high for this was around January / February this year.

From what I have read, there is a lot of expectation (hope?) of future growth from topics like AI built into the valuations of the largest S&P500 companies right now.  If you look at the price of the shares compared to the actual profits the companies have been making recently, they look expensive.

Personally I am mostly in global trackers with a small tilt to emerging markets and global small cap.  If I had more time to research it I would probably have a bit in small cap value funds, but these seem to be hard to come by unless you are in IFA - many of the funds in this area are only available to IFAs.

Bostonerimus1

Even Americans don't put all their money into the S&P. It's very dangerous to look at return in isolation and forget about volatility and risk. Also you have currency variation to consider. So read the vast amount of literature about asset allocation and portfolio construction or just invest in a multi-asset fund like one of the VLSxx series.

kempiejon

Roger175 said:

Kempiejon

From what I can see the S&P500 is very much at an all-time high at the moment, an ideal time to take a profit. https://www.google.com/finance/quote/.INX:INDEXSP?hl=en&window=5Y

Regards your other question, that's a very difficult one to answer. 

You are right, I had plugged VUSA the vanguard S&P ETF as a proxy for the index as it's in my portfolio. That showed a high around 93 in Jan compared to 88 today but I had overlooked currency.

As to my other question diversifying away from USA being the top line; your comprehensive reply looks at other risks and assets and as you note is your personal plan.

Cobbler_tone

Exodi said:

Cobbler_tone said:

I have no idea what I am doing (!) and have 60% in the target date fund and 40% in UK equities. I feel as though I am doing 'something' (good or bad!), as opposed to the vast, vast majority who will be 100% in their target date fund.
It is working out OK at the moment. When I retire next year I will have to decide where to place it to drawdown. The bulk of my retirement plan is DB and the DC will be to convert to cash over a 5-6 year period in the most tax efficient way.
On the positive side our company shares have hit an important benchmark of around 400% growth since the point of purchase. Around a 700% net growth, so a good selling day, although you can always hold off for a 'bit more'.

What platform out of interest,

If you combine this with the other 40% of your fund that is invested in UK equities, then it means ~56.3% of your total portfolio is invested in the UK (well technically you could argue that many of these UK companies do business abroad, but that would apply vice versa). In comparison, the UK makes up about 3.4% of global market captilisation so a significant difference.

You may be aware and have made the decision to include this large UK bias in your portfolio - only raising it as I've seen countless people totally oblivious to the fact the Vanguard Target Retirement and LifeStrategy funds typically include a large (~25%) home bias.

I am happy with where it is and like I said the vast majority of employees won't have logged on to look at the alternative funds, let alone consider changing from this default tied to their retirement date. i.e. they are 100% in this one below and their relevant retirement date. I would imagine this also applies to the majority of workplace pensions up and down the country.
My plan assumes zero growth on my investment but would prefer not for it to drop. It only take a couple of days for anything to switch over. Ultimately if £150k became £100k it wouldn't impact on my retirement plan but would prefer to get back the value which has gone in, who wouldn't? Next year I will want to take the risk out of it, purely so I know what I am getting over the next x years, so might buy a fixed term annuity. It won't be a lifetime one. As it is an important time for me (in relation to my upcoming retirement and amount I am paying in...the last 4 months will be 70% of salary, it suddenly becomes a little more emotive) I'm ready to switch to the lowest risk fund, which appears to be 'cash'. 

The TDF has grown 7.13% in 12 months, the UK equity 12.61%.

I had similar conversations regarding risk and reward today. I am regularly selling company shares when they become tax free and others hold onto them....waiting for what I am not sure. I guess it adds to the retirement pot for some. I save mine (when sold) for my children. They are up 29% YTD, 36% 1 yr, 53% 2 yr, 141% 5 yr, 2000% all time etc. My view is "what are you waiting for?" and that there is a long way down! 
The trouble with holding onto them for retirement is that if you want them tax free you are tied to the price on the day you retire. Unless you want them in your name and what to play around with CGT, fees etc. 
I see it as a pragmatic bet, you need to know when to cash out!

cockerWalker

kempiejon said:

Roger175 said:

Your strategy would scare the hell out of me. Arguably the S&P500 is in a bubble (huge debate on this and not wishing to get into it here), but given the current high, I would be minded to sell some of my holding and diversify. 

Nobody ever went broke taking a profit, the S&P is off of the all-time highs having fallen about 5% in 6 months but up 300% in a decade or so.
I'd say being all in America is taking some risk above holding say Vanguard's global VWRL/P however that's been a good strategy for a decade or so. My portfolio has S&P below 40% so I'm taking a risk over holding that same global ETF.
Roger if it was handed to you to manage today how much would you be selling down and where to redirect? Just other stock markets or other classes too?

Couldn't agree more. Anyone who's been heavily into US tech for last decade has done very well, but I'd be surprised if it continues indefinitely. Worth having a look at cyclically adjusted price earnings if unfamiliar, where s&p 500 at pretty much an all time high https://en.m.wikipedia.org/wiki/Cyclically_adjusted_price-to-earnings_ratio

I have been deliberately reducing US exposure, down to 33% of ISA and (so far) 45% pension.
My biggest single holding is a msci all country world tracker, with additional emerging markets, uk, and European holdings.