Late 2025 low risk changes to ISA and SIPP

Altior

Can you elaborate on the 'mood music shifting' ?

I'd argue US equities are irrational, but have been for a significant amount of time. Of course, the US dominates global equities. 

I guess we had a preview of what things might look like in the fallout when it comes, around the peak of when the media was creating panic around US tariffs. I was reasonably happy to increase my UK exposure at that point, as I could see why it was happening, and I've de-risked again. In other words, I had a strategy. Not claiming my strategy was right, or that I'm wiser than anyone else, and it could easily have gone wrong. However I feel like there needs to be some rationality to the strategy, rather than listening to others (whom mostly will have an agenda). 

When the US catches a cold, everyone else will (again, demonstrated around the engineered peak tariff panic). 

The underlying reason for the question in my top line, is that I feel you should have your reasoning why you would de-risk, and then return to risk on.

InvesterJones

solidpro said:

I understand what you're saying @TheTelltaleChart. I think my nuance is that many in their 40s or 50s will essentually have a similar plan to me/us, which is to feed lots into a SIPP at high risk/return because there is generally a decade left before being able to access it. I would intend on accessing it at 57, so I think I'll leave it at 100% equity until I hit 50.

Also many will have an ISA built-up to fill the 'gap' between 57 and whenever retirement is desirable, and if that's less than 5 years away, I don't think it would be sensible to keep the exposure high, as there isn't enough time to ride out a big storm. So I think I'll shift the ISA to VLS40 and leave the SIPP at VWRP for another few years, and try to forget about it all.

The only other query I know nothing about is these Vanguard funds which are built around 'retire in 2030/2035/2040' - do they just gradually de-risk via some kind of admin internally within Vanguard? Seems quite convenient even with the usual VLS UK-bias.

Yes, they're lifestyling funds, so gradually move out from equities to bonds as you approach the target date. You can do this manually by adjusting your own funds of course.

Lifestyling is really designed for those buying an annuity - it's not simply reducing volatility, but also matching performance. When you have more in bonds you are vulnerable to interest rate rises - but annuities you can buy gain in value when this happens, so you're not any worse off. 

There is also the argument that you want to have some measure of wealth preservation just before the point you need to make a large withdrawal to avoid having to crystallise a loss, so if you do need that in the next few years then it makes sense to take a portion out of 100% equities.

Albermarle

Lifestyling is really designed for those buying an annuity - it's not simply reducing volatility, but also matching performance. When you have more in bonds you are vulnerable to interest rate rises - but annuities you can buy gain in value when this happens, so you're not any worse off. 

Lifestyling was originally geared around clients who were planning an annuity ( which was most before the pension freedoms came along) .
In recent years most pension providers  offer different lifestyling geared to different withdrawal plans.
I think the default lifestyling drawdown option is now the default option for most plans.

The only other query I know nothing about is these Vanguard funds which are built around 'retire in 2030/2035/2040' - do they just gradually de-risk via some kind of admin internally within Vanguard? Seems quite convenient even with the usual VLS UK-bias.

These funds are not unique to Vanguard. Typically they start around 70/80 % equities and then start to reduce this a few years out, until they are around 30% (ish) when you retire ( which is maybe a bit on the low side) 

Linton

solidpro said:

I understand what you're saying @TheTelltaleChart. I think my nuance is that many in their 40s or 50s will essentually have a similar plan to me/us, which is to feed lots into a SIPP at high risk/return because there is generally a decade left before being able to access it. I would intend on accessing it at 57, so I think I'll leave it at 100% equity until I hit 50.

Also many will have an ISA built-up to fill the 'gap' between 57 and whenever retirement is desirable, and if that's less than 5 years away, I don't think it would be sensible to keep the exposure high, as there isn't enough time to ride out a big storm. So I think I'll shift the ISA to VLS40 and leave the SIPP at VWRP for another few years, and try to forget about it all.

The only other query I know nothing about is these Vanguard funds which are built around 'retire in 2030/2035/2040' - do they just gradually de-risk via some kind of admin internally within Vanguard? Seems quite convenient even with the usual VLS UK-bias.

Just checked - the 64% equity part of the Target Retirement 2035 fund has 50% US, 23% UK, and everything else scattered lightly over the rest of the world.  The derisking would seem to be achieved by simply lowering the %equity and increasing the %bond over time whilst leaving the allocations within each asset type the same.

solidpro

Altior said:

Can you elaborate on the 'mood music shifting' ?

I would say it's a one-off event to have the US government and it's regulators quite so intentionally asleep at the wheel when it comes to it's economy, tariffs, mergers and aquisitions. Google "related party transaction" and what Nvidia are doing.

Also just as the sub prime mortgage market imploded in 2007-8 because banks had gotten fat and greedy, similar sub-prime loan companies are starting shake - think car loans, buying stuff on credit *everywhere* (Klarna) and everything else loan-related.

I just feel as certain weirdness was happening in 2007, there are different weird things happening now.

Altior

solidpro said:

Altior said:

Can you elaborate on the 'mood music shifting' ?

I would say it's a one-off event to have the US government and it's regulators quite so intentionally asleep at the wheel when it comes to it's economy, tariffs, mergers and aquisitions. Google "related party transaction" and what Nvidia are doing.

Also just as the sub prime mortgage market imploded in 2007-8 because banks had gotten fat and greedy, similar sub-prime loan companies are starting shake - think car loans, buying stuff on credit *everywhere* (Klarna) and everything else loan-related.

I just feel as certain weirdness was happening in 2007, there are different weird things happening now.

In my view, this has been building since the GFC and vast 'money printing', now we have somewhat normalised borrowing rates again (still on the low side), and astronomical government debt across most western countries. Exacerbated by lockdown borrowing, and now what I would argue, the AI bubble.

I feel like it can be strongly argued this has been the case for several years (the AI bubble more recent), there should have been a significant lockdown penalty for economies and individuals, but the pain was effectively and predominately covered up/postponed by yet more borrowing. 

I guess the point I'm making is that this has been the global investing environment for the last four years or so. If US equity valuations now are compared to just before the covid crash, it is quite alarming (in my view).

I've covered this in a few posts on the forum, I have been predominately in cash and a bit of high yielding for quite some time. Once committed to that sort of decision though, it does really mean that one has to stay committed. I've missed out on some growth (obviously), for the relative safety. But as cash has been yielding more than inflation, it's not painful (yet).

Talking heads will argue don't time the market, point to long term investing outcomes, it always comes back, time in the market, not timing the market et al. For me, if we have a precedent for the situation, it's 1980s Japan. Only this has the US at the centre of it, ie the underpinning of the western capital economy. When the dam breaks for real, who knows what will happen. But this situation has been over a decade in the making (imvho). 

Linton

Altior said:

solidpro said:

Altior said:

Can you elaborate on the 'mood music shifting' ?

I would say it's a one-off event to have the US government and it's regulators quite so intentionally asleep at the wheel when it comes to it's economy, tariffs, mergers and aquisitions. Google "related party transaction" and what Nvidia are doing.

Also just as the sub prime mortgage market imploded in 2007-8 because banks had gotten fat and greedy, similar sub-prime loan companies are starting shake - think car loans, buying stuff on credit *everywhere* (Klarna) and everything else loan-related.

I just feel as certain weirdness was happening in 2007, there are different weird things happening now.

In my view, this has been building since the GFC and vast 'money printing', now we have somewhat normalised borrowing rates again (still on the low side), and astronomical government debt across most western countries. Exacerbated by lockdown borrowing, and now what I would argue, the AI bubble.

I feel like it can be strongly argued this has been the case for several years (the AI bubble more recent), there should have been a significant lockdown penalty for economies and individuals, but the pain was effectively and predominately covered up/postponed by yet more borrowing. 

I guess the point I'm making is that this has been the global investing environment for the last four years or so. If US equity valuations now are compared to just before the covid crash, it is quite alarming (in my view).

I've covered this in a few posts on the forum, I have been predominately in cash and a bit of high yielding for quite some time. Once committed to that sort of decision though, it does really mean that one has to stay committed. I've missed out on some growth (obviously), for the relative safety. But as cash has been yielding more than inflation, it's not painful (yet).

Talking heads will argue don't time the market, point to long term investing outcomes, it always comes back, time in the market, not timing the market et al. For me, if we have a precedent for the situation, it's 1980s Japan. Only this has the US at the centre of it, ie the underpinning of the western capital economy. When the dam breaks for real, who knows what will happen. But this situation has been over a decade in the making (imvho). 

The world is changing.  But there will always be opportunities for investment,  just different ones.  Best to be well diversified and then wait and see.

solidpro

I think I've made enough money on VWRP and VLS100 over the last few years to shift 60% (all ISA and some SIPP) to VLS40 for a while. On balance, I really don't think there is any shame in sheltering around inflation growth for a while, whilst everything just seems a bit weird.

I've left about 40% in VLS100 so that I don't feel completely losing out on whatever craziness is yet to happen, and like everyone says, that's an investment I can both afford to lose in the short term and sit out for another 12 years. I also realise if the bubble burst *everything* is affected.  This puts me at about VLS 50/60 ish overall.

I'm too old to end up in a 1980s Japan or a 1970s USA scenario, with a long long road ahead to clawing back anything.

I'm a total amateur and I realise (aka The Big Short) being right early can be the same as being wrong - in this case, how much in future gains I would 'lose' out on. But this monopoly money just feels like it's now being scribbled on the back of any old scraps of paper laying around and companies investing in each other to create imaginary growth all seems a bit weird. 

I'm also old enough to have been using email, www and usenet in the mid 1990s and know it was the future, but everything got out of control then when early tech-bros got involved 5-15 years before it really took off.

TheTelltaleChart

Dialing down the risk because you've made enough (or somewhere near enough — it's hard to tell what is enough) is perfectly sensible. Though that means fewer equities, not none (unless you plan to spend, or otherwise get rid of, all the capital currently in your portfolio in the short term); because the best defensive longer-term portfolio does include some equities, just not too many.

It's standard stuff to think the current crisis is unique. Some posts above seem to be arguing that this crisis is unique, and even in a similar way to how some earlier crises were unique! And of course, that's true: every crisis is unique, in some ways. That doesn't mean you shouldn't invest now, though. Or in the next crisis. They all feel uniquely worrying. If you get out of equities because things feel bad, intending to get back in when they feel better, than the chances are that, either you'll never get back in, or you'll "capitulate" i.e. admit you were wrong by getting back in when stock markets are higher still.

It's better to consider both possibilities, that bubbly stock markets (if that's what they are) keep growing, or that they deflate, and then pick a portfolio with a mix where you could live with either outcome. (Or with other outcomes, that you may not even have imagined.)

E.g. I am sticking with 75% in equities, but only about 15% in US equities. This leaves me very calm when US equities soar (I make a bit from that) and equally calm when they look like crashing (I wouldn't lose that much). Of couse, I'd have made much more if I'd had all my equities in a (US-dominated) global tracker. However, I do repeatedly get to "harvest" some of the gains from US equities, by rebalancing when US equities have grown to above my target allocation. (In fact, I'm doing that again this week.) And I don't worry at all about when to "get out" of US equities.

solidpro

I think I should do a breakdown of how much US equity is in the VLS40, 80 and 100 and then work out my exposure overall to US equity.... 15% overall sounds like a 'gamble' that would sit quite nicely within my 'porfolio'. I feel a spreadsheet coming.

**edit** I worked it out and i'm at 36% exposure to US equities. The devil is in the detail of the VLS portfolio. Hmmm.