Cash out? Enough is enough

Workerdrone

BlackKnightMonty said:

HedgehogRulez said:

I’d move a couple of £100k from equities into cash in your pension and time the market for the incoming market apocalypse in 3 months time (then rebuy those sweet cheap stocks).

it’s what I’ve done and I’m pretty awesome (similar position to you: 46 yo, £910k DC pot, wife in TPS with a few hundred in ISAs etc)

Why are you anticipating market apocalypse in 3 months?

I really cant make my mind up this time round. It's a messy picture. Unlike the Dotcom era, now we have large companies actually making money (Nvidia, MS etc).

Then we have the hype over generative AI and board level push from all companies to implement it for cost savings. On the other hand its LLM not AGI, it has its uses but hallucinates a lot in complex scenarios so often those perceived savings don't materialise.  What it gives you is a confident stab at what looks like an answer, often that answer isnt accurate so you still need humans to proof and correct it.

You have a general public who are becoming heartily sick of the amount of AI slop out there, managers using AI to turn 10 bullet points into a report and recipients using AI to turn that report back into 10 bullet points. Language model training is becoming poisoned by digesting its own output.

Everyone is crossing their fingers that someone will crack AGI and the music can keep on playing.

You have an awful lot of money being pumped into these companies by pension funds, most people don't look at their funds and wouldn't even have a clue they have some exposure to big tech. That money isn't likely to be suddenly pulled out.

Then there is the political risk. China disrupted the market with Deepseek, showing you dont need massive scale to train models. There is constant concern that china will have a crack at taking Taiwan and without TSMC that house of cards will fall. Thankfully global support for Ukraine has probably pushed back chinas plans on that front.

All the forums and discussion groups have changed tone, where it use to be people discussing fundamentals, now its all crypto bro's too young to remember the dotcom of GFC talking with endless enthusiasm about big tech and how its different this time.

Perhaps it is, but its too frothy for me right now.

Cobbler_tone

There is always plenty of scaremongering about. In recent years we have navigated a global pandemic, Trump and his tariffs and plenty of other major events. The biggest risk is WW3 and then you probably won’t be too worried about your fund dropping. 

I guess the size of these AI giants is risky but don’t think a penny or two on tax is going to wipe out your lifetime savings. 

Hold your nerve with a balanced portfolio, especially the young uns.
Not being invested appropriately and your biggest risk is being wiped out by inflation.

OldScientist

A few comments:

1) At 46 and 41, there is a roughly 15% chance of one or other or both of you making it to 100 (e.g., see https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07 ) - in other words, with luck you will be investing for a further 50 years or more.

2) Historically over 10 year periods, UK cash (using 3-month bills as a proxy) has had a worst case annualised real return of about -5.0% and a 25th percentile of -1.5% (over 40 year periods the values are -2.0% and -0.6%). In other words, there is a reasonably high probability that you will not preserve the value of your pension pot in real terms if you convert a substantial amount to cash.

A good way of gauging how much 'safety' you require is to consider how much income you will need in retirement (expenditure can be subdivided into 'essential' and 'discretionary' if required). State pensions from 67 (i.e., £24k if maxed out) plus your partner's DB pension (fully index linked?) from 67yo(?) will give you your long term income baseline. If you need more than this, then your portfolio will be needed to top up your income and, if you retire early, it will be needed to replace SP and DB income before these become available.

A useful way of providing income in retirement that is free from market risk and (largely) free from inflation risk is to consider a collapsing inflation linked gilt ladder. For example, with current gilt yields, a 45 year long ladder delayed by 10 years (i.e., expiring when your partner is 96yo) providing an inflation protected income of £10k per year would cost £272k (see https://lategenxer.streamlit.app/Gilt_Ladder ). Such an approach still runs default risk (i.e., UK PLC goes out of business) and would (probably) not survive extreme inflation (although the latter would also severely affect equities and cash) so is best run in conjunction with a more conventional portfolio for diversification if for no other reason.

Ciprico

As you will exceed the LSA you could consider taking the 25% tax free amount outside the SIPP, and aim for the growth on that to be more tax efficient. In the SIPP it will probably ultimately be taxed at 40%, outside potentially a lot less.

Ie low coupon gilts, premium bonds 

Apart from being tax efficient this would be a significant de-risk move, so could kill two birds with one stone... 

RogerPensionGuy

The current narrative is to keep investing, don't try timming the markets, just keep investing and spending a long time in the markets. 

If markets go down, it's on sale and buy more in any dip or troff. 

Reciency bias shows us most dips only last a football season or two, that is easy peasy, no hassle. 

The S&P500 has just 12 companies holding about 44% of the 500 market cap, that's a very strong concentration. 

So much index passive investing holding up tippy markets. 

I can hear the music nicely in my ears now. 

What could possibly go wrong? 

Albermarle

DRS1 said:

You aren't going to retire for at least 10 years maybe 20.  By that time £1million won't be what it is today.  

Of course you are bumping up against the LSA so maybe there is a justification for saving more outside the pension.

As above, the tax advantage of saving into a pension is compromised if you do not get 25 % tax free on withdrawal.
So maybe worth considering saving more outside a pension, and then you can maybe retire earlier, before the pension is available.

tiptop1_2

At your age I'd say you are overthinking this. Even if there's a market correction, it'll come back. You have lots of time to let it. 

If you need peace of mind, move some into lower risk investments as a security blanket.

Other than that, I'd leave it well alone and plan how you'll enjoy such a massive amount of money. 

artyboy

RogerPensionGuy said:

The current narrative is to keep investing, don't try timming the markets, just keep investing and spending a long time in the markets. 

If markets go down, it's on sale and buy more in any dip or troff. 

Reciency bias shows us most dips only last a football season or two, that is easy peasy, no hassle. 

The S&P500 has just 12 companies holding about 44% of the 500 market cap, that's a very strong concentration. 

So much index passive investing holding up tippy markets. 

I can hear the music nicely in my ears now. 

What could possibly go wrong? 

Because of course, everyone will have pots of extra spare cash to invest, once their investments have taken a 40-50% bath...

Obviously I realise you're being tongue in cheek, but that's exactly why I'm sitting on a very substantial amount of CSH2. Worst case** is that right now it keeps pace with inflation and I take the opportunity cost of rising equities. But I'm willing to wager that there will be an opportunity to reinvest at a more attractive price point in the not too distant future.

Realistically I'll be paying at least 40% tax on any future pension growth because of the marginal tax rate I'll get hit with on withdrawal. Probably more after the next budget. So my motivation to chase the bigger returns (as opposed to go for relative safety) has lessened my risk appetite as the bubble gets ever bigger.


** Best case of course is that I drop dead before 6/4/27, and then my kids can get the lot free of income tax and IHT. You have to laugh sometimes...

Bostonerimus1

OP, do some research on "asset allocation". One classic rule of thumb was for the percentage of bonds in your portfolio to be equal to your age, but that's considered a bit too conservative, now that drawdown has become so popular. Another thing you can do to make you less dependent on future stock and bond markets is to pay down your mortgage. Without a mortgage you just don't need as much money.

LHW99

You have a general public who are becoming heartily sick of the amount of AI slop out there, managers using AI to turn 10 bullet points into a report and recipients using AI to turn that report back into 10 bullet points. Language model training is becoming poisoned by digesting its own output.

Reminds me of the old joke of the person who translated the expression "out of sight, out of mind" into Russian and then back into English - and got "invisible idi0t"