Bucketing strategy/ Risk ladder

Linton

Cobbler_tone said:

Bostonerimus1 said:

Pat38493 said:

Bostonerimus1 said:

I'm not a fan of chronological risk buckets. I think they add a layer of unnecessary complexity. Why not just keep one or two years money in cash and then just do variable Guyton Klinger type withdrawals from your stock and bond portfolio taking interest and dividends first.

It is recommended and used by some, including some IFAs, partly because they think it helps their clients sleep at night.

However on a theoretical level, you are right - you might as well just pick a % allocation and rebalance and you will get roughly the same result.

The other issue with cash flow ladders is that if your withdawals are quite heavily front loaded and you get a financial crash, it forces you to reduce your overall risk by selling most of the equities in your longest term bucket and limit the chances of ever recovering.

People love to complicate things. 

The truest point I've read on this thread.
Build a decent pension and have cash in ISA's/the bank. I swear some people fancy themselves as the Wolf of Wall street and the majority of people seem to navigate through life just fine without spending rafts of time with complicated financial planning, although appreciate some may enjoy it as a pastime, or chasing every potential £.
At the same time some people make some really daft decisions.

Pension drawdown has only been a viable option for most people for the past 10 years during when conditions have been benign. There is no experience of how the various strategies and those that use them will manage when we have a serious crash. It is far too early to say that people will navigate fine without proper financial planning.

Bostonerimus1

Linton said:

Cobbler_tone said:

Bostonerimus1 said:

Pat38493 said:

Bostonerimus1 said:

I'm not a fan of chronological risk buckets. I think they add a layer of unnecessary complexity. Why not just keep one or two years money in cash and then just do variable Guyton Klinger type withdrawals from your stock and bond portfolio taking interest and dividends first.

It is recommended and used by some, including some IFAs, partly because they think it helps their clients sleep at night.

However on a theoretical level, you are right - you might as well just pick a % allocation and rebalance and you will get roughly the same result.

The other issue with cash flow ladders is that if your withdawals are quite heavily front loaded and you get a financial crash, it forces you to reduce your overall risk by selling most of the equities in your longest term bucket and limit the chances of ever recovering.

People love to complicate things. 

The truest point I've read on this thread.
Build a decent pension and have cash in ISA's/the bank. I swear some people fancy themselves as the Wolf of Wall street and the majority of people seem to navigate through life just fine without spending rafts of time with complicated financial planning, although appreciate some may enjoy it as a pastime, or chasing every potential £.
At the same time some people make some really daft decisions.

Pension drawdown has only been a viable option for most people for the past 10 years during when conditions have been benign. There is no experience of how the various strategies and those that use them will manage when we have a serious crash. It is far too early to say that people will navigate fine without proper financial planning.

My point is that "proper financial planning" doesn't need to be complicated, or perhaps I should say overly complicated. The US has a longer experience of DC pensions and drawdown than the UK and its very much a mixed picture. The switch from DB to DC transferred costs and risk from the employer to the employee and was a big money maker for the fund management companies like Vanguard, Fidelity etc.; no wonder they lobbied for it so hard. People who use the DC system early and often can build up significant wealth and then simple drawdown strategies provide income and have generally left money for children to inherit. But DC has been a disaster for many who managed their money poorly and/or got sucked into funds with excessive fees. For them the US equivalent of an IFA would have been useful, but that comes with added costs too.

The trade off is that DB pensions work for everyone and with DC pensions there are some who do very well and others who fail. It's not surprising that the idea arose in a country that usually values the individual over a collective benefit.