The impact of inflation - yikes!

tichtich

https://forums.moneysavingexpert.com/discussion/comment/82112668#Comment_82112668

"On the issue of expected returns vs actual returns, all you can do at the outset is consider "expected" as "actual" are unknown at that point....... I would also caution against using just "average" returns numbers in drawdown plan modelling......they can hide some very nasty returns sequences."

That was my point too. It's not enough to just consider one "expected" or "average" return figure. We should consider the range of possible outcomes. To put it in probability theory terms, we should consider the probability distribution of possible outcomes, and not just the mean of the distribution.

michaels

https://forums.moneysavingexpert.com/discussion/comment/82112725#Comment_82112725

So if your pot is to offer inflation protection then it likely has equities. Historically equities are volatile with some large drops. Keeping your fixed proportion suggests you are happy to accept large income variation and reduction during a periodic correction?

SnowMan

Over my time of investing my return on the amount invested inflation adjusted has been over 400%. That is I have roughly five times what I would have had if my investments had just kept up with CPI inflation. My returns haven't been spectacular but a 5% real return over CPI inflation compounds up over a long period.

If you realise that with savings accounts I might depending on the period only have kept up with inflation or slightly bettered it (before tax) then keeping all your money in savings over long periods doesn't look quite so safe after all.

Sea_Shell

https://forums.moneysavingexpert.com/discussion/comment/82112955#Comment_82112955

We're about 60% equities overall.

We'll deal with each bridge as (or if) we come to it. 😉

Bostonerimus1

Many years ago I sat down with FIREcalc and ran through many combinations of returns and inflation rates. The wide range of results convinced me that I was going to save enough to use a natural yield solution. Then 2008 hit and I became even more risk averse and aggressively paid down my mortgage and eventually swapped $287k of my DC accumulation for an index linked DB pension. So in retirement I have that DB pension, index linked UK and US state pensions and rental income that I can increase with inflation if necessary. Given the uncertainty of inflation I'm glad that my income should keep pace, I'm just a little worried that the levels of government debt will eventually affect my state pensions.

There's been a lot of discussion about equities to keep up with inflation, but you can guaranteed inflation protection with an inflation linked bond ladder…is that an option to consider along with dividends and growth from equities?

DT2001

https://forums.moneysavingexpert.com/discussion/comment/82111384#Comment_82111384

It is an interesting article however it seems to assume you are ‘all in’. Having read many of Lintons posts know that he has different pots including income generating and growth. So maybe diversifying across strategies achieves the goal of reducing the effect of a poor sequence of returns?

Oldscientist brought up the fact that many ITs don’t last long term. I wonder how many of those were trading at a discount prior to closure? I have part of our portfolio invested in income focused ITs and one (DIVI) closed recently with the option to move to an OIEC which seemed to mirror the IT. We made a capital gain which lead me to wonder if the higher yielding ITs that trade at discounts also ‘protect’ your capital to some degree?

We have turned some of the gains from the markets into an income generating pot which hopefully will allow the growth pot to left untouched through any corrections.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82113912#Comment_82113912

A diversified portfolio should be able to provide you with both growth and income. You can think of it as separate buckets for strategies al la Linton or pay for something like an IT. I just like to think of it in terms of asset allocation ie some cash, some bonds, some dividend and value equities and some growth equities - you might include real estate and commodities too. Manage that for total return and via asset allocation you can emphasize income over growth if you like.

Time4T_Accounts

After reading through that lot, ‘chapeau’ to those of you who can turn it into profitable investments to see out your retirements … I think I need a couple of paracetamol and a lie down in a darkened room!! It reminds me that I’m glad I was able to buy an RPI-linked annuity to help me enjoy my Go go years, and hopefully the Slow go and No go years won’t come along for a very long time.

There’s summat to be said for simplicity. (I did enjoy reading it, though!).

FIREDreamer

https://forums.moneysavingexpert.com/discussion/comment/82116196#Comment_82116196

Ditto, annuity plus 2 small DBs.