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  • FIRST POST
    • sebo0607
    • By sebo0607 19th Sep 19, 6:25 AM
    • 35Posts
    • 5Thanks
    sebo0607
    Portfolio split
    • #1
    • 19th Sep 19, 6:25 AM
    Portfolio split 19th Sep 19 at 6:25 AM
    Hi all,

    I know this is all down to personal preference and attitude to risk but given the current climate I think I may have to much invested in equities. I am looking to retire early at 55, which is 7 years away. My current portfolio is roughly split as follows:

    Deposit savings - 25%
    Equity ISAs - 25%
    Sipp Equity funds - 50%

    This gives me 75% exposed to stock market fluctuations i.e. falls. I am thinking of moving some of the equity isa to a cash fund to reduce my exposure.

    I would be interested in thoughts.

    Thanks
Page 1
    • Albermarle
    • By Albermarle 19th Sep 19, 8:28 AM
    • 1,582 Posts
    • 1,023 Thanks
    Albermarle
    • #2
    • 19th Sep 19, 8:28 AM
    • #2
    • 19th Sep 19, 8:28 AM
    If you are looking to retire in 8 years and the markets seem to be coming to the end of a bull run , then 75% equities seems high ( in my opinion)
    There are more alternatives though than just cash . If you hold cash in the SIPP you will get zero or almost zero return .
    Have you though about bond funds; multi asset funds ( with <75% equity ) or defensive investments like Absolute return funds or certain Investment trusts .
    • Thrugelmir
    • By Thrugelmir 19th Sep 19, 9:32 AM
    • 65,042 Posts
    • 57,322 Thanks
    Thrugelmir
    • #3
    • 19th Sep 19, 9:32 AM
    • #3
    • 19th Sep 19, 9:32 AM
    Will you meet your personal objectives with this split? Cash is likely to return a below inflation rate. Equities will have to perform well to compensate.
    “If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.”
    ― Niall Ferguson
    • SonOf
    • By SonOf 19th Sep 19, 9:48 AM
    • 1,575 Posts
    • 1,849 Thanks
    SonOf
    • #4
    • 19th Sep 19, 9:48 AM
    • #4
    • 19th Sep 19, 9:48 AM
    Are you actually invested 100% into equities with your risk-based investments?

    It is unusual for an average consumer to use 100% equity based in their investments unless it is by mistake or by choice. Most people end up with multi-asset solutions which will have an allocation to fixed interest securities and property as well as equities. It is also very common for people to refer to their investments as stockmarket when a good chunk of them won't be.

    So, have you checked the underlying assets and are you sure you are 100% equity?
    • Moe The Bartender
    • By Moe The Bartender 19th Sep 19, 9:57 AM
    • 414 Posts
    • 1,103 Thanks
    Moe The Bartender
    • #5
    • 19th Sep 19, 9:57 AM
    • #5
    • 19th Sep 19, 9:57 AM
    I retired nine years ago at 61. My IFA pointed out that as there was no longer any requirement to purchase an annuity at 75, my investment horizon was the date of my death and advised to invest 100% in equities. I'm very happy that I took his advice as I have lived comfortably and grown my pension pot at the same time. I have now taken a more defensive stance as I no longer need growth.
    Hey, don't you badmouth this country. Compared to the rest of the third-world, we're doing great.
    • bostonerimus
    • By bostonerimus 19th Sep 19, 12:09 PM
    • 3,339 Posts
    • 2,654 Thanks
    bostonerimus
    • #6
    • 19th Sep 19, 12:09 PM
    • #6
    • 19th Sep 19, 12:09 PM
    I'd probably reduce your cash and equity allocation and put some money into a high quality global hedged bond index fund. I'd probably have something like 70% equity and 30% bonds in your non-cash allocation as this has historically produced a good balance between risk and reward.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 19th Sep 19, 12:13 PM
    • 3,339 Posts
    • 2,654 Thanks
    bostonerimus
    • #7
    • 19th Sep 19, 12:13 PM
    • #7
    • 19th Sep 19, 12:13 PM
    I retired nine years ago at 61. My IFA pointed out that as there was no longer any requirement to purchase an annuity at 75, my investment horizon was the date of my death and advised to invest 100% in equities. I'm very happy that I took his advice as I have lived comfortably and grown my pension pot at the same time. I have now taken a more defensive stance as I no longer need growth.
    Originally posted by Moe The Bartender
    Depending on the amount of income you need wrt the size of your pension pot it can be risky to go into retirement with a 100% equity portfolio because of sequence of return risk; a stock crash early on combined with withdrawals could severely reduce your lifetime withdrawals. However, a rising equity allocation as you get further into retirement has been shown to be a good strategy that has a higher probability of supporting a given withdrawal than a constant or falling equity allocation. It can also give you a higher ending value to pass on.
    Last edited by bostonerimus; 19-09-2019 at 1:37 PM.
    Misanthrope in search of similar for mutual loathing
    • sebo0607
    • By sebo0607 19th Sep 19, 4:07 PM
    • 35 Posts
    • 5 Thanks
    sebo0607
    • #8
    • 19th Sep 19, 4:07 PM
    • #8
    • 19th Sep 19, 4:07 PM
    Are you actually invested 100% into equities with your risk-based investments?

    It is unusual for an average consumer to use 100% equity based in their investments unless it is by mistake or by choice. Most people end up with multi-asset solutions which will have an allocation to fixed interest securities and property as well as equities. It is also very common for people to refer to their investments as stockmarket when a good chunk of them won't be.

    So, have you checked the underlying assets and are you sure you are 100% equity?
    Originally posted by SonOf
    Hi thanks,

    You are correct the pension is not wholly equities it's a 70/30 split. I have forgot about that so it's a little more balanced.
    • sebo0607
    • By sebo0607 19th Sep 19, 4:09 PM
    • 35 Posts
    • 5 Thanks
    sebo0607
    • #9
    • 19th Sep 19, 4:09 PM
    • #9
    • 19th Sep 19, 4:09 PM
    I'd probably reduce your cash and equity allocation and put some money into a high quality global hedged bond index fund. I'd probably have something like 70% equity and 30% bonds in your non-cash allocation as this has historically produced a good balance between risk and reward.
    Originally posted by bostonerimus
    Thanks for the reply, I will do some research and look at the options rather than putting more into cash.
    • sebo0607
    • By sebo0607 19th Sep 19, 4:12 PM
    • 35 Posts
    • 5 Thanks
    sebo0607
    If you are looking to retire in 8 years and the markets seem to be coming to the end of a bull run , then 75% equities seems high ( in my opinion)
    There are more alternatives though than just cash . If you hold cash in the SIPP you will get zero or almost zero return .
    Have you though about bond funds; multi asset funds ( with <75% equity ) or defensive investments like Absolute return funds or certain Investment trusts .
    Originally posted by Albermarle
    Hi thanks,

    I have not looked at any other funds, I do have a multi asset fund in the sipp but not the ISA's. I will certainly have a look at absolute return funds.

    Thanks
    • JohnWinder
    • By JohnWinder 21st Sep 19, 10:10 AM
    • 23 Posts
    • 27 Thanks
    JohnWinder
    'If you are looking to retire in 8 years and the markets seem to be coming to the end of a bull run , then 75% equities seems high ( in my opinion)'
    If 'retire' means buy an annuity then 8 years might be a bit short to be 75% equities (unless that 75% represents a king's ransom). But if 'retire' means start living of your investments for the next (you'll be 55 yrs old) let's say 30 years, then you'd be well served with a high equity mix (unless you've got oodles of money and don't need better returns).
    ' I will certainly have a look at absolute return funds.'
    When you do, be sure to compare their costs with a passive index tracker, and maybe read about them in Tim Hale's Smarter Investing (make sure it's the first edition). He's not a fan.
    • cfw1994
    • By cfw1994 21st Sep 19, 10:48 AM
    • 432 Posts
    • 381 Thanks
    cfw1994
    'If you are looking to retire in 8 years and the markets seem to be coming to the end of a bull run , then 75% equities seems high ( in my opinion)'
    If 'retire' means buy an annuity then 8 years might be a bit short to be 75% equities (unless that 75% represents a king's ransom). But if 'retire' means start living of your investments for the next (you'll be 55 yrs old) let's say 30 years, then you'd be well served with a high equity mix (unless you've got oodles of money and don't need better returns).
    ' I will certainly have a look at absolute return funds.'
    When you do, be sure to compare their costs with a passive index tracker, and maybe read about them in Tim Hale's Smarter Investing (make sure it's the first edition). He's not a fan.
    Originally posted by JohnWinder
    Must admit I feel that a hopefully lengthy retirement does need a decent chunk of equity in there.
    The "sequence of return" risk is, I feel, very real for those of us considering retirement in the next 2 years. I have been tempted to drop a chunk into cash, yet whilst the markets are rising, it also feels wrong: oh for a crystal ball!

    Curious at how Moe knows his date of death to measure that investment horizon
    • OldMusicGuy
    • By OldMusicGuy 21st Sep 19, 12:27 PM
    • 1,086 Posts
    • 2,265 Thanks
    OldMusicGuy
    There is no right answer IMO. You need to do some long term financial planning to see how you will fund at least a 30 year retirement. If you have plenty of money to meet your goals, you can afford to sit in lower risk investments (ie cash and bonds rather than equities). If you still need some growth to meet your goals then you need to stay in at least some more equity-focused investments.

    The "sequence of return" risk is, I feel, very real for those of us considering retirement in the next 2 years. I have been tempted to drop a chunk into cash, yet whilst the markets are rising, it also feels wrong: oh for a crystal ball!
    Originally posted by cfw1994
    I retired 18 months ago and sequence of returns risk is my big fear. So I am holding a lot of cash/fixed term savings bonds for the next five years at least. Inflation is irrelevant to me, unless it reaches silly levels which I feel is very unlikely right now. Pound cost ravaging is a much higher risk for me, so my strategy lets me sleep at night. But that's because of the amount I have in my DC pot and our personal financial objectives. YMMV, which is why you need to do some long-term financial planning instead of seeking the "best" portfolio allocation. You need to find the portfolio split that is right for you and lets you sleep at night.
    • sebo0607
    • By sebo0607 22nd Sep 19, 6:27 PM
    • 35 Posts
    • 5 Thanks
    sebo0607
    [QUOTE=OldMusicGuy;76296914]There is no right answer IMO. You need to do some long term financial planning to see how you will fund at least a 30 year retirement. If you have plenty of money to meet your goals, you can afford to sit in lower risk investments (ie cash and bonds rather than equities). If you still need some growth to meet your goals then you need to stay in at least some more equity-focused investments.

    Thank you everyone for your comments, certainly a number of options to consider.

    We are in a good position and our pension provision, when state pension starts does not leave any shortfall. The amount in SIPP and ISA's is also just enough to cover spending from 55 to 67. However, if any thing happens to either one of use we lose part of the pension provision and this is the reason I am still looking from some moderate growth as the one left would need to top up the pension income. It would also be good to have a bit larger cushion from 55 - 67.

    However, if we have a significant drop in stock markets and it does not recover it could mean delaying my planned early retirement.
    • Mordko
    • By Mordko 22nd Sep 19, 7:09 PM
    • 456 Posts
    • 205 Thanks
    Mordko
    I retired nine years ago at 61. My IFA pointed out that as there was no longer any requirement to purchase an annuity at 75, my investment horizon was the date of my death and advised to invest 100% in equities. I'm very happy that I took his advice as I have lived comfortably and grown my pension pot at the same time. I have now taken a more defensive stance as I no longer need growth.
    Originally posted by Moe The Bartender
    While the “investment horizon” point is accurate, the advisor who recommends retirees to allocate 100% to equities should be sued.
    • Mordko
    • By Mordko 22nd Sep 19, 7:40 PM
    • 456 Posts
    • 205 Thanks
    Mordko
    Hi all,

    I know this is all down to personal preference and attitude to risk but given the current climate I think I may have to much invested in equities. I am looking to retire early at 55, which is 7 years away. My current portfolio is roughly split as follows:

    Deposit savings - 25%
    Equity ISAs - 25%
    Sipp Equity funds - 50%

    This gives me 75% exposed to stock market fluctuations i.e. falls. I am thinking of moving some of the equity isa to a cash fund to reduce my exposure.

    I would be interested in thoughts.

    Thanks
    Originally posted by sebo0607
    As others have said, we don’t have enough information to answer the question. We need to know how much you spend per year, how much you already saved, percent of your annual expenses covered by defined benefit, state pension etc, your spouse’s income and a few other data points.

    It would be easier for you to do the calculation yourself. Bernstein provides a good method in Rational Expectations.

    If you are too lazy to do the analysis and assuming you don’t have DB funding sources, then the balanced 60/40 portfolio is usually a good bet.
    Last edited by Mordko; 22-09-2019 at 7:44 PM.
    • cfw1994
    • By cfw1994 28th Sep 19, 9:49 AM
    • 432 Posts
    • 381 Thanks
    cfw1994
    <snip>
    When you do, be sure to compare their costs with a passive index tracker, and maybe read about them in Tim Hale's Smarter Investing (make sure it's the first edition). He's not a fan.
    Originally posted by JohnWinder
    This thread reminded me to check: not got his book (so many books!) - what are the key reasons he gives (or you feel?) for not liking passive trackers?

    I'm a moderate fan of the global low cost approach suggested by Lars Kroijer, who seems well qualified to me and kind of is a fan!
    • bowlhead99
    • By bowlhead99 28th Sep 19, 10:35 AM
    • 9,413 Posts
    • 17,119 Thanks
    bowlhead99
    ' I will certainly have a look at absolute return funds.'

    When you do, be sure to compare their costs with a passive index tracker, and maybe read about them in Tim Hale's Smarter Investing (make sure it's the first edition). He's not a fan.
    Originally posted by JohnWinder
    This thread reminded me to check: not got his book (so many books!) - what are the key reasons he gives (or you feel?) for not liking passive trackers?
    Originally posted by cfw1994
    Maybe you misunderstand what JohnWinder was saying. He was saying that if you are 'having a look at absolute return funds', make sure you note that they are costly and go see what Tim Hale says about them (i.e. about the absolute return funds, of which Hale is not a fan)

    JW is not suggesting that Tim Hale is not a fan of index trackers; indeed Hale is an evangelist for trackers and a passive approach.

    As a side note I don't know why you should make sure you read Hale's first edition from 2006 versus the second edition published 2009 or the post-financial-crisis third edition of 2013. I have the second edition somewhere. To me if you were getting it, it would make sense to capture his most recent thoughts in the most recent edition (noting that it's still over five years ago so sample products mentioned may no longer be 'best buys' or whatever).

    Perhaps JW means that Hale was more scathing of absolute return funds in the earlier editions though I don't know why that would be the case. Or it was just a caveat on JW's part because he knew that Hale definitely mentioned AR funds in the first edition and didn't know if he did in the later ones.

    But long story short, Hale likes passive investing and makes sure to 'reinforce' that sentiment (ram it down your throat) from time to time throughout the book. It is not a bad book at all, to get you thinking about things to consider when building a portfolio. But as it has a somewhat polarised view (pro the passive approach) it shouldn't be the only book in your library.
    • cfw1994
    • By cfw1994 28th Sep 19, 11:06 AM
    • 432 Posts
    • 381 Thanks
    cfw1994
    Good catch, t'was indeed a misunderstanding
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