What to do with lump sum from db pensions.

alfmurph wrote: »

Vanguard seems too good to be true .

They have good but beatable funds at good but beatable prices. It's particularly convenient to use their Lifestrategy range in forum posts because they have a mixture of equity (shares in companies) and bonds (company and government, not term deposit accounts) and you an pick 20%, 40%, 60%, 80% or 100% equities by adding the number to the name and know it's decent to good.

So for you I might mention Lifestrategy 20 as looking good now but 40 better long term after the next big sale on US shares is announced.

Sales in shares are normally announced with headlines like "huge market crash" or "trillions lost on stock markets this week". Sale from the owner's viewpoint, not the prospective buyer.

Stock markets are a bit like rollercoasters in reverse: lots of ups ad downs along the way but eventually higher. "Risk" in investing is normally about the dip part and chance that you'll get too scared, sell, and give up, thereby locking in a dip as a loss instead of routine ups and downs to be mostly ignored because it's just markets doing what markets do.

20% or 40% in equities will protect your money from inflation fairly decently but the price for that is having to put up with the ups and downs. So the choice is ups and downs that'll show a loss sometimes or the guaranteed gradual loss to inflation. I prefer possible losses to guaranteed big ones from inflation.

To give some idea of losses to inflation, the Bank of England's inflation target is 2% a year. That's losing you 18% of your money in ten years, 33% in 20. But these losses don't make headlines because they are gradual.

In Lifestrategy 40 you'd need to expect drops of 8-10% in a bad year or 15-20% in a very bad one. About half those for Lifestrategy 20, but also less good long term results. Recovery time normally a few months to a few years but the most exceptional can take ten or more years.

Which just doesn't matter much, provided you've planned for it. Which means enough in savings accounts so your plans for the next couple of years come out of that, then you top it up later.

Funds normally come in "income" or "accumulation" versions. Choose the income version and the dividends and interest are paid to you, so you can use that for routine topping up without needing to touch the capital at a depressed price. This makes one or two years in savings last longer than just one to two years. Accumulation versions reinvest the money inside the fund and you never see it directly.

Once you're used to it this is routine and fast. A few minutes every few months to withdraw the regular income to top up the savings and a few more once a year to decide if you want to sell some for a bigger top up.

alfmurph wrote: »

How can one fund have a 25% profit in the second year but another has it's best year in the third year and another in it's 4th year .

It depends on what the fund is invested in and in what parts of the world. Funds high in equities do less well than funds high in bonds in years when equities do badly. Trade war worries caused Asia to do relatively less well last year but well this year.

Deleted_User wrote: »

Everything is “beatable”, which is why it doesn’t matter. What matters is that one has a high probability of achieving ones objectives while talking the appropriate level of risk.

When I've looked I've been able to find competing options with comparable performance at around half thee ongoing cost. That can help to achieve the objective. But no need for a beginner to worry about it because the pricing is already good.

Deleted_User wrote: »

7. Tempting to think about dividends and interest as if it were a different type of money from the stocks you sell, but it’s a fallacy

It's not a pure fallacy. What matters overall is the total return (growth and income) so at that high level it's a fallacy.

But there's a difference in the details that can matter. In times when equities are down the correct things to do are sell bonds to provide income, because those aren't down or not as much, and rebalance to keep the equity:bond split on target. Someone with a multi-asset fund like the Lifetrategy range gets the rebalancing done inside the fund so that's taken care of. But thee's no way to sell just bonds, if you sell you have to sell the mixture of equities and bonds that the fund is holding. Taking the ongoing income reduces the negative effect of selling at the wrong time by reducing the amount sold. An alternative is to have some pure equity and bond funds as well, or just skip Lifestrategy entirely. But Lifstrategy and take the income is easy to do and particularly handy for beginners.

Taxes can also make capital or income, or bonds vs dividends a better or worse choice. If not in an ISA or pension there are individual allowances for capital gains, interest and dividends to exploit. Sometimes multi-asset funds can help with that because even though they get dividends and interest it's all paid out and taxed as only one of them.

Deleted_User wrote: »

5. Don’t ever try to time the market. That’s a game with poor odds. Once you are comfortable that you understand what you want, invest in full and stay invested at all times.

Short term market timing doesn't work. Someone 30 years from retiring can ignore it. But there's a difference between short term market timing and longer term market positioning. In the context here, retirement drawdown, Guyton's work showed a marked reduction in sequence of returns risk and improvement in outcomes from having lower equity holdings at times when equity market valuations are high.