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  • FIRST POST
    • Mick70
    • By Mick70 14th Jan 20, 2:49 PM
    • 201Posts
    • 37Thanks
    Mick70
    equities / bonds - investment strategy
    • #1
    • 14th Jan 20, 2:49 PM
    equities / bonds - investment strategy 14th Jan 20 at 2:49 PM
    how do most people on here have their pension portfolio split /invested ?
    is the classic example of 60% equities / 40% bonds the most common place ? (only from the little i have read up on)
    does the risk increase as the % of equities increases ? and should the split change accordingly as you get towards retirement age and certainly once retired ?

    thanks,
    mick
Page 1
    • cfw1994
    • By cfw1994 14th Jan 20, 3:22 PM
    • 589 Posts
    • 552 Thanks
    cfw1994
    • #2
    • 14th Jan 20, 3:22 PM
    • #2
    • 14th Jan 20, 3:22 PM
    I'd turn it round: from what you've read, what do you think?
    Plenty of opinions about ;-)

    Of course equities are seen as more volatile.....and many will want to turn up the dial on 'safer' investments once they start the decummulation phase.....

    ....but on the other hand, you might be hoping to be decumulating for a decent number of years - perhaps 2-3 decades or more!

    In which case.....you might want to have some growth on that investment, just as you might have done the past 3-4 decades.

    Your pot, I believe, should be pretty hefty. You can probably afford to take a gamble with a portion of it. 60:40.....40:60......flip the coin!
    • Albermarle
    • By Albermarle 14th Jan 20, 4:45 PM
    • 2,229 Posts
    • 1,464 Thanks
    Albermarle
    • #3
    • 14th Jan 20, 4:45 PM
    • #3
    • 14th Jan 20, 4:45 PM
    Also you should take account of the whole portfolio, not just the pension .
    For example somebody might be 60% equities in their pension but have a large cash sum outside the pension . So overall could be 40% equities.
    Also the non equity % is rarely all bonds . Depending on what funds /investments you hold there could be some cash ; absolute return funds; property; gold and various financial instruments I do not pretend to understand .
    This is good as bonds might be less volatile than equities but they are not at all guaranteed to hold all their value in a market drop .
    • torrence
    • By torrence 14th Jan 20, 5:25 PM
    • 34 Posts
    • 18 Thanks
    torrence
    • #4
    • 14th Jan 20, 5:25 PM
    • #4
    • 14th Jan 20, 5:25 PM
    Yes equities are more volatile / risky than bonds, most of the time, and so equities also deliver higher returns, most of the time.

    I would also say, yes, reduce the proportion of equities held closer to retirement. If the retirement pot is sufficient to provide the income required at a safe withdrawal rate, then why keep playing the game if you've already won the game?

    But to generate sufficient income and still sustain the portfolio over a 30+ year retirement I wouldn't reduce equity holdings too much as they are the long term drivers of gains.
    • Marine_life
    • By Marine_life 14th Jan 20, 10:27 PM
    • 1,022 Posts
    • 2,036 Thanks
    Marine_life
    • #5
    • 14th Jan 20, 10:27 PM
    • #5
    • 14th Jan 20, 10:27 PM
    how do most people on here have their pension portfolio split /invested ?
    is the classic example of 60% equities / 40% bonds the most common place ? (only from the little i have read up on)
    does the risk increase as the % of equities increases ? and should the split change accordingly as you get towards retirement age and certainly once retired ?

    thanks,
    mick
    Originally posted by Mick70
    That's like asking "How long should my legs be?"
    To which the answer is "Long enough to reach the ground"

    i.e. you need to set out what your goals are, where you are on your journey and how much you have to invest to get an educated answer.
    Money won't buy you happiness....but I have never been in a situation where more money made things worse!
    • aldershot
    • By aldershot 15th Jan 20, 2:50 PM
    • 183 Posts
    • 201 Thanks
    aldershot
    • #6
    • 15th Jan 20, 2:50 PM
    • #6
    • 15th Jan 20, 2:50 PM
    anyone who thinks bonds are low risk in the current environment needs their head examining.
    • Notepad Phil
    • By Notepad Phil 15th Jan 20, 5:39 PM
    • 98 Posts
    • 74 Thanks
    Notepad Phil
    • #7
    • 15th Jan 20, 5:39 PM
    • #7
    • 15th Jan 20, 5:39 PM
    how do most people on here have their pension portfolio split /invested ?
    is the classic example of 60% equities / 40% bonds the most common place ? (only from the little i have read up on)
    does the risk increase as the % of equities increases ? and should the split change accordingly as you get towards retirement age and certainly once retired ?

    thanks,
    mick
    Originally posted by Mick70
    The 60/40 split is one which has worked well historically, but whether it will continue to work well for the future (at least the nearish future) is debatable given the market environment that we've been in and are currently in now. I know that there are some who think everything will be fine, but I am one of those who think otherwise - but then I've never had any direct holding in bonds and have always gone 100% equities on my investments as that has historically beaten any equity/bond split.

    I'm in my fifties and am retired, but I'm also intending to live for a long time yet, so the majority of my assets are in equities with a big chunk in cash. I'm lucky in that I can live off the natural yield of the equity portfolio, but I also have the cash so that I can live off that alone for many years should it ever be needed.

    I've been interested in investing for some 40 years, so I know that I can ride out big market falls without worrying that I'll sell everything just because the markets are down 50%. I also like playing around with spreadsheets, so I've got a good grasp of how long my portfolio can last in even the worst of financial downturns - eg 50% market drop tomorrow and only inflationary increases from then on.

    You do have to be very proactive with cash and constantly looking out for the best places to hold it to get the best interest rates, so I'm not saying that I'll never move at least some of the cash into bonds, but I don't think it will be anytime soon.
    • Albermarle
    • By Albermarle 15th Jan 20, 7:04 PM
    • 2,229 Posts
    • 1,464 Thanks
    Albermarle
    • #8
    • 15th Jan 20, 7:04 PM
    • #8
    • 15th Jan 20, 7:04 PM
    anyone who thinks bonds are low risk in the current environment needs their head examining.
    There have been dire warnings about bonds for a while now but my bonds fund went up 13% last year .
    However it is true they probably can not be relied upon to be a traditional stabiliser as in the past and I have dialled down my bond exposure a but recently. Hopefully the correct decision !
    • C_Mababejive
    • By C_Mababejive 15th Jan 20, 7:53 PM
    • 10,964 Posts
    • 9,862 Thanks
    C_Mababejive
    • #9
    • 15th Jan 20, 7:53 PM
    • #9
    • 15th Jan 20, 7:53 PM
    With continuing low interest rates, could it be that it will be harder and harder for bond funds to acquire good quality bonds with a decent coupon? Surely all the decent long dated bonds have now been bought up by the likes of pension schemes or bond funds? If a company were floating a bond issue now, its rate would surely be much lower than one issued 10 years ago or more?

    Essentially,are we heading toward a shortage of decent bonds and therefor fund prices are getting more and more expensive to buy into to get that return? Dare i say,,over priced? Same with gilts i guess?
    Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
    • Thrugelmir
    • By Thrugelmir 15th Jan 20, 8:31 PM
    • 66,370 Posts
    • 58,423 Thanks
    Thrugelmir
    There have been dire warnings about bonds for a while now but my bonds fund went up 13% last year .
    Originally posted by Albermarle
    Reminds me of an investment quote.

    "Know what you own, and know why you own it"
    “Risk comes from not knowing what you are doing. – Warren Buffett”
    • Mordko
    • By Mordko 15th Jan 20, 11:18 PM
    • 887 Posts
    • 658 Thanks
    Mordko
    1. 60/40 and increasing fixed income over time is a good rule of thumb.

    2. What is “risky” depends on the specific risk. Even within an asset class there are major variations in how they respond to a particular risk. For example TIPS do great in an inflationary climate. Other Long term bonds get devastated by unexpected inflation.

    3. Wouldn’t say that “stocks are risky and bonds are not”. In general, bonds are better for dealing with short term risks. Stocks are better for handling long term risks.

    4. Some people here seem to know for a fact that bonds will lose value. That’s BS.

    5. We’ve had a 40 year secular bull in bonds and a 10 year bull market in stocks. Will they end? For sure. When? No idea.

    6. Neither gold nor property replace fixed income. Both have much higher short term volatility. Property is positively correlated to equity but less liquid. Gold provides zero real return long term.
    • Mordko
    • By Mordko 16th Jan 20, 12:32 AM
    • 887 Posts
    • 658 Thanks
    Mordko
    One last point... Salary/pension = fixed income. A lot of people ignore that and have too much FI as a result.
    • Apodemus
    • By Apodemus 16th Jan 20, 6:38 AM
    • 1,566 Posts
    • 1,339 Thanks
    Apodemus
    On the cusp of retirement (and with old-fashioned views on investments), my spreadsheet currently has me making a final transfer into my SIPP and using that to construct a ladder of short-dated Gilts to give five-years equivalent of the natural yield on the rest of the SIPP portfolio (plus 2.5% increase each year). The plan is to use the yield to keep buying the forward Gilts and use the gilt redemptions (at term) as the annual income from the SIPP. I am hoping that this gives me sufficient hedge against a sequence of returns risk. The Gilts total will form about 10% of total SIPP value.

    I guess I could simply retain cash in the SIPP or withdraw it early and keep it elsewhere at a higher rate of interest. But (at least on paper) i’m currently minded to go for the Gilts.
    • Linton
    • By Linton 16th Jan 20, 9:32 AM
    • 11,753 Posts
    • 12,227 Thanks
    Linton
    With continuing low interest rates, could it be that it will be harder and harder for bond funds to acquire good quality bonds with a decent coupon? Surely all the decent long dated bonds have now been bought up by the likes of pension schemes or bond funds? If a company were floating a bond issue now, its rate would surely be much lower than one issued 10 years ago or more?

    Essentially,are we heading toward a shortage of decent bonds and therefor fund prices are getting more and more expensive to buy into to get that return? Dare i say,,over priced? Same with gilts i guess?
    Originally posted by C_Mababejive

    Bonds continuously change in price so that the current returns for the same time period to maturity are equivalent and independent of the coupon (stated rate of return for a £100 bond).. So for example a £100 gilt paying £4 every year for the next 40 years will cost you £195. The market ensures that there is not a shortage.
    • waveydavey48
    • By waveydavey48 16th Jan 20, 9:56 AM
    • 73 Posts
    • 99 Thanks
    waveydavey48
    I've followed Lars Kroijer's view that in the long run you won't go far wrong with a mix of equities which track the market and bonds provided you are widely diversified and the mix reflects your risk profile.

    Do many forum members now think he's wrong?
    • Linton
    • By Linton 16th Jan 20, 9:57 AM
    • 11,753 Posts
    • 12,227 Thanks
    Linton
    To return to the OP:

    There are simplistic rules of thumb and recommendations given in popular dummy's guides to investing and by investment gurus regarding % bonds and the types of bond one should use. They almost probably not disastrously wrong, but they may not be the best allocations for your specific circumstances and objectives or for the current state of the world economy.


    As with any investment you should buy bonds to meet an objective. Without an objective any % is as right or wrong as any other. One simple objective is to constrain the likely fall of your investment pot in a crash. If one assumes an equity fall of 50% and constant safe bond prices then it's simple maths to determine the % bonds for any given desired maximum portfolio fall. Of course that same objective could be achieved with cash rather than bonds.


    If you are investing for the very long term and have a steady income from elsewhere then you may decide to accept a 50% fall in equity and hold no bonds at all. Another objective could be to achieve a moderately steady income.


    So for example I hold a growth portfolio and a separate income portfolio. The growth portfolio is 100% equity. The income portfolio is split to provide diversification and comprises 55% equity and 35% corporate and emerging market bonds, and 10% other investments. None of the bonds are gilts or similar very safe developed country government bonds since they produce minimal income.
    • Linton
    • By Linton 16th Jan 20, 10:04 AM
    • 11,753 Posts
    • 12,227 Thanks
    Linton
    I've followed Lars Kroijer's view that in the long run you won't go far wrong with a mix of equities which track the market and bonds provided you are widely diversified and the mix reflects your risk profile.

    Do many forum members now think he's wrong?
    Originally posted by waveydavey48

    You won't go far wrong, although optimisation and modification of that simple statement for your particular circumstances can be beneficial. However when you get to the next level of detail things get more complex. Keeping to the topic of bonds, what % and what type are important questions.
    Last edited by Linton; 16-01-2020 at 10:09 AM.
    • Mordko
    • By Mordko 16th Jan 20, 11:07 AM
    • 887 Posts
    • 658 Thanks
    Mordko
    I've followed Lars Kroijer's view that in the long run you won't go far wrong with a mix of equities which track the market and bonds provided you are widely diversified and the mix reflects your risk profile.

    Do many forum members now think he's wrong?
    Originally posted by waveydavey48
    He’s right.
    • george4064
    • By george4064 16th Jan 20, 11:57 AM
    • 1,441 Posts
    • 1,429 Thanks
    george4064
    I'm 28, actively contributing to my DC pension and I am 100% global equities.
    "If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett

    Save £12k in 2017 - #003 £12,427.51 (104%)
    Save £12k in 2018 - #004 £9,165.94 (46%)
    Save £12k in 2019 - #007 £11,332.36 (94%)
    • C_Mababejive
    • By C_Mababejive 16th Jan 20, 11:59 AM
    • 10,964 Posts
    • 9,862 Thanks
    C_Mababejive
    Bonds continuously change in price so that the current returns for the same time period to maturity are equivalent and independent of the coupon (stated rate of return for a £100 bond).. So for example a £100 gilt paying £4 every year for the next 40 years will cost you £195. The market ensures that there is not a shortage.
    Originally posted by Linton
    Yes but would you want to pay £195 for a £4 return every year for 40 years? I guess if its to fund retirement you wouldnt mind as when you snuff it, it wont be your problem ??
    Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
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