equities / bonds - investment strategy

Mick70 · 14 January 2020 at 3:49PM

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

cfw1994 · 14 January 2020 at 4:22PM

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 · 14 January 2020 at 5:45PM

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 · 14 January 2020 at 6:25PM

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 · 14 January 2020 at 11:27PM

Mick70 wrote: »

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

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.

aldershot · 15 January 2020 at 3:50PM

anyone who thinks bonds are low risk in the current environment needs their head examining.

Notepad_Phil · 15 January 2020 at 6:39PM

Mick70 wrote: »

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

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 · 15 January 2020 at 8:04PM

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 · 15 January 2020 at 8:53PM

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?

Thrugelmir · 15 January 2020 at 9:31PM

Albermarle wrote: »

There have been dire warnings about bonds for a while now but my bonds fund went up 13% last year .

Reminds me of an investment quote.

"Know what you own, and know why you own it"

[Deleted User] · 16 January 2020 at 12:18AM

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.

equities / bonds - investment strategy

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