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    • DairyQueen
    • By DairyQueen 5th Jul 17, 5:21 PM
    • 227Posts
    • 373Thanks
    Pension Portfolio - Is this Looking Sensible?
    • #1
    • 5th Jul 17, 5:21 PM
    Pension Portfolio - Is this Looking Sensible? 5th Jul 17 at 5:21 PM
    Sorry to keep bothering you all. You can tell that I'm at that critical point of pension planning and am seeking to understand all the relevant factors, and need reassurance that I'm on the right track.

    I have approx 233k to create my pension portfolio from this point forward. About 5% is already invested in S&S ISAs and another small percentage is in legacy direct shareholdings acquired over the years. The bulk is in pension wrappers (some of which is already invested - mostly in the UK) but I have a wodge of cash now inside the pension wrapper that needs to be invested right now. In addition I have a reasonable amount of cash which will provide enough income for at least three years.

    I do not plan to draw on any of this money for 7 years. I will also be making the max contribution for non-earners (3600 gross) for the next 6 years.

    Given this 7-year timeline I have a medium risk attitude. I could bear to see the total value drop up to 20% but anything beyond that would likely keep me awake at night. With that in mind I think that I need about 30% invested in a defensive fund. I am perfectly happy to sacrifice overall return for that protection. My ideal would be for the portfolio to return inflation plus 4% but I would be OK if it simply outperformed inflation.

    I am considering this allocation:
    UK - 20%
    US - 20%
    Europe - 10%
    Global Defensive (Troy Trojan or similar) - 30%
    Global Equity - 10% (Fundsmith or similar)
    Asia - 10%

    I realise that I will have a lot of overall exposure to the US (too much?) so maybe I should change the US percentage. My plan is to invest in primarily in trackers other than the defensive managed fund. Given the performance of the US market (and likely fall should Trump fail to deliver) I am considering holding back the 20% investment in the US until the US market takes a dip. Given this is a finger-in-the-air job who knows when that would be.

    1) Does the above look like a reasonable diversification? Especially given my weighting to the USA?
    2) Should I hold-off investing in the US tracker for the moment? If so, should I invest elsewhere geographically for what may be a relatively short period? Or would it be better to simply sit on the cash and wait for a dip in the US market?
    3) Am I gaining anything over investing in Vanguard with the above strategy?
    4) I am tempted to reallocate around 5% of the funds targeted for the US tracker to a specific (managed) global technology fund but I realise I am at risk of allowing myself to be distracted from my primary geographic diversification. Any thoughts on this?

    Thank you for your help; it's always much appreciated.
Page 1
    • bigadaj
    • By bigadaj 6th Jul 17, 10:55 PM
    • 10,810 Posts
    • 7,125 Thanks
    • #2
    • 6th Jul 17, 10:55 PM
    • #2
    • 6th Jul 17, 10:55 PM
    Your proposed portfolio is significantly abive what appears to be your personal risk appetite.

    You say you don't want to exceed a 20% drop but your allocation is probably 80-90% equity, so a loss potential of 40-50%.

    Before working out allocations, whether these be geographic, asset class or market timing you need to give that some more thought.
  • jamesd
    • #3
    • 7th Jul 17, 2:32 AM
    • #3
    • 7th Jul 17, 2:32 AM
    It's a reasonable average allocation. However, we're not in average times and Guyton's work on taming the sequence of returns risk suggests that now is a time to have half of your anticipated allocation in equities.

    Normally that would mean more in corporate and government bonds but some recent research found that money market (US Treasury bills) were a better choice at times with low interest rates, which is our situation today. So I suggest some significant use of money market as well as or instead of bond funds at the moment. Uninvested cash is a suitable alternative to money market investments.

    Alternatively, outside a pension, you could look to make some use of peer to peer lending. At the moment that can provide very attractive returns with low correlation with equities or bonds. Withdrawing money from a pension to do this would be sensible if it interests you.
    Last edited by jamesd; 07-07-2017 at 2:36 AM.
    • DairyQueen
    • By DairyQueen 7th Jul 17, 2:34 PM
    • 227 Posts
    • 373 Thanks
    • #4
    • 7th Jul 17, 2:34 PM
    • #4
    • 7th Jul 17, 2:34 PM
    Thank you both. I will be revisiting my starting point bearing in mind all of your comments.
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