Financial planning for and during retirement

[alscar]

Derek Chevalier said:

alscar said:

Whenever I have been cold called by various Gold investment “brokers” they all seem to suggest that holding 5% of your total liquid asset base is the answer.

I often see gold argued as something that improves the sustainability of a retirement portfolio, but this is often when using just the S&P 500. When compared to a more diversified approach, the outcomes are often very different.

I hear you.
I have also found that the type of approach from these Brokers is what I would term aggressive in nature.

[Derek Chevalier]

Derek Chevalier said:

alscar said:

Whenever I have been cold called by various Gold investment “brokers” they all seem to suggest that holding 5% of your total liquid asset base is the answer.

I often see gold argued as something that improves the sustainability of a retirement portfolio, but this is often when using just the S&P 500. When compared to a more diversified approach, the outcomes are often very different.

And worth nothing that it has gone through periods of going nowhere fast - see the returns from 1980-2005. Would all investors be able to stick with this?

[alscar]

Derek Chevalier said:

Derek Chevalier said:

alscar said:

Whenever I have been cold called by various Gold investment “brokers” they all seem to suggest that holding 5% of your total liquid asset base is the answer.

I often see gold argued as something that improves the sustainability of a retirement portfolio, but this is often when using just the S&P 500. When compared to a more diversified approach, the outcomes are often very different.

And worth nothing that it has gone through periods of going nowhere fast - see the returns from 1980-2005. Would all investors be able to stick with this?

I think that may depend on their total wealth in £ terms ?

[Derek Chevalier]

alscar said:

Derek Chevalier said:

alscar said:

Sometimes it is also not just about the simple maths but more so about the comfort value ( perceived or otherwise ) that holding cash also brings.

I'd suggest an approach that gives a perceived comfort value (but won't be of much use when times are tough) is worse than no comfort value.

Respectfully disagree.
I simply don’t understand why holding cash - surplus to whatever the usual wisdom says or otherwise can ever not be of much use in tough times ?

Because some may be under the belief that it is going to help them ride out whatever storm hits their retirement plan, but 2 years into a multi-year drawdown (assuming 100% equity portfolio) and their cash buffer is depleted, they have no plan B as they thought Plan A (2-year cash buffer) was all that was required.

That's probably going to be stressful, particularly when your overall portfolio is taking a pummelling.

I haven't seen examples of Plan B for this scenario, but I may have missed them.

[alscar]

Derek Chevalier said:

Because some may be under the belief that it is going to help them ride out whatever storm hits their retirement plan, but 2 years into a multi-year drawdown (assuming 100% equity portfolio) and their cash buffer is depleted, they have no plan B as they thought Plan A (2-year cash buffer) was all that was required.

That's probably going to be stressful, particularly when your overall portfolio is taking a pummelling.

I haven't seen examples of Plan B for this scenario, but I may have missed them.

Ah ok.
Might be a naive / simplistic thing to say but surely those with 100% equity portfolios and no cash buffer will be rather more stressed though ?

[Phil.]

alscar said:

Ah ok.
Might be a naive / simplistic thing to say but surely those with 100% equity portfolios and no cash buffer will be rather more stressed though ?

Does anyone have a 100% equity portfolio or is this used for discussion purposes only? I’m retired and I have around 65% in equities with the remainder diversified across a range of investments.

[okgo]

Phil. said:

Does anyone have a 100% equity portfolio or is this used for discussion purposes only? I’m retired and I have around 65% in equities with the remainder diversified across a range of investments.

Probably loads in the planning ‘for’ - guessing many fewer ‘during’ retirement.

[alscar]

Phil. said:

alscar said:

Ah ok.
Might be a naive / simplistic thing to say but surely those with 100% equity portfolios and no cash buffer will be rather more stressed though ?

Does anyone have a 100% equity portfolio or is this used for discussion purposes only? I’m retired and I have around 65% in equities with the remainder diversified across a range of investments.

I used it for discussion purposes but I have 2 good friends / ex work colleagues whose portfolios are both 100% equity.
My transferred DB pension is around 74% equity / 26% bond.

[bmwmike]

Phil. said:

alscar said:

Ah ok.
Might be a naive / simplistic thing to say but surely those with 100% equity portfolios and no cash buffer will be rather more stressed though ?

Does anyone have a 100% equity portfolio or is this used for discussion purposes only? I’m retired and I have around 65% in equities with the remainder diversified across a range of investments.

Yes, I do. Am sure there must be lots of people with 100%. Mine is mostly in global passive funds and etfs. Approx 30% is in a tech fund, which is itself 56% four or five of the big tech firms, all risk rating >4 iirc.

Whats the magic ratio of equity to bonds? Last i looked they all tanked. I am 49.5. Not interested in property, not interested in gold. Got into equity investing in late 2005, fwiw.

[xeny]

alscar said:

Ah ok.
Might be a naive / simplistic thing to say but surely those with 100% equity portfolios and no cash buffer will be rather more stressed though ?

Depends if that 100% equity portfolio (which to me implies no cash buffer - otherwise it's x% cash, (100-x)% equities)has given them significantly better returns in the good times so they start out with much more capital.

[xeny]

alscar said:

Respectfully disagree.
I simply don’t understand why holding cash - surplus to whatever the usual wisdom says or otherwise can ever not be of much use in tough times ?

It's likely to be of use in the tough times, but holding it in the good times means you're likely to enter those tough times in a worse situation, so the overall situation is worse

[Steve H]

okgo said:

Phil. said:

Does anyone have a 100% equity portfolio or is this used for discussion purposes only? I’m retired and I have around 65% in equities with the remainder diversified across a range of investments.

Probably loads in the planning ‘for’ - guessing many fewer ‘during’ retirement.

But that takes us back to the question of timeframes. If a 50 year old planning to retire at 60 is 100% equities on the basis that it will come in his favour in the long term then what’s the difference between that and a 50 year old who is retiring tomorrow?

If the volatility of stocks are generally considered to flatten themselves out over a year or two, or five, or ten, then it’s still the overall duration that is important (for the great majority of the funds at least).

[craig1912]

When money is going in I was always 100% equities but when it’s coming out I have around 60% equities. Sequence Risk can be a big issue.

https://www.investopedia.com/terms/s/sequence-risk...

In terms of income my DFM and IFA have put together a series of structured products that “mature” every six months to provide my income which is covering me at the moment until 2029, providing the FTSe doesn’t drop below 4000ish.
I have very little in cash within my pension.

[xeny]

Steve H said:

But that takes us back to the question of timeframes. If a 50 year old planning to retire at 60 is 100% equities on the basis that it will come in his favour in the long term then what’s the difference between that and a 50 year old who is retiring tomorrow?

If the volatility of stocks are generally considered to flatten themselves out over a year or two, or five, or ten, then it’s still the overall duration that is important (for the great majority of the funds at least).

The generally there is important. There's no certainty about the future, and if you want to cover ten years in cash for a 30 year retirement that is a huge part of your assets, which in turn means probably less total return which means a much lower standard of holidaying. Insurance has a cost, the more insurance, the more cost.

In the former of your two cases, if SHTF then you change your plan and hang on at work until you drop/get dropped. Getting another well compensated role when you've retired at 50 is significantly less than certain.

[Phil.]

Steve H said:

But that takes us back to the question of timeframes. If a 50 year old planning to retire at 60 is 100% equities on the basis that it will come in his favour in the long term then what’s the difference between that and a 50 year old who is retiring tomorrow?

If the volatility of stocks are generally considered to flatten themselves out over a year or two, or five, or ten, then it’s still the overall duration that is important (for the great majority of the funds at least).

IFA’s and DFM’s invest on the basis of your preferred risk profile. Mines medium-high now and has been for the past 10 years prior to retirement which resulted in 65% in equities. Given I’m investing for the next 20-30 years I’m staying with this risk profile for now.

[bitchstewie]

Steve H said:

But that takes us back to the question of timeframes. If a 50 year old planning to retire at 60 is 100% equities on the basis that it will come in his favour in the long term then what’s the difference between that and a 50 year old who is retiring tomorrow?

If the volatility of stocks are generally considered to flatten themselves out over a year or two, or five, or ten, then it’s still the overall duration that is important (for the great majority of the funds at least).

Investing is about stomach as much as it is charts.

Show me which 50 year old who are retiring tomorrow with average sized retirement pots and the typical appetite for risk can truly stomach seeing the portfolio that has to sustain them for the rest of their life drop by 40% knowing there's no more money coming in to "buy the dip" or make regular investments or whatever.

I'm not retired but I read enough to be pretty sure the "there's no more money coming in" thing changes a lot of peoples appetite for risk.

[craig1912]

bhstewie said:

Investing is about stomach as much as it is charts.

Show me which 50 year old who are retiring tomorrow with average sized retirement pots and the typical appetite for risk can truly stomach seeing the portfolio that has to sustain them for the rest of their life drop by 40% knowing there's no more money coming in to "buy the dip" or make regular investments or whatever.

I'm not retired but I read enough to be pretty sure the "there's no more money coming in" thing changes a lot of peoples appetite for risk.

That’s probably about right- prior to retirement I was high risk, 100% equities- post retirement I’m medium for long term and medium low short term.

[Phil.]

bhstewie said:

Investing is about stomach as much as it is charts.

Show me which 50 year old who are retiring tomorrow with average sized retirement pots and the typical appetite for risk can truly stomach seeing the portfolio that has to sustain them for the rest of their life drop by 40% knowing there's no more money coming in to "buy the dip" or make regular investments or whatever.

I'm not retired but I read enough to be pretty sure the "there's no more money coming in" thing changes a lot of peoples appetite for risk.

I’ve been invested through the 2007, 2016 and COVID market drops, the latter being retired. It wasn’t pleasant but this combined experience provided some comfort when watching your retirement pot disappearing in large amounts very quickly. The thing to do when this happens is not to sell. Just sit tight and wait for the recovery.

[CarDoodle]

One other question for Derek (or anyone with an opinion) is do you categorise fixed rate savings in with bond assets in a portfolio? For example 1/2/3/4/5 year fixed rate accounts. The description is often fixed rate bond so I’m curious how others categorise them.

[bitchstewie]

Phil. said:

I’ve been invested through the 2007, 2016 and COVID market drops, the latter being retired. It wasn’t pleasant but this combined experience provided some comfort when watching your retirement pot disappearing in large amounts very quickly. The thing to do when this happens is not to sell. Just sit tight and wait for the recovery.

Sure statistically and looking to history I agree.

All I'm saying is the stomach doesn't work on statistics and history