Bonds / SIPP content
Discussion
Im fortunate with regards my retirement planning in that Ive been in a DB pension since 22 & have a BTL property paid off.
As such I've started to divert some funds into a SIPP (mainly to minimise the 40% tax rate) that I originally viewed as a pension top-up that I could afford to be adventurous with. This has now grown to ~£15k, and will keep adding to at a rate of ~£6k per year for the foreseeable.
I started out with 100% equities viewing it as a small pot that I could afford to take on a higher level of risk. I'm now wondering whether this is a sensible approach? I'm happy that at 35 im 20 years (minimum) away from retirement, so have plenty of time to ride out any storms in the stock markets, but cant find any literature that recommends such an aggressive approach. I've never had to whether a downturn with regards equity investments - but at the moment am reasonably confident I'd keep my head and "just keep buying" if markets were to fall by ~40%, knowing I cant access the money anyway.
What are other people's thoughts on how aggressive I can afford to be?
I've not consulted an IFA (self manage my SIPP) but happy to be told I probably should be.
As such I've started to divert some funds into a SIPP (mainly to minimise the 40% tax rate) that I originally viewed as a pension top-up that I could afford to be adventurous with. This has now grown to ~£15k, and will keep adding to at a rate of ~£6k per year for the foreseeable.
I started out with 100% equities viewing it as a small pot that I could afford to take on a higher level of risk. I'm now wondering whether this is a sensible approach? I'm happy that at 35 im 20 years (minimum) away from retirement, so have plenty of time to ride out any storms in the stock markets, but cant find any literature that recommends such an aggressive approach. I've never had to whether a downturn with regards equity investments - but at the moment am reasonably confident I'd keep my head and "just keep buying" if markets were to fall by ~40%, knowing I cant access the money anyway.
What are other people's thoughts on how aggressive I can afford to be?
I've not consulted an IFA (self manage my SIPP) but happy to be told I probably should be.
I'd read through this thread and this thread to help articulate your thinking in terms of investment goals, risks and when you will require the capital / income.
I do get concerned when you hear phrases such as "that I could afford to be adventurous with". 100% equities does not necessarily equate to a risky investments - riskier than cash, gilts, yes - if the main risk is capital preservation. However, the main risk with both cash and gilts is inflation eroding the future value of those investments (not keeping pace with the cost of living).
A number of questions to ask are:
- how have you invested e.g. fund (passive / managed), individual shares, etc
- what is your investment strategy (methodology)
- what are your timescales
We need to define terms such as "aggressive" to indicate whether you mean asset allocation - a proportion of your overall investment in one or more of the 5 main asset classes: cash, equities, bonds, commercial property and gold - or risk (specific investment vehicle). You can then start to examine the different types of risk to determine your appetite and whether your level of risk is commensurate with the expected level of reward.
FWIW, I was 100% equities via a World index tracker (an ex-company DC scheme - now a SIPP), and am now 100% cash fund for the short-term (6-24 months) in anticipation of a slowdown / recession. I then intend to be 100% in equities (50%-100% individual shares - value investing strategy and/or 50%-100% World index tracker), and still intend to be 100% in equities into my retirement in 19 years or so (mortgage paid off and Little Man's school fees et al will determine when I retire, sadly - no early retirement for me).
My own thinking is that the combination of inflation and rates over the long term are far, far riskier in negatively impacting my investment (cash / gilts), than being 100% in equities (index tracker) - assuming that I have enough cash to cover 6-12 months expected expenditure upon income draw-down (to help fluctuate increased volatility in returns based upon 4% annual withdrawal rate).
Have a read of the article (by the same author of the book that Derek recommends in one of the threads that I have referenced) on 'Lessons from 118 Years of Asset Class Returns Data' to get a feel of the various returns of different asset classes over a long period of time, covering a large number of events.
Note: from a quick perusal of the Credit Suisse Global Investment Returns Yearbook 2018 my thinking on 100% equity asset allocation would be wrong re: the real annualised return on long-term government bonds has beaten equities in developed markets (and globally) from 2000-2017. Hence, based upon the data, I need completely change my thinking on asset allocation, and to understand the conditions that gave rise to long-term government bond performance over this period, and factor in how likely these conditions will continue and for how long. A practical demonstration of how one needs to challenge one's thinking and change it in accordance with evidence.
I do get concerned when you hear phrases such as "that I could afford to be adventurous with". 100% equities does not necessarily equate to a risky investments - riskier than cash, gilts, yes - if the main risk is capital preservation. However, the main risk with both cash and gilts is inflation eroding the future value of those investments (not keeping pace with the cost of living).
A number of questions to ask are:
- how have you invested e.g. fund (passive / managed), individual shares, etc
- what is your investment strategy (methodology)
- what are your timescales
We need to define terms such as "aggressive" to indicate whether you mean asset allocation - a proportion of your overall investment in one or more of the 5 main asset classes: cash, equities, bonds, commercial property and gold - or risk (specific investment vehicle). You can then start to examine the different types of risk to determine your appetite and whether your level of risk is commensurate with the expected level of reward.
FWIW, I was 100% equities via a World index tracker (an ex-company DC scheme - now a SIPP), and am now 100% cash fund for the short-term (6-24 months) in anticipation of a slowdown / recession. I then intend to be 100% in equities (50%-100% individual shares - value investing strategy and/or 50%-100% World index tracker), and still intend to be 100% in equities into my retirement in 19 years or so (mortgage paid off and Little Man's school fees et al will determine when I retire, sadly - no early retirement for me).
My own thinking is that the combination of inflation and rates over the long term are far, far riskier in negatively impacting my investment (cash / gilts), than being 100% in equities (index tracker) - assuming that I have enough cash to cover 6-12 months expected expenditure upon income draw-down (to help fluctuate increased volatility in returns based upon 4% annual withdrawal rate).
Have a read of the article (by the same author of the book that Derek recommends in one of the threads that I have referenced) on 'Lessons from 118 Years of Asset Class Returns Data' to get a feel of the various returns of different asset classes over a long period of time, covering a large number of events.
Note: from a quick perusal of the Credit Suisse Global Investment Returns Yearbook 2018 my thinking on 100% equity asset allocation would be wrong re: the real annualised return on long-term government bonds has beaten equities in developed markets (and globally) from 2000-2017. Hence, based upon the data, I need completely change my thinking on asset allocation, and to understand the conditions that gave rise to long-term government bond performance over this period, and factor in how likely these conditions will continue and for how long. A practical demonstration of how one needs to challenge one's thinking and change it in accordance with evidence.
Edited by putonghua73 on Wednesday 13th February 15:06
putonghua73 said:
I'd read through this thread and this thread to help articulate your thinking in terms of investment goals, risks and when you will require the capital / income.
I do get concerned when you hear phrases such as "that I could afford to be adventurous with". 100% equities does not necessarily equate to a risky investments - riskier than cash, gilts, yes - if the main risk is capital preservation. However, the main risk with both cash and gilts is inflation eroding the future value of those investments (not keeping pace with the cost of living).
A number of questions to ask are:
- how have you invested e.g. fund (passive / managed), individual shares, etc
- what is your investment strategy (methodology)
- what are your timescales
We need to define terms such as "aggressive" to indicate whether you mean asset allocation - a proportion of your overall investment in one or more of the 5 main asset classes: cash, equities, bonds, commercial property and gold - or risk (specific investment vehicle). You can then start to examine the different types of risk to determine your appetite and whether your level of risk is commensurate with the expected level of reward.
FWIW, I was 100% equities via a World index tracker (an ex-company DC scheme - now a SIPP), and am now 100% cash fund for the short-term (6-24 months) in anticipation of a slowdown / recession. I then intend to be 100% in equities (50%-100% individual shares - value investing strategy and/or 50%-100% World index tracker), and still intend to be 100% in equities into my retirement in 19 years or so (mortgage paid off and Little Man's school fees et al will determine when I retire, sadly - no early retirement for me).
My own thinking is that the combination of inflation and rates over the long term are far, far riskier in negatively impacting my investment (cash / gilts), than being 100% in equities (index tracker) - assuming that I have enough cash to cover 6-12 months expected expenditure upon income draw-down (to help fluctuate increased volatility in returns based upon 4% annual withdrawal rate).
Have a read of the article (by the same author of the book that Derek recommends in one of the threads that I have referenced) on 'Lessons from 118 Years of Asset Class Returns Data' to get a feel of the various returns of different asset classes over a long period of time, covering a large number of events.
Note: from a quick perusal of the Credit Suisse Global Investment Returns Yearbook 2018 my thinking on 100% equity asset allocation would be wrong re: the real annualised return on long-term government bonds has beaten equities in developed markets (and globally) from 2000-2017. Hence, based upon the data, I need completely change my thinking on asset allocation, and to understand the conditions that gave rise to long-term government bond performance over this period, and factor in how likely these conditions will continue and for how long. A practical demonstration of how one needs to challenge one's thinking and change it in accordance with evidence.
I’m invested passively, globally. Geographic allocation is broadly as per global market Cap.I do get concerned when you hear phrases such as "that I could afford to be adventurous with". 100% equities does not necessarily equate to a risky investments - riskier than cash, gilts, yes - if the main risk is capital preservation. However, the main risk with both cash and gilts is inflation eroding the future value of those investments (not keeping pace with the cost of living).
A number of questions to ask are:
- how have you invested e.g. fund (passive / managed), individual shares, etc
- what is your investment strategy (methodology)
- what are your timescales
We need to define terms such as "aggressive" to indicate whether you mean asset allocation - a proportion of your overall investment in one or more of the 5 main asset classes: cash, equities, bonds, commercial property and gold - or risk (specific investment vehicle). You can then start to examine the different types of risk to determine your appetite and whether your level of risk is commensurate with the expected level of reward.
FWIW, I was 100% equities via a World index tracker (an ex-company DC scheme - now a SIPP), and am now 100% cash fund for the short-term (6-24 months) in anticipation of a slowdown / recession. I then intend to be 100% in equities (50%-100% individual shares - value investing strategy and/or 50%-100% World index tracker), and still intend to be 100% in equities into my retirement in 19 years or so (mortgage paid off and Little Man's school fees et al will determine when I retire, sadly - no early retirement for me).
My own thinking is that the combination of inflation and rates over the long term are far, far riskier in negatively impacting my investment (cash / gilts), than being 100% in equities (index tracker) - assuming that I have enough cash to cover 6-12 months expected expenditure upon income draw-down (to help fluctuate increased volatility in returns based upon 4% annual withdrawal rate).
Have a read of the article (by the same author of the book that Derek recommends in one of the threads that I have referenced) on 'Lessons from 118 Years of Asset Class Returns Data' to get a feel of the various returns of different asset classes over a long period of time, covering a large number of events.
Note: from a quick perusal of the Credit Suisse Global Investment Returns Yearbook 2018 my thinking on 100% equity asset allocation would be wrong re: the real annualised return on long-term government bonds has beaten equities in developed markets (and globally) from 2000-2017. Hence, based upon the data, I need completely change my thinking on asset allocation, and to understand the conditions that gave rise to long-term government bond performance over this period, and factor in how likely these conditions will continue and for how long. A practical demonstration of how one needs to challenge one's thinking and change it in accordance with evidence.
Edited by putonghua73 on Wednesday 13th February 15:06
So mainly large caps. Hold a global small cap fund (circa 9% of fund)
My timeframe is 22-30 years (between 57 and 65)
Don’t think I can access a SIPP 10 years before state pension age?
Does your employer also offer a DC plan, for new employees? If so, might be worth looking at the investment strategies it offers, and the reasoning behind them, though you most likely won't be able to replicate the exact funds. In the good/bad old days, when annuity purchase at retirement was expected, I recall a typical 'lifestyle' fund would be 100% equities (mainly world) and other return-seeking assets until 10-5 years before target retirement date, when bonds and cash would be phased in. Nowadays I expect people will run equities for longer if they're expecting to go into flexible drawdown.
putonghua73 said:
Note: from a quick perusal of the Credit Suisse Global Investment Returns Yearbook 2018 my thinking on 100% equity asset allocation would be wrong re: the real annualised return on long-term government bonds has beaten equities in developed markets (and globally) from 2000-2017. Hence, based upon the data, I need completely change my thinking on asset allocation, and to understand the conditions that gave rise to long-term government bond performance over this period, and factor in how likely these conditions will continue and for how long. A practical demonstration of how one needs to challenge one's thinking and change it in accordance with evidence.
I haven't got any of the data in front of me but what I would say is that although equities should beat bonds (and cash) over most time periods that doesn't always mean they will. Gassing Station | Finance | Top of Page | What's New | My Stuff