Defensively investing £100k
Discussion
Long time lurker here.
Disclaimer: I have no intention of using PH as my sole source of financial advice. I’ve done a lot of my own reading and am trying to triangulate as much as possible. I will probably pay for an IFA though in my (limited) experience they can tend to be understandably reluctant to be unequivocal. That being said there is a large body of quality collective knowledge on here, albeit I’ve rarely lurked this sub before.
My spouse and I both have defined benefit public sector pensions. We also have £120k invested in several stocks and shares ISAs; I manage her money as well as my own (in truth we consider it one big pool). I’m a strictly passive investor and 100% of that money is in equities with the vast majority invested in global index funds (Vanguard’s Global All-Share and HSBC’s FTSE All-World Index Fund) with a couple of tilts amounting to 15% of the total to tech and the U.K. I’m entirely comfortable with the risk of a 100% equity portfolio because our intended retirement is in 20 years, we will not need to touch the money and even in the event of a market catastrophe approaching the drawdown period our pensions mean we will be fine.
The query relates to a lump sum we are due to come in to in the next 6 months or so, which will be circa £120-£130k after tax. We don’t have any high interest debts which need to be paid off. My intention for the lump sum is to drip feed it into our ISA’s from next year (though we will be able to retain most of it as we can fund our ISA’s at least partly from income) but to squirrel the vast majority away with the intention of piling the whole lot into equities when a bear market or crash does happen and equities offer better value. Whilst I don’t believe anybody who claims to know when the next market crash will be, PE ratios suggest that stocks in the US in particular are expensive and nobody would be surprised if there was a correction in the next couple of years. In the meantime I am not overly bothered if I don’t get a great return on the investment; I’m mostly interested in not losing a great deal when the market corrects. I’ve boiled my options down to keeping the money in cash and trying not to think too much about a 0.5% savings rate (the advantage being it’s guaranteed crash protection) or investing in a mix of global government bonds, inflation linked U.K. gilts and maybe a small fraction in global equities (the advantage being a potentially better return than cash).
So finally to the question; in the same scenario, given the priorities listed, what would you (or Warren Buffet) do?
Disclaimer: I have no intention of using PH as my sole source of financial advice. I’ve done a lot of my own reading and am trying to triangulate as much as possible. I will probably pay for an IFA though in my (limited) experience they can tend to be understandably reluctant to be unequivocal. That being said there is a large body of quality collective knowledge on here, albeit I’ve rarely lurked this sub before.
My spouse and I both have defined benefit public sector pensions. We also have £120k invested in several stocks and shares ISAs; I manage her money as well as my own (in truth we consider it one big pool). I’m a strictly passive investor and 100% of that money is in equities with the vast majority invested in global index funds (Vanguard’s Global All-Share and HSBC’s FTSE All-World Index Fund) with a couple of tilts amounting to 15% of the total to tech and the U.K. I’m entirely comfortable with the risk of a 100% equity portfolio because our intended retirement is in 20 years, we will not need to touch the money and even in the event of a market catastrophe approaching the drawdown period our pensions mean we will be fine.
The query relates to a lump sum we are due to come in to in the next 6 months or so, which will be circa £120-£130k after tax. We don’t have any high interest debts which need to be paid off. My intention for the lump sum is to drip feed it into our ISA’s from next year (though we will be able to retain most of it as we can fund our ISA’s at least partly from income) but to squirrel the vast majority away with the intention of piling the whole lot into equities when a bear market or crash does happen and equities offer better value. Whilst I don’t believe anybody who claims to know when the next market crash will be, PE ratios suggest that stocks in the US in particular are expensive and nobody would be surprised if there was a correction in the next couple of years. In the meantime I am not overly bothered if I don’t get a great return on the investment; I’m mostly interested in not losing a great deal when the market corrects. I’ve boiled my options down to keeping the money in cash and trying not to think too much about a 0.5% savings rate (the advantage being it’s guaranteed crash protection) or investing in a mix of global government bonds, inflation linked U.K. gilts and maybe a small fraction in global equities (the advantage being a potentially better return than cash).
So finally to the question; in the same scenario, given the priorities listed, what would you (or Warren Buffet) do?
Buffett wouldn't worry because even when you're down to your last billion you're not going to go hungry.
The usual active suspects for "wealth preservation" tend to be Troy, Ruffer, and Capital Gearing.
There are of course others but those have been around a fair while so whilst past performance is no guarantee etc. you can at least look at how they've done through several bad periods.
The usual active suspects for "wealth preservation" tend to be Troy, Ruffer, and Capital Gearing.
There are of course others but those have been around a fair while so whilst past performance is no guarantee etc. you can at least look at how they've done through several bad periods.
I think the key here is that you have two secure incomes with secure pensions, already have a solid equity portfolio and no consumer debt. The impending £120 is wholly superfluous in general terms.
As such and as you seem to have a good grip on sensible investing and fee minimisation, then maybe any spend should be on tax advise to ensure you maximise your wrappers and allocations etc?
As such and as you seem to have a good grip on sensible investing and fee minimisation, then maybe any spend should be on tax advise to ensure you maximise your wrappers and allocations etc?
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hstewie said:
hstewie said: Buffett wouldn't worry because even when you're down to your last billion you're not going to go hungry.
The usual active suspects for "wealth preservation" tend to be Troy, Ruffer, and Capital Gearing.
There are of course others but those have been around a fair while so whilst past performance is no guarantee etc. you can at least look at how they've done through several bad periods.
Rule 1 Never lose moneyThe usual active suspects for "wealth preservation" tend to be Troy, Ruffer, and Capital Gearing.
There are of course others but those have been around a fair while so whilst past performance is no guarantee etc. you can at least look at how they've done through several bad periods.
Rule 2 Never forget rule number one.
Warren Buffett.
bhstewie said:
hstewie said: Buffett wouldn't worry because even when you're down to your last billion you're not going to go hungry.
The usual active suspects for "wealth preservation" tend to be Troy, Ruffer, and Capital Gearing.
There are of course others but those have been around a fair while so whilst past performance is no guarantee etc. you can at least look at how they've done through several bad periods.
Thanks for the reply and for giving me something to consider that I hadn’t thought of, though I’m not desperately keen on the high fees nor, as a point of principle, the active management. The usual active suspects for "wealth preservation" tend to be Troy, Ruffer, and Capital Gearing.
There are of course others but those have been around a fair while so whilst past performance is no guarantee etc. you can at least look at how they've done through several bad periods.
DonkeyApple said:
I think the key here is that you have two secure incomes with secure pensions, already have a solid equity portfolio and no consumer debt. The impending £120 is wholly superfluous in general terms.
As such and as you seem to have a good grip on sensible investing and fee minimisation, then maybe any spend should be on tax advise to ensure you maximise your wrappers and allocations etc?
Yes you’re right I will bear this in mind as until now it hasn’t been a consideration with everything being wrapped within an ISA.As such and as you seem to have a good grip on sensible investing and fee minimisation, then maybe any spend should be on tax advise to ensure you maximise your wrappers and allocations etc?
I 8 a 4RE said:
How much would it take to pay off the
mortgage?
If you’re planning on drip feeding ISAs in the future anyway, increased cashflow from no mortgage could do that.
Paying off mortgage would yield higher ROI than 0.5% savings accounts, not to mention the yield on mental health.
The mortgage dwarfs this sum but I’m comfortable with it and I have no psychological hang ups about it - though you’re absolutely right to point it out and the me of 5 years ago would’ve probably put it into the mortgage. Fortunately cash flow isn’t an issue as our combined income is likely to allow us to come close to maxing ISA allowance in the next few years regardless; any top up coming from the sum being discussed would be minimal. You’re right that paying off the mortgage beats cash savings but that doesn’t factor in the medium/long term plan is to invest the cash with the expectation of handily beating the 1.19% mortgage APR in returns, even if it’s highly unlikely the next 10 years will be as bullish as the last. mortgage?
If you’re planning on drip feeding ISAs in the future anyway, increased cashflow from no mortgage could do that.
Paying off mortgage would yield higher ROI than 0.5% savings accounts, not to mention the yield on mental health.
I probably should’ve been clearer; the money comes from the wife’s side so whilst she trusts me to manage her money I know she would be stressed out by an immediate 30% drawdown, even if it wasn’t crystallised and I don’t want to cause her stress. That’s the reason for looking to avoid losses in the short term until a market correction. I’m aware that effectively timing the market isn’t possible for an average punter like me and if it were wholly my money, I’d invest the whole lot in equities immediately and forget about it for two decades.
I guess you could look at low cost multi-assets funds like Vanguard LifeStrategy, HSBC GlobalStrategy etc.
Depends how much concern you have about government bonds and getting exposure to alternatives as from what I've found the low cost passive multi-asset funds don't seem to look at gilts or TIPS or gold or property etc.
Depends how much concern you have about government bonds and getting exposure to alternatives as from what I've found the low cost passive multi-asset funds don't seem to look at gilts or TIPS or gold or property etc.
I don't work in the finance industry and it's difficult to separate good headlines and people trying to sell their product etc. but there does seem to be a fair bit of noise lately about normal bonds and how they've gone from "risk free return" to "return free risk".
I tend to think of LifeStrategy 40 as being the closest to the wealth preservers I mentioned but that's more down to the equity exposure.
If you look at the active funds there's currently a real tilt towards index linked and inflation protection plus they can change the asset allocation whilst as you know LifeStrategy will always be X percent stocks and Y percent bonds.
I have no bloody idea who's right
I tend to think of LifeStrategy 40 as being the closest to the wealth preservers I mentioned but that's more down to the equity exposure.
If you look at the active funds there's currently a real tilt towards index linked and inflation protection plus they can change the asset allocation whilst as you know LifeStrategy will always be X percent stocks and Y percent bonds.
I have no bloody idea who's right
Thanks for the food for thought. It ought to be possible to just mirror what the actives are doing, to a degree (am I right in thinking that the entire list of funds and assets they invest in is not published, only the top 10 holdings?) but that’s a lot of work in tinkering and rebalancing again with no guarantee.
Nobody knows who’s right so for me part of the value of doing lots of research is being able to sleep better knowing I did what I could, when squeaky bum time arrives!
Nobody knows who’s right so for me part of the value of doing lots of research is being able to sleep better knowing I did what I could, when squeaky bum time arrives!
Double Polaroid said:
Thanks for the food for thought. It ought to be possible to just mirror what the actives are doing, to a degree (am I right in thinking that the entire list of funds and assets they invest in is not published, only the top 10 holdings?) but that’s a lot of work in tinkering and rebalancing again with no guarantee.
Nobody knows who’s right so for me part of the value of doing lots of research is being able to sleep better knowing I did what I could, when squeaky bum time arrives!
Broadly speaking I'd say look at the annual/semi-annual reports for the full listings.Nobody knows who’s right so for me part of the value of doing lots of research is being able to sleep better knowing I did what I could, when squeaky bum time arrives!
You're right it should be possible to mirror the actives but the question I'd be asking is can you do so taking into account dealing fees, time and effort, and the fact anything you see published in a factsheet will have been done way before you get to see it?
I know I can't which is why I don't begrudge some of them their fees.
With passives same thing, how much time do you want to spend saving a few bps when LifeStrategy is 0.22% all-in and they do all the re-balancing for you?
Keep in mind platform makes a difference too as with the right platform you can hold for free so you've only the fund fees (and any dealing fees) to worry about.
I'm really not sure there's a single right answer and for the more defensive/preservation part of my money I don't see an issue spreading it around platforms and approaches as it's less of a bet on who's right.
Double Polaroid said:
Yeah VLS20 is in my thoughts though like you I’m not sold on the exact asset/fund mix but on the other hand there’s no perfect solution.
It's worth being aware of the duration and corresponding interest rate riskhttps://www.ftadviser.com/investments/2021/04/27/l...
"The £29bn LifeStrategy range has historically had higher government bond exposure than peers, and the effective duration of their bond holdings – ostensibly a sign of their sensitivity to interest rate rises – stands at a relatively elevated 10 years, according to Morningstar."
which is going to have an impact if we get some inflation/interest rate rises etc.
Same goes for inflation linked UK gilts (which you mentioned in your first post) with some funds having durations in excess of 20 years
https://www.vanguardinvestor.co.uk/investments/van...
DonkeyApple said:
I think the key here is that you have two secure incomes with secure pensions, already have a solid equity portfolio and no consumer debt. The impending £120 is wholly superfluous in general terms.
As such and as you seem to have a good grip on sensible investing and fee minimisation, then maybe any spend should be on tax advise to ensure you maximise your wrappers and allocations etc?
I do recall a similar question in the Telegraph some years ago from a retiring senior police officer, wondering how to invest his lump sum - the two experts they got to reply basically said 'why would you want to invest it - get it spent!'As such and as you seem to have a good grip on sensible investing and fee minimisation, then maybe any spend should be on tax advise to ensure you maximise your wrappers and allocations etc?
Derek Chevalier said:
It's worth being aware of the duration and corresponding interest rate risk
https://www.ftadviser.com/investments/2021/04/27/l...
"The £29bn LifeStrategy range has historically had higher government bond exposure than peers, and the effective duration of their bond holdings – ostensibly a sign of their sensitivity to interest rate rises – stands at a relatively elevated 10 years, according to Morningstar."
which is going to have an impact if we get some inflation/interest rate rises etc.
Same goes for inflation linked UK gilts (which you mentioned in your first post) with some funds having durations in excess of 20 years
https://www.vanguardinvestor.co.uk/investments/van...
What's your view of the bonds (or non-equity content) in the cheap passive fund of funds v the active "wealth preservation" funds v trying to DIY using passives?https://www.ftadviser.com/investments/2021/04/27/l...
"The £29bn LifeStrategy range has historically had higher government bond exposure than peers, and the effective duration of their bond holdings – ostensibly a sign of their sensitivity to interest rate rises – stands at a relatively elevated 10 years, according to Morningstar."
which is going to have an impact if we get some inflation/interest rate rises etc.
Same goes for inflation linked UK gilts (which you mentioned in your first post) with some funds having durations in excess of 20 years
https://www.vanguardinvestor.co.uk/investments/van...
Derek Chevalier said:
It's worth being aware of the duration and corresponding interest rate risk
https://www.ftadviser.com/investments/2021/04/27/l...
"The £29bn LifeStrategy range has historically had higher government bond exposure than peers, and the effective duration of their bond holdings – ostensibly a sign of their sensitivity to interest rate rises – stands at a relatively elevated 10 years, according to Morningstar."
which is going to have an impact if we get some inflation/interest rate rises etc.
Same goes for inflation linked UK gilts (which you mentioned in your first post) with some funds having durations in excess of 20 years
https://www.vanguardinvestor.co.uk/investments/van...
Nice one, thanks for your thoughts. I’m also interested in your response to Stewie’s follow-up. https://www.ftadviser.com/investments/2021/04/27/l...
"The £29bn LifeStrategy range has historically had higher government bond exposure than peers, and the effective duration of their bond holdings – ostensibly a sign of their sensitivity to interest rate rises – stands at a relatively elevated 10 years, according to Morningstar."
which is going to have an impact if we get some inflation/interest rate rises etc.
Same goes for inflation linked UK gilts (which you mentioned in your first post) with some funds having durations in excess of 20 years
https://www.vanguardinvestor.co.uk/investments/van...
xeny said:
There's always the boring option of Premium Bonds?
Hadn’t considered this. The wife likes the idea!anonymous said:
[redacted]
Unfortunately I’m locked into my mortgage for another three years and my provider doesn’t (or didn’t last I checked) offer the product so probably won’t be inclined to waive the substantial early settlement fee. I wish I had thought about such things a few years earlier as an offset mortgage would probably suit us, depending on the charges. Funny you should mention buy-to-let; the wife has a share in a couple of commercial properties which, by their nature require no input from her at all. However she also owns a buy to let flat (previously her home) and she currently has a nightmare, druggie unemployed tenant who just last week had the fire brigade smashing the door down because he was, by the sounds of things, in a drug-induced stupor. Even before that I saw her heart sink every time the “managing agent” would message her for one or another issue that needed her attention, which prompted me to encourage her to sell (after tax and costs it really doesn’t bring in very much) because of the stress I could see it caused her. Ganga boy was the last straw, hence this post, so BTL is out!
Double Polaroid said:
Funny you should mention buy-to-let; the wife has a share in a couple of commercial properties which, by their nature require no input from her at all. However she also owns a buy to let flat (previously her home) and she currently has a nightmare, druggie unemployed tenant who just last week had the fire brigade smashing the door down because he was, by the sounds of things, in a drug-induced stupor. Even before that I saw her heart sink every time the “managing agent” would message her for one or another issue that needed her attention, which prompted me to encourage her to sell (after tax and costs it really doesn’t bring in very much) because of the stress I could see it caused her. Ganga boy was the last straw, hence this post, so BTL is out!
You think that's a 'problem"?? Well think on this:All you need to do is change your clown agent for a proper one and possibly change your clown tenant one for a proper one too. Job jobbed. Resi goes down the same road as the commercial ones. Peace and profit.
I, on the other hand, recently invested a not inconsiderable sum in 2 x ISAs as well as a couple of GIAs with companies who are 'forum heroes' here.
Result? Within a couple of weeks I'm worth almost 5 figures less than I was, with quite possibly worse to come. It'll probably take months to recover with an equally good chance that it won't recover at all, leaving me with a growing and growing loss and the lovely dilemma of whether to make the classic wrong move and sell up cheap and use the cash to make back the loss and some profit too, or keep watching my "investment" shrink into nothingness whilst hoping that one day it'll go back to where it started.
The problem is, what can I do about it?
N-O-T-H-I-N-G.
ETA: Even the crypto "investment" is down (though not by much)
Edited by Groat on Sunday 19th September 16:26
Groat respectfully stocks aren't usually ever sold as a short term investment so perhaps come back in 5 or ten years and see how they're doing?
I don't know if 5 figures is 1% of what you invested or 20% but they will go up and down but over time the direction of travel is almost always up.
Also I don't know what you invested in but there's a wide range of funds and trusts to cater for all sorts of appetites towards volatility.
Property works for you and that's great but for many people an ISA or general account is much simpler and much more accessible if you need to draw on your funds in a hurry.
I don't know if 5 figures is 1% of what you invested or 20% but they will go up and down but over time the direction of travel is almost always up.
Also I don't know what you invested in but there's a wide range of funds and trusts to cater for all sorts of appetites towards volatility.
Property works for you and that's great but for many people an ISA or general account is much simpler and much more accessible if you need to draw on your funds in a hurry.
Double Polaroid said:
I’ve boiled my options down to keeping the money in cash and trying not to think too much about a 0.5% savings rate (the advantage being it’s guaranteed crash protection) or investing in a mix of global government bonds, inflation linked U.K. gilts and maybe a small fraction in global equities (the advantage being a potentially better return than cash).
As other posters have touched on, I think the issue at the moment is because of low interest rates and QE creating loads of money that is looking for a home, the risk is that all assets are over-valued, not just US equities. If interest rates do rise, then global government bonds and even inflation-linked UK gilts are likely to lose value as well. And I've not looked recently, but I doubt you'd get 1% yield on a developed markets government bond tracker. You could try something like an absolute return fund which in theory might limit the downside through the use of derivatives, though I'm not sure it would be a good idea in practice.However, I'm not clear why you are looking to invest defensively, as I don't recall you giving any reasons in your post for doing so. You seem to be saying that you've got 20 years before you'll need the money and I doubt there's ever been a period in time when equities have lost money over that timescale. By being overly defensive, you could simply be swapping a very low risk of losing money over this timescale for the certainty of losing money by investing in seemingly low risk assets. So I'd suggest waiting no more than a few months to see if there's a correction and then put the whole lot in something with a high percentage in equities.
Edited by trevalvole on Sunday 19th September 17:28
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