Portfolio balancing
Portfolio balancing
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Padron

Original Poster:

256 posts

1 month

Saturday 4th October
quotequote all
The general advice seems to be to have 120-your age in stocks and the rest in fixed income.

So at 60 say you should have 60% shares and 40% bonds/ cash.

But do you exclude pensions and your house from this calculation?

Thanks

(Most people say the old rule of your age in % in bonds is way too conservative)



Countdown

45,518 posts

214 months

Saturday 4th October
quotequote all
Padron said:
The general advice seems to be to have 120-your age in stocks and the rest in fixed income.

So at 60 say you should have 60% shares and 40% bonds/ cash.

But do you exclude pensions and your house from this calculation?

Thanks

(Most people say the old rule of your age in % in bonds is way too conservative)
I'd definitely exclude the house. I don't consider it part of my pension planning.

In terms of your pension - assuming it's a SIPP then it should definitely be included in your portfolio balancing. if it's not a SIPP then the Pension provider should automatically be doing the balancing (shouldn't they)?

Padron

Original Poster:

256 posts

1 month

Saturday 4th October
quotequote all
No the pension is a defined benefit one so completely separate from the investments and index linked

So I’m assuming that the best balance is 60% equities and 40% cash/ bonds (/cars!) for the rest at my age (60). That’s what we’re currently at.

That feels about right in terms of risk/ reward to me.

Simpo Two

89,845 posts

283 months

Saturday 4th October
quotequote all
Padron said:
No the pension is a defined benefit one so completely separate from the investments and index linked

So I m assuming that the best balance is 60% equities and 40% cash/ bonds (/cars!) for the rest at my age (60). That s what we re currently at.

That feels about right in terms of risk/ reward to me.
It's up to your appetite for risk.

'The rules' say you should de-risk as you get older, but the flip side is that you can lose a lot of gain that way.

Cars are guaranteed to lose you money so you might feel you need greater gain to pay for them...

butchstewie

60,878 posts

228 months

Saturday 4th October
quotequote all
Padron said:
No the pension is a defined benefit one so completely separate from the investments and index linked

So I m assuming that the best balance is 60% equities and 40% cash/ bonds (/cars!) for the rest at my age (60). That s what we re currently at.

That feels about right in terms of risk/ reward to me.
I see some people treat their DB pension as a bond allocation given it should be effectively 100% risk free.

Padron

Original Poster:

256 posts

1 month

Saturday 4th October
quotequote all
butchstewie said:
Padron said:
No the pension is a defined benefit one so completely separate from the investments and index linked

So I m assuming that the best balance is 60% equities and 40% cash/ bonds (/cars!) for the rest at my age (60). That s what we re currently at.

That feels about right in terms of risk/ reward to me.
I see some people treat their DB pension as a bond allocation given it should be effectively 100% risk free.
Yes that was my thought although the logic behind de-risking is partly that as yet get older you’ve potentially got less time to rise out a sharp market downturn.

But the old rule of your age as a % in bonds seems much too cautious to me.

butchstewie

60,878 posts

228 months

Saturday 4th October
quotequote all
Padron said:
Yes that was my thought although the logic behind de-risking is partly that as yet get older you ve potentially got less time to rise out a sharp market downturn.

But the old rule of your age as a % in bonds seems much too cautious to me.
I'd treat it as a rule of thumb rather than a rule IYSWIM and I've seen 100 used as well so there isn't a single rule IMO.

It's also arguably a rule of thumb from a time when DB pensions were more common and people were broadly retiring then dying more quickly than they are these days so you didn't need your portfolio to last you for what might be 20-30 years.

I should stress I don't work in finance - so take all of that simply as a random persons opinion smile

xeny

5,271 posts

96 months

Saturday 4th October
quotequote all
butchstewie said:
I see some people treat their DB pension as a bond allocation given it should be effectively 100% risk free.
I used to consider DB as part of the bond allocation, until I realised I wanted the accounts I'd draw down first to be higher in bonds, and those I'd touch last to be higher in equities, while aiming for the desired allocation considered across SIPP, ISA and GIA.

I then realised that given I want the option of retiring early, the DB is something I'll touch late(ish), at which point its bond like nature doesn't really give me the effect I want of managing early retirement sequence of returns risk, so I now mostly disregard portfolio bond equity ratios and am trending towards a gilt ladder to take me from retirement to the point at which I can access the DB efficiently, with everything else in equities.

ooid

5,573 posts

118 months

Saturday 4th October
quotequote all
Here you go, though a few years old


https://corporate.vanguard.com/content/dam/corp/re...


Padron

Original Poster:

256 posts

1 month

Saturday 4th October
quotequote all
ooid said:
Here you go, though a few years old


https://corporate.vanguard.com/content/dam/corp/re...
Wow, thanks so much. That s really helpful

This chart sums it all up for me, you can place your risk tolerance alongside your wish to maximise returns and make a more rational decision based on this pretty much clap

The key seems to be to pick a level of risk where even on the most severe downturn likely you probably won’t be panicked into a rash decision to crystallise your losses and locked them in.

Interesting my own risk tolerance for around a 25% drop in portfolio value aligns with my hunch of 60% equities so it has real world validity.



Edited by Padron on Saturday 4th October 21:58

Derek Chevalier

4,537 posts

191 months

Sunday 5th October
quotequote all
Padron said:
Interesting my own risk tolerance for around a 25% drop in portfolio value aligns with my hunch of 60% equities so it has real world validity.
Pretty sure it's showing annual falls, not total peak to trough.

Padron

Original Poster:

256 posts

1 month

Sunday 5th October
quotequote all
Derek Chevalier said:
Padron said:
Interesting my own risk tolerance for around a 25% drop in portfolio value aligns with my hunch of 60% equities so it has real world validity.
Pretty sure it's showing annual falls, not total peak to trough.
Yes I appreciate that

butchstewie

60,878 posts

228 months

Sunday 5th October
quotequote all
Still find it slightly frightening what a "moderate" 60/40 can put you through.


Padron

Original Poster:

256 posts

1 month

Sunday 5th October
quotequote all
It is, although viewed against the admittedly more insidious effects of inflation it doesn’t seem as bad.

But there’s not doubt you need discipline to really invest.

butchstewie

60,878 posts

228 months

Sunday 5th October
quotequote all
Oh no 100% agreed I'm thinking more of the people who pile into 100% equities based on recent history.

That'll be fun for them one day biggrin

Padron

Original Poster:

256 posts

1 month

Sunday 5th October
quotequote all
butchstewie said:
Oh no 100% agreed I'm thinking more of the people who pile into 100% equities based on recent history.

That'll be fun for them one day biggrin
It does feel a bit like we re at or near the shoe shine guy moment again doesn’t it?

Buckle up!

(Having said that when everyone starts warning if a crash the markets actually continue upwards for a while so you can equally lose by deriding too early. Hence the real emphasis should be not so much timing which is a mugs game, but risk tolerance and asset allocation over the whole cycle which is just prudence,)

Edited by Padron on Sunday 5th October 09:05

Derek Chevalier

4,537 posts

191 months

Sunday 5th October
quotequote all
butchstewie said:
Still find it slightly frightening what a "moderate" 60/40 can put you through.

I reckon the .com bust was around 29% for a 60% MSCI ACWI, 40% global agg. However, it's not just the level of the fall, but also its duration - almost five years to return to the previous peak.

butchstewie

60,878 posts

228 months

Sunday 5th October
quotequote all
Derek Chevalier said:
I reckon the .com bust was around 29% for a 60% MSCI ACWI, 40% global agg. However, it's not just the level of the fall, but also its duration - almost five years to return to the previous peak.
Yeah I do wonder how much something like that now would humble people when I think too many people might have got used to "buy the dip" and it always bounces right back.

Padron

Original Poster:

256 posts

1 month

Sunday 5th October
quotequote all
butchstewie said:
Derek Chevalier said:
I reckon the .com bust was around 29% for a 60% MSCI ACWI, 40% global agg. However, it's not just the level of the fall, but also its duration - almost five years to return to the previous peak.
Yeah I do wonder how much something like that now would humble people when I think too many people might have got used to "buy the dip" and it always bounces right back.
It d not a coincidence that the time interval between crashes is roughly the time it takes for a new generation of fund managers to enter the workplace with no memory of the last one, and likewise a new generation of virgin retail investors.

Having lived through a few booms/ crashes gives you perspective.

Except this time it s different of course hehe



Edited by Padron on Sunday 5th October 09:38

ooid

5,573 posts

118 months

Sunday 5th October
quotequote all


The history is only relevant, if there is no specific use of 'insurance' for extreme unforeseen events. I think we would start seeing the use of 'tail hedging' in more mainstream scenarios. People would perhaps consider adding an extra cost of insurance annually, but making sure that their total portfolio do not suffer on extremely volatile times.

https://www.wtwco.com/en-gb/insights/2025/07/going...