Help with retirement portfolio

[Jopo1]

Hi, I've not been managing my ISA and Pension portfolio well in the last few years and am now trying to get on top of things, measure growth properly, and assess what's going on.

I am interested in switching some funds/oeics to high yield shares, and recently bought some Legal and General shares, planning to reinvest dividends for growth now (aged 49) and take them as income when I retire.

Both my ISA and Pension are for retirement, although I will probably need to dip into the ISA from 2024-2030 for school fees

This is my portfolio: do you think it's wise to sell the 2 lowest performing funds (Black rock mid-cap and IShares Japan) to reinvest in high yield shares?

https://imgur.com/a/g6xrdsr (sorry the forum wouldn't accept the url for my imgur image)

More background info.....

The table shows growth since 2019/2020, but I have held some since 2016 with no record of them as I switched platforms in 2019/2020

Ultimately I would like more holdings in the UK and less in the far east, Europe and the US - however my L&G US large company tracker is absolutely storming so I've no desire to sell that one yet!

I have no plans in the near future to add more funds to either the ISA or the Pension, because all spare cash is being salary sacrificed by my husband into his pension, as he is a 40% tax payer (our finances are 100% joint)

I have another small workplace pension which I max out for the 16% employer contribution - currently valued approx £2k but I only earn around £600 per month from that job so isn't going to be a large part of my overall portfolio.

I don't know when we will need to dip into the ISA for school fees - the fees will be funded partly by monthly income, partly from the ISA and unluckily partly from inheritance.

Thanks for any help and advice

Jopo1

[Jopo1]

Oh, I'm also interested in REITs and wondering if at any point as I approach retirement I should consider moving a proportion of the money to bonds

Jopo

[tjh290633]

Oh, I'm also interested in REITs and wondering if at any point as I approach retirement I should consider moving a proportion of the money to bonds

Jopo

There are differing views on this, but at the age of 90 I have never found it beneficial to invest in bonds.

I have holdings in three REITs. BLND in office and retail, PHP in surgeries or health centres for GP practices and SGRO in warehousing. The sector is a little depressed at the moment because of rising interest rates. It could be a .good time to take an interest.

TJH

[JohnW]

‘do you think it's wise to sell the 2 lowest performing funds (Black rock mid-cap and IShares Japan) to reinvest in high yield shares?’

Most take little or no notice of what their pension is invested in. But or perhaps because of that, most (?all) of those pension accounts invest in funds not single stocks, high yield or otherwise. You can suggest your own reasons for that, but mine is because it’s more easily justifiable because it offers returns with less risk than the single stock approach. So, unless you have a cogent reason for increasing risk without the promise of better returns, my answer would be ‘no’. Over to you.

‘I'm also interested in REITs’

Reits are fine, and it wouldn’t be a hanging crime to invest in them specifically. But you’ll get indirect property investment in a broad market fund (unless it explicitly excludes property), probably at lower investment fees and without going out on a limb with an asset class that probably won’t perform much differently from all other stocks. It’s fun to fine tune, but there’s something to be said for simplicity over complexity: likely cheaper; less prone to behavioural mistakes (selling low, buying high etc); easier to manage in your dotage.

‘and wondering if at any point as I approach retirement I should consider moving a proportion of the money to bonds’

You should - consider, not necessarily do. A reason financial advisors cost so much is because they’re trying to individualise investments and financial management to the circumstances of the individual. This is why what someone else has found beneficial or not is of so little relevance to you that you might as well forget it unless you can ask the reasons why to help you evaluate the position.
You might find Tim Hale’s book Smarter Investing quite useful. Try you local library.

[88V8]

Hi, I've not been managing my ISA and Pension portfolio well in the last few years and am now trying to get on top of things, measure growth properly, and assess what's going on.

https://imgur.com/a/g6xrdsr (sorry the forum wouldn't accept the url for my imgur image)

My retirement portfolio is HYP shares, income ITs, and Fixed Interest mostly Preference shares. The merit of FI is that the income is predictable, the demerit is that it's eaten by inflation so not a good investment pre-retirement, but I am retired and have surplus income I can reinvest, so that's OK.

I think your main aim pre-retirement should be to grow the pot. Then when you retire or perhaps a year before, move into income-generating mode. I don't know how far off retirement you are, but I would say it may be too soon to think about moving from growth to income.
I am an income investor and do not buy growth shares so I won't presume to suggest growth candidates.

LGEN is a good pick as HYP shares go, and HYP shares are indeed a viable way of creating income, but the income is lumpy (arrives at odd times of year, not evenly spaced) and susceptible to cuts in hard times, and some would say that a degree of regular management is needed. Some including me would describe HYP as a bit of a hobby.... but if you operate to a method rather than randomly tinkering, it can work, on the whole. TJH has a method as shewn in this thread when has run since 2020.

You might do well when the time comes, to think about income Investment Trusts where the income is more stable, and you will find a list for instance here of Trusts with rising income.

An aside... if you're using that spreadsheet to monitor progress, summat wrong, shurely .... if the cost is £239k (haven't checked) and the value is £326k (also haven't checked) the gain is 36%, not 122% as shown.

V8

[JohnW]

The merit of FI is that the income is predictable, the demerit is that it's eaten by inflation

We can address the demerit with linkers I think.

[Jopo1]

An aside... if you're using that spreadsheet to monitor progress, summat wrong, shurely .... if the cost is £239k (haven't checked) and the value is £326k (also haven't checked) the gain is 36%, not 122% as shown.

Yes thank you well spotted! I'd copied the calculation from the column, instead of doing the sum on that sheet

JOpo

[NotSure]

The merit of FI is that the income is predictable, the demerit is that it's eaten by inflation

We can address the demerit with linkers I think.

Prior to 2008, real (inflation adjusted) interest rates were generally positive. Maybe those days will return now the QE experiment seems to moving into reverse?

[JohnW]

real (inflation adjusted) interest rates were generally positive. Maybe those days will return

I think they have returned. The yield curve is positive right out to 38 years. https://edu.bankofengland.co.uk/statistics/yield-curves
The inflation rate was 7.3%/year in June; any high yield security yielding less than 7.3%/year doesn’t have a positive real yield at the moment.

[PrefInvestor]

Hi Jopo1, I would offer the following comments, no advice intended !:-

1. You have achieved significant growth during a challenging period for investing so you seem to be doing OK.

2. Looks like yours is a Growth portfolio aimed at delivering a financial pot to invest for income when you retire. That’s understandable in the “accumulation” phase of building your pension. When you get close to retirement it’s normal to switch out of high risk growth investments (which deliver no income unless you sell them) into lower risk high yielding investments that will deliver the income that you need during retirement (in the form of dividends or coupon payments). You will find many ideas on these boards for such investments as many here are now retired and investing primarily for income.

3. Personally I would say that if I bought something for £5 and its now worth £10 that the growth is 100% not 200%. You need to deduct 100% from your Growth column figures I think. And as someone else has noted if your portfolio is worth £326,429.46 now and cost you £239,700.43 then your percentage gain is (326,429.46/239,700.43)-100%= 36.18% IMHO, but it looks like you are aware of this problem.

4. Your portfolio construction approach appears to be based on index trackers for each of the major markets US, Japan, UK, Europe and Asia Pacific but with very different weighting’s – what is the rationale for the vastly different weightings ?.

5. Most of your portfolio seems to be in 3 large investments - BLACKROCK FM, LGEN US INDEX & HSBC European Index. ~75% according to your figures. I regard that as a significantly concentrated portfolio, such a portfolio can work well when times or good but such large weightings might prove expensive if any of those 3 investments were to suffer significant losses ?.

6. Traditional portfolio building wisdom is to have a widely diversified mix of investments chosen from different sectors, geographies, currencies and a mix of equities and fixed interest type investments. To help with diversification it is common to employ Funds (OEICs and Unit Trusts) Investment Trusts and ETFs in building a portfolio. Income investors often employ Fixed Income type investments such as Bonds, Gilts and Preference Shares as well as Bond Proxies (investments that perform like bonds) eg REITs, Renewables, Infrastructure and Debt for example. The exact mix of these is very much a personal choice. HYP investors limit themselves totally to the UK and largely to single stocks in the FTSE 100. I regard exclusion of the rest of the world and the rest of the FTSE All Share as a weakness of the HYP methodology, though it has clearly served many TLF members very well.

7. You appear to have a large weighting in US large cap equities. These have done extraordinarily well in 2023 but personally I would be concerned that they are now in bubble territory and ripe for a correction. That’s just a personal opinion though and you (and many others) may not agree. I note that a 10% correction in this area would result in a 3%+ loss for your portfolio.

8. The spreadsheet that you have published looks to be just some kind of summary. Certainly it does not look to be of a form that can be updated automatically on a regular basis. If you want to improve your monitoring of investment performance then this is perhaps an area that perhaps warrants looking at ?. The Lemon Fool provides various tools that can be employed for automatic regular portfolio updating avoiding the need for you to manually construct your own spreadsheets.

9. REITs are favourite investments for income seekers. They can provide good yields and quarterly dividend payments. In normal times they can provide capital growth as well as a result of the appreciation in the value of the properties that they own. But since the pandemic and the Ukraine war we have not seen “normal times”. The pandemic got everyone working from home (resulting in lots of empty offices) and stress to businesses struggling to pay their rents. And with the advent of high inflation and rising rates this has put further pressure on tenants struggling to pay their bills and extra financial pressure on REITs who typically have large amounts of debt used to fund their property purchases. Many REIT share prices have plummeted in the last year or so. Are we at the bottom yet and is it time to get in ?. Maybe, or will things get worse if rates go higher ?. Decisions, decisions !.

ATB

Pref

[Jopo1]

Pref, thanks for your detailed reply

3. Personally I would say that if I bought something for £5 and its now worth £10 that the growth is 100% not 200%. You need to deduct 100% from your Growth column figures I think. And as someone else has noted if your portfolio is worth £326,429.46 now and cost you £239,700.43 then your percentage gain is (326,429.46/239,700.43)-100%= 36.18% IMHO, but it looks like you are aware of this problem.

My lazy calculations, I have corrected the formula to reflect the growth properly, thank you

4. Your portfolio construction approach appears to be based on index trackers for each of the major markets US, Japan, UK, Europe and Asia Pacific but with very different weighting’s – what is the rationale for the vastly different weightings ?.

Here's the geography split now. It's weighted towards the 3 main geographies of UK, Europe and US, because these are lower risk than markets further afield. The US weighting is huge because that fund has grown 90%

US........... 39%
Europe ......24%
UK ...........21%
Cash ..........5% (UK obvs)
Japan.........5%
Asia Pacific ..4%
Global ........2%


And split by category. Again, I tried to weight it to larger, lower risk equities, and the Large Cap is a higher weight due to the US fund.
Large-Cap Equity ........49%
Mid/Large-Cap Equity....28%
Mid-Cap Equity ..........16%
Cash .........................5%
Small/Mid-Cap Equity......2%
Financial services........0.4%

(I have tried to do tables and can't figure it out!)

7. You appear to have a large weighting in US large cap equities. These have done extraordinarily well in 2023 but personally I would be concerned that they are now in bubble territory and ripe for a correction. That’s just a personal opinion though and you (and many others) may not agree. I note that a 10% correction in this area would result in a 3%+ loss for your portfolio.

I've been considering selling some of the US fund while it's high, but it just seems to feel wrong to sell my strongest fund! So not sure what to do really.
And If I did sell part of it, say 50%, where else would I put it?
I'm not keen on investing in China, I think they are heading for trouble in the next decade

8. The spreadsheet that you have published looks to be just some kind of summary. Certainly it does not look to be of a form that can be updated automatically on a regular basis. If you want to improve your monitoring of investment performance then this is perhaps an area that perhaps warrants looking at ?. The Lemon Fool provides various tools that can be employed for automatic regular portfolio updating avoiding the need for you to manually construct your own spreadsheets.

Thanks, I've been struggling to devise a way to monitor growth and so far have really only managed a snapshot whenever I decide to look at them.
I'll investigate and see if I can find TLF tracking tools.


Thanks again

Jopo