Pension drawdown strategy

[bdr1000]

I presently have a substantial investment in TIPs plus some UK investment grade bonds that would cover 10+ years expenditure and the rest in equities, given I can ignore it for 10+ years that will probably work out just fine.

Hi Hariseldon58

First, well done on holding firm through the GFC facing that sequence of returns risk.

I am age 48 and stopped my professional career a few years ago to travel full time pursuing a passion for climbing. I rent my UK home using that income for living expenses, leaving my ISA/SIPP/GIA investments to grow until I return to live full time in the UK in another few years. These investments are primarily passive low cost global index funds 70/30 equity/bonds.

I'm interested in your comment about your bond allocation, what do you invest in for TIPS (US) exposure and is it hedged?

Thanks!

Hi bdr1000

My TIPS are held in the iShares ETF ITPS.L the cost is 0.1% OCF and this is unhedged, I have more confidence in holding US$ then £, I made a big move from £ to $ in Feb 2016 prior to the Brexit vote, that's been a good move...

Longer term I have more faith in the $, there will be volatility in the exchange rate, thus the bulk of my bond holdings are in $ plus some £ bonds to cover more immediate needs and cover against volatility in the £/$ exchange rate. (£100k or so in Vanguard Short Term Investment Grade Bond fund, duration 2.9 yrs, YTM 4.7% credit A+)

The bulk of the equity world market is exposed to the $ and thus having your bond exposure in $ makes sense, you need some £ holdings as well , short duration to cover more immediate needs and thus you can ignore the short term volatility/noise of the £/$ exchange rate. I am firmly of the opinion not to hedge currencies if this can be avoided.

This a useful link for the TIPs market https://www.wsj.com/market-data/bonds/tips ten year real returns are now around 1.6% up form definitely negative a year back. (I have held a long duration TIPs ETF but this was a more speculative holding and is really a play on interest rates, worked out ok but I am now out of this).

Given a yield of around 3.9% on nominal US 10 yr bonds and a real yield of 1.6% on TIPs your working on a breakeven inflation rate of 2.3%, that's very dovish and thus you can hold TIPS with inflation protection without paying a premium for this....

My default position would be an even split between Nominals and TIPS but in the present market I feel TIPs are a much more attractive option at present.We don't know the direction of interest rates ( and even less about the future movements of exchange rates) but a real return of 1.6% on TIPs is okay.

There are short duration TIPS ETFs but the intermediate duration fits my needs looking forward, ie to cover 10 years plus of expenses.

Thank you!

Great insight, I'll read reflect and research a little more on this and ITPS.

[1nvest]

I presently have a substantial investment in TIPs plus some UK investment grade bonds that would cover 10+ years expenditure and the rest in equities, given I can ignore it for 10+ years that will probably work out just fine.

Hi Hariseldon58

First, well done on holding firm through the GFC facing that sequence of returns risk.

I am age 48 and stopped my professional career a few years ago to travel full time pursuing a passion for climbing. I rent my UK home using that income for living expenses, leaving my ISA/SIPP/GIA investments to grow until I return to live full time in the UK in another few years. These investments are primarily passive low cost global index funds 70/30 equity/bonds.

I'm interested in your comment about your bond allocation, what do you invest in for TIPS (US) exposure and is it hedged?

Thanks!

Hi bdr1000

My TIPS are held in the iShares ETF ITPS.L the cost is 0.1% OCF and this is unhedged, I have more confidence in holding US$ then £, I made a big move from £ to $ in Feb 2016 prior to the Brexit vote, that's been a good move...

Longer term I have more faith in the $, there will be volatility in the exchange rate, thus the bulk of my bond holdings are in $ plus some £ bonds to cover more immediate needs and cover against volatility in the £/$ exchange rate. (£100k or so in Vanguard Short Term Investment Grade Bond fund, duration 2.9 yrs, YTM 4.7% credit A+)

The bulk of the equity world market is exposed to the $ and thus having your bond exposure in $ makes sense, you need some £ holdings as well , short duration to cover more immediate needs and thus you can ignore the short term volatility/noise of the £/$ exchange rate. I am firmly of the opinion not to hedge currencies if this can be avoided.

This a useful link for the TIPs market https://www.wsj.com/market-data/bonds/tips ten year real returns are now around 1.6% up form definitely negative a year back. (I have held a long duration TIPs ETF but this was a more speculative holding and is really a play on interest rates, worked out ok but I am now out of this).

Given a yield of around 3.9% on nominal US 10 yr bonds and a real yield of 1.6% on TIPs your working on a breakeven inflation rate of 2.3%, that's very dovish and thus you can hold TIPS with inflation protection without paying a premium for this....

My default position would be an even split between Nominals and TIPS but in the present market I feel TIPs are a much more attractive option at present.We don't know the direction of interest rates ( and even less about the future movements of exchange rates) but a real return of 1.6% on TIPs is okay.

There are short duration TIPS ETFs but the intermediate duration fits my needs looking forward, ie to cover 10 years plus of expenses.

Thank you!

Great insight, I'll read reflect and research a little more on this and ITPS.

Better held in a ISA/SIPP, as its accumulating (which otherwise complicates matters outside of ISA), whilst its trading currency is GB Pounds, so avoids otherwise 1.5% type FX currency conversion costs to buy, and then again to sell (3% round trip).