ChrisNix wrote:An alternative viewpoint is that bonds should be held to duration match spending over a shorter time frame after which there is very high likelihood that equities will outperform significantly. The stats suggest that is 10 - 15 years.
That delivers certainty of cash irrespective of the shorter term volatility of equities. Whilst optimising outperformance probability.
The equity:bond split becomes an output, but will be more like 80:20 for a younger person, but tending towards 10:90 once one hits 70.
If a 65 year old retiree drops 60% into a 15 year index linked gilt ladder to cover 4% inflation adjusted SWR for those years, to age 80 (assuming ILG's yield 0% real), then even if the residual 40% were also dropped into a single ILG that matured in 15 years time then likely that 40% inflation adjusted maturity amount would buy a reasonable annuity income at age 80 (as annuity payout rates increase with age/reduced life-expectancy). Yes maybe a high likelihood of stocks having accumulated more over the 15 years, but also a risk of stocks having relatively lost out to a 4.5% yielding inflation bond.
US long dated TIPS are recently yielding 4.53% (LTPZ) whilst short dated (STIP) are yielding 4.65%. At those levels a actual ladder, or 'synthetic' non-rolled ladder 15 year using funds as outlined in earlier posts, has the potential to yield a even higher 15th year residual value - buy even more of a annuity. Inflation and interest rate immunised. With stocks there's the sequence of returns risk of getting to the end of 15 years when the ladder (or fund based version of such) is all-spent, and maybe seeing stocks halve or more in value after a relatively poor 15 year accumulation outcome - is exposed to interest rate/inflation risks.
If a newly retired had say £7000 of state pension, £7000 of occupational pension, a £21K/year spending lifestyle such that dropping £210K into a index linked ladder + annuity from age 80 might match that, then that income becomes pretty much lifetime guaranteed. With their income requirements met, anything above that £210K might be invested however they liked, superfluous to main objective, could be all-stock or anything, and if large enough might equate to holding 90/10 stock/bonds at age 70 or 80+.
For those in twilight where their human capital may be low, greater certainty is better than maybe's. Even if there's a high probability of a alternative 'better' option actually coming to fruition, they may have no desire or need to take on the risk of potentially enduring the exceptional bad case outcome. Enough safe (fixed) income (ILG's/annuities) to match base income objectives (ideally alongside index linked state and occupational pensions) - and job done. Speculate (stocks/whatever) with the rest however as may amuse/occupy you. Many of the retired on TLF appear to have more than enough. House paid off, state and occupational pension values that cover their base spending needs, such that 100% stocks is fine.