What is this fund?

[Urbandreamer]

What other assets do you have? Are you going to be reliant on this fund during retirement? How much risk can you afford to take? 100% equity is very high for a 50 year old. The old adage of "your age in bonds" would suggest an allocation of 50% bonds and 50% equities.

I'm not exactly disagreeing with Geoff over this. However opinions do differ and it's not so much your age as how long you are likely to need the money to grow that dictates the percentage held in equities. The difference is of course that lifespans have increased since the rule of thumb Geoff quotes was produced.

For eample this calculator argues

Percentage of your portfolio that is in equities, versus fixed income? Research seems to suggest about 50% for a 10 year term, almost 70% for a 20 year term, and around 85% for a 60 year term.

https://www.firecalc.com/

This book
https://www.amazon.co.uk/Beyond-4-Rule- ... 168&sr=8-1

While pointing out that risk is a personal thing and that if you want a risk free pension you should just buy an annuety, Quotes Bill Bengen that you should have close to 75% equities and in no case less than 50%. The statistics show that over a 30 year horizon holding 100% equities achieves the highest safe withdrawl rate. Though with the most volatile returns. Hence it comes back to personal risk tollerance.

I'm mid 50's and almost 100% in equities. The HYP board here is predicated upon the 100% equity idea, though you don't need to adopt that method to hold a high proportion of equities.

[tjh290633]

That old adage is long past it's useful life. I originally intended to move into some fixed interest when I retired in 1998, but it looked to be a futile move, and I never made it. Now at 86 I am still 100% in equities, apart from a cash reserve. I see no point in giving up income for the sake of so-called safety or stability.

I do wish that people would stop regurgitating it.

TJH

[Alaric]

I see no point in giving up income for the sake of so-called safety or stability.

The rule may date back to the era when you could get 8% to 10% on government bonds, but only 4% to 6% on equities. So you sacrificed equity growth for immediate income.

[GeoffF100]

I see no point in giving up income for the sake of so-called safety or stability.

The rule may date back to the era when you could get 8% to 10% on government bonds, but only 4% to 6% on equities. So you sacrificed equity growth for immediate income.

The purpose of holding bonds during draw-down is to increase the safe withdrawal rate, not reduce it. (The problem with 100% equities is that you may either be forced to sell equities to preserve your income or accept a a lower income than you could otherwise have achieved.) That holds true with current interest rates. What has changed is that the expected return from equities and bonds have both reduced by roughly the same amount. The volatility and risk of both asset classes remain the same.

We do not know how far the OP is from retirement. We also do not know whether he intends to buy an annuity or go into draw-down. Indeed, we do not know whether he wants to draw an income from the pension at all.

[Urbandreamer]

I see no point in giving up income for the sake of so-called safety or stability.

The rule may date back to the era when you could get 8% to 10% on government bonds, but only 4% to 6% on equities. So you sacrificed equity growth for immediate income.

The purpose of holding bonds during draw-down is to increase the safe withdrawal rate, not reduce it. (The problem with 100% equities is that you may either be forced to sell equities to preserve your income or accept a a lower income than you could otherwise have achieved.) That holds true with current interest rates. What has changed is that the expected return from equities and bonds have both reduced by roughly the same amount. The volatility and risk of both asset classes remain the same.

We do not know how far the OP is from retirement. We also do not know whether he intends to buy an annuity or go into draw-down. Indeed, we do not know whether he wants to draw an income from the pension at all.

The 30 year statistics that I mentioned ran rolling 30 year simulations from 1900 and calculated the withdrawel rate to consume the portfolio in that time for 20/80, 40/60 50/50, 60/40, 80/20, 100% net of 1% fees. Some of these rolling periods would have better outcomes than others. The other axis of the table was Worst case, bottom 10%, mid point, top 10% of outcomes. In ALL cases the safe withdrawel rate, which could not be predicted, but can be historically calculated, was highest in the 100% portfolio.

The purpose of holding bonds may indeed be what you think, however historic data would seem to show that it fails that purpose.

NOTE, the "Safe" withdrawel rate in the worst case was 2.5% for the 20/80 (highest bond content) portfolio and 3.6% for the 100% portfolio. By the way I don't recommend that anyone assume that they are born lucky about what the market will do while retired. However the simulation showed that they could have a safe withdrawel rate of over 10%.

That said, I am sure that many of us have experienced the odd market crash and watching the effects upon a 100% portfolio that you depend upon to live can't be fun. IMHO it's not worth loosing sleep over. If it's possible that you would then you definatly need more in bonds.

That book is well worth reading if you plan upon draw down.

[GeoffF100]

You can find endless stuff on this topic. Most (if not all) pension schemes use a mixed portfolio. I have not made a recommendation. I do not know enough about the OP's circumstances, for starters. I am fortunate enough to have index linked pensions that more than cover my liabilities, so I can invest my money in whatever I want. 60% equities and 40% bonds / cash currently at age 70.

[tjh290633]

The purpose of holding bonds during draw-down is to increase the safe withdrawal rate, not reduce it. (The problem with 100% equities is that you may either be forced to sell equities to preserve your income or accept a a lower income than you could otherwise have achieved.) That holds true with current interest rates. What has changed is that the expected return from equities and bonds have both reduced by roughly the same amount. The volatility and risk of both asset classes remain the same.

Of course, the point is that if you get enough income from equities, then there is no need to contemplate withdrawing capital at all. If you go for bonds, you have no option. If you go for index-linked bonds, you have negative yield and for conventional bonds very low yields. If you are in equities the likelihood is that the dividends will rise faster than inflation and will be higher in any case.

Yes, it can go and has gone up and down in the last 20 years, as we are all aware. However, due to surplus dividends to requirements, the level of income from my portfolio has never fallen below twice that of 20 years ago, and is currently about 8 times that level. In terms of dividend per income unit it was 10.8p and is now 27.6p. At its lowest in 2009-10 it was 11.9p, but I had many more units because of the surplus reinvested.

TJH

[GeoffF100]

The purpose of holding bonds during draw-down is to increase the safe withdrawal rate, not reduce it. (The problem with 100% equities is that you may either be forced to sell equities to preserve your income or accept a a lower income than you could otherwise have achieved.) That holds true with current interest rates. What has changed is that the expected return from equities and bonds have both reduced by roughly the same amount. The volatility and risk of both asset classes remain the same.

Of course, the point is that if you get enough income from equities, then there is no need to contemplate withdrawing capital at all.

Of course, the point is that you could draw more income if you did sell some of the equities.

We do not know what is ahead. Back-testing on the past British market does not necessarily tell us much about the future. Nonetheless, here are the results for two of the Vanguard LifeStrategy funds, since their inception. The 60% equity fund multiplied the initial capital by 1.9942 from 23/06/2011 to 30/12/2019. The 100% equity fund multiplied the initial capital by 2.3933 over the same period. If we take the length of that period to be 8.5 years, the annualised rates of return are 8.4% and 10.8%. The return of the 100% equity fund was higher, so there was a price to be paid for greater safety, over that time period. If there had been a bear market, it would have been a different matter. Everyone has to decide for themselves how much risk they are willing to take.

[GeoffF100]

Here are some more numbers for the two funds:

https://www.trustnet.com/factsheets/o/a ... -60-equity

https://www.trustnet.com/factsheets/o/a ... uity-a-acc

The 3 year volatility of Lifestyle 100 was 9.60%, whereas the 3 year volatility of Lifestyle 60 was 6.00%, i.e. Lifestyle 60 was 62.5% as volatile. The price of the LifeStyle 60 jumped about roughly 40% less than that of LifeStyle 100 over three years, but it returned roughly 20% less over 8.5 years.

[yetanothermike]

Thanks again for all the useful comments.

I'm thinking now of keeping the pension but reducing my exposure to this active fund to perhaps 25% and correspondingly increases my exposure to the passive fund to 75%. That is largely due to the sterling hedge and low fees.

I'm a natural "gambler" so happy to take a risk with stocks.

One reason I previously wanted to get out was to give me more choice than two equities based funds. But as someone said the passive has a low fee and if I want to fulfil my appetite for taking risks on other investments, I can do that with my other pension assets that are currently languishing in the bank.

Apologies if I should have put this in the pension section.

One last question is my current provider does not provide a draw-down option at retirement. Does that mean if I want draw-down I would need to pay an IFA large sums just to get the pension out into a provider that does provide it? So maybe I should do it now after all....

[hiriskpaul]

The point repeatedly missed by those advocating 100% equities in drawdown is that this increases the likelihood of running into difficulties for those (addmittedly rare) periods in which equity performance is poor.

Are you likely to run out of money if drawing down at 4% from 100% equities? No.

Is 100% equities likely to provide the largest legacy? Yes.

Will drawing down from 100% equities be more likely to fail than drawing down from 60% equities? Yes.

Backtesting of a 90% equities/10% cash (The Buffet's Wife portfolio) made a surprisingly large dent in the risk of running out of money compared with 100% equities, although 60/40 was safest of all:

https://www.investopedia.com/articles/p ... -sound.asp

Moving away from 100% equities in drawdown is akin to buying house insurance. Most people would be better off financially if they did not buy house insurance...

[hiriskpaul]

One last question is my current provider does not provide a draw-down option at retirement. Does that mean if I want draw-down I would need to pay an IFA large sums just to get the pension out into a provider that does provide it? So maybe I should do it now after all....

Best to raise the question on the pensions board as the answer is "It depends". However, if this is a pure DC pension, you should not need to pay for financial advice in order to transfer out to a SIPP, from which you can go into drawdown.