Retirement - from those that have

[Lootman]

Retiring at such a young age meant that I had plenty of time left so real assets made much more sense than fixed interest. I live fairly cheaply and a 50% fall in income and capital would have no effect on my living standards.

I'm not sure that my asset allocation is a good idea for the typical early retiree as they're retiring much later than me. They probably don't have my aversion to fixed interest, caused by growing up in the 1970s and seeing inflation eat away at my building society account.

I think the issue is not so much what age you retire at but rather the amount of assets you have relative to your estimate of what you will need. If that ratio is very comfortable then you won't be tempted to do what some here do, and load up on high-yielding securities (whether shares or bonds) because that's the only way they can get the retirement income they want. That actually increases risk - HY shares can be accident prone and fixed income securities do not grow in either capital or income.

What you really want is a portfolio that is large enough that it comfortably meets your goals without having to tweak it to boost the yield artificially. In fact I knew I could comfortably retire when the fluctuation in my portfolio exceeded the daily amount I could earn on almost every day.

People should look at overseas assets to diversify. If anything I should have put more overseas; IMHO sterling is a weak currency long-term against the US dollar.

Yes, and that is another result of not having to reach for yield, i.e. that you can diversify away from the naturally high-yielding UK market and instead invest in other growthier markets like the US and emerging markets. The US, in particular, has most of the global market leading shares, and yet it and its currency are also safe havens when we see volatility.

Amongst my own circle of friends the prevailing problem is not that of insufficient income and capital but one of leaving their offspring with ridiculous ammounts of IHT to pay.

This is what is known as a high quality problem, but can be described mainly as one of perspective: it is generally the estate of the deceased which pays the IHT, not the legatees.

It comes to the same thing. Any tax that is taken out of the estate reduces the amount that the beneficiaries receive. So it really only makes a difference if your estate is overseas and in a country that taxes recipients rather than the estate. In that case the UK beneficiaries get their bequests free of tax. Otherwise they are just taxed in a different way. When I do inheritance tax planning it is to directly benefit my beneficiaries, not me.

.... I am very wary of ETFs, which I consider to be a fad....

Why ? (Genuine question)

The first ETF was launched 26 years ago and all by itself is bigger than the entire IT sector. Quite some fad

Indeed. ETFs are a $5 trillion business. If they collectively fail we are all in trouble.

[Backache]

My question is: If you were retiring today with £4000 what four investment trusts would you buy and why?
The only rules being they must give global coverage and three must contain different asset classes.
I look forward to your replies
Barleycombe

Depends what I wanted if I was going for growth which maybe is not your primary option in retirement
I would go:

Bankers trust
Aberforth smaller
Templeton emerging markets
Smithson
One solid international large cap, one UK smaller company, One emerging market and one international small / mid cap. Probably 40% Bankers and 20% the others

Going for income
Murray International
City of London
Dividend Investment trust
Schroder Oriental income

International large cap
Domestic large and smallcap
Asian income

[sloth]

Sloth asked:
"Do you mind me asking which ones?

I'm trying to decide whether to go with ETFs or ITs, but I'm a novice and would appreciate knowing what works - I'm about the same age as you, but without your investment experience."

Wealth warning: these are just the investments of an untrained amateur, any knowledge I have has been gained from my own mistakes, reading here, and on The Motley Fool previously. I build on the shoulders of giants, although it would be invidious to single out individuals. Can I suggest perusal of the Investment Trusts board here on Lemon Fool for further information especially discussion on the Basket of Seven and Basket of Eight Investment Trusts.

I do not hold these seven in equal amounts, and the total direct international exposure is about 25% to 30%. Indirectly much more, as FTSE 100 companies derive much of their earnings abroad. I think I have the proportions I want invested abroad, and in mid-sized and smaller UK companies. Although some of these investment trusts fish in the same pond, I have exposure to different managers and reduction of risk from using a variety of different investment companies.

I do not purchase ITs at a premium to their Net Asset Value. When funds are available I select on the basis of which has the best feel (from reading annual reports), the highest return, and the lowest costs.

After that preamble, here are the 7 investment trusts I hold:

City Of London Investment Trust
Dunedin Income Growth Investment Trust
Edinburgh Investment Trust
Mercantile Investment Trust
Merchants Trust
Murray International Trust
Temple Bar Investment Trust

I hope that this is helpful, or at least informative.
greenrobbie

Very helpful, thankyou. Part of my ongoing research into this is seeing what others hold, and seeing which ITs crop up more frequently.

[Dod101]

Very helpful, thankyou. Part of my ongoing research into this is seeing what others hold, and seeing which ITs crop up more frequently.

Be very careful. What others hold is not a good guide to what you should hold. 'Others' hold everything in the market. You may (or may not) be right in interrogating a selected few of those investors, (those who contribute to TLF) but be very careful about drawing too many conclusions from those, including me.

Edinburgh IT for example is not very good. I hold it so I am well aware of its shortcomings. It actually does much the same job as City of London, but not quite so well, and City of London has not been very good in recent years.

Dod

[sloth]

Very helpful, thankyou. Part of my ongoing research into this is seeing what others hold, and seeing which ITs crop up more frequently.

Be very careful. What others hold is not a good guide to what you should hold. 'Others' hold everything in the market. You may (or may not) be right in interrogating a selected few of those investors, (those who contribute to TLF) but be very careful about drawing too many conclusions from those, including me.

Edinburgh IT for example is not very good. I hold it so I am well aware of its shortcomings. It actually does much the same job as City of London, but not quite so well, and City of London has not been very good in recent years.

Dod

Yes, I take it all with a healthy pinch of salt.