The Investment Thread

[Granny Danger]

1 minute ago, Molotov said:

Sorry probably not explaining that very well. My “cash” reserves are emergency “liquid” funds that are highly accessible. Not all tied up in current accounts or savings but also other non-pension and non-isa assets.

It’s a system that works perfectly fine for me. I’ve had some bleak times and learned valuable lessons on having an emergency fund.

I have full state pension due in 10years and other assets I can draw on.

I’m already in receipt of my DB pension which is why my DC pension is just increasing year on year as the assets despite the last few years are still growing in value. 

As I said my main issue is changing my mindset into spending down some of my DC pension rather than just leaving it to my beneficiaries on my death who if I live beyond 75 will be taxed significantly if I don’t put some alternative strategy in place.

Vegas here I come!  

 

Fair enough.

Barring disaster my wife and I will leave not inconsiderable amounts in our SIPPS to our sons.  Whilst there are tax implications if we live beyond 75 they are not, in my opinion, significant.  Any withdrawals by beneficiaries of an inherited SIPP can be done on an annualised basis and will be taxed as earned income and will benefit from normal tax allowances.  Also an inherited SIPP does not count towards a beneficiary’s own lifetime allowance.

It means they do not need to access their own SIPPs/ISAs until a later date and can work the same arrangement for their beneficiaries.

Anyway, I’ve never fancied Vegas…

 

[TxRover]

1 minute ago, Granny Danger said:

Fair enough.

Barring disaster my wife and I will leave not inconsiderable amounts in our SIPPS to our sons.  Whilst there are tax implications if we live beyond 75 they are not, in my opinion, significant.  Any withdrawals by beneficiaries of an inherited SIPP can be done on an annualised basis and will be taxed as earned income and will benefit from normal tax allowances.  Also an inherited SIPP does not count towards a beneficiary’s own lifetime allowance.

It means they do not need to access their own SIPPs/ISAs until a later date and can work the same arrangement for their beneficiaries.

Anyway, I’ve never fancied Vegas…

 

Best hope the politicos don’t get a bright idea like they did here, with a similar loophole being slammed shut a couple of years ago. You used to be able to have a kid inherit a retirement account, and not be compelled to withdraw from it, now it’s a 10-year sunset with compelled (taxable) withdrawals for anyone but a spouse inheriting.

[Molotov]

21 minutes ago, TxRover said:

Sounds well planned. One of the biggest mistakes people do when “allocating” their investments is to fail to consider an annuity, private pension and/or state pension/social security as a portion of the allocated funds. It’s common to hear allocation recommendations such as 120 minus your age for your high risk/fixed investments (i.e. 50% high risk at age 70). So you get people who allocate their savings 50/50 higher risk vs lower risk while ignoring they have a low risk investment already in the pension(s). As a result, they often over allocate to low risk and thereby risk running low on funds/reserves. Your 70% stocks and 15% bonds certainly sounds like you’ve figured that one out correctly.

Yup. I can easily survive on my DB pension. State pension to arrive in 10years. 
DC pension will likely go the way that @Granny Danger describes to my beneficiaries. 
Reckon I do need to enjoy some worldwide travelling “first class” before it’s too late. 
If I don’t do it my kids and grandkids certainly will when they inherit my SIPP and other assets on my death. 

[Molotov]

7 minutes ago, TxRover said:

Best hope the politicos don’t get a bright idea like they did here, with a similar loophole being slammed shut a couple of years ago. You used to be able to have a kid inherit a retirement account, and not be compelled to withdraw from it, now it’s a 10-year sunset with compelled (taxable) withdrawals for anyone but a spouse inheriting.

Yeah.
Good chance Labour will introduce such changes to “taxing” large personal pensions as a way to bridge the massive deficits run up by multiple clusterfcuks by a variety of governments, Brexshit, Covid, WW111, etc. 

[Granny Danger]

12 minutes ago, Molotov said:

Yeah.
Good chance Labour will introduce such changes to “taxing” large personal pensions as a way to bridge the massive deficits run up by multiple clusterfcuks by a variety of governments, Brexshit, Covid, WW111, etc. 

Probably a discussion for the politics forum but I don’t see a Strarmer led Labour government making meaningful changes to how personal pensions operate or are taxed.  They should though.

[TxRover]

There is still the open discussion of the possibility of stock returns severely underperforming due to the number of people moving into retirement (or late career) and reallocating into more fixed investments and thus reducing the demand for stocks. I suspect it’s overblown, given it should have been happening some by now, but with the removal of monetary stimulus from the economy after 15+ years any impact is pretty muddied by everything else going on.

The easiest takeaway is start now, even with small amounts, and keep contributing!

[hk blues]

On 19/09/2023 at 05:56, TxRover said:

Exactly what I said, and why I suggest a lump sum investment should be put in in several deposits. As for the idea a well informed investor can time the market, that’s the crap.

 

17 hours ago, Molotov said:

If you have a sum of money ready to invest for a long duration it really makes no sense to drip feed into the stock market. 

 

You see, this is why your posts confuse me -

You have liked Molotov's post (in itself very correctly as he's spot on) yet it contradicts your own stance and indeed supports mine (and Granny's).

[Molotov]

5 hours ago, SH Panda said:

When you get closer to retirement you need to change your allocation as for a retiree a big equities fall is all bad news.

I don’t intend changing my pension allocation. Ever.

It used to make sense to adjust to a more conservative approach away from stocks closer to retirement as you were often buying forced into buying an annuity.
That changed with the pension freedoms of 2006.
Although you still see life strategy funds rebalancing over time offered by the providers. Also as someone discussed earlier the default approach that many company pension plans provide. Many of those plans are “managed” and carry a drag in fee charges. 

I never changed my pension allocation as I got closer to retirement for reasons I discussed earlier. The “liquid” 2 year emergency buffer I retain will cover any luxury spending above the basic spending needs that my DB pension covers which allows my DC investments to deal with the crisis of the market. 

If you don’t have an emergency fund set aside and you are drawing down on depressed assets then you run the risk of sequence of returns decimating your portfolio. That is the biggest issue facing new retirees. 

https://monevator.com/sequence-of-returns-risk/

Everyone will have a different approach. What works for me will not work for everyone. There is definitely a psychological aspect to finance. I expect my portfolio to experience a great deal of turbulence. The last few years have been rather “interesting” due to all the uncertainty in the world. 

My worry is that as I get older perhaps my cognitive abilities decline and I make decisions that my younger brain would have ignored. 

I think that is another reason why I just “set and forget” my DC pension allocation and don’t bother with any tinkering above keeping the rebalancing to the same ratios. 

 

[Molotov]

I worked at a variety of global companies. Often we were offered the company share options as part of the benefits. 

At one stage in my career I was part of a startup that was acquired by Sun Microsystems at the peak of their power. I could see the writing on the wall when I joined them so I negotiated a severance package as soon as I could based on the acquisition agreement. 

I worked with long term Sun employees who were acting with immense confidence and bravado as they had huge wealth tied up in their company stock options and believed the good times would last forever. 

Most of those individuals lost everything with the collapse of Sun. Jobs. Stock. The lot.

There is no doubt that those people got carried away with the highs of the stock but were crushed when it crashed. 

It was a huge wake up call for me.

I still participated in small amounts of stock purchases where the incentive to buy was good but I started to ensure that I invested into the global stock market to get a balanced approach which caters for the boom and bust of such stocks.

Don’t put all your eggs in one basket is certainly a good saying. 

[Granny Danger]

Like @Molotov I don’t understand the argument for changing the risk strategy as you get close to or reach retirement.

Basically the market always improves.  If you put £100 in an S&P tracker fund 10 years ago it would now be worth about £300.  Even adjusting for inflation it would be worth about £220.  Let’s not forget that includes a period when the world economy was rocked by Covid.

So even if you suffer a downturn along the way switching equities for ‘safer’ low return investments doesn’t make much sense.

 

[resk]

56 minutes ago, Granny Danger said:

 

Basically the market always improves.

 

The market always improves, or has always improved, over 10/20/30 years, but not always over 6 months / 1 year / 2 years.  The S&P 500 was at 4700 on 1st Jan 2022 and 3900 on 1st Jan 2023 - downturns like that are what push people into having a cash buffer or reducing their equities allocation, so I think there may be some logic to derisking the closer you get to accessing your pot.  But I broadly agree that you should stay in equities in the run up to and after retirement.  

Edited September 20, 2023 by resk

[Granny Danger]

4 minutes ago, resk said:

The market always improves, or has always improved, over 10/20/30 years, but not always over 6 months / 1 year / 2 years.  The S&P 500 was at 4700 on 1st Jan 2022 and 3900 on 1st Jan 2023 - downturns like that are what push people into having a cash buffer or reducing their equities allocation, so I think there may be some logic to derisking the closer you get to accessing your pot.  But I broadly agree that you should stay in equities in the run up to and after retirement.  

The S&P 500 on 1 January 2013 was 1480.40.  If you had £50k or £100k kept aside as a cash buffer in the decade up to 1 January 2023 you’d be far worse off that had you invested it.

The thing about the ‘cash buffer’ approach is that, like investing itself, you really need to consider it in the context of the long term.  

 

 

['WellDel]

Investing is something I'd never looked at in earlier life, basically due to having no real spare funds to do so. However, now at age 50, I am in a better paying job and have been overpaying my mortgage for a few years, and should be mortgage free in approximately 2 years.

As well as this I've been paying £100pm, to get me started, in AVC's via the industry scheme (railway BRASS), which only costs me £60 or so off my net wage as its obviously deducted before tax. My idea, on completion of my mortgage was to just lump an extra few hundred per month into the scheme as it is all taken pre tax (as a great many of longer serving colleagues do), and trust that it would work best for me and help me in possibly knocking a couple of years off my retirement age. I'm thinking now that this may be an over simplistic approach.

I've only read the last few pages of this thread while waiting for airport transfer and a lot of it is like a foreign language to me, but it's clear I have some reading up to do, and knowledge to gain in the next wee while about what my best options actually are. Apologies in advance if I appear in here in the near future with what some (most) of you will find 'idiots guide' type questions!!

[TxRover]

5 hours ago, hk blues said:

 

You see, this is why your posts confuse me -

You have liked Molotov's post (in itself very correctly as he's spot on) yet it contradicts your own stance and indeed supports mine (and Granny's).

I liked the informed nature of the posts, I don’t agree completely, but appreciated the discussion and views.

2 hours ago, Granny Danger said:

Like @Molotov I don’t understand the argument for changing the risk strategy as you get close to or reach retirement.

Basically the market always improves.  If you put £100 in an S&P tracker fund 10 years ago it would now be worth about £300.  Even adjusting for inflation it would be worth about £220.  Let’s not forget that includes a period when the world economy was rocked by Covid.

So even if you suffer a downturn along the way switching equities for ‘safer’ low return investments doesn’t make much sense.

 

So when I moved out of the market during the dot.com downturn, and back in as the recover started (reducing my losses by 20%, and thus starting needing 25% less in returns before being positive compared to my buy and hold peers), that made no sense, eh? That’s demonstrably false…but doesn’t make up for other errors I made when I was younger and “knew” what was gonna happen in the markets. That being said, the vast majority lose more than they gain. For instance, in the past 30 years, if you missed the top 10 return days, you would lose 50% of your return…miss the top 30 days and you’ve lost 83% of your returns. That’s why buy and hold is the (so to speak) gold standard.

 

The argument for reducing equities exposure is one of the opportunity cost of withdraws. If you have a large equities exposure, and you withdraw during a downswing, the amount of your withdrawal is magnified. If you are 50/50, the bear market 20% downturn hits you for about a 9-10% loss of total balance (fixed investments likely make some money), while if you are 100%, it’s a 20% loss. At that point, any withdrawal is effectively a 25% larger withdrawal than the previous year and robs from future earnings. If you have more than enough money, the argument is mooted, and it becomes an inheritance issue and plays by those rules (which favor equities sometimes, depending upon tax considerations).

[Granny Danger]

On 18/09/2023 at 22:56, TxRover said:

Exactly what I said, and why I suggest a lump sum investment should be put in in several deposits. As for the idea a well informed investor can time the market, that’s the crap.

 

39 minutes ago, TxRover said:

I liked the informed nature of the posts, I don’t agree completely, but appreciated the discussion and views.

So when I moved out of the market during the dot.com downturn, and back in as the recover started (reducing my losses by 20%, and thus starting needing 25% less in returns before being positive compared to my buy and hold peers), that made no sense, eh? That’s demonstrably false…but doesn’t make up for other errors I made when I was younger and “knew” what was gonna happen in the markets. That being said, the vast majority lose more than they gain. For instance, in the past 30 years, if you missed the top 10 return days, you would lose 50% of your return…miss the top 30 days and you’ve lost 83% of your returns. That’s why buy and hold is the (so to speak) gold standard.

 

The argument for reducing equities exposure is one of the opportunity cost of withdraws. If you have a large equities exposure, and you withdraw during a downswing, the amount of your withdrawal is magnified. If you are 50/50, the bear market 20% downturn hits you for about a 9-10% loss of total balance (fixed investments likely make some money), while if you are 100%, it’s a 20% loss. At that point, any withdrawal is effectively a 25% larger withdrawal than the previous year and robs from future earnings. If you have more than enough money, the argument is mooted, and it becomes an inheritance issue and plays by those rules (which favor equities sometimes, depending upon tax considerations).

Every time you post you contradict yourself.  I think I’ll pop you on ignore.

[TxRover]

1 minute ago, Granny Danger said:

 

Every time you post you contradict yourself.  I think I’ll pop you on ignore.

So posting an example of my one success timing, while noting it’s a mugs game…and having noted earlier I accumulated less than a coworker who piled money in and ignored it…is contradicting? OK.

[Molotov]

2 hours ago, 'WellDel said:

Investing is something I'd never looked at in earlier life, basically due to having no real spare funds to do so. However, now at age 50, I am in a better paying job and have been overpaying my mortgage for a few years, and should be mortgage free in approximately 2 years.

As well as this I've been paying £100pm, to get me started, in AVC's via the industry scheme (railway BRASS), which only costs me £60 or so off my net wage as its obviously deducted before tax. My idea, on completion of my mortgage was to just lump an extra few hundred per month into the scheme as it is all taken pre tax (as a great many of longer serving colleagues do), and trust that it would work best for me and help me in possibly knocking a couple of years off my retirement age. I'm thinking now that this may be an over simplistic approach.

I've only read the last few pages of this thread while waiting for airport transfer and a lot of it is like a foreign language to me, but it's clear I have some reading up to do, and knowledge to gain in the next wee while about what my best options actually are. Apologies in advance if I appear in here in the near future with what some (most) of you will find 'idiots guide' type questions!!

Be very happy that you have begun your journey.
There are fantastic resources available for a novice UK investor. 
I would recommend Pete Mathew at MeaningfulMoney. Good book and plenty of podcasts to listen to. 
Damian talks money is another great down to earth podcaster. 
 

[Hedgecutter]

FTSE global all cap index accumulator started.  One-off lump sum in. 

 

Thanks folks (although for avoidance of doubt, my research has of course extended beyond a thread on a fitba forum )

Eta: been looking at it from the perspective that the cash would be guaranteed to lose value (due to inflation) had I left it in a current account, so why not risk it for a biscuit.

Edited September 20, 2023 by Hedgecutter

[Granny Danger]

3 hours ago, Hedgecutter said:

FTSE global all cap index accumulator started.  One-off lump sum in. 

 

Thanks folks (although for avoidance of doubt, my research has of course extended beyond a thread on a fitba forum )

Eta: been looking at it from the perspective that the cash would be guaranteed to lose value (due to inflation) had I left it in a current account, so why not risk it for a biscuit.

Firstly, we all know the decision you took was based upon the advice given on here but we appreciate you absolving us of blame.

Secondly the erosive impact of inflation is too often ignored.  My sons have a business which is cash rich and I’m pissed off telling them that they need to open a business investment account rather than having huge sums in the bank losing value.  Time to bang heads together!

[strichener]

6 hours ago, TxRover said:

So when I moved out of the market during the dot.com downturn, and back in as the recover started (reducing my losses by 20%, and thus starting needing 25% less in returns before being positive compared to my buy and hold peers), that made no sense, eh

Aye but did you take it out in one lump sum?  Surely it would have made more sense to stagger the withdrawals and the reinvestment, No?