The Lemon Fool

Folks

All of my pension is in 2 SIPPS (HL and AJ Bell), distributed with Fundsmith, an S&P tracker and the rest in global trackers - Mainly Vanguard. Split is about 1/3 each. To mitigate against a possible crash I have around 2 to 3 years of annual costs in cash.

Apologies for perhaps repeating myself and risking the same answers but has anyone else adopted a broadly similar policy, and how do you feel about the risk in so doing?

Cheers

I think sounds sensible with 2-3 years of cash. The risk for personal investors is whether you can handle a correction psychologically.

Each time we've had a correction people come on here saying they're selling up. Happens regularly 2018, 2019 woodford, 2020 covid, 2022.

If we have a correction this year, it'll be the US tech funds which will fall the most, as they're mainly responsible for the santa rally last 3 months.

To sleep easy I'm more diversified with other assets classes, bonds, wealth preserver funds etc which are less fashionable here. Its personal choice.

In broad terms yes - 100% equities plus a cash buffer. Been living off it for the last 10 years.

Scott.

I think sounds sensible with 2-3 years of cash. The risk for personal investors is whether you can handle a correction psychologically.

Each time we've had a correction people come on here saying they're selling up. Happens regularly 2018, 2019 woodford, 2020 covid, 2022.

If we have a correction this year, it'll be the US tech funds which will fall the most, as they're mainly responsible for the santa rally last 3 months.

To sleep easy I'm more diversified with other assets classes, bonds, wealth preserver funds etc which are less fashionable here. Its personal choice.

Again many thanks. I'm reasonably confident that if equities drop markedly they will pick up to previous levels after a couple of years, unless there is a huge crash like 1929 - which may be difficult to mitigate anyways. I am very wary of any potential debt fuelled boom in the stock market and the possibility of a crash thereafter. I appreciate the diversity aspects and it is something I am still thinking about. Global Bond ETFs like VAGS are the favourite so far due to their relative simplicity.

Oggy wrote:

I think sounds sensible with 2-3 years of cash. The risk for personal investors is whether you can handle a correction psychologically.

Each time we've had a correction people come on here saying they're selling up. Happens regularly 2018, 2019 woodford, 2020 covid, 2022.

If we have a correction this year, it'll be the US tech funds which will fall the most, as they're mainly responsible for the santa rally last 3 months.

To sleep easy I'm more diversified with other assets classes, bonds, wealth preserver funds etc which are less fashionable here. Its personal choice.

Again many thanks. I'm reasonably confident that if equities drop markedly they will pick up to previous levels after a couple of years, unless there is a huge crash like 1929 - which may be difficult to mitigate anyways. I am very wary of any potential debt fuelled boom in the stock market and the possibility of a crash thereafter. I appreciate the diversity aspects and it is something I am still thinking about. Global Bond ETFs like VAGS are the favourite so far due to their relative simplicity.

Be nice to get a boom in the stock market fuelled any old way. I could handle that.

I have been retired for nearly 30 years and hold cash of about three years expenses in index linked NSCs. I have never had to touch it in any of the crises in that time.

Dod

Oggy wrote:Folks

All of my pension is in 2 SIPPS (HL and AJ Bell), distributed with Fundsmith, an S&P tracker and the rest in global trackers - Mainly Vanguard. Split is about 1/3 each. To mitigate against a possible crash I have around 2 to 3 years of annual costs in cash.

Apologies for perhaps repeating myself and risking the same answers but has anyone else adopted a broadly similar policy, and how do you feel about the risk in so doing?

Cheers

No. I'm 100% in equities, with about 20% in funds (principally my wife's holdings) and a reasonable cash balance. Annual costs are covered by pension income.

I am not enamoured of Vanguard and hold none of their funds. My own small fund holdings are UK equity income based.

The vast majority of my holdings are UK based, with a few domiciled in Australia. I report my holdings regularly at viewtopic.php?p=566771#p566771 and plan to make a trade tomorrow.

TJH

tjh290633 wrote:
I am not enamoured of Vanguard
TJH

Any particular reason?

BoE

Is the portfolio in or about to go into drawdown? The historical models show that having large amount of cash on the sidelines rarely works out better than remaining fully invested. My thoughts are that it is better to have an asset allocation that lets you stay fully invested rather than tempting you to hold significant cash amounts.


And, personally, I never think of it as a "100% equity + cash buffer" portfolio.. it would be more correct to just call and what it is - a equity/cash portfolio of whatever proportions you happen to have, so if it's a FIRE pot with 25x expenses in equities and a 2yr cash buffer it's really a 93/7 equity/cash portfolio designed to support an initial 3.7% WR.

Bubblesofearth wrote:

tjh290633 wrote:
I am not enamoured of Vanguard
TJH

Any particular reason?

BoE

Several. People seem to have a love affair with them. I have seen nothing to indicate that they offer superior returns to other fund managers. Lower fees or charges do not imply better returns.

The Irish domicile for funds offered in the UK puts me off.

If I want a UK domiciled collective investment, I would prefer an investment trust. I have a couple of long standing investments in UK based OEICs. They give me an indication of how my equity portfolio is performing.

TJH

vand wrote:And, personally, I never think of it as a "100% equity + cash buffer" portfolio.. it would be more correct to just call and what it is - a equity/cash portfolio of whatever proportions you happen to have, so if it's a FIRE pot with 25x expenses in equities and a 2yr cash buffer it's really a 93/7 equity/cash portfolio designed to support an initial 3.7% WR.

You think of yours however you want, but mine is very much a cash buffer and treated very differently to my equity portfolio. The latter just sits in its various locations (SIPP, ISA, dealing account) and gets on with its capital growth and dividend generation.

However the cash buffer is a hive of activity, being topped up at one end with income from a multitude of sources (SIPP drawdown, dealing account dividends, cash interest, premium bond wins, gambling earnings , state pension when it comes, etc...) while at the other end all day to day living expenses and purchases come out.

Scott.

Just checked and I'm currently 3.45% cash.

That WILL change on Monday. I have finally decided what to do with that cash. I'm investing it into a IT that picks US companies.

Now to put that in perspective, I'm also 3.85% in gold. I also hold a "wealth preservation" IT. I'm 3.86% in Ruffer (technically an equity).

However cash? Well I regard it as trash. The choices are not limited to cash or equities. Indeed I exclude the value of my home, though others chose to monetize their home. Investing in more and more valuable homes as a means to avoid cash.

Are you sure that your either understand cash or that you want to hold it?

Ps I'm 0.45% in bitcoin, if such a small holding counts.

You think of yours however you want, but mine is very much a cash buffer and treated very differently to my equity portfolio. The latter just sits in its various locations (SIPP, ISA, dealing account) and gets on with its capital growth and dividend generation.

However the cash buffer is a hive of activity, being topped up at one end with income from a multitude of sources (SIPP drawdown, dealing account dividends, cash interest, premium bond wins, gambling earnings , state pension when it comes, etc...) while at the other end all day to day living expenses and purchases come out.

Pretty much how I intend to use my cash buffer. I'd always try to keep 2 or 3 years worth expenses in there to cover eventualities but not much more. I realize that as an investment it is hopeless, but I don't view it as an investment. That is the SIPP/funds - hopefully. I am not yet drawing down. I am between jobs and may yet get another - provided I can stomach the workplace these days.....

I'm not retired yet but my thinking is to have three years cash buffer against stock market turbulance and a further one year cash buffer for emergency unplanned expenditure (new roof or major unforeseen repairs.)

I am then thinking in terms of a smallish cash generating "guaranteed" investment - either an annuity or, more likely, a 10 year gilt ladder - to provide some certainty of base inome to cover utilities, council tax etc. I am thinking it would be nice to assume this could generate up to 10k per year in addition to the state pension from age 67 to 77.

Everything else would be in trackers or investment trusts.

I think that this strategy provides enough checks and balances to let me sleep at night knowing that even if my equities blew up then between the state pension and the cash income, I would have enough to survive as a low income pensioner without being destitute until I reach an age where I will be too old to worry about it and there's a reasonable chance people will take pity on me.

wanderer wrote:I'm not retired yet but my thinking is to have three years cash buffer against stock market turbulance and a further one year cash buffer for emergency unplanned expenditure (new roof or major unforeseen repairs.)
...
I think that this strategy provides enough checks and balances to let me sleep at night.....

Well that is the substantial difference isn't it

Some of us are more risk tolerant than others. I'm retired and STILL want to be involved in investment. NO bitcoin doesn't count! It's a "money".

The question is do you want to invest? Or save? Ok I can argue that saving in pounds, dollars or krona is not a fantastic idea. BUT that is beside the point. If you want to phrase it this way how much do you trust the company that you invest in, against how much do you trust the currency.

PS, please do what lets you sleep at night. That is really important. What's good for me, might keep you awake.

People seem to have a love affair with them. I have seen nothing to indicate that they offer superior returns to other fund managers. Lower fees or charges do not imply better returns.

It was calculated that Vanguard saves investors $25 billion in fees, per year. That buys a lot of love. https://finance.yahoo.com/news/jack-bog ... 26136.html
‘Costs Really Are Good Predictors of Success We've done this over many years and many fund types, and expense ratios consistently show predictive power.’ https://www.morningstar.com/funds/fund- ... or-failure. Lower fees are associated with better returns.

JohnW wrote:

People seem to have a love affair with them. I have seen nothing to indicate that they offer superior returns to other fund managers. Lower fees or charges do not imply better returns.

It was calculated that Vanguard saves investors $25 billion in fees, per year. That buys a lot of love. https://finance.yahoo.com/news/jack-bog ... 26136.html
‘Costs Really Are Good Predictors of Success We've done this over many years and many fund types, and expense ratios consistently show predictive power.’ https://www.morningstar.com/funds/fund- ... or-failure. Lower fees are associated with better returns.

Err, just to be clear. Lower fees produce better returns when investing in the same index (things)?

I could be wrong, but there are others who charge less, because they pay less, because they pay a different index producer.

Would you care to comment?

FWIW, I'm an active investor and regard things as a bit more complicated.

HOWEVER, if the OP wants to limit the thread to a specific index trackers then they can say so.

OH, Btw, I don't know if people know but Vanguard's Life strategy, rightly or wrongly, have a UK bias in investments, and are not "technically" passive funds.

Though they are CHEAP, and do the job if that is what you want.

‘Err, just to be clear. Lower fees produce better returns when investing in the same index (things)?’

Other things being equal, lower fees should give higher returns, but other things never are. I got a sense of this listening to an index fund manager describing what they do. If they track the index perfectly, their fees detract from returns by the size of the fees. But tracking perfectly must be difficult, so they try to make up for ‘losses’ by different strategies including securities lending. With a following breeze the managers can more than make up their fees for salaries, office expenses etc by: shrewd lending which might verge on risky at times; or by realising capital losses to offset future gains against for tax minimisation; using authorised participants for ETF share creation/redemption in order to reduce taxable capital gains when index adjustments are needed; using specialist brokers who deal in the less liquid small stocks; staggered buying of IPOs that are to join the index; futures trading for stocks going ex-dividend so the dividend can be reinvested before it is received, or to redeem investments when the markets are closed. So lower fees are just a part of it.

‘could be wrong, but there are others who charge less, because they pay less, because they pay a different index producer.’

One would imagine. One of the Vanguard US stock indexes uses a CRSP index partly because they licensed it cheaply long term. Investors are charged 0.03%/year to invest in the fund. However cheap the Wilshire 5000 index might be it’s troublesome for the big funds because it does not use float adjusted stock weightings, so when little of the stock is publicly traded the big funds can move prices too much. There’s a lot to indexing.

‘I don't know if people know but Vanguard's Life strategy, rightly or wrongly, have a UK bias in investments, and are not "technically" passive funds.’

Nothing technically about it, Vanguard says ‘The Fund is actively managed….’

Urbandreamer wrote:Just checked and I'm currently 3.45% cash.

That WILL change on Monday. I have finally decided what to do with that cash. I'm investing it into a IT that picks US companies.

Now to put that in perspective, I'm also 3.85% in gold. I also hold a "wealth preservation" IT. I'm 3.86% in Ruffer (technically an equity).

He's not going to mention it...

However cash? Well I regard it as trash. The choices are not limited to cash or equities. Indeed I exclude the value of my home, though others chose to monetize their home. Investing in more and more valuable homes as a means to avoid cash.

Are you sure that your either understand cash or that you want to hold it?

He's not, he's really not going to mention it....

Ps I'm 0.45% in bitcoin, if such a small holding counts.

Doh!

The irony of a 100% equity portfolio is that it doesn't improve safe withdrawals rates at all - so if you are holding cash because you aren't confident that you portfolio will survive a deep bear market or is susceptible to sequence risk, properly adjusting your asset mix is the better strategy. If you want to enjoy your money rather than continually worrying about the next bear market, I have, for a while, been saying that 70/20/10 stocks/bonds/gold is a very good starting point.

I'm curious.

Of those who keep significant cash, how many do so in currencies other than their domestic one? For example, living in the UK and keeping $'s. Or living in Europe and keeping £'s.

In other words, is it an investment, or simply spending money?