Considering early retirement

[Gan020]

4. Switch your private pension into a SIPP, manage it and drawdown the c8%pa which most posters here would readily agree is more than achievable
5. When you do build your SIPP portfolio, remember that the best performing sub-sector of the Investment trusts is Private Equity – you can follow them all on ADVFN’s PE thread (the epic = PE). Also follow the CP+ thread for loads of information on the best propcos. Also the REITs thread here on Lemonfool, esp: viewtopic.php?f=87&t=8008

I'm not sure I agree 8% is readily do-able or indeed should be targeted with interest rates on the floor. To achieve 8% you need to take some risk. If you take the million pound and stick half of it on safe(ish) bonds paying 4% then you would have to make 12% on the remainder. Also there might is something to be said for leaving part of your pension with someone else if you've never actively managed your portfolio in depth and you are reliant on your pot for your pension income for the rest of your life.

P/E and REITs are fine but just because a sector has performed well in the past won't mean it will perform well in the future. P/E looks to be running a bit hot to me. However, all good as part of a balanced portfolio with no concentrated risk.

[ursaminortaur]

4. Switch your private pension into a SIPP, manage it and drawdown the c8%pa which most posters here would readily agree is more than achievable
5. When you do build your SIPP portfolio, remember that the best performing sub-sector of the Investment trusts is Private Equity – you can follow them all on ADVFN’s PE thread (the epic = PE). Also follow the CP+ thread for loads of information on the best propcos. Also the REITs thread here on Lemonfool, esp: viewtopic.php?f=87&t=8008

I'm not sure I agree 8% is readily do-able or indeed should be targeted with interest rates on the floor. To achieve 8% you need to take some risk. If you take the million pound and stick half of it on safe(ish) bonds paying 4% then you would have to make 12% on the remainder. Also there might is something to be said for leaving part of your pension with someone else if you've never actively managed your portfolio in depth and you are reliant on your pot for your pension income for the rest of your life.

P/E and REITs are fine but just because a sector has performed well in the past won't mean it will perform well in the future. P/E looks to be running a bit hot to me. However, all good as part of a balanced portfolio with no concentrated risk.

Agreed 8% is far too risky in the long term. The generally agreed acceptable safe withdrawal level in the past has been a starting level of 4% (growing thereafter with inflation) which was based on back-testing of returns from investing in America for investments in a mixture of stocks and bonds where the aim was not to run out of money in less than 30 years.

https://www.investopedia.com/terms/f/four-percent-rule.asp

Later analysis suggests that the 4% rule is probably over generous for UK investments

https://finalytiq.co.uk/withdrawal-rates-in-retirement-portfolios-is-the-4-rule-safe-for-uk-clients/

Although the 4% rule is a good rule of thumb there are a number of tools available which allow you to model withdrawals using either historical data or monte-carlo simulations eg

https://www.firecalc.com/

http://www.cfiresim.com/input.php

https://www.flexibleretirementplanner.com/wp/

[SKYSHIP]

Sorry lads; but for anyone with a reasonable knowledge of Markets; and Rituximan's ISA positions suggests more knowledge than he is letting on IMO, 8% is readily achievable.

Personally I've compounded my SIPP by 13.2%pa since taking control in 2001. I withdrew 12%pa as income until 2012; but am now targeting lower returns and only drawing down 8%pa. Seems to have been the right thing to do as during a prolonged period of more difficult Markets my average return since 2012 has dropped to a smidgeon over 10%.

Incidentally, I view my portfolio as pretty low risk.

[StepOne]

Personally I've compounded my SIPP by 13.2%pa since taking control in 2001. I withdrew 12%pa as income until 2012; but am now targeting lower returns and only drawing down 8%pa. Seems to have been the right thing to do as during a prolonged period of more difficult Markets my average return since 2012 has dropped to a smidgeon over 10%.

Incidentally, I view my portfolio as pretty low risk.

Don't see how it can be low risk if it's delivered those kind of returns.

[tjh290633]

I've shown this a few times now, and it is the annual IRR for my portfolio since 1987:

Yr to 05 Apr   Annual IRR
        1987             
        1988       -6.23%
        1989       41.81%
        1990        6.44%
        1991       19.60%
        1992        3.31%
        1993       21.94%
        1994       17.67%
        1995        1.80%
        1996       22.37%
        1997       15.92%
        1998       58.44%
        1999        7.17%
        2000       -0.23%
        2001        3.06%
        2002        6.79%
        2003      -28.67%
        2004       34.80%
        2005       23.60%
        2006       30.46%
        2007       19.51%
        2008      -11.65%
        2009      -40.73%
        2010       67.93%
        2011       17.50%
        2012       10.38%
        2013       23.12%
        2014        7.75%
        2015       15.75%
        2016        0.33%
        2017       16.22%
        2018       -3.20%
        2019        8.19%

There are ups and downs, and looking at my accumulation unit values, I get the following results for the periods since the date given to date:

Since        Acc Unit   IRR   
31-Dec-98        5.89    7.51%
30-Dec-99        6.85    7.09%
31-Dec-00        6.68    7.62%
31-Dec-01        6.43    8.31%
31-Dec-02        5.23   10.19%
31-Dec-03        6.38    9.47%
31-Dec-04        7.59    8.86%
30-Dec-05        9.69    7.59%
31-Dec-06       12.25    6.23%
31-Dec-07       12.41    6.66%
31-Dec-08        7.41   12.65%
31-Dec-09       10.24   10.29%
31-Dec-10       12.32    9.18%
31-Dec-11       13.45    9.18%
31-Dec-12       15.80    7.99%
31-Dec-13       19.56    5.39%
31-Dec-14       20.34    5.70%
31-Dec-15       21.42    5.80%
31-Dec-16       24.37    2.90%
29-Dec-17       26.70   -0.99%
31-Dec-18       24.06   15.26%

Recent years not that auspicious, but if you go back 10 years, the figure is achievable.

TJH

[StepOne]

Recent years not that auspicious, but if you go back 10 years, the figure is achievable.TJH

And if you don't have a time machine...?

StepOne

[tjh290633]

[
And if you don't have a time machine...?

StepOne

You just have to have faith in your system.

TJH

[TUK020]

I've shown this a few times now, and it is the annual IRR for my portfolio since 1987:

Yr to 05 Apr   Annual IRR
        1987             
        1988       -6.23%
        1989       41.81%
        1990        6.44%
        1991       19.60%
        1992        3.31%
        1993       21.94%
        1994       17.67%
        1995        1.80%
        1996       22.37%
        1997       15.92%
        1998       58.44%
        1999        7.17%
        2000       -0.23%
        2001        3.06%
        2002        6.79%
        2003      -28.67%
        2004       34.80%
        2005       23.60%
        2006       30.46%
        2007       19.51%
        2008      -11.65%
        2009      -40.73%
        2010       67.93%
        2011       17.50%
        2012       10.38%
        2013       23.12%
        2014        7.75%
        2015       15.75%
        2016        0.33%
        2017       16.22%
        2018       -3.20%
        2019        8.19%

There are ups and downs, and looking at my accumulation unit values, I get the following results for the periods since the date given to date:

Since        Acc Unit   IRR   
31-Dec-98        5.89    7.51%
30-Dec-99        6.85    7.09%
31-Dec-00        6.68    7.62%
31-Dec-01        6.43    8.31%
31-Dec-02        5.23   10.19%
31-Dec-03        6.38    9.47%
31-Dec-04        7.59    8.86%
30-Dec-05        9.69    7.59%
31-Dec-06       12.25    6.23%
31-Dec-07       12.41    6.66%
31-Dec-08        7.41   12.65%
31-Dec-09       10.24   10.29%
31-Dec-10       12.32    9.18%
31-Dec-11       13.45    9.18%
31-Dec-12       15.80    7.99%
31-Dec-13       19.56    5.39%
31-Dec-14       20.34    5.70%
31-Dec-15       21.42    5.80%
31-Dec-16       24.37    2.90%
29-Dec-17       26.70   -0.99%
31-Dec-18       24.06   15.26%

Recent years not that auspicious, but if you go back 10 years, the figure is achievable.

TJH

Key caveat: THis is not inflation adjusted. TJH has been an active investor since the mists of time and the first decade noted above involved significant inflation (anyone remember that?) which probably fed into the historically higher nominal returns

[SKYSHIP]

TUK - interesting stats. I just wish I'd had access to my pension from the mid-80s - really good times up until
the Millenium. Been a whole lot more difficult since then. My stats versus yours show a marked difference in
2003, when I had a really good time buying the Splits ZDPs - a subject on which I've posted before, I think on
the Bonds & Prefs thread.

YOU ……………………...…. ME
2002 6.79% ... 2002 3.2%
2003 -28.67%....2003 32.1%
2004 34.80% 2004 38.6%
2005 23.60% 2005 16.2%
2006 30.46% 2006 5.6%
2007 19.51% 2007 8.0%
2008 -11.65% 2008 -31.0%
2009 -40.73% 2009 85.1%
2010 67.93% 2010 20.5%
2011 17.50% 2011 -8.4%
2012 10.38% 2012 12.7%
2013 23.12% 2013 20.1%
2014 7.75% 2014 7.4%
2015 15.75% 2015 2.8%
2016 0.33% 2016 19.3%
2017 16.22% 2017 11.5%
2018 -3.20%... 2018 0.7%

[Rituximan]

Sorry lads; but for anyone with a reasonable knowledge of Markets; and Rituximan's ISA positions suggests more knowledge than he is letting on IMO, 8% is readily achievable.

I wish it was knowledge - I think that in my case it is mostly luck, that and a bit of persistence in using my ISA allowance whenever I have the money. I started out twenty years ago by investing in unit trusts (I think it was via Funds Direct) on the advice of my parents' IFA. In about 2006 to 2007, some of the middle and senior management in our company were involved in an investment club. I wasn't senior enough and didn't earn enough to be invited to join but, what I did pick up from one or two of the members individually was their excitement, plus a few ideas to do decide to have a go at investing directly myself. It took me until 2008 to work myself up to it, and I ended up switching into a Stocks & Shares ISA during the summer of 2008 not long before the market really tanked. I ended up with cash in a stocks and shares ISA at a time when the market was plummeting and I remember thinking that if it kept on falling forever then that would be the end of the world as we knew it, in which case the money wouldn't be any use, so I jumped in and the rising tide that followed took me with it. I would be the first to admit that I don't really have an investment strategy or a systematic approach to topping up or adding new holdings. Occasionally, I have been daft enough to buy stocks after a fairly minimal bit of research having been excited by reading a tip in somewhere like the Times, Telegraph or Investor's Chronicle. My partner thinks that I know what I'm doing; in reality the only thing that I have done is to have a go, and try to keep diversified.
My undisciplined approach has led to an ISA portfolio which currently looks like this:
ALLIANCE PHARMA 0.64
ASSURA PLC 1.62
AVIVA 2.75
BAE SYSTEMS 3.82
BARCLAYS 1.83
BHP 3.10
BP 4.96
BRITISH LAND 2.76
BT GROUP 1.19
CHESNARA 2.61
DIAGEO 4.26
ELEMENTIS 1.36
GLAXOSMITHKLINE 4.37
GLENCORE 1.13
GREENE KING 2.48
GVC HLDGS 0.84
HSBC 4.14
LEGAL GENERAL 5.46
MELROSE INDUST 2.54
NATIONAL GRID 3.07
PHOENIX 3.09
PRIMARY HEALTHCARE 1.61
PRUDENTIAL 3.59
ROYAL DUTCH SHELL 5.80
SSE 2.14
TATE LYLE 2.47
UNILEVER 6.41
VODAFONE 2.98
LLOYDS 2.61
MARSTON'S 2.11
MONDI 2.37
SERCO 0.98
SMITH(DS) 2.42
WILLIAM HILL 1.17
Cash 5.31

Sorry, not sure how to get the table function to work.

[Rituximan]

I forgot to add that another area in which I have had some luck has been property. There were a couple of properties that I bought cheaply and then renovated and eventually made quite a bit of money on. That was not a strategy that I was particularly attracted to - I bought cheap properties out of necessity as I couldn't afford anything else, and lived in them while doing them up. That was messy and not terribly enjoyable, but I made enough money to be able to live mortgage free, and it provided me with cash for the ISA. At one point I was made redundant and had to relocate with a new job which meant renting out a house and I discovered that tenants can be quite demanding. All in all, investing in shares just seemed like a lot less hassle.

[Alaric]

All in all, investing in shares just seemed like a lot less hassle.

Even outside an ISA or SIPP, Capital Gains Tax can be much easier to handle with shares.

[TUK020]

TUK - interesting stats. I just wish I'd had access to my pension from the mid-80s - really good times up until
the Millenium. Been a whole lot more difficult since then. My stats versus yours show a marked difference in
2003, when I had a really good time buying the Splits ZDPs - a subject on which I've posted before, I think on
the Bonds & Prefs thread.

YOU ……………………...…. ME

Skyship,
these are not my stats - I was quoting an earlier posting from TJH, who is one of the veteran investors who posts on this site.
TFH has been investing for a long time, has kept detailed records, and is willing to share the info.
He has also created an interesting evolution of the High Yield Portfolio (from the original Bland Annuity Substitute), which involves disciplined top slicing/top up to re-balance his portfolio. And this has worked well for him.
I read his posts with care, as I believe I have a lot to learn from him.
tuk020

[sunnyjoe]

I've shown this a few times now, and it is the annual IRR for my portfolio since 1987:

Yr to 05 Apr   Annual IRR
        1987             
        1988       -6.23%
        ...
        ...
        2018       -3.20%
        2019        8.19%

There are ups and downs, and looking at my accumulation unit values, I get the following results for the periods since the date given to date:

Since        Acc Unit   IRR   
31-Dec-98        5.89    7.51%
...
...
31-Dec-18       24.06   15.26%

Recent years not that auspicious, but if you go back 10 years, the figure is achievable.

TJH

I wish I had a time machine so I could tell my younger self to start investing in 1987.

Are any of the above IRRs calculated on the whole period 1987 to present?

[gbjbaanb]

Sorry lads; but for anyone with a reasonable knowledge of Markets; and Rituximan's ISA positions suggests more knowledge than he is letting on IMO

Not necessarily, he coudl easily have just shoved as much money in there as wsas allowed and bought a tracker. 8% over a time between crashes is perfectly reasonable without any knowledge whatsoever. (of course, will it remain 8% over the next year is another matter!)

[tjh290633]

I wish I had a time machine so I could tell my younger self to start investing in 1987.

Are any of the above IRRs calculated on the whole period 1987 to present?

The IRR from inception in 1987 to the present day is 9.6%. The figures in the second table in my post viewtopic.php?p=244301#p244301 are from the dates shown to the present day, so give an indication of what I had achieved from, for example, 30 Dec 1999 at the height of the dot-com boom, which is 7.09%.

Regarding inflation, the following table shows the RPI alongside the values for income unit value, income unit dividends, accumulation unit values and the index values for the whole period:

.            Income Units              Accumulation                  April
Year to      Unit Value     Div/Unit   Unit Value     FT30   FT100   RPI  
21-Apr-87            1.00       0.00           1.00   1.00    1.00   1.018
05-Apr-88            0.91       2.86           0.94   0.92    0.91   1.058
05-Apr-89            1.18       2.72           1.28   1.10    1.05   1.143
05-Apr-90            1.21       4.24           1.40   1.13    1.14   1.251
05-Apr-91            1.34       5.42           1.69   1.28    1.26   1.331
05-Apr-92            1.30       7.52           1.75   1.24    1.26   1.388
05-Apr-93            1.51       6.91           2.13   1.44    1.46   1.406
05-Apr-94            1.70       6.27           2.50   1.65    1.65   1.442
05-Apr-95            1.66       7.48           2.55   1.57    1.62   1.490
05-Apr-96            1.95       7.38           3.13   1.80    1.90   1.526
05-Apr-97            2.16       8.40           3.62   1.85    2.21   1.563
05-Apr-98            3.31      10.00           5.72   2.45    3.05   1.626
05-Apr-99            3.44       8.46           6.12   2.47    3.21   1.652
05-Apr-00            3.32      11.33           6.13   2.42    3.35   1.701
05-Apr-01            3.29      12.42           6.32   2.05    2.89   1.731
05-Apr-02            3.37      13.02           6.76   1.65    2.69   1.757
05-Apr-03            2.29      12.10           4.85   0.85    1.85   1.812
05-Apr-04            2.92      13.38           6.56   1.22    2.25   1.857
05-Apr-05            3.46      13.06           8.10   1.33    2.51   1.916
05-Apr-06            4.30      17.42          10.57   1.68    3.06   1.965
05-Apr-07            4.91      19.42          12.63   1.90    3.31   2.054
05-Apr-08            4.14      24.32          11.21   1.58    2.93   2.140
05-Apr-09            2.28      21.17           6.46   0.87    2.01   2.115
05-Apr-10            3.69      11.06          10.86   1.33    2.91   2.228
05-Apr-11            4.16      16.71          12.76   1.43    3.03   2.344
05-Apr-12            4.40      17.73          14.19   1.33    2.96   2.408
05-Apr-13            5.27      21.83          17.01   1.54    3.29   2.476
05-Apr-14            5.34      23.05          18.88   1.75    3.38   2.557
05-Apr-15            5.91      24.98          21.84   1.91    3.47   2.580
05-Apr-16            5.92      22.67          21.72   1.79    3.17   2.614
05-Apr-17            6.62      26.21          25.47   2.10    3.76   2.706
05-Apr-18            6.12      33.19          24.66   1.79    3.62   2.797
05-Apr-19            6.35      31.25          27.04   2.10    3.82   2.856

They all start at unity, except for the dividend per unit, which are actual figures in pence per unit, and the RPI, which starts at 1.018 having been unity on 1st Jan 1987 when divided by 100.

It does not give you inflation adjusted figures, but you can see the figure for inflation alongside the relevant figure. Note that the dividend per unit includes special dividends in this case. The one laggard against inflation is the FT30 Index, which few think about these days.

One factor to consider is that there were only 3 shares in the portfolio at the outset, rising to 37 at the most and 35 currently. Also that the figures relate to my unit values, whereas the upper table in my original post refers to the actual portfolio value. Because of occasional withdrawals and inputs of capital, the unit values give a better or more realistic picture.

TJH

[SKYSHIP]

tjh - you tecchie you - great presentation there.

Personally I almost never exceed 20 stocks - that versus your current 35.

Are your higher counts due to uncertain times and less conviction plays?

I also note you are perhaps under-represented in the better performing Small Caps; and to my mind seriously under-represented in REITs and Private Equity. So how do you arrive at your portfolio players?

[tjh290633]

tjh - you tecchie you - great presentation there.

Personally I almost never exceed 20 stocks - that versus your current 35.

Are your higher counts due to uncertain times and less conviction plays?

I also note you are perhaps under-represented in the better performing Small Caps; and to my mind seriously under-represented in REITs and Private Equity. So how do you arrive at your portfolio players?

Happenstance, really. Initially I gradually built up to about 12 or so shares. Then ICI demerged Zeneca and Hanson began to split up, giving me 4 more shares, but USI and Millennium Chemicals were small in value and were sold, Imperial Tobacco and The Energy Co were retained. BG demerged Centrica, but I didn't keep it. GEC became Marconi, with some BAE Systems thrown in. Add to this Halifax demutualised and I added Tesco and Whitbread as the final step in this stage.

Now PEPs were replaced by ISAs, and I could not combine them, so I decided to avoid duplication and had a separate group of shares in the ISA, giving another 6. I had a single company PEP with Granada, which merged with Compass and then split, and this was merged into the main PEP. Bass in the ISA split, BHP Billiton split off South32 and Reckitt Benckiser split off Indivior. That got me up to 37 shares, then Carillon vanished and I sold Indivior, leaving me with current 35. A lot more happened along the way, but you can see that it growed like Topsy.

I've had something like 70 holdings altogether, many being taken over and more being sold because of low yield. The whole saga would be a small book, I'm afraid.

TJH

[Rituximan]

I obtained a pension summary and found that it is £182.11 a week, which came with a note saying ‘This is the most you can get’. I also discovered that the date on which I will start receiving my state pension is ten months after my 66th birthday. All the correspondence I have received from the pension people over the years has led me to believe that I would start receiving my state pension on or about my 66th birthday. But it says clearly that my pension age is 66 years and 10 months, and I double-checked that using the pension age calculator on the gov.uk site. That was a bit of a surprise.

From looking at some of the boards on here, I can see that in addition to equities, investment trusts regularly feature in retirement investing, but so far I have not read too much about the use of ETFs. That could be because I still have a lot of reading to do on here, but I was wondering if there might be reasons for preferring investment trusts over ETFs or vice versa? I have read most of Lars Kroijer's book now, and that seems quite keen on ETFs.

[Alaric]

I was wondering if there might be reasons for preferring investment trusts over ETFs or vice versa? .

The active v passive debate is part of it. Apart from very rare exceptions, with an IT the fund managers select the stocks they buy by hand. With an ETF, the portfolio make up is dictated by the index it follows. For example an ETF following the FTSE 100 would select stocks that replicated a portfolio made up of the top 100 stocks weighted by market capitalisation.