Stick or Twist

[Fairleas]

Help!!!
I'm 65. Retire from employment in 3 years. No debts. House paid for. Private pension £300pm Annuity £220 pm. Then its old age pension.
I have approx £100,000 mainly in ITs and Funds, including a few grand in shares. Nearly all dividend paying. In addition I have £200,000 in cash.
Question: Would you stick with one third in stocks and share and two thirds cash?
If not, what adjustment would you make?

I realise I have not bored you with what Investments I have.

[Dumbledore]

I think on this forum, they want all the gory details, lol. I am new to all this so cant help.

[77ss]

Help!!!
I'm 65. Retire from employment in 3 years. No debts. House paid for. Private pension £300pm Annuity £220 pm. Then its old age pension.
I have approx £100,000 mainly in ITs and Funds, including a few grand in shares. Nearly all dividend paying. In addition I have £200,000 in cash.
Question: Would you stick with one third in stocks and share and two thirds cash?
If not, what adjustment would you make?

I realise I have not bored you with what Investments I have.

Off the cuff, I would say that so much cash is a terrible idea. Stick at least 180K into stocks etc.

Depends upon your plans and responsibilities of course.

[Fairleas]

Gory deatails. Investments are today's value. No laughing please.

Salary £35000 grand PA
House £250000
Studio flat £70000 in France Income approx £3000 after tax

Funds
Fidelity Global Soec Sits £3700
Henderson Asian Dividend Income 1100
Twenty Four Dynamic Bond 1350
Vanguard U.K. equity income 4000
Vanguard lifestyle 100 Equity 900
Vanguard 80 UK 16900
Vanguard US equity index 15000
CF Woodford Equity inc 2400
CF Woodford Equity accum 4300
Jupiter India 2500

Shares
BP 1100
GSK 1200
M and S 900
She'll 3100
SSE 1000
Carnival 4400

ITs
City London 4300
CQS New City 1100
Dunedin Income growth 1250
European assets 1100
Finsbury 4100
Henderson high income 1600
Merchants 2600
Murray int 2800
Value and INC 1700
Aberdeen Asian INC 1000
Edinburgh inv trust 2400
Scottish American 2600
Temple Bar 1100

Thank you.

[spiderbill]

I'd pose three main questions:
1. Why are you waiting 3 more years to retire? Love the job or trying to maximise your savings?
2. How much do you spend currently and what do you expect to spend when you retire? (You don't mention kids or other dependents)
3. What do you plan to do when you retire - stay in UK, move abroad, travel, take up any expensive hobbies, etc.

Just thinking about those things may help you clarify your thinking and start putting some numbers on your plans and needs.

Certainly unless you have a pressing destination for all that cash I would be thinking of putting some of it to better use generating more income - even if it's only for the 3 years until you retire; that's an extra £30k @ 5% over 3 years if you invested the lot. Even if you only invested 2/3 of it it'd still be a useful addition, and then you can decide what to do with it when the big day comes if you're not sure now.

Personally I'd diversify the share portfolio a bit more but that's without knowing all the trusts and funds well enough to know what the spread is overall. You may already be happy with the latter and have a sense of where you would put the cash. The guys on the HYP board would probably tell you to buy income shares.

For myself I'd chuck the job now and enjoy life as much as possible before old age starts to restrict what I'm capable of. Indeed I'm retiring this year when I hit 62 and can still climb hills. Only you know what you'd like to do with your time, and that's the really important thing rather than the money.

cheers
Spiderbill

[Fairleas]

Thank you Spiderbill.

1. Love the job.

2. Wife, two grown up children, who flew the nest years ago. Currently spending just over 2k a month.
How much will I spend, plan to spend, when I retire? Good question. No previous experience on that one.

3. Stay in UK. Am well travelled. Well cruised. Be glad to stay home.

I need help on my portfolio. Balanced it isn't. I trust that somebody can point me in the right direction.

Enjoy your retirement.

[midgesgalore]

You have a decent chance to see how you might pull through into retirement.
If you want to keep working for the next three years then leading up to that point why don't you try to live off a larger fraction of your £35k salary using the numbers you say you expect as income, in retirement, and leave the rest of your salary aside (ramping up savings into your SIPP or ISA). That way you will know if you have a shortfall. Based on the property rental + pensions + state pension I expect that would be about £21500 before tax assuming a full NI contribution history and maximum weekly state pension. So about 2/3 of your current income.

You don't specifically say if your SIPP income is generated by the portfolio you shared or not (or if your portfolio is in addition). Neither do you say if you are already spending the rental income from your property in France as that adds up to a larger salary. I/we don't need to know the answers to those questions either - but you do.


Hope that helps

midgesgalore

[swill453]

I'm 65. Retire from employment in 3 years. No debts. House paid for. Private pension £300pm Annuity £220 pm.

Where is the annuity coming from? Is there anything you can do to avoid having to have it? For example, if it's from a defined contribution pension could you use income drawdown, from a SIPP for example, instead?

Scott.

[Fairleas]

Thank you for all replies. Trust there are more to come.

The rental from the flat is additional income. The annuity I believe is fixed and could not be changed, but I have not enquired. It is also a fixed payment, no annual increase.

I do not have a SIPP.

My largest investments are with Vanguard, so I will research again.

Where you are all being helpful, is where I am wondering if £100k in Investments and £200k in cash is the correct balance, you all disagree.

[baldchap]

Fairleas, I would add one comment if I may, and sorry if it puts a downer on things.

My own Father retired at 65, and had a life changing illness at 69. He certainly isn't enjoying retirement now.

So please think hard about how much you love your job. Maybe you would enjoy the next 3 years more at your studio apartment abroad rather than working?

It is a fine balance, the thought in my mind is always 'what if I run out of money?', but I still aim to retire as early as possible and enjoy life a little.

ATB
Bob

[BarrenWuffett]

Gory deatails. Investments are today's value. No laughing please.

Salary £35000 grand PA
House £250000
Studio flat £70000 in France Income approx £3000 after tax

Funds
Fidelity Global Soec Sits £3700
Henderson Asian Dividend Income 1100
Twenty Four Dynamic Bond 1350
Vanguard U.K. equity income 4000
Vanguard lifestyle 100 Equity 900
Vanguard 80 UK 16900
Vanguard US equity index 15000
CF Woodford Equity inc 2400
CF Woodford Equity accum 4300
Jupiter India 2500

Shares
BP 1100
GSK 1200
M and S 900
She'll 3100
SSE 1000
Carnival 4400

ITs
City London 4300
CQS New City 1100
Dunedin Income growth 1250
European assets 1100
Finsbury 4100
Henderson high income 1600
Merchants 2600
Murray int 2800
Value and INC 1700
Aberdeen Asian INC 1000
Edinburgh inv trust 2400
Scottish American 2600
Temple Bar 1100

Thank you.

First of all, with the markets hitting an all time high this past week, I would not be in any great hurry to be putting my £200K cash into the markets - keep the cash and wait for the inevitable downturn.

Secondly, unless you like holding the individual shares, I would sell them and look to reinvest in a more balanced global fund like Vanguard Lifestrategy 60 - again waiting for a pullback in the markets and/or a rise in sterling.

Finally, have a look at simplifying the trusts and/or cashing in a few chips with the equity funds - personally I would offload Dunedin Income, Merchants, Sc American, Value & Inc and Aberdeen Asian and hold the cash for better opportunities later this year or next.

Just my two penn'orth FWIW ..good luck!

[Fairleas]

Thank you. That does give me food for thought.

[forlesen]

You haven't stated what you and your wife's state pension figures will be. If you haven't already done so, you should check your entitlements here: https://www.gov.uk/check-state-pension

Once you know that, you can see how things stand, in terms of the gap (if any) between your current monthly expenditure (which does not sound that high, and should cover a reasonably comfortable retirement) and your likely retirement income.

It there is a gap, you will need to cover that with income drawn from your investments (either from dividends or top-slicing capital gains). There are many different opinions on how to go about that, with varying levels of risk. We know you have some £300K to play with, but it's not clear yet how much income you need that to produce. In your position, I would shape the investment approach differently depending on the size of the gap.

However, from the discussion and figures above, and making some possibly incorrect assumptions, I'd guess your income gap might be relatively small, e.g. £5K or less. In that case, you would only need a ~2% income from your investments. Your existing £100K of mainly income oriented stock market investments could well be producing most of that already. In that case, your income need from the remaining capital is very low, and you should be thinking about this in terms of long term protection.

With it all in cash, it is likely that over the long term, it will lose a lot of value due to inflation, particularly if you need some income from it. So I would look to invest more of it. That said, I personally would still retain a cash buffer of several years' income need. Having enough cash to carry you through a lengthy stockmarket downturn is a wise measure if you can afford it.

For the remainder, I'd suggest investing it with a view to building in further diversification and some degree of capital protection rather than just maximising yield. You might consider adopting some of the following, in addition to your current investments (NB: I'm restricting the list to things I use myself for these purposes):

• Low cost global index trackers (e.g. Vanguard FTSE All-World etc)
• Growth-oriented investment trusts (Your current selection looks fine, but is clearly income-oriented, e.g. F&C, Witan, Scottish Mortgage etc)
• Capital protection oriented ITs (e.g. Personal Assets, Capital Gearing, Ruffer, maybe RIT Capital Partners)
• ZDPs (I use these myself to some extent - they generate a modest but reasonably steady capital growth each year, but no income. They tend to be relatively immune from market falls, although there is still some capital risk.)

Beyond that, there are obviously many other types of investment I don't use / know much about, but might suit your needs, e.g. HYP, P2P lending, REITs, bonds, etc.

Finally, as BaronWuffett has just remarked, markets seem quite high, so you might want to invest your cash pile gradually, even though that is not mathematically optimal in a world where markets tend to rise over time.

Anyway, best of luck, whatever you decide. Do keep us posted as your decision process progresses!

[buzzzard000]

Help!!!
I'm 65. Retire from employment in 3 years. No debts. House paid for. Private pension £300pm Annuity £220 pm. Then its old age pension.
I have approx £100,000 mainly in ITs and Funds, including a few grand in shares. Nearly all dividend paying. In addition I have £200,000 in cash.
Question: Would you stick with one third in stocks and share and two thirds cash?
If not, what adjustment would you make?

I realise I have not bored you with what Investments I have.

Ok,

I'm no expert, but my approach has been to treat pensions as equivalent lump sum, before asset allocation.:
Check UK pension allowance (see link above) - Hopefully ~£8,000 pa, If less, consider buying additional NI years.
Add personal pension and annuity to Pension. As not index linked, I would discount by 50%. So £8,000 + 12 * £250 = £11,000 pa
Convert the into an equivalent lump sum (i.e. how much it would cost to buy the same at current rates). I would guess that 5% is wildly optimistic, so £11,000 / 0.05 = £220,000. For you, this is effectively a bond like investment and has a different risk profile to stocks and shares.

So, your effective total is:
£220,000 pensions.
£100,000 Shares + funds
£200,000 cash
£520,000 total

So you are currently ~ 80% Cash / pensions.

Based on what others recommend I would say that 40 to 50% bonds / pensions is more reasonable for long term growth, maybe higher to protect capital..

£220,000 is 42%, but is not accessible. I would add upto £40,000 as readily available cash (instant / 30 day notice ISAs) gives a safety buffer, and takes you to ~50% pensions / Bonds / Cash.

That leaves £260,000 to invest in shares / funds / ETFs etc.

Retired income,
£11,000 pensions / annuity (Closer to £14,000 initial, but not fully index linked).
Then assume 3% withdraw rate form the remaining portfolio: £3000,000 * 0.03 = £9,000 pa.
So, at the moment, I would estimate an index linked income of £20,000 pa.

Other things to consider:
Your wifes investments / pensions.
Is as much as possibly in tax shelters (if not, can you both pay maximum into ISA / SIPP over the next 3 years and live of none tax protected savings.)
29 individual investments at ~£3,500 each is a lot to keep track of (but possibly better posted to the portfolio review board).
Market timing / drip feed (are we at the top of a bubble)?

I have admitted defeat with share picking and gone 100% passive. I now have 6 funds in my ISA and SIPP, and a mirror 6 funds in my company pension.
Have a look at your management fees and see if you can reduce some costs.

I would recommend reading "Smarter investing" by Tim Hale and browsing the monevator blog.


All, I my opinion, but I would be interested to read any comments / corrections. I'm planning to write up my asset allocation now all my reballancing and transfers have settled.

Regards

Buzzz

[tjh290633]

I agree with the comments about far too much cash. I disagree with waiting for the market to turn down before you invest it. That could be several years ahead. Meanwhile you will have suffered the loss of the income that you might have had.

Where to invest it? Not in funds, in my view. Income generating shares or ITs, according to how you feel. I have an abhorrence of anything that uses the word "lifestyling". It has been a poor choice for over 20 years now, despite the rise in fixed interest stocks because of low interest rates. That must change before long, and there must be big losses in fixed interest stocks as a result.

Just remember that you will need a growing income after retirement and anything that does not potentially increase its payout is a dead loss.

TJH

[monabri]

Dead easy - just do what TJH does it seems to work for him (he's a newbie though with only 45 years of experience (or is it more?)). Go over to the HYP practical and have a mooch round there.

[tjh290633]

Dead easy - just do what TJH does it seems to work for him (he's a newbie though with only 45 years of experience (or is it more?)). Go over to the HYP practical and have a mooch round there.

I started in 1959, so it is almost 60 years now, one way or another.

I began with Unit Trusts but, had I known then what I know now, it would have been Investment trusts. Oddly my first fund was Investment Trust Units. £3 a month until 1967 when I increased it to £5 a month. Cashed out in 1977, when I needed a deposit for a house before ours was sold, and the rate of return over 18 years was about 5.9%.

I began to invest in shares a little when my mother left me three holdings in 1970, and I added some of the privatisation issues from BP onwards in 1979, BT.A in 1984 and BG. in 1986. Then PEPs were introduced and my conversion from funds to shares began. I still hold some funds just to keep a sense of perspective.

TJH

[Stanley117]

Help!!!
I'm no expert, but my approach has been to treat pensions as equivalent lump sum, before asset allocation.:
Check UK pension allowance (see link above) - Hopefully ~£8,000 pa, If less, consider buying additional NI years.
Add personal pension and annuity to Pension. As not index linked, I would discount by 50%. So £8,000 + 12 * £250 = £11,000 pa
Convert the into an equivalent lump sum (i.e. how much it would cost to buy the same at current rates). I would guess that 5% is wildly optimistic, so £11,000 / 0.05 = £220,000. For you, this is effectively a bond like investment and has a different risk profile to stocks and shares.

Hi Buzzz,

I found your analysis very interesting as I am currently trying to estimate the capital equivalent lump sum of my DB pension which is due to be paid soon and is £18,000 index linked. (Capital value estimate = £18000 / 0.05 = £360000)

I know this is only a very rough estimate but would you divide your pension income by 0.05 before income tax or after income tax is taken off
( eg a DB pension income of £18000 pa before tax would become £16,600 after income tax is deducted at 20% so dividing this by 0.05 = £332,000)

Which do readers think the best capital value for my estimate ? or am I being too pedantic !

Stan

[forlesen]

Stanley117,

The way I estimate the approximate value of a defined benefit pension is:

1. Look up current annuity rate data, e.g. here: http://www.ft.com/personal-finance/annuity-table

2. Choose the most appropriate age and benefit type, e.g. age 65, single life, increasing with RPI

3. This gives the amount of pension of that type that a sum of £100K purchases on the open market (assuming you are in good health etc)

4. To get the sum needed to purchase your pension, divide this figure (e.g. £3,120 currently for the example I gave at step 2) into your pension entitlement, and multiply by £100K

So, in your case (assuming age 65 is the correct age), this would be (£18,000 / £3,120) * £100,000 = £577K.

Note that income tax is not relevant to this calculation.

[DiamondEcho]

I think the portfolio list is perhaps over-complex, and potentially contains duplication. You might be able to manage the admin of such a portfolio now but as both you and it age you will IME become weary of the admin involved.

I also had a 'health interlude' some years back where I suddenly spent maybe 4-5 months in hospital, then rehab at home afterwards; I don't even remember now how long I was so out of it. I probably didn't check my portfolio and whether all was paid and correct for 6+ months. It was a *nightmare*! Luckily I recovered but either way I'd encourage people to streamline and simplify their investments ahead of retirement.