Looking for insights

[BennGunn]

Hi All

I have a pretty well diversified portfolio, roughly 50/50 tracker funds and bonds (split between govt/corp and long/short term) the portfolio is probably a little overcomplicated comprising 10 separate funds.

This year I'm going to make a contribution of approx 100K and I'm debating whether to continue the previous strategy and invest in the same proportion across the existing portfolio or make a more targeted investment skewed towards bonds or equities.

Appreciate a bit of personal information would help here. I'm currently married, 60, with a portfolio of approx £1m and have 3 years spend in cash, additionally we have a small DB pensions that pay £12K pa currently and will pay £20K at 65, we both have a full state pension forecast and have outgoings of about £38K per year

Some thoughts I'm wrestling with

Bond returns have been awful for the last 2 years are they likely to recover in a 3-5 year timeframe
Most commentators forecast higher than normal inflation for a few years to come, will that suppress stock valuations so make stock market trackers a poor choice

Any thoughts or insights appreciated

[ursaminortaur]

Hi All

I have a pretty well diversified portfolio, roughly 50/50 tracker funds and bonds (split between govt/corp and long/short term) the portfolio is probably a little overcomplicated comprising 10 separate funds.

This year I'm going to make a contribution of approx 100K and I'm debating whether to continue the previous strategy and invest in the same proportion across the existing portfolio or make a more targeted investment skewed towards bonds or equities.

Appreciate a bit of personal information would help here. I'm currently married, 60, with a portfolio of approx £1m and have 3 years spend in cash, additionally we have a small DB pensions that pay £12K pa currently and will pay £20K at 65, we both have a full state pension forecast and have outgoings of about £38K per year

Some thoughts I'm wrestling with

Bond returns have been awful for the last 2 years are they likely to recover in a 3-5 year timeframe
Most commentators forecast higher than normal inflation for a few years to come, will that suppress stock valuations so make stock market trackers a poor choice

Any thoughts or insights appreciated

Fixed rate bonds don't do well in a high inflation environment. Indexed linked bonds offer some protection against inflation but unless you can buy them at issue which most retail clients can't you will probably pay more for them than their redemption value and so again won't do particularly well.

Over the long term a diversified share portfolio will generally outperform inflation but there can be a fair amount of short term volatility. Tracker funds are a simple way of constructing a diversified portfolio and you can of course by selecting different trackers diversify both geographically and by sector.

As far as the UK is concerned stocks are generally seen as cheap but of course there is no guarantee that things will improve in the short to medium term

https://www.cityindex.com/en-uk/news-and-analysis/are-the-ftse-100-and-uk-stocks-undervalued/

UK stocks are certainly cheap compared to counterparts over the Channel and the Atlantic whether you look at the trailing or forward price-to-earnings ratio. It trades at a PE ratio of below 11.0x on both counts, lower than its European counterparts and around half of what we are seeing over in the US.
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The FTSE 100 is also trading at a huge discount compared to its historic average considering the index has traded at an average trailing PE ratio of 14.9x over the last five years and 16.3x over the past decade. European indices are also trading at a discount, but a smaller one than what the UK is experiencing, while US indices are all trading above their 10-year average.

Currently, brokers have Buy ratings on 51 of the stocks in the FTSE 100 and Hold on 48, with just 1 Sell on ABRDN. That suggests analysts see limited downside potential from the index and suggests there is upside to the current outlook.

Still, it may prove difficult for the FTSE 100 to outperform in the current environment. The defensive nature of the index may reap rewards if the market’s minds shift from concerns over rising interest rates and inflation to worrying over a recession, while a revival in economic growth would also bode well.

Lacking that, the FTSE 100 is likely to keep underperforming. However, last year also showed us that the FTSE 100 can hold up well during tougher times relative to other indices, suggesting downside potential is restricted despite the uncertain economic outlook.

[mc2fool]

Indexed linked bonds offer some protection against inflation but unless you can buy them at issue which most retail clients can't you will probably pay more for them than their redemption value and so again won't do particularly well.

The vast majority of index linked gilts are currently available for below par, and there's been lots of discussion on them recently on TLF, mostly (although not only) on the Gilts and Bonds board. viewforum.php?f=52

[xxd09]

My thoughts a little further down the line -I am 77 years old -20 years rtd with a very similar set up to you
A million pound balanced portfolio like you currently possess should provide you easily £30000 pa -probably even more without reducing your capital
Combined with your current £12 k that easily covers your income needs of £38000 pa
You then have 3 increasing income streams appearing -2 State Pensions and an increase from £12 to £20 k
You will have to keep within your current expenditure till 65 then things look even more secure
Retiring into a recession is the retirees nightmare but you seem well prepared with 3 years cash for living expenses and a sound investment portfolio
We have had 2.5 years of tough times so hopefully things will start to improve in a year or two and your retirement will be into an improving stockmarket
If you want to simplify your investments -a guide is a global equities index tracker and a global bond index tracker hedged to the pound-ie 2 funds only
Hold your nerve and stay the course -you have done everything right investmewise so far and hopefully the worst of the stockmarket drop is over
Of course if the worst comes to the worst retirees have to tighten their belts and accumulators have to keep working but if the stockmarket behaves as it usually doe then you should be OK
xxd09

[monabri]

Indexed linked bonds offer some protection against inflation but unless you can buy them at issue which most retail clients can't you will probably pay more for them than their redemption value and so again won't do particularly well.

The vast majority of index linked gilts are currently available for below par, and there's been lots of discussion on them recently on TLF, mostly (although not only) on the Gilts and Bonds board. viewforum.php?f=52

And well worth a good read, too!

[dealtn]

Hi All

...

Any thoughts or insights appreciated

Sorry but the first question I would be asking is what I (and wife) want to be doing with the rest of my life before looking at the portfolio and the next tranche. Without knowing that its impossible to answer.

Do you want to die rich and successful, or have maximum fun from what you have accumulated to date?

[JohnW]

Bond returns have been awful for the last 2 years are they likely to recover in a 3-5 year timeframe’

If interest rates stay put, yes shorter term bonds will recover by then but longer term bonds will take longer. Bonds are understandable; predicting what they’ll do is a fool’s errand because it depends on interest rates, inflation and corporate collapses. The experts opine, those who’ve followed their earlier predictions laugh. https://kahlerfinancial.com/financial-a ... now-either
You need to understand how bond duration relates to interest rate changes if you want to take an interest in the bonds or bond funds you hold. That can reduce your disappointment when bonds let you down.

Most commentators forecast higher than normal inflation for a few years to come, will that suppress stock valuations so make stock market trackers a poor choice’

Ignore the forecasters; right or wrong they’re in print to sell advertising copy. https://www.marketwatch.com/story/yes-1 ... e9103eb3f8
What do you think would be a better choice for stock investing than a well diversified cap weighted tracker? Of course, you might have enough money to not need to take the unpleasant risks associated with stocks, and stick to some assets a lot safer: annuity, cash, bonds.
You've still got time to read Hale's book Smarter Investing, although before you posed your questions it seemed like you were already on the right track.

[scrumpyjack]

Hi All

...

Any thoughts or insights appreciated

Sorry but the first question I would be asking is what I (and wife) want to be doing with the rest of my life before looking at the portfolio and the next tranche. Without knowing that its impossible to answer.

Do you want to die rich and successful, or have maximum fun from what you have accumulated to date?

Of course you can only do that if you know exactly how long you and your wife will live and in what state of health/care requirements etc.
Generally people don't want to get to the state of - oh my god, the moneys nearly run out!

So realistically one has to assume one will continue living for at least 20, maybe 30, possibly even 40, years after retirement and will continue to be a long term investor, although spending some to enjoy it.

[tjh290633]

Sorry but the first question I would be asking is what I (and wife) want to be doing with the rest of my life before looking at the portfolio and the next tranche. Without knowing that its impossible to answer.

Do you want to die rich and successful, or have maximum fun from what you have accumulated to date?

Of course you can only do that if you know exactly how long you and your wife will live and in what state of health/care requirements etc.
Generally people don't want to get to the state of - oh my god, the moneys nearly run out!

So realistically one has to assume one will continue living for at least 20, maybe 30, possibly even 40, years after retirement and will continue to be a long term investor, although spending some to enjoy it.

I concur with that comment. I've been retired for 25 years with the prospect of a good few more. Having more income than you need is no bad thing. Being able to draw on some of that surplus from time to time, reinvesting it when not required, allows you to do a lot more.

It would be nice to have enough income to cover costs of care, without having to rely on the proceeds of sale of one's residence, but that is probably beyond most of us.

TJH

[Adamski]

I'd second having a simple investment strategy, as given up trying to beat markets with picking stocks or funds. Having such a large portfolio assume your thinking also about inheritance and tax planning as well. The only investment of mine done ok v inflation last 18 months is the house, everything else losing money in real terms. But of course have to try and look very long term.

[tjh290633]

I'd second having a simple investment strategy, as given up trying to beat markets with picking stocks or funds. Having such a large portfolio assume your thinking also about inheritance and tax planning as well. The only investment of mine done ok v inflation last 18 months is the house, everything else losing money in real terms. But of course have to try and look very long term.

You may recall the exhortation to ignore variations in share price, provided that the dividends continue to be paid and hopefully continue rising. Reinvesting accumulated dividends enhances the dividend income and takes advantage of lower prices when the market has fallen. Not all shares follow the market and may rise considerably during a fall. This can lead to them becoming overweight, which in a 15 or 20 share portfolio l would put at over 10% by weight. At this stage I would trim them back below 10%, reinvesting the proceeds into shares with a higher yield. This situation is when you need to look at the share price. One of my holdings heading that way is BAE Systems (BA.) until it's recent large fall. I hope that it resumes its upward trend.

TJH

[1nvest]

Indexed linked bonds offer some protection against inflation but unless you can buy them at issue which most retail clients can't you will probably pay more for them than their redemption value and so again won't do particularly well.

The vast majority of index linked gilts are currently available for below par, and there's been lots of discussion on them recently on TLF, mostly (although not only) on the Gilts and Bonds board. viewforum.php?f=52

Around (over) 1% real as of recent from index linked gilts, and potentially very tax efficient, near net. £190K will buy 10 years of £20K net inflation adjusted income type return, that's all spent at the end of 10 years. Drop another £310K into a accumulation stock fund inside of a ISA, combined £500K, and if that £310K stock fund value accumulates at a 5% real rate over the ten years you end the 10 years with your inflation adjusted start date £500K amount still available. Whilst having had £20K/year net of tax income, inflation adjusted, no matter how high inflation might rise. There is some tax, but its minimal for low coupon yield index linked Gilts, of the order 0.125% interest, so on around £200K in gilts = tax on £250 interest (which at a 20% tax rate = £50/year tax). Gilts are also fully protected no matter how much is held, unlike banks where just £85K is protected. £20K/year inflation adjusted income relative to £500K = 4% type "dividend yield", guaranteed to be maintained in real terms, no variance. Whilst Index Linked Gilt interest is taxable, there's no capital gains taxation i.e. on the inflation+1% type price appreciation.

[1nvest]

Of course you can only do that if you know exactly how long you and your wife will live and in what state of health/care requirements etc.
Generally people don't want to get to the state of - oh my god, the moneys nearly run out!

So realistically one has to assume one will continue living for at least 20, maybe 30, possibly even 40, years after retirement and will continue to be a long term investor, although spending some to enjoy it.

I concur with that comment. I've been retired for 25 years with the prospect of a good few more. Having more income than you need is no bad thing. Being able to draw on some of that surplus from time to time, reinvesting it when not required, allows you to do a lot more.

It would be nice to have enough income to cover costs of care, without having to rely on the proceeds of sale of one's residence, but that is probably beyond most of us.

TJH

Cost of care might be around £60K/year. Average period within care is around 4 years I believe. Discount the £60K by £10K/year state pension type amount, and you're looking at £50K x 4 years = £200K type cost. A £200K portfolio might be drawn down/spent to cover the care home costs, with that draw down slowed by any dividends/real gains. Retaining the home for heirs can be a tax saving if being passed on to direct family. Sold and if you die relatively shortly thereafter then the house sale proceeds will likely be taxed more.

In many cases the first to fade will tend to be looked after by their partner at home. It's more typical for the longer survivor to be the one that ends up in a care/nursing home.

I would have thought that many hereabouts in the potential approach to needing care home placement might tend to have £30K/year+ state/occupational pension incomes, and probably north of £500K portfolio values generating perhaps another £20K/year income. Close to covering 'all-inclusive' care home cost. Affordable so-to-speak. The more critical cases, longer terms than 5 years, both partners going into care ...etc. and I believe the original £180K maximum cap BJ idea has been totally thrown out, directed instead to increased NHS funding/waste. Which makes the risk totally open ended. Council funded, all of ones own wealth spent, and its very hit and miss, a lottery within a postcode lottery. At the lower end and care/environment are atrocious, Council funded places you wouldn't wish upon your worst enemy. Partner in care since a young age for many years now, and potential many more (decades), mother also more recently moved into care - and the cash burn rate is intense. Was set for a comfortable retirement, but now run at around a £30K/year decline rate for just care funding alone, leaving nada for me. With a relatively frugal lifestyle, £50K/year total type decline rate, but where, bluntly speaking, the prospect for 92 year old mum in care is a relatively finite window period.

One annoyance is where they sit beside others who are funded, pay very little. You scrimp and save, go without for decades, to be levelled to care-free others who lived it large, where as you have 'assets' there's no additional support, in contrast to they also getting their rent paid, pension credits, universal credits ...etc.