As a number of you were kind enough to appreciate the one last year, here is my 2018 update. You can find out more about the history and 'philosophy' behind the retirement portfolio here: https://www.lemonfool.co.uk/viewtopic.php?f=56&t=4636&p=46690&hilit=Shelford#p46690
This post will be more of interest to readers who are approaching retirement, or who have recently done so, and my 'lessons learned' are more relevant to them possibly than those at earlier stage of their investment journey. Though see my 'regrets' below.
With two years to go before retirement, my concerns now are increasingly less about capital appreciation, & more around preservation, reallocation of assets/diversification, sustainability of income, and tax optimisation.
I attach at bottom the portfolio breakdown by capital and income. The fixed income portion is overstated insofar as it includes two small company pensions. For convenience, I'm treating these as 'fixed income'. In practice, they will grow with RPI.
Some personal context
I’m 2 years off retirement. I'm mortgage-free other than a sum against a BTL. I’m married, but my wife is younger than me and anticipates working a bit longer. I have children whose longer term needs are provided for.
I am no longer actively paying into my SIPP, due to the lowering of the tax threshold to £1m from April 17. I am continuing to fund my ISA however over next 3 years, up to the annual limit of £20K.
Anticipated method of taking the pension in first few years: drawdown or UFFPLS or mixture of both
Platform provider: Hargreaves Lansdown
Annual platform fees: c £300 (0.03% of portfolio value).
Changes since last review
Value of portfolio: has increased by just under 8% over the year to £1.1m. Within this, the SIPP increased by 6% to £981K. Over the past 8 years, average annual growth before pension contributions has been 11% per year.
I'm OK with the lower growth rate in overall, given the reallocation away from UK equities to other asset classes including corporate bonds, renewables and property.
Current issues on my mind
Cash: I'm building a reserve fund to ensure that when I take an income from the portfolio there's a cushion to absorb any stock market falls. Clearly there is a wide range of acceptable 'cushions'. I would feel comfortable with an immediate access fund of six months' income, roughly £25K in my case, and 18 months worth in longer term fixed rate accounts, so a round £100K in cash. This sounds (and also feels...) a bit high given my emphasis on equities to date, but is probably sensible in the next turbulent year or so of post-Brexit Britain.
Asset allocation: new cash (invested into my ISA as my SIPP is knocking on the LTA) is going into investment trusts largely with the aim of ensuring a well-diversified portfolio, and little hassle in retirement.
Information: I use Hargreaves Lansdown. The habit of saving over the past 10-15 years has been a great one, but now I need to get my head round the fact I will shortly no longer be accumulating wealth, but spending it. I am probably spending too much time thinking about the value of the fund overall. Too much time checking it on the good app the platform provider gives. Perhaps I should delete it from my phone! I suspect I'm not the only person approaching retirement who has experienced this mild form of angst.
Tax: when I come to take my pension, I have the option of taking income from two smaller DB company pensions. I will need to work out whether it will be better to dip into these early (I will retire at 55), or withdraw from my SIPP. I suspect working out the best tax implications for me may be beyond my limited ability to understand the arcane rules of HMRC. Advice welcome.
I've had a few. But not many. I've never regretted wrenching away my pension to run it myself - the best financial decision I've ever made. Frankly, a muppet could have done a great job with my capital over the past decade given the benign conditions. But given it's a reasonable performance, I'm glad that any benefit in terms of reduced fees has been to my benefit, rather than an over-paid adviser.
I have regretted not being more beady-eyed about the LTA limit. The combo of Brexit and Trump caused a big bump in the capital value of my portfolio, so I expect to be paying a higher tax rate on a portion of the pension in retirement. I appreciate this limit is not a concern for many readers. It is surprising however how many middle-class professionals will be affected longer term - any headteacher or GP for instance with 20 years service investing a sensible level of their income in their pension - we are not talking Bill Gates wealth levels here.
I have regretted not maxing out the ISA limt (and PEP before). I am now. Whilst I did use these vehicles, I have cashed them out in the past to buy a house etc. With hindsight, I would have retained them, and borrowed more at the ultra low level of interest rates. However at the time I was not to know that Lehmans would go bust and UK mortgage rates would go to a 200 year low, so I shouldn't cry over spilt milk.
Portfolio capital and income splits are as of 1 May 2018. Individual investments beneath. Since then, I've sold down around 90K of my UK equities (I'll detail these in May 2019 update), in favour of cash and other non-equity investments. The UK equities referred to below largely comprise a HYP (see my recent post on the HYP strategy board).
Summary portfolio breakdown: capital value | | | | Current income breakdown |
Asia Equities | 71,134 | 5% | | 3,861 | 6%
UK Property | 73,684 | 5% | | 4,427 | 6%
XUK Property | 28,968 | 2% | | 649 | 1%
Infrastructure | 73,040 | 5% | | 3,928 | 6%
Fixed Income | 545,213 | 36% | | 25,776 | 38%
Commodities/Mining | 53,453 | 4% | | 2,301 | 3%
Europe Equities | 97,682 | 6% | | 5,755 | 8%
US Equities | 17,892 | 1% | | 403 | 1%
UK Equities | 394,760 | 26% | | 16,501 | 24%
International Equities | 104,105 | 7% | | 4,188 | 6%
Private equity | 10,446 | 1% | | 57 | 0%
Renewables | 10,291 | 1% | | 618 | 1%
Cash | 42,399 | 3% | | 0 | 0%
| | | | |
Portfolio value | 1,523,067 | | | 68,464 | 100%
| Current holding | % of portfolio
HFEL | 59,441 | 3.9%
iShares plc DJ Asia/Pacific Select Dividend 30 | 11,693 | 0.8%
Cash | 42,399 | 2.8%
Blackrock commodities | 28,056 | 1.8%
EAT | 49,380 | 3.2%
Henderson Diversified | 29,556 | 1.9%
Vanguard UK Gilt | 24,376 | 1.6%
CQS New city HY Fund Ltd | 51,288 | 3.4%
Royal London Extra Yield | 34,816 | 2.3%
iShares corporate bond | 48,802 | 3.2%
Invesco IPE | 46,644 | 3.1%
DB Pension no. 1 | 87,500 | 5.7%
DB Pension no. 2 | 125,000 | 8.2%
iShares VI plc Global High Yield Corp Bond GBP Hedged UCITS ETF | 48,807 | 3.2%
Ecclesiastical PIB | 10,281 | 0.7%
Skipton BS PIB | 8,520 | 0.6%
Coventry Building Society PIB | 8,240 | 0.5%
Nottingham Building Society PIB | 12,500 | 0.8%
Vanguard EM bond ETF VEMT | 8,883 | 0.6%
HICL | 43,584 | 2.9%
Sequoia Economic Infrastructure | 14,993 | 1.0%
Middlefield Canadian | 14,463 | 0.9%
Murray International | 50,953 | 3.3%
Vanguard Funds plc FTSE All World High Dividend Yield | 53,152 | 3.5%
Blackrock mining | 25,397 | 1.7%
Woodford Patient | 10,446 | 0.7%
Princess Private Equity | 48,302 | 3.2%
John Laing Envrionmental Assets | 10,291 | 0.7%
UK Equities | 394,760 | 25.9%
Standard Life UK property | 30,096 | 2.0%
British Land | 13,888 | 0.9%
Regional REIT | 14,700 | 1.0%
AEW REIT | 15,000 | 1.0%
iShares plc MSCI USA Dividend IQ | 17,892 | 1.2%
FTSE EPRA property | 28,968 | 1.9%