Help for lazy all weather portfolio

[TimR]

I am reviewing my portfolio of investments which has evolved into a bit of rag bag of holdings following being made redundant a few years ago... My overall (ISA & SIPP) asset allocation is very high in equity ETFs.. I am 63 years old with modest 18K pa DB pension (index linked) in payment.. I am also currently working part-time earning about £10k pa until my state pension starts in 2.5 years time (January 2020).. We live in the North West in a house worth 430 K with mortgage is fully paid off.. My wife (Age 56) works part-time and earns about 10 K pa.. My Wife has several small pension pots with different companies worth in total about £70 K...
We have a 15 year oid daughter at home and also have a 24 year old daughter working London living in rented accommodation.

SIPP & ISA Platform:-

Equity Allocation (total £620 K):-
USA ----- 38 % ----- -(-VUSA -- + --- about 1/10th in smallcap etf ISP6-)
UK ------- 11% ----- (-VUK ----+ ---- ¼ in SLET---+ ---- ¼ in VMID-)
Euro ----- 19% --- - (-VERX -- + ----about 1/3 rd in Stoxx50 etf XESX-)
Japan ----- 7% --- -- (-VJPN---+---- about ¼ in Inv trust JFJ-)
APac ----- 7% ------- (-VAPX---+-----about ¼ in Inv trust HFEL-)
EM ------- 10% ----- -(-VFEM---+ ---- about ¼ in Inv trust TEM-)
Value ------8% ------ (-Vanguard VVAL )

Quality Bond ETFs (total £35K)
IS15 + (EM Sov etf SBEG)

High Yield Bond ITs (total £35K)
HDIV + NCYF+ IPE

Commercial Property ITs( total £20K)
Standard Life SLI

Wife & my instant access Cash ISAs (total £90K)
(0.6% interest rate)

ASSETS OUTSIDE TAX WRAPPERS :-

Legacy Shares (total £30K)
RDSB – 5K
National Grid – 5K
Severn Trent water – 14K
BT – 3.5K
Lloyds – 1.5K
Pets at home 1K

Separate Emergency Cash Fund - £40K
(Instant Access Santander, Tesco, Lloyds - 1.5% – 3% interest rate)

I was thinking of :-
Reducing the amount in CASH ISAs (£90K) earning a low interest rate of 0.6%
Opening a SIPP for my wife and consolidating the several small pension pots
Selling my remaining legacy shares and putting the proceeds in the SIPP & ISAs
Diversifying into some more asset classes
Not sure whether to invest in proceeds ETFs or Investment Trusts - I want to rationalise the portfolio to be 'all weather' which is easier to manage.
I think my overall Equity allocation may be quite high for my age ?

All comments welcomed !

[BreakoutBoy]

In all honesty, In your position I would be thinking along these lines: I would sell the whole lot, put it all in LifeStrategy60. Cheap, simple and probably just as effective as the current "ragbag". Time is short now, too short to be messing around with beating the market.

I would keep maybe 20k in cash as a buffer. What on earth sort of emergency requires much more!??

I would then take the wife and family away and have fun fishing, sailing or dancing depending on the mood

I would also start giving money away as IHT could be a £100k problem for your kids if you try to hang on to it all. Make a will, and try to get stuff inside the SIPP wrapper (written in trust) as this is outside the estate. Your wife will need a will also, as there is a high chance she will inherit the assets first, and the combined net worth on her death will likely be over the IHT threshold of planning is not undertaken.

I would start with filling up ISAs or a JSIPP for the youngest, make provision for her education, and offer some of the excess cash to the 24 year old for a house deposit, ensuring it passes through her LISA to collect the 25% free money. Give the next generation basically, or give it to HMRC.

That's just me though. I am not qualified to advise you. But that's the way I would be considering handling things.

[TimR]

In all honesty, In your position I would be thinking along these lines: I would sell the whole lot, put it all in LifeStrategy60. Cheap, simple and probably just as effective as the current "ragbag". Time is short now, too short to be messing around with beating the market.

Thanks for the reply - it is good to get a different perspective on my position.
I agree LifeStrategy60 would be the easiest option but my ISA & SIPP platform charges are similar to HL (ie 0.45% for funds & capped for shares) so to avoid the hassle of moving platforms I went for the lower costs of holding ITs and ETFs a couple of years ago.

Consequently I was thinking along the lines of holding about eight IT's such as Luni's B7 / B8 portfolio or Gadge's Global Income portfolio or a Global portfolio of eight Regional ETFs and leaving it alone.

I think one of either Luni's or Gadge's IT portfoiio's should be easier for me to manage as they are already 'managed', however I believe an ETF portfolio should give a higher overall return due to lower costs but needs more work in considering regional weightings, rebalancing and asset allocation - I agree "time is too short now with messing round beating to market"

[OLTB]

I am 63 years old... I think my overall Equity allocation may be quite high for my age ?

Hi TimR

The ONS information on life expectancy here https://www.ons.gov.uk/peoplepopulation ... 2015-11-04 (which I think are the latest statistics) highlight that a 65 year old (slightly ahead of you) could expect to live until age 84.

Not knowing your own, or your family history of health, but assuming it's in-line with the average, this gives you a good 21 years (based on current age) of future investment potential.

I think an investment timeframe of 21 years is pretty well suited to equities, depending on your appetite for risk of course.

Cheers, OLTB.

[TimR]

I am 63 years old... I think my overall Equity allocation may be quite high for my age ?

The ONS information on life expectancy here https://www.ons.gov.uk/peoplepopulation ... 2015-11-04 (which I think are the latest statistics) highlight that a 65 year old (slightly ahead of you) could expect to live until age 84.

Not knowing your own, or your family history of health, but assuming it's in-line with the average, this gives you a good 21 years (based on current age) of future investment potential.

I think an investment timeframe of 21 years is pretty well suited to equities, depending on your appetite for risk of course.

Cheers, OLTB.

Thanks for the reply. Although my health is currently very good both of my parents died in their early 70's, so I've never thought I would live past 75.
Having said that my wife is 7 years younger than me and her parents lived well into there late 80's. My wife would also get my index linked DB pension if I died - but I don't think she would like to also manage a complicated Self invested ISA or SIPP portfolio.

Tim

[vrdiver]

Just a comment in terms of cash: for that part of your income not coming from a DB (or future State Pension) consider that the cash needs to cover a market collapse in dividends: imagine that dividend income halved and took 6 - 10 years to recover.... would your cash fill the gap?

You can make milder "worse case" scenarios, or tougher; I base my cash reserve on being able to hold my income steady with a 50% market crash followed by 10% recovery each year, returning to the previous level at the start of year 6. Any crash is extremely unlikely to follow that particular pattern, but it's a plan of sorts (along with the ability to cut discretionary spending if necessary). I also have excess income which should both grow the income by being reinvested, as well as replenish the cash reserve over time should such a scenario as above occur. What I don't want to do is become a forced seller in hard times!

[BreakoutBoy]

I make your total net wealth as a couple to be approx £1.73 million, allowing for an annuity valuation of x20 annual payout.

I think your smallest problem is running out of money. Your biggest problem is running out of time to spend it on meaningful things before you die, and secondly deciding on your legacy and arranging in order to avoid IHT.

A great position to be in!

[TimR]

Just a comment in terms of cash: for that part of your income not coming from a DB (or future State Pension) consider that the cash needs to cover a market collapse in dividends: imagine that dividend income halved and took 6 - 10 years to recover.... would your cash fill the gap?

Thanks for the reply - I believe that in the past that Gov Bonds & Quality Corporate Bonds were supposed to perform a hedge to cover a possible collapse in equities but with all the warnings about a possible collapse in Gov Bond values then Cash is probably best despite the low interest rates.
TimR

[Stanley117]

@TimR - Based on your Age I would expect to have a lower proportion of Equities and more Quality (Safe) and Corp Bonds. I would keep the Vanguard Regional Equity ETFs.

I would sell the remaining legacy shares, High Yield Bond ITs, Commercial Property ITs, Equity Investment Trusts and put the proceeds into very low risk Gov Bond ETFs such as GLTS and VGOV and low risk Corp Bond ETFs such as ERNS and ISi5 and then bring the Equity / Bond ratio down to a less risky level around 60/40 or below.

Stan

[tjh290633]

@TimR - Based on your Age I would expect to have a lower proportion of Equities and more Quality (Safe) and Corp Bonds. I would keep the Vanguard Regional Equity ETFs.

I would sell the remaining legacy shares, High Yield Bond ITs, Commercial Property ITs, Equity Investment Trusts and put the proceeds into very low risk Gov Bond ETFs such as GLTS and VGOV and low risk Corp Bond ETFs such as ERNS and ISi5 and then bring the Equity / Bond ratio down to a less risky level around 60/40 or below.

Stan

At his age of 63 I would have thought that to be a recipe for disaster. Moving out of equities into fixed interest is a strategy that was discredited almost 20 years ago. At the moment, fixed interest offers neither income nor the prospect of capital gains.

TJH

[Dod1010]

At age 63 you need equities. There is far too much nonsense talked about risk reduction as you enter retirement. It is probably the only way to preserve your purchasing power and stand a good chance of increasing your income. So if you do not want the trouble of individual equities (along the lines of a HYP portfolio) then I think you need to get a selection of equity ITs. Luni's baskets are as good a choice as any although I could enumerate those that I would use if you wish. I would though keep say two years of income you need from your investments in cash and probably more as, part of an asset allocation plan.

As for IHT you will probably be surprised at how little your estate need pay (or at least on the death of the survivor of your wife or you) because there are many allowances nowadays including the ability to transfer the deceased spouse's unused allowance (if indeed that is the case) plus the allowance for the family home being left to a direct descendant and so on. I would if you are updating your Will go over that with your solicitor who should be able to give you chapter and verse.

The only problem with using ITs exclusively is that not many of them have a decent yield and if you need that from your portfolio you need directly held equities (the usual suspects all mentioned on the HYP Board)

I speak from experience having held a selection of equities and ITs with a tiny amount of corporate bonds right through the 2007/8 crash and survived! I did not touch my rainy day cash.

Does that help?

Dod

[TimR]

At age 63 you need equities. There is far too much nonsense talked about risk reduction as you enter retirement. It is probably the only way to preserve your purchasing power and stand a good chance of increasing your income. So if you do not want the trouble of individual equities (along the lines of a HYP portfolio) then I think you need to get a selection of equity ITs. Luni's baskets are as good a choice as any although I could enumerate those that I would use if you wish. I would though keep say two years of income you need from your investments in cash and probably more as, part of an asset allocation plan.

Thanks for the reply. -- As described above my basic income is from an £18K pa (index linked) DB pension plus about £10k pa from part-time work only until my state pension starts in 2.5 years time.. I want my ISA and SIPP to generate further income and /or capital gains.. I wanted to try and keep my portfolio’s as simple as possible hence my interest in ETFs or a basket of Investment Trusts.. I had not considered a HYP so far but I understand this can provide the highest income stream but takes more knowledge and work.
I think I have too much cash in Cash ISA’s (in addition to emergency cash) earning a small interest rate of 0.6%.

Further comments welcomed !
TimR

[Dod1010]

If I were you (especially with the prospect of a decent DB pension) I would be inclined to use your cash to buy a few HYP shares (you already have some in your legacy shares and I would incorporate these into a HYP) and see how you get on. That should give you at least a 4% income with the prospect of increasing income and capital over time. It will not all be plain sailing but you have time to gain experience. Or if you want to be more conservative, buy a few ITs, but yes I would without disturbing anything else take the £90k and buy equities in some form. Equities are more risky but the likes of the infamous Carillion are not that common and if you are well spread (diversified) which you currently are you will be able to stand this sort of problem.

At your age I would not go into anything too conservative. You cannot know how long you or your wife will live and so you need to plan for at least 20 years, hopefully longer.

Dod

[Stanley117]

I would just keep the regional ETFs you already have and rebalance the weights to approximately the weights of Vanguard VWRL plus about 10% in Vanguard VWRL. Then you can add some Gov Bond and Corporate Bond ETFs to bring the Equity / Fixed Income ratio down to 70 / 30 or 60 / 40 according to your risk tolerance. The problem with HY shares and is that many have high valuations caused by the hunt for yield where as the following ETFs cover all share types and are more diversified around the world :-

Equity Allocation 60%
USA ----- ---- ---(Vanguard--VUSA --+--ISP6-)
UK ------- ----- -(Vanguard--VUK ---+-- VMID-)
Euro ----- --- - (Vanguard--VERX-)
Japan ----- --- -(Vanguard--VJPN-)
APAC----- ----- (Vanguard--VAPX-)
EM ------- ---- --(Vanguard--VFEM-)
10% Value ----- (-Vanguard--VVAL-)

Bonds 40%
Gov Bond ETFs such as GLTS and VGOV and Corp Bond ETFs such as ISi5 and SLXX

Stan

[Stanley117]

I would just keep the regional ETFs you already have and rebalance the weights to approximately the weights of Vanguard VWRL plus about 10% in Vanguard VWRL.

Sorry I meant to say 'plus about 10% in Vanguard VVAL' - not VWRL.

This type of regional ETF All world equity portfolio has been posted by more experienced investors previously on TLF and TMF sites, however I am not sure if they would agree with my choice of Bond ETFs.

Stan

[JNC3]

I
Equity Allocation 60%
USA ----- ---- ---(Vanguard--VUSA --+--ISP6-)
UK ------- ----- -(Vanguard--VUK ---+-- VMID-)
Euro ----- --- - (Vanguard--VERX-)
Japan ----- --- -(Vanguard--VJPN-)
APAC----- ----- (Vanguard--VAPX-)
EM ------- ---- --(Vanguard--VFEM-)
10% Value ----- (-Vanguard--VVAL-)

Bonds 40%
Gov Bond ETFs such as GLTS and VGOV and Corp Bond ETFs such as ISi5 and SLXX
Stan

Instead of using the above Bond ETFs which could introduce risk of 'Bond Bubble' loss why not use Defensive investment trusts such as Personal Assets (PNL), Ruffer (RICA), RIT Capital Partners (RCP), Capital Gearing (CGT), Miton Global (MIGO) and Seneca (SIGT) ?

[Shelford]

There's some good suggestions here.

A few of the posters here have a relatively high risk tolerance (like me). You may however want a lower mix of equities to fixed income.

You might consider looking at the Investor Chronicle investment portfolios, especially John Barron, who does baskets of ITs for different stages of investment life.

You should start with what income you both wish to enjoy in retirement, and work back from there. On the basis of the data you provide, you are looking at a joint income of £30K per year, but may need less in retirement depending on what you wish to do.

One thought: with cash enjoying such low interest for the foreseeable future, you might consider using your ISAs as a HYP vehicle, or for higher equity income trusts. There is no rush on this, as I assume you are not paying tax on dividend income given your salary. This break may or may not survive.

Beware of the charges inflicted by platforms on funds (HL especially).

[mickeypops]

Hi TimR, sorry for the late reply.

I'm the same age as you, and Mrs MP is 59, we're still working but planning to retire next June. My main portfolio (inside SIPPs) is a collection of ITs, more similar to Gadge's than Luni's baskets because of the extra diversity. I'm getting a blended yield of around 5% and have respectable capital gains over the last three years or so - I'm still adding monthly sums into the SIPPs and I can't be bothered unitising so I can't benchmark the performance.

These are with HL and so the fees element is one of the reason I'm in ITs - fees are capped at £200 per year. When we retire we'll be moving our DC funds with our employers into our SIPPs and buying more of the ITs. We intend to just withdraw the income, which will be on top of some DB pension income we have coming, and leave the capital intact, at least for ten years or so. Hence, I'm not worried about the capital value fluctuating.

Good luck!

MP

[TimR]

My main portfolio (inside SIPPs) is a collection of ITs, more similar to Gadge's than Luni's baskets because of the extra diversity.

Yes, Gadges income portfolio does look interesting. Like you my platform is capped for shares/ ITs/ ETFs and also makes OEIC funds not an option due to high % charges otherwise I may have gone for something simple like Vanguard Lifestrategy.

Because my equities are currently in Global regional ETFs the level of the pound can cause big moves in the capital value of the portfolio. I originally chose Global regional ETFs due to their lower charges and tax.

The level of the pound seems to have a bigger effect on my ETF portfolio value than changes in world share prices though. I previously searched John Barron's info for Bond and commercial property ITs to provide some stability in a sell off. Most Bond ITs are classed as High Yield though so I am not sure how much stability in a sell off they would provide in a sell off.

Do you know if any of the ITs in 'Gadges income portfolio' use currency hedging to stabilise currency movements ?

[nmdhqbc]

Wife & my instant access Cash ISAs (total £90K)
(0.6% interest rate)

Probably a minor point int he grand scheme of things but if you plan on keeping a reasonable amount of cash above the current accounts paying good interest maybe change this. Convert cash ISAs to share ISAs and put the cash into a normal savings account. Take time yearly perhaps to check for better deals, currently I get 1.3% in RCI. May need to spread that cash though if you have 90k still as I don't think it cover that much if they went bust. This way you shelter more profits from tax and I find the non-ISA savings accounts tend to have higher rates.